Play DIA & BEN Puts Now

Re-Enter a Downside Bias

By Bryan Bottarelli
Friday, January 11, 2008 10:14 AM EST
Fri, 11 Jan 2008 15:14:00 GMT

PLAY: Buy the DIA February 128 Puts (DAW NX) at or under $4.10, good for the day.

PLAY: Buy the BEN February 100 Puts (BEN NT) at or under $5.30, good for the day. Place a protective stop limit at $2.40.

Dear Bottarelli Research Member,

I mentioned in yesterday’s alert the major differences between the August 2007 low and our current market situation right now. In short, from a technical perspective, we’re in a much worse-off position now than we were back in August. Plus, if you listen to the mainstream financial media, you’ll hear words like “Recession” and “Stagflation” mentioned at least once every half hour. It certainly doesn’t add up to a strong market environment leading into the next major round of earnings announcements, and that’s why it’s probably a good idea to once again enter a downside put position leading into next week. In fact, in my Bottarelli Research Small Cap alert tonight, I’m going to be recommending a protective put position on the Dow Diamonds (DIA – AMEX) and I’d like to recommend that you add this put position to your ledger as well.

INDU

I tend to think of the DIA as the Dow’s version of the QQQQ, which means that the movements of the DIA generally correspond to the price and performance of the Dow Jones Industrial Average. Specifically speaking, I’d like you to add the DIA February 128 Puts (DAW NX) anywhere under $4.10 per contract. If the market really takes a turn to the downside, you’ll be glad that you’re holding these puts in your back pocket. So as a protective measure, here’s the play:

PLAY: Buy the DIA February 128 Puts (DAW NX) at or under $4.10, good for the day.

Also looking rather weak is offshore drilling firm Atwood Oceanics (ATW – NYSE). As you can see from the chart, the stock still has plenty of room to fall before testing the 50-day moving average. Most stocks that I follow have already tested their 50-day moving averages — and many of them have failed and moved all the way down to their 200-day moving averages. Now, I’m not sure how much of today’s breakdown is coming because of Oppenheimer’s downgrade, so let’s continue to follow this one before making a new play.

ATW

In the meantime, one of my favorite financial stocks to play puts on is once again looking ripe for a downturn. As you can see from the chart below, asset management company Franklin Resources (BEN – NYSE) just set a new 52-week low by dipped under the $100 level — and then it used Bernanke’s news from yesterday as a reason to bounce higher. I think another test under the $100 level is coming soon, so let’s add puts now!

BEN

PLAY: Buy the BEN February 100 Puts (BEN NT) at or under $5.30, good for the day. Place a protective stop limit at $2.40.

And finally, continue to hold your PBR February 120 Calls (PMJ BD). The stock had a nice end-of-day recovery yesterday, so I’m comfortable owning this upside position in the midst of a downside market. Using our “sniper” approach, be sure to lock in any PBR gains once you hit the 15% to 20% level. In fact, let’s go ahead and implement this same “sniper” tactic on our BEN and DIA puts as well. Once you’re showing a gain of 15% to 20% above your entry price, don’t wait for my alert — take your money and run! And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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