Two Cheap New Calls

Play TSO and STP

By Bryan Bottarelli
Tuesday, February 26, 2008 11:18 AM EST
Tue, 26 Feb 2008 16:18:00 GMT

PLAY: Buy the STP March 40 Call (STP CH) at or under $1.60, good for the day.

PLAY: Buy the TSO March 40 Calls (TSO CH) at or under $2.60, good for the day.

Dear Bottarelli Research Member,

As you can see from the Dow chart below, the Blue Chip average is once again approaching its critical 50-day moving average. Since December of 2007, this level has acted as strong resistance — sparking every significant sell-off over the last three months.

INDU

As we close in on this level once again, I want to remain positioned to profit off any selling pressure. Therefore, let’s continue holding our PTR March 140 Puts (PTR OH) and our NILE March 40 Puts (JWU OH). There was a rumor this morning that Merrill downgraded shares of Petrochina (PTR — NYSE) from Buy to Sell. If this turns out to be true, it should provide a nice boost for our PTR March 140 Puts (PTR OH). So maintain these puts with a pre-determined sniper sell at $7.30.

PTR

On the flipside, we’ve had success lately making quick intra-day trades using upside calls. In fact, if you were unable to lock in gains on your RIG March 145 Calls (RIG CI) or your MOS March 120 Calls (MOS CZ), you’re getting a strong second-exit opportunity right now, so be sure to take full advantage and lock in your gains!

Now, the trick to making our quick upside call winners has been playing stocks within the strongest market sectors — because the strength of these sector groups offsets any underlying market weakness. Over the last 30 days, platinum producers, coal miners, dry bulk shippers have been the top market segments, posting average 30-day returns of 51%, 34.4%, and 33% respectively. But now I’m seeing strong opportunities once again in the solar and oil refining sectors — and I’d like to take full advantage by adding cheap upside calls.

In the solar space, shares of Suntech Power Holdings (STP – NYSE) have gotten absolutely clobbered — and are now showing signs of recovery. In fact, the un-filled gap could see shares move all the way up to $45.00, so let’s enter a cheap upside call play to profit off any bounce-back moves.

STP

PLAY: Buy the STP March 40 Call (STP CH) at or under $1.60, good for the day. Place a sniper sell at $2.20 and a protective stop limit at $0.60.

Also on the move are shares of Tesoro Corporation (TSO – NYSE). With refiner-stocks also at extremely low levels, it makes sense to establish an upside call position and capitalize on any forthcoming market rallies. As you can see, if TSO can pop back above its 50-day moving average, the stock could run all the way up to $50.00. Therefore, let’s add TSO calls to our ledger as well.

TSO

PLAY: Buy the TSO March 40 Calls (TSO CH) at or under $2.60, good for the day. Place a sniper sell at $3.10 and a protective stop limit at $1.20.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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