Add BSC Puts

Plus, Buy More DRYS

By Bryan Bottarelli
Wednesday, August 01, 2007 9:57 AM EDT
Wed, 1 Aug 2007 13:57:00 GMT

Dear Bottarelli Research Member,

To say that there’s intra-day volatility in the market is an understatement. Yesterday, for example, the Dow was up 130 points in the morning — only to close the day with a 146-point loss. That’s a 276 point swing in one trading session. And this came on the heels of last week, which witnessed the Dow giving up over 500 points. Here’s where we stand right now:

As you can see, Monday’s 90-point advance has been completely engulfed by yesterday’s red candlestick formation, which signals that further downside action could be in the cards. But with such extreme price swings, we must be nimble. That means taking quick profits, playing smaller contract sizes, and withstanding some additional draw-downs in our open positions. That also means carrying an equally-weighted position of both calls and puts. Since we currently DRYS August 60 Calls (DQR HL) and DO August 105 Calls (DO HA) combined with BX September 25 Puts (BX UE), it looks like the time to add a new put to our ledger — and that entails going back to a trading tactic that’s worked well for us in the past: Puts on Bear Stearns Companies (BSC – NYSE).But first, let’s use this opening-session dip to add to our DRYS calls. The stock is down, but this could only be a momentary event. Let’s use this dip as a strong buying opportunity.

DRYS

PLAY: Add more DRYS August 60 Calls (DQR HL) at or under $2.50, good for the day. Lower your stop limit to $1.80.

Now back to BSC.As you can see from the chart, BSC have moved aggressively below both its 50-day and 200-day moving averages. This puts the stock in no-man’s land, where the next logical support point could come at $100 or even $85. It’s anyone’s guess.

BSC

BSC isn’t the only major brokerage house to display this chart pattern. The Goldman Sachs (GS — NYSE) chart is also showing the same formation:

GS

When you have situations like this (combined with a market showing the propensity to sell off at a moment’s notice) it’s a smart idea to add a broker put to our ledger. Both GS and BSC appear to be strong candidates, but since BSC has more capital tied into the sub-prime mess, let’s establish a new put positing and profit as the stock as it moves under $100. Here’s the play:

PLAY: Buy the BSC August 120 Puts (BSC TD) at or under $5.40, good for the day. Current bid/ask spread is $5.00 to $5.20. Place a protective stop limit at $3.00.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From August 2007