Follow Up: Take FRE Profits

Fast Morning Mover

By Bryan Bottarelli
Friday, January 25, 2008 10:31 AM EST
Fri, 25 Jan 2008 15:31:00 GMT

Dear Bottarelli Research Member,

Allow me to follow up on our Freddie Mac (FRE – NYSE) position, as the stock has moved rather quickly this morning. As you know, this was a sniper play — which is a standing order to immediately lock in your profits the moment your position hits 15% to 20% above your entry price. I’ve implemented this strategy because in volatile markets like this, I don’t want you to wait for my sell instruction. When you see profits, take profits! I’ll follow up on every position, of course, but locking in your immediate gains is critical in today’s market environment. Therefore, when FRE jumped $1.00 at the open, this should have triggered a sniper sell when your FRE February 35 Calls (FRE BG) traded between $2.30 and $2.40. If you locked in these profits, then congratulations on e a nice trade. If not, then I will continue to follow the position. After all, I still love the idea of holding these calls into next Wednesday’s Fed meeting, and FRE could really pop if the markets embrace another 50-basis point rate cut. In fact, if FRE stock moves lower, I may add to this same position at these reduced levels. Either way, we’ll keep monitoring this one into next week. I remain bullish.

FRE

In other news, your SHLD February 100 Puts (KTQ NT) are about to turn positive, so continue holding these puts for more profits. As you can see, the stock is now trading below its 50-day moving average, and this bodes well for a pullback coming soon.

SHLD

And for the best news of all, look no further than our “special report play” on the DHI January 2010 10 Calls (YRI AB). As you know, this was our longstanding play on a U.S. Homebuilder recovery dated all the way to January of 2010. And if you take a quick look at the DHI chart, you’ll see a major upside move. Check it out:

DHI

If you had been averaging down and adding onto your position, then you’re most likely showing a profit at these levels. After all, our official entry price if $8.30 and these calls have traded as high as $7.10 in today’s action. So, if you are indeed showing a gain above 25% on your entire position, I’d like you to take HALF of your profits off the table. That way, you lock in a gain and remain in the position for further upside. If DHI pulls back once again, I may go ahead and add to this position for more upside.

But let’s all give ourselves a pat on the back. We made a classic contrarian play — we entered homebuilders when everyone was running for cover. And now, it’s paying off!

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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