Two New Plays

Add CMI and HTE Calls

By Bryan Bottarelli
Tuesday, June 19, 2007 1:16 PM EDT
Tue, 19 Jun 2007 17:16:00 GMT

Dear Bottarelli Research Member,

I have two new calls plays for you today — one is a shorter-term position and the other is a longer-term position. Both look to hand you fantastic returns, so let’s get right into it!

The shorter term play comes in the form of Cummins (CMI – NYSE). I’ve been waiting to play calls on the worldwide diesel and natural gas engines maker for quite some time, but I never received the “buy” trigger that I wanted — until today.

CMI

As you can see by the chart, CMI has broken through the $100 level on two separate occasions — each of which have been followed by subsequent downside moves. But the important aspect is that each of these downside moves established support points at higher levels, making the continued case for an upside push in CMI. Throw today’s upside candlestick into the equation (fueled in part by a larger order from Beijing Public Transport Holdings) and it appears that CMI is on the verge of breaking through the $100 level once and for all. Let’s play this move using CMI July 100 Calls.

PLAY: Buy the CMI July 100 Calls (CDM GT) at or under $3.90, good for the day. Current bid/ask spread is $3.60 to $3.80. Place a protective stop limit at $2.00.

The longer-dated play comes in the form of Harvest Energy Trust (HTE – NYSE). Founded in 2002 and headquartered in Calgary, HTE is an open-ended investment trust that (through its subsidiaries) engages in the exploration, development, production, and sale of petroleum and natural gas. As of December they had net proved and probable reserves of approximately 189,894 million barrels of oil equivalent, which is probably why the stock chart has been so incredibly strong. Check it out:

HTE

To be honest, this chart by itself could warrant a new call play, but when you look at the options string, you’ll notice something quite intriguing. With HTE currently trading for $32.24, this means that the HTE August 30 Calls (HTE HF) are $2.24 in the money. When you look at the price of these calls, you’ll notice that they’re trading between $2.30 and $2.50 per contract. This is a remarkable price because it means you’re paying only $0.26 to carry this position into August. In my eyes, this play represents one of the cheapest ways to leverage the upside of the oil sector — and that’s why I’m recommending that we add this position to our ledger now. With oil prices approaching $70 per barrel, these calls could easily see their price premiums shoot aggressively higher, and this could equate into a really nice 1 to 2 month winner for you. Let’s get positioned now!

PLAY: Buy the HTE August 30 Calls (HTE HF) at or under $2.60, good for the day. Place a protective stop limit at $1.50.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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