Two New Plays

Enter DE Calls, PSA Puts

By Bryan Bottarelli
Wednesday, March 05, 2008 11:45 AM EST
Wed, 5 Mar 2008 16:45:00 GMT

PLAY: Buy the DE April 90 Calls (DE DR) at or under $4.80, good for the day.

PLAY: Buy the PSA April 80 Puts (PSA PP) at or under $4.40, good for the day.

Dear Bottarelli Research Member,

Yesterday’s late-day reversal on the Dow was quite impressive. It shows you that the bulls are doing everything that they can to defend the key support points above the January 2008 lows. But at the same time, keep in mind that the bears are a patient group. I get the sense that they’re just waiting to pick the prefect spot to step in and crush anyone who makes an ill-timed buy. Combine both of these bullish and bearish tactics, and we’ll most likely see continued intra-day volatility, marked by quick dips and drops. As a result, I’d like to continue playing both sides of this volatility.

INDU

By combining calls on strong chart formations with puts on weak chart formations, we can use this volatility to our advantage by taking quick winners via our “sniper” selling strategy. This morning, for example, we took a quick 20% gain playing Fording Canadian Coal Trust (FDG – NYSE). Let’s keep this quick-profit trend going by adding two new positions: One upside call on Deere (DE – NYSE) and one downside put on Public Storage (PSA – NYSE).

Starting with DE, we all know that the agriculture plays are red-hot. But over the last month, the global agriculture and forestry company traded in a very tight range — moving $3.00 above and below its 50-day moving average. It looks to me like the stock is getting into “coiled spring” mode, which means that a powerful break up (or down) could be coming soon. The reason I’m leaning forwards the upside (aside from the bullishness in ag stocks) is the fact that DE is set to announce earnings on May 14th. We could very well see buying interest leading into this announcement, so let’s profit off this upside movement using April calls now!

DE

PLAY: Buy the DE April 90 Calls (DE DR) at or under $4.80, good for the day. Place a sniper sell order at $5.70 and a protective stop limit at $2.40.

At the same time, let’s also establish a downside put position on Public Storage (PSA – NYSE). If you’ve ever driven alongside of any U.S. highway, then you know that PSA is a real estate investment trust (REIT) that owns and operates self-storage facilities. In fact, they currently operate 2,003 self-storage facilities with approximately 125 million net rentable square feet across 38 states. In many respects, I think of PSA as a pseudo-real estate play — and as you can see from the chart, the stock is finding strong resistance right now at the $82.50 level. This tells me that a move back down to the 200-day and 50-day moving averages around $75.00 looks like the next significant move, so let’s profit off this fall using PSA puts. Here’s the play:

PSA

PLAY: Buy the PSA April 80 Puts (PSA PP) at or under $4.40, good for the day. Place a sniper sell at $5.30 and a protective stop limit at $2.40.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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