Three New Plays

Add FWLT and MRO Calls, DIA Puts

By Bryan Bottarelli
Monday, March 24, 2008 10:59 AM EDT
Mon, 24 Mar 2008 14:59:00 GMT

PLAY: Buy the FWLT April 55 Calls (UFB DK) at or under $4.70, good for the day.

PLAY: Buy the MRO April 47.50 Calls (MRO DW) at or under $3.00, good for the day.

PLAY: Buy more DIA April 114 Puts (DIA PJ) at or under $0.55, good for the day.

Dear Bottarelli Research Member,

We’ve opened the week with the major market averages blasting higher — as the majority of Wall Street has turned from bearish to bullish over the long Easter weekend. As you can see from the chart below, the Dow Diamonds (DIA) are poking above the 50-day moving average — which has been a strong level of resistance dating back to December of 2007. Therefore, we now are facing a powerful two-day rally within a 4-month down-trend. As traders, it’s critical that we respect the upside move — but also protect ourselves against any snap-back selling pressure. Therefore, I’d like to initiate two new trades today, plus add to our level of “downside insurance.”

DIA

First off, let’s begin with Foster Wheeler (FWLT – NASDAQ). The global construction and engineering company, which serves the powerful oil, gas, petrochemical, and power plant markets, appears to have touched a near-term bottom. Last week’s dip under $50.00 per share was quickly bought up — giving the indication that FWLT could soon move up to its 50-day moving average at $65.00. Let’s play this up-move using April calls.

FWLT

PLAY: Buy the FWLT April 55 Calls (UFB DK) at or under $4.70, good for the day. Place a sniper sell at $5.70 and a protective stop limit at $2.40.

Also looking poised to run is Marathon Oil (MRO – NYSE). As you can see from the chart below, MRO has an un-filled gap at the $50.00 level, and the last two days of market action indicate that MRO will fill that gap in the near term. Therefore, let’s play this continued upside move using April calls.

MRO

PLAY: Buy the MRO April 47.50 Calls (MRO DW) at or under $3.00, good for the day. Place a sniper sell at $3.70 and a protective stop limit at $2.10.

Also moving in our direction are the DRYS April 65 Calls (DQR DM). If you recall, we entered these calls on March 18th for $4.66 per contract, and they’ve traded as high as $4.40 today. Although they’re slightly down, the stock is finally making the upside move that I expected to see last week, so maintain these calls for more upside. And be sure to execute a sniper sell if they trade at or above $5.60 per contract.

DRYS

And finally, to properly protect the three upside calls that we now own, it’s a smart idea to beef up our level of downside protection. Therefore, I’d like to once again add to our DIA April 114 Puts (DIA PJ). As I mentioned last week, our DIA Strangle basket (which contained April DIA calls and April DIA puts) currently has us holding only the DIA puts with a break-even point of $1.90 per contract. As I write, today’s upside move has pushed these contracts down to the bargain basement price of $0.50, so let’s use this upside move to once again add to our position. The thinking here is that we’ll not only lower our cost basis and profit off any forthcoming market downside, but we’ll also remain properly hedged (considering that we just added two new call contracts). Therefore, let’s add to our DIA puts now.

PLAY: Buy more DIA April 114 Puts (DIA PJ) at or under $0.55, good for the day. Do not place a sniper sell or protective stop limit at this time.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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