On the Eve of the Fed

Possible DRYS and RIMM Trades

By Bryan Bottarelli
Tuesday, October 30, 2007 2:59 PM EDT
Tue, 30 Oct 2007 18:59:00 GMT

Dear Bottarelli Research Member,

As expected, we’ve seen a narrow trading range in today’s session leading up to tomorrow’s Fed decision. The latest talk surrounds around the Federal Reserve not cutting interest rates at all, but that doesn’t appear too likely to me. If recent history proves as any indication, Ben Bernanke has been saying and doing everything that Wall Street likes, that the cumulative effect of his actions have lead to strong market rallies on Fed day. So leading up to tomorrow’s Halloween announcement, I’ve isolated two possible call play opportunities that could prove to be lucrative trades if the market rallies hard tomorrow — and the first such play is DryShips (DRYS – NASDAQ).

DRYS

As you can see from the chart, DRYS is pulling back rather nicely today — and every pullback over the last 3-4 months has been strongly bought up in the days that follow. With the stock currently trading $11.20 lower, any Fed-induced market strength could push DRYS up to a new 52-week high, so let’s certainly keep this trade on the horizon.

The same goes for Research In Motion (RIMM – NASDAQ). As you can see, the stock is looking for any excuse to break out and establish a new 52-week high above $130, and a bullish Fed action could be all it takes for RIMM to blast off. Keep this trade on the horizon as well.

RIMM

*TACTICAL NOTE: Right now, I feel that there’s no sense throwing good money at any new trades in advance of tomorrow’s Fed decision. After all, it’s critical that we see how the market reacts before making any new trades — and I currently like all of the open positions that we have right now. For example, your OEH December 65 Calls (OEH LM) are showing a nice gain today, your NILE November 80 Puts (JWU WP) have now broken into profitability, and your BID November 55 Calls (BID KK) are sitting right at break even.

OEH

And although your BHP November 85 Calls (BHP KQ) are slightly down from our $4.20 entry price, any rate-cutting action tomorrow will be very bullish for companies like BHP, so I’d like to maintain this position as well. In fact, I think names like BHP and FCX are down today on nothing more than talks and speculation of no Fed action tomorrow, and as I mentioned above, I’d be shocked if this happens. Therefore, I’m still very comfortable with our BHP position.

Maintain all of your current positions, and depending on what happens tomorrow, I’ll be out with more trades. And until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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