Add PSA Puts

New 52-Week Lows in Range

By Bryan Bottarelli
Wednesday, July 18, 2007 10:34 AM EDT
Wed, 18 Jul 2007 14:34:00 GMT

Dear Bottarelli Research Member,

I’m back from my quick business trip with a new trading opportunity we can take advantage of right away. From the looks of the Dow chart, the major market averages could be set to take a breather — and that supports the idea of adding a new put position to the ledger. But of course, the major market averages continue to be strikingly resilient, so it’s critical that we continue to play both sides of the coin (via calls and puts).

INDU

But first thing’s first. I’m getting a downside signal on Public Storage (PSA – NYSE), and I’d like to take advantage of the crushing weakness we’ve seen in home builder stocks (not to mention home retailers like Home Depot) to make a quick play.

PSA

As you can see by the chart, PSA is stuck in a solid down-trend that looks to extend to new 52-week lows very soon. I’ve always maintained that PSA is an indirect U.S. housing play (since it’s the major storage outfit in the country), and if that’s the case, then PSA will certainly begin setting a fresh series of new 52-week lows. So let’s go ahead and add PSA puts now.

PLAY: Buy the PSA August 80 Puts (PSA TP) at or under $5.20, good for the day. Current bid/ask spread is $4.50 to $5.00. Place a protective stop limit at $3.00.

I also think it’s time that we exit the Tesoro August 62.5 Calls (TSO HU). The stock has certainly not called the 50-day moving average a support point, and this sparked a 2-day down-move that was not expected.

TSO

Although TSO bounced at these levels before, I’m no longer confident that the stock can rally the way it’s supposed to given oil prices pushing $75 per barrel. If this were the case last month, for example, the stock would have been a rocket ship to the upside. But something now is keeping the stock price depressed, so in cases like this (where an obvious warning flag is raised) it’s best to exit the position and move on.

I do have some call opportunities that could soon become plays (FWLT, MDR, CMI, ICE, PCU, BG, PCP, and POT make up that list, if you’re interested). But let’s let today’s early session action settle out before entering our next upside play. In the meantime, I’ll continue to closely monitor the mid-week action — and as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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