Market Falling: Add NILE Puts

Also: POT Exploding, Add Calls!

By Bryan Bottarelli
Thursday, October 25, 2007 2:35 PM EDT
Thu, 25 Oct 2007 18:35:00 GMT

Dear Bottarelli Research Member,

The Dow just dropped 100 points in the blink of an eye — and that’s why I insist that we continue to hold our downside put plays on United States Steel (X – NYSE) and Bear Stearns Companies (BSC – NYSE).I’ll get into specifics on both of these positions in must a moment, but first I’d like to increase our downside exposure by adding yet another put. And this new downside candidate comes in the form of Blue Nile (NILE – NASDAQ).

NILE

As you know, NILE is an online jewelry stock that I routinely trade due to their strong price swings — and as you an see from today’s NILE chart, the stock has established a major resistance level at the 50-day moving average. This now places strong odds on a move back down to the 200-day moving average which falls $20.00 lower than current levels! Let’s play this pending fall using November puts. Here’s the play:

PLAY: Buy the NILE November 80 Puts (JWU WP) at or under $6.90, good for the day. Current bid/ask spread is $6.30 to $6.80. Place a protective stop limit at $3.40.

Now let’s transition over to our BSC November 110 Puts (BVD WB) and our X November 105 Puts (X WA). As I write, BSC is moving $3.00 lower without any strong levels of support in the immediate future — and this has pushed your puts into the profit zone. Hold for more gains.

BSC

U.S. Steel is also showing signs of weakness, and I continue to feel that the stock could drop over $5.00 in the blink of an eye. This would lead the stock right down to the crossing of the 50-day and the 200 day moving average, which must be tested before X can make any further upside advances. Your X puts are currently trading $1.00 below our original $6.00 entry price, but they could recover very quickly. Hold for more gains as well.

X

Also, it’s very nice to see that every single one of our upside call plays trading higher on a day where the Dow surrendered over 100 points. Continue to hold your MA November 155 Calls (MAL KK) and your FCX November 115 Calls (FCX KC), as each position is on the verge of profitability. Also, if you have yet to get filled on your FWLT November 155 Calls (UFG KK), continue to work your order. FWLT is very strong and could soon break out to a new 52-week high, so having an upside bias on this one is certainly a great position.

FWLT

And finally, have you noticed the remarkable intra-day turnaround today in Potash of Saskatchewan (POT – NYSE)!? The stock opened the trading session lower by over $8.00, yet has since recovered all of those losses and is now trading higher by over $6.00. That’s a $14.00 turnaround. Remarkable! With this type of action, I want to be exposited to the upside, because moves like this could lead to incredible short-term profits. For all you speculators out there, let’s play this momentum using November calls. Here’s the play:

POT

PLAY: Buy the POT November 115 Calls (PYP KC) at or under $4.80, good for the day. Current bid/ask spread is $4.30 to $4.70. Place a protective stop limit at $2.10.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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