Two Quickies

Play ABX Calls, DO Puts

By Bryan Bottarelli
Tuesday, April 22, 2008 10:16 AM EDT
Tue, 22 Apr 2008 14:16:00 GMT

PLAY: Buy the ABX May 40 Calls (ABX EH) at or under $4.00, good for the day.

PLAY: Buy the DO May 135 Puts (DO QG) at or under $5.60, good for the day.

Dear Bottarelli Research Member,

As I mentioned yesterday, the entire investing community is watching the 1,400 level on the S&P 500. As of this morning, the major market averages are experiencing early morning weakness — which is causing a momentary sell-off prior to reaching this critical level. Chart below:

SPX

But as you know, the market volatile we’ve seen in 2008 could change all of this very quickly — and so we’ll continue our trading tactic of taking positions on both sides of the ledger and using the intra-day movements to lock in quick gainers.

In terms of our current positions, we’ll continue to hold both the NVDA June 20 Calls (UVA FD) and the MON May 130 Calls (MFP EF).But when it comes to new trades, I have two new defensive positions that I’d like to establish right now.

The first comes in the form of Barrick Gold (ABX – NYSE). As you probably know, we’ve successfully played ABX on four occasions in 2008, all based off the stock’s consistent ability to re-test and bounce off its 200-day moving averaged. As you can see from the chart below, ABX is once again touching this strong support level (which is the red line on the chart) and this is an indication that another upside move is on the horizon. Plus, since ABX is a gold play, it offers us a nice level of protection if the market decides to drift lower. So as the first of two defensive plays, let’s add ABX calls now!

ABX

PLAY: Buy the ABX May 40 Calls (ABX EH) at or under $4.00, good for the day. Place a protective stop limit at $2.20 and a sniper sell at $4.60.

The second defensive position I’d like to establish comes from Diamond Offshore Drilling (DO – NYSE).Now don’t get me wrong, I love the idea of owning top-line oil drillers like DO for the foreseeable future. But right now, the stock has gotten a little ahead of itself, and therefore it looks like a slight pullback is in the charts. As you can see from the chart, the $140 level could be the near-term top — so I’d like to play a quick move down using May puts. Here’s the trade:

DO

PLAY: Buy the DO May 135 Puts (DO QG) at or under $5.60, good for the day. Place a protective stop limit at $3.10 and a sniper sell at $6.70.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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