Another Fade Play

Plus: Add STP Calls

By Bryan Bottarelli
Wednesday, February 13, 2008 1:03 PM EST
Wed, 13 Feb 2008 18:03:00 GMT

PLAY: Buy the DIA March 116 Puts (DIA OL) at or under $1.20, good for the day.

PLAY: Buy the STP March 55 Calls (STP CK) at or under $4.40, good for the day.

Dear Bottarelli Research Member,

Similar to yesterday, we have a market that’s putting in a strong upside move in the morning and early-afternoon hours. But as we close out the trading session, there’s a very real possibility that the bears can once again step in and take the major market averages lower. Therefore, I’d like to once again make an end-of-day “fade” trade that turns a quick profit on any late-afternoon reversals. Only instead of playing a tech name, like we did yesterday, I’d like to play the broad-based market average using the Dow Diamond Trust (DIA – AMEX).

DIA

As you can see from the DIA chart below, the index is inching up to the $125 level, but a failure here could set a lower-high, which could spark a sell-off back down under the $120 level. Therefore, I’d like to recommend the same DIA protective put play that I am carrying in my Bottarelli Research Small Cap service, the DIA March 116 Puts (DIA OL). These puts are only trading for $1.20 per contract, and they offer you a really nice dose of downside protection going into March. If the Dow reverses course and pushes lower, these puts could increase at an accelerated rate, so let’s add a small level of protection to our ledger and establish a position now.

PLAY: Buy the DIA March 116 Puts (DIA OL) at or under $1.20, good for the day. Place a protective stop limit at $0.45. Since this is a protective put position, do not “sniper sell” these puts until instructed.

On the flipside of the coin, we’re seeing some major upside momentum in the solar sector today. Sparked by a major upside move in First Solar (FSLR – NASDAQ), which is trading $46.00 higher as I write, every solar stock that I closely follow is on the move today.

FSLR

Going back to my small cap service once again, that’s really good news for the two new small cap solar plays that I just added to our portfolio, with both stocks trading up 13% in today’s action. So in that same spirit, I’d like to highlight another solar play that is making a strong bounce off its lows — and this move warrants a new upside option play going into March. The company is Suntech Power (STP – NYSE) and as you can see below, the stock is hammering out support right at its 200-day moving average. This signals to me like the stock could move higher into March, especially with such a powerful upside trigger from FSLR. Therefore, let’s establish an upside call play on STP now!

STP

PLAY: Buy the STP March 55 Calls (STP CK) at or under $4.40, good for the day. Place a protective stop limit at $2.30. Plan to lock in a “sniper” profit if these calls trade at or above $5.20.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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