Relatively “Safe” Plays

Add MRO and GPRO Calls, VMC Puts

By Bryan Bottarelli
Monday, August 13, 2007 11:06 AM EDT
Mon, 13 Aug 2007 15:06:00 GMT

Dear Bottarelli Research Member,

As we kick-start another exciting week of trading, my goal is to get us positioned in plays that are exhibiting chart formations that I consider relatively “safe.” For example, take a look at what we have today in Marathon Oil (MRO – NYSE).

MRO

On two recent occasions, MRO has dipped under its 200-day moving average and touched the $48 level, only to put in two strong bounces in each situation. With today’s tick gapping above the $52.50 level, I have reason to believe that MRO has established a near-term floor and will soon engage in an over-sold rally that could perhaps re-test the 50-day moving average at $60.00. To profit off this move, let’s get positioned in MRO September calls.

PLAY: Buy the MRO September 55 Calls (MRO IK) at or under $2.85, good for the day. Current bid/ask spread is $2.40 to $2.65. Place a protective stop limit at $1.40.

In addition to MRO, we’re also seeing a similar 50-day support level form right now on Gen-Probe (GPRO – NASDAQ). If you’re not familiar with GPRO, they are one of my favorite longer-term stocks. They’re the leading developer of clinical diagnostic products that screen for human diseases in donated blood, harmful organisms in the environment, and harmful organisms in industrial processes. These are things that we take for granted, but these procedures are critically important on a global scale — and GPRO’s products are the market leaders. As you can see below, the stock is finding strong support right at their 50-day moving average, and this signals further upside gains, so let’s also get positioned in GPRO September calls as well.

GPRO

PLAY: Buy the GPRO September 60 Calls (PSU IL) at or under $3.60, good for the day. Current bid/ask spread is $3.20 to $3.50. Place a protective stop limit at $1.90.

And finally, let’s even out our ledger with downside puts on Vulcan Materials (VMC – NYSE). The supplier of construction maintenance materials like crushed stone, sand, gravel, rock and asphalt is trading below its 200-day moving average and does not look poised to break out anytime soon. Last week, for example, the stock attempted to break back above the $100 level, but as you can see from today’s action, that move has been completely rejected — and this points to more downside pressure. Let’s play this move using September puts:

VMC

PLAY: Buy the VMC September 95 Puts (VMC US) at or under $5.80, good for the day. Current bid/ask spread is $5.30 to $5.70. Place a protective stop limit at $3.00.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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