Lock in DIA Gains!

Take ADM Off the Table Too

By Bryan Bottarelli
Thursday, January 31, 2008 9:39 AM EST
Thu, 31 Jan 2008 14:39:00 GMT

PLAY: Sell your DIA February 120 Puts (DAW NP) at or above $1.60, good for the day.

Dear Bottarelli Research Member,

Yesterday was yet another wild day of trading. But looking back at yesterday’s late-afternoon trading, I must say that our pre-Fed forecast came in exactly as predicted. For instance, we noted that the Fed would most likely cut 50-basis points and the market would rally. But then, at the height of the rally, there would be a big threat that the bears would “fade” the upside, which could lead to additional selling pressure.

That was our pre-Fed prediction, and you already know what happened. Shortly after announcing their 50-basis point cut, the Dow traded higher by 175 points. But those gains were short-lived. By the close, the bears had taken all of the gains back, and the Dow closed right there it was trading before the Fed announcement, 37 points lower. This does not make a strong case for further upside. In fact, it now looks like we’ll re-test our January lows.

DIA

Luckily, the short-lived upside volatility allowed us to lock in a nice “sniper” gain on our AAPL February 135 Calls (APV BG). This position is now closed. And this morning’s downside has given a very nice boost to our protective put position, the DIA February 120 Puts (DAW NP).We entered for $1.24 on January 29th and they opened today’s trading at $1.80, good for a 45% gainer. Let’s go ahead and lock in these gains now!

PLAY: Sell your DIA February 120 Puts (DAW NP) at or above $1.60, good for the day.

I’d also like to sell your ADM March 45 Calls (ADM CI). These calls are opening the day with a nice little pop, so let’s limit our bullish exposure and take our modest gains off the table now.

PLAY: Sell your ADM March 45 Calls (ADM CI) at market, good for the day.

Our only miscalculation in this whole equation was in the FRE February 35 Calls (FRE BG). My thesis for entering the trade was that FRE should rally alongside the banks and homebuilders — each of which had been putting in strong rallies as the Fed aggressively cut rates. But as you know, FRE (for whatever reason) did not particulate in the upside, so the smart thing is to adhere to our stop loss set on January 25th and call the position closed. I’ll be out with further updates as the day progresses, but until then:

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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