Not Liking the Action

Add SPY and AGU Puts

By Bryan Bottarelli
Tuesday, April 29, 2008 10:25 AM EDT
Tue, 29 Apr 2008 14:25:00 GMT

PLAY: Buy the SPY May 140 Puts (SFB QJ) at or under $2.80, good for the day.

PLAY: Buy the AGU May 80 Puts (AGU QP) at or under $5.20, good for the day.

Dear Bottarelli Research Member,

While the major market averages are not making any significant upside or downside moves, we are exercising some rather aggressive pullbacks in the long list of momentum stocks we’ve been discussing for the last few months. This has unfortunately stopped us out on our BG May 125 Calls (BG EE), but we’re hanging in there with our ICE May 165 Calls (IHH EM) and our ABX June 42.5 Calls (ABX FV).

In terms of ICE, the stock is trying to hammer out support at this 200-day moving average, and in terms of ABX, I continue to feel that the shares are quite over-sold at these levels. Looking back at BG, the play was based on picking up calls as the stock sold off hard after reporting stellar earnings — and if the market is now in the mode of selling off stocks no matter if they report strong or weak numbers, then we’re certainly in for a pullback.

This negative reaction to earnings does not paint a rosy picture for the near term markets. After all, we’re coming up on May, which has historically been one of the weakest market months of all. The old floor trader adage “Sell in May and Go Away” is one that I particularly remember — and it appears like we’re headed down this same path once again.

Plus, as I mentioned before, the entire investing world is watching the 1,400 level on the S&P 500. And thus far, we haven’t seen any sign of breaking through this level whatsoever. This sheepish and awkward trading action right at this level offers up a warning sign that the bears could soon take back the directional control and push the markets lower. Therefore, I’d like to enter into two new defensive put positions to capitalize on any forthcoming market weakness.

SPX

The first is a broad-based put on the S&P Spiders (SPY – AMEX).This would offer us exposure to any downside market moves — offering an over-arching way to profit off any forthcoming market weakness. Specifically, I’d like to enter into the SPY May 140 Puts (SFB QJ) anywhere under $2.60. Here’s the play:

PLAY: Buy the SPY May 140 Puts (SFB QJ) at or under $2.80, good for the day. Place a protective stop limit at $1.50 and a sniper sell at $3.50.

At the same time, I’d like to enter into another put play that could move aggressively lower. As you know, all of the top agricultural and fertilizer names like POT and MOS have been getting hit hard lately, and this presents us with an opportunity to play a quick downside move in shares of Agrium (AGU – NYSE). As you can see, shares of AGU could easily move back down to the 50-day moving average at $70.00, so let’s play this downside move now.

AGU

PLAY: Buy the AGU May 80 Puts (AGU QP) at or under $5.20, good for the day. Place a protective stop limit at $3.10 and a pre-determined sniper sell at $6.30.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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