Play Apple Calls Now

Something Big Looms on September 5th

By Bryan Bottarelli
Thursday, August 30, 2007 10:53 AM EDT
Thu, 30 Aug 2007 14:53:00 GMT

Dear Bottarelli Research Member

As we begin the second-to-last trading session of August, both the bulls and bears appear to be non-committal leading into Federal Reserve Chairman Ben Bernanke’s annual Fed conference in Jackson Hole, Wyoming (which takes place tomorrow).

As you very well know, the main topic on the minds of investors will be the Fed’s position on the need to cut interest rates. Since Mr. Bernanke has already injected liquidity and cut the discount rate, speculation is rampant about the Fed’s next move. Considering today’s economic news, where the Commerce Department reported that the U.S. economy bounced back in the second quarter and grew at a 4% annual growth rate, there could be enough information to support keeping rates the same.

This could be perceived as a big disappointment to Wall Street, so leading into tomorrow’s speech, I’d like to keep our trading ledger on the lighter side. After all, there’s no telling what sort of volatility we’ll witness tomorrow (a day that’ll most likely contain very low volume ahead of a long 3-day market weekend). But having said that, I would like to add one new upside call play on Apple Computer (AAPL- NASDAQ).

AAPL

As you can see from the chart below, the stock has established a strong support level right at the 50-day moving average. And today, the stock is in rally mode thanks to an email that Apple sent to reports — inviting them to attend a “special event” in San Francisco on September 5th.

As you know, Apple’s latest Q3 results showed 9.8 million iPod sales, good for a 21% increase from the prior year. iPod sales account for $1.57 billion of Apple’s $5.4 billion in quarter sales, and now the company is widely expected to unveil some new gadget at this September 5th event. After all, Apple typically introduces new iPod products in September — just so that they can spark enough “buzz” about these new products to sustain strong sales leading into the end-of-the-year holiday shopping season. This will undoubtedly provide strong upside momentum to the stock, so let’s profit off this move using September calls. Here’s the play:

PLAY: Buy the Apple September 140 Calls (APV IH) at or under $4.80, good for the day. Current bid/ask spread is $4.40 to $4.60. Place a protective stop limit at $2.10.

Another possible upside play could be Holly Corp. (HOC – NYSE). The company is a wholesaler of gasoline, diesel fuel, and jet fuel in Texas, New Mexico, Arizona, Utah, Wyoming, Montana, Idaho, Washington, and northern Mexico. They also manufacture asphalt products in Arizona and New Mexico and transport liquid petroleum gas (LPG) to retailers. As you can see from the chart below, the stock could be on the verge of a break-out move about its 50-day moving average, so let’s keep a close eye on HOC for a possible upside call play.

HOC

On the flipside of that coin is PetroChina (PTR – NYSE), the petroleum and natural gas company operating in the People’s Republic of China.

PTR

As you can see from the PTR chart, the stock is finding resistance at the 50-day moving average, which could initiate a move back down to the 200-day moving average at $130. Leading into a market-moving Fed speech tomorrow, let’s hold off on playing HOC or PTR, at least for now. Should something change, you’ll be the first to know. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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