Speculative Earnings Play

Buy ATI While They’re Getting Crushed

By Bryan Bottarelli
Wednesday, April 25, 2007 10:03 AM EDT
Wed, 25 Apr 2007 14:03:00 GMT

Dear Bottarelli Research Member,

As the Dow crosses the magical 13,000 level, we have a unique earnings situation in one of my favorite stocks today — and I’d like to offer the speculative portion of our Charter Membership a way to play it. Here’s the run-down…

Allegheny Technologies (ATI – NYSE), which makes specialty metals and alloys, announced that their first-quarter profit came in at $1.92 per share versus $1.04 per share a year earlier. The analyst estimate was $1.83 per share, so ATI beat the Street by $0.09. But on the news, ATI dropped over $5.00 in early trading.

ATI

Keep in mind that ATI is a stock that I’m quite bullish on — and I consider any near-term stock dips as a call buying opportunity. Strong demand from the aerospace and defense industries pushed their order book to all-time record levels, and after reading their earnings release, it’s clear that their high performance metals segment, flat-rolled products segment, and their engineered products segment are all humming along at an impressive clip. The reaction to their earnings news looks like a classic “sell on news” situation — so I’d like to play off this knee-jerk selling by picking up the ATI June 115 Calls (ATI FC) on the cheap.

These calls were over $8.00 yesterday — but today you can pick them up for $5.80. Current bid/ask spread is $6.00 to $6.20, but let’s really push the ATI floor traders to their limit. Let’s enter a low-ball buy order at or under $6.00 and see if this order gets filled today. If not, we’ll reevaluate the position tomorrow.

PLAY: Enter a low-ball order to buy the ATI June 115 Calls (ATI FC) at or under $6.00, good for the day. If you get filled for this price, set a protective stop loss at $4.50.

In other positional news, we’re seeing some strong upside on our recent call plays. The STP June 40 Calls (STP FH) that you entered yesterday for $1.40 have traded as high as $1.85 today, good for an overnight 32% gainer. Let’s take the money off the table now!

STP

PLAY: Sell the STP June 40 Calls (STP FH) at or above $1.80, good for the day.

Also, the PEG June 90 Calls (PEG FR) that you entered for $3.40 have traded as high as $4.00 today, and the APC June 50 calls (APC FJ) that you entered for $1.05 have traded as high as $1.20 today. Let’s maintain each position for further upside.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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