Three New Plays

PLAY SPY, PBR & DE Now

By Bryan Bottarelli
Wednesday, May 28, 2008 11:44 AM EDT
Wed, 28 May 2008 15:44:00 GMT

PLAY: Buy the SPY June 138 Puts (SFB RH) at or under $2.65, good for the day.

PLAY: Buy the Deere June 80 Calls (DE FP) at or under $4.60, good for the day.

PLAY: Buy the PBR June 70 Calls (PMJ FN) at or under $4.70, good for the day.

Dear Bottarelli Research Member,

We have a number of intriguing chart set-ups today. Topping the list are shares of Weatherford International (WFT – NYSE), which just recently split 2 for 1. As you can see from the chart below, the oil driller has pulled back over the last few days, but now shares look poised to continue their upside run.

WFT

Also offering a nice chart signal today is Apache Energy (APA – NYSE). Similar to WFT, Apache has sold off over the last week, and now shares of the crude oil/natural gas explorer are testing their support at the 50-day moving average. As you can see from the chart, this level has acted as a strong support level since March, so we could see a bounce in APA shares coming soon.

APA

But in many respects, we’re already exposed to any forthcoming upside moves in the oil/gas drilling and exploration sector via Patterson-UTI Energy (PTEN – NASDAQ). As you can see below, PTEN is also in the process of hammering out a near-term bottom, so continue holding your PTEN June 35 Calls (NZQ FG) for continued upside.

PTEN

Also noteworthy are the coal stocks, which collectively have been the one sector group that successfully withstood last week’s market drubbing. Therefore, names like Fording Canadian Coal Trust (FDG – NYSE) and Foundation Coal Holdings Inc. (FCL – NYSE) remain viable plays for a forthcoming call play.

FDG

But in terms of new trades for right now, I’d like to offer an equally-weighted position that gives us exposure to both the upside and the downside. After all, we’re all aware of the pending threats that could derail this market (notably inflation, weak housing, weak credit, weak retail, and so on). Therefore, it’s smart to enter into a downside position via the S&P Spiders (SPY – AMEX).

SPY

As you can see below, the SPY is attempting to hammer out support at the key 50-day moving average. If this effort turns out to be successful, the SPY will rally. But if not, then it could be due for another substantial fall. Therefore, let’s protect ourselves against this downside threat by adding the SPY June 138 Puts (SFB RH). As today’s first order of business, let’s go ahead and establish this new protective put position now!

PLAY: Buy the SPY June 138 Puts (SFB RH) at or under $2.65, good for the day. Place a protective stop limit at $1.60 and a sniper sell at $3.40.

After establishing this put position, I’d like to trade a 200-day moving average support point on shares of John Deere (DE – NYSE).

DE

Earlier this month, Wall Street hammered DE shares after reporting in-line earnings and offering “conservative” guidance. The result took shares from $90.00 down the $80.00, and now the stock is in the process of establishing a support level right at the key 200-day moving average. Make no mistake, DE is a great company in a sector poised for multi-year growth, so playing calls at this key support level represents a safe way to profit off any forthcoming strength. Therefore, let’s add DE calls now!

PLAY: Buy the Deere June 80 Calls (DE FP) at or under $4.60, good for the day. Place a protective stop limit at $2.30 and a sniper sell at $5.70.

And finally, I also want to use any oil-related weakness to scoop up cheap calls. And I think we have this very opportunity right now with shares of Petroleo Brasileiro (PBR – NYSE). As you can see, the Brazilian oil giant has pulled back nicely, and this offers us a nice chance to play any forthcoming oil strength into June. Therefore, let’s add PBR calls as well.

PBR

PLAY: Buy the PBR June 70 Calls (PMJ FN) at or under $4.70, good for the day. Place a protective stop limit at $2.50 and a sniper sell at $6.00.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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