Add MA Puts

Plus, Close out DRYS

By Bryan Bottarelli
Monday, August 06, 2007 10:34 AM EDT
Mon, 6 Aug 2007 14:34:00 GMT

Dear Bottarelli Research Member,

After a whopping 281-point sell-off late Friday afternoon, it’s not surprising to open the new trading week with large volatility swings. Already this morning, the Dow has surrendered an 80 point opening advance, turned negative, and then recovered to gain 70 points. With all this action taking place in the opening 30 minutes, you can certainly expect to see even more intra-day swings this week.

INDU

Chart wise, the Dow is currently trading right between its 50-day and 200-day moving average at 13,200, which is a critical decision point because technicians and traders are all trying to figure out the same question: Will the Dow bounce back above its 50-day MA or will it fall down to test its 200-day MA? Its’ a difficult question by itself — but toss into the mix an upcoming Fed meeting, and the scenario gets even more murky. That’s why we’ll continue making quick trades and taking quick profits — and this leads us to this morning’s newest downside candidate in Mastercard (MA – NYSE).

MA

As you can see from the chart below, the stock has been in an absolute free-fall, which indicates that it’ll soon fill the gap set underneath the $120 level back in May. That’s a $9.00 fall from current levels, so let’s play this volatility via August puts.

PLAY: Buy the MA August 125 Puts (MA TE) at or under $6.60, good for the day. Current bid/ask spread is $6.00 to $6.30. Place a protective stop limit at $3.50.

Also, today’s downside action has stopped us out of our DRYS August 60 Calls (DQR HL), so close this position now — but maintain your BX September 25 Puts (BX UE). Bearishness has certainly made its way into the markets, and we want to be fully positioned to profit off the downside action.

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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