Another Crusher

Will Ben Step In Soon?

By Bryan Bottarelli
Wednesday, January 16, 2008 11:06 AM EST
Wed, 16 Jan 2008 16:06:00 GMT

Dear Bottarelli Research Member,

It’s been yet another up and down trading session. Most of the high-flyers on my screen are taking another massive hit, with names like POT, FLR, ICE, MOS, FXI, and DRYS all trading lower by at least 6%. Many of them are down over 10%, in fact. So, if you’re still holding the DECK January 130 Puts (QUK MF), the stock is off another $5.00 and dropping fast, so take your money and run.

Along the same lines, we have no choice but to enter another quick put play — but let me first offer you a word of caution. In volatile times like this, it’s a smart idea to cut your position sizing in half. For example, if you usually buy 10 contracts of each new trade, trim that down to only 5 contracts. It’s just too volatile right now, so let’s take the smart approach and temporarily decrease our exposure.

Having said that, I received an interesting call this morning from one of my top trading contacts. He said, in not so uncertain terms, that Ben Bernanke will make a surprise rate cut (or market cash infusion) by the end of this week. Most likely it’ll come Friday morning, he told me. Now, there is certainly no guarantee that he’s right — but I am not dismissing the notion that the Fed has got something in the works right now. Therefore, we must be even more cautions when playing puts. Be certain to use the sniper approach. Enter a trade, achieve a 15% or 20% gain, and then close out the play. In other words, take your money and run!

Having outlined that backdrop, I scanned specifically for stocks that have yet to absorb the market drubbing that we’re seeing across the board, and two names that looked particularly appealing (from a chart perspective) were Transocean (RIG – NYSE) and Apache (APA — NYSE).

APA

RIG

Now don’t get me wrong, I love both companies. But a quick look at each of their charts below show you that both RIG and APA are right now dipping underneath their 50-day moving averages. Therefore, after a strong stand, the bears are now taking control of both stocks. If they fail at their 50-day moving averages, both stocks could fall hard today and into tomorrow, so let’s play them down. But enough chit-chat, here are the two plays:

PLAY: Buy the RIG February 125 Put (RIG NE) at or under $5.30, good for the day. Place a protective stop limit at $2.80

PLAY: Buy the APA February 100 Put (APA NT) at or under $5.00, good for the day. Place a protective stop limit at $2.50.

And just as a measure of protection, I’d like to add a new call play on Gilead Sciences (GILD – NASDAQ). Like I mentioned on Monday, the Biotech sector has been extremely strong in this weak market — as traders re-allocate their portfolios with healthcare names. One look at the GILD chart, and you’ll see that the maker of human immunodeficiency virus drugs like Truvada, Viread, Atripla, and Emtriva has been very, very strong. Let’s play this strength by establishing February calls now. Here’s the play:

GILD

PLAY: Buy the GILD February 50 Calls (GDQ BJ) at or under $1.60, good for the day. Place a protective stop limit at $0.70.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From January 2008