Play DRYS Calls

Quick Fed-Induced Play

By Bryan Bottarelli
Tuesday, March 18, 2008 3:06 PM EDT
Tue, 18 Mar 2008 19:06:00 GMT

PLAY: Sell your CLHB April 65 Calls (QPB DM) at or above $4.00, good for the day.

PLAY: Buy the DRYS April 65 Calls (DQR DM) at or under $4.90, good for the day.

Dear Bottarelli Research Member,

I must admit, I’m quite surprised that a 75-basis point rate cut did not induce a market sell-off. Going into the announcement, every “Fed watcher” was calling for a full point cut, and when it didn’t happen, I figured that the market would’ve been disappointed and sold off. But as it turns out, the market is holding onto the exact same levels it was at prior to the announcement.

Therefore, we’ll continue to hold our DIA Strangle, which consists of the DIA April 114 Puts (DIA PJ) and the DIA April 125 Calls (DAW DU). After all, if I can tell you one thing with absolute certainty, it’s that you can expect more volatility ahead. This DIA strangle position offers us the opportunity to profit off this volatility in the best way possible.

At the same time, our CLHB April 65 Calls (QPB DM) are getting very close to our sniper sell target at $4.30. To avoid putting any profits at risk, let’s go ahead and lock in our gains now. These calls have traded as high as $4.10 today, good for a one-day gain of 10%, so let’s lock in this modest profit now!

PLAY: Sell your CLHB April 65 Calls (QPB DM) at or above $4.00, good for the day.

Once we’ve locked in this modest gainer, I’d like to re-load the ledger with a new upside call play on DryShips (DRYS – NASDAQ). As you can see below, the markets’ top dry-bulk shipper is finding a temporary support point, so let’s get positioned to ride another upside push using April 65 calls. Here’s the play.

DRYS

PLAY: Buy the DRYS April 65 Calls (DQR DM) at or under $4.90, good for the day. Place a sniper sell target at $6.10 and a protective stop limit at $2.40.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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