Will It Fade?

Play RIMM Puts, UNP Calls

By Bryan Bottarelli
Tuesday, February 12, 2008 11:32 AM EST
Tue, 12 Feb 2008 16:32:00 GMT

PLAY: Buy the RIMM March 90 Puts (RFY OR) at or under $5.10, good for the day.

PLAY: Buy the UNP March 130 Calls (UNP CF) at or under $4.10, good for the day.

Dear Bottarelli Research Member,

I’m always leery of large market moves to begin a trading day. More often than not, you see these big opening-session moves (either to the upside or the downside) get “faded” throughout the day, and that could be the case we have today as well. After all, you’re very aware that the bears have sold into every single market rally in 2008, and today’s 220-point pop on the Dow once again offers the bears a prime opportunity to enter into a new round of short positions.

INDU

Now remember, the bears are a patient group. They’ll wait for exactly the right time to pounce. But believe me, they will make an attempt to sell into this rally, and when they do, we want to be properly prepared to profit off it. Therefore, I’d like to start off today’s alert by issuing a new put recommendation on shares of Research In Motion (RIMM – NASDAQ).

RIMM

It’s been a long, long time since the markets made an aggressive upside gain without participation from tech standouts like Apple (AAPL – NASDAQ) and Research In Motion (RIMM – NASDAQ). But as I write, both AAPL and RIMM have spend most of the session trading lower, and this signals to me that the technology sector (at least in the near term) is exhausted. In fact, a quick look at the RIMM chart shows that the stock is once again failing at the $95. This is a level that’s acted as resistance for all of 2008, and if RIMM wanted the perfect opportunity to break through this $95 resistance level, today would be the ideal day. But that’s not happening. Therefore, I feel that lower prices are ahead for shares of RIMM, with prices potentially moving back down to their 2008 lows of $80.00 per share. Therefore, I’d like to use RIMM puts as a way to “fade” today’s rally and profit off any coming pullbacks. Here’s the trade:

PLAY: Buy the RIMM March 90 Puts (RFY OR) at or under $5.10, good for the day. Place a protective stop limit at $3.10. Plan to execute a sniper sell anywhere at or above $6.10.

At the same time, let’s balance out this RIMM put position with an upside call play in the Transport sector. Specifically, let’s play any continued upside move in shares of Union Pacific (UNP – NYSE).As you can see below, the Pacific and Gulf Coast transporter of agricultural products, autos, lumber, steel, paper, food, chemicals, coal, and industrial products has successfully established support at its 50-day moving average, and is now threatening to break up to its recent high of $135.00. Let’s play this extended upside move using March calls. Here’s the trade:

UNP

PLAY: Buy the UNP March 130 Calls (UNP CF) at or under $4.10, good for the day. Place a protective stop limit at $2.10. Plan to execute a sniper sell anywhere at or above $4.80.

I also received some notes from readers still holding their calls in InterContinental Exchange (ICE – NYSE). If you are one of them, then you can now lock in a profit on your ICE March 140 Calls (ICE CX), so be sure to lock in these gains if you still own this position!

ICE

And in that same spirit, if you’re still holding our SII call position, be sure to maintain your sniper sell orders on these SII March 60 calls (SIK CL) at $3.80 per contract. These calls have traded as high as $3.50 today, so we’re getting close to our pre-determined profit zone. Be sure to lock in gains the moment these prices hit.

SII

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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