Take BG and OII Profits!

Lock in First Two Winners of 2008

By Bryan Bottarelli
Thursday, January 03, 2008 9:39 AM EST
Thu, 3 Jan 2008 14:39:00 GMT

Dear Bottarelli Research Member,

The markets are opening with a nice little pop and I’d like to take full advantage by locking in profits on both our BG and our OII positions.

PLAY: Sell your OII January 70 Call (OII AN) at or above $4.70, good for the day.

PLAY: Sell your BG January 120 Calls (BG AD) at or above $6.70, good for the day.

Congrats to everyone who stuck with me on BG. It proved to be worth the wait! And also, congrats to anyone who caught the move on OII. So far, 2008 is shaping up to me a great year of trading, and I’m glad you’re with me!

*TRADING NOTE: In recent action, it appears like the stocks that I’m recommending calls or puts on move immediately in our direction — and this results in option prices jumping very quickly. There are many technical reasons for this, but the primary reason is one which (I suspect) is due to the actions of the floor traders. You see, the first thing you are taught on the CBOE is how to properly hedge yourself. And when you’re a floor trader buying and selling calls and puts, the one and only “constant” is the ownership of stock. Therefore, whenever a floor trader makes a sizable option trade, they always take on a proper hedge position on that company’s stocks. Take our BG trade, for example. When I recommended the BG January 120 Calls (BG AD), you most likely entered this trade and bought them — and that means someone on the other end of this trade SOLD these calls to you. When all of our members made this purchase, it left the entire BG options pit SHORT a large number of calls (which they just sold to us). As a result, they went ahead and hedged themselves against this short position by purchasing BG stock, and these block-share purchases result in the quick upside movement of the stock that we often times see. Now, the point of this explanation is to implement a new tactical rule. And that is, when you see situations like this, feel free to pay 10 to 20 cents above the listed buy price, just to ensure that you get yourself into the play. After all, there’s no sense missing out on a strong winner just because you missed the entry by a few pennies. So as a new standing rule, pay up to 20 cents above the listed buy price on fast movers. And this applies to the sell side as well. This should help you catch a larger number of these fast-moving plays in 2008!

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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