Another Speculative Play

Add ACH August Calls

By Bryan Bottarelli
Tuesday, June 24, 2008 12:34 PM EDT
Tue, 24 Jun 2008 16:34:00 GMT

PLAY: Buy the ACH August 30 Calls (ACH HF) at or under $2.60, good for the day.

Dear Bottarelli Research Member,

Yesterday, as shares of BG were getting crushed, we made a speculative trade on the BG July 110 Calls (BG GB). And this morning, we closed out these calls for a quick 35% winner. In this same spirit, I extended my search for high-beta stocks that have gotten clobbered lately, and a list of high-flying China-based plays have come to my attention.

One particular company is Ctrip.com International (CTRP – NASDAQ). The company

provides travel services for hotel accommodations, airline tickets, and packaged-tours in the People’s Republic of China, and as you can see below, the shares have fallen from $70.00 down to $47.50 in under two months.

CTRP

Another company displaying this same pattern is Focus Media Holding (FMCN – NASDAQ).FMCN operates LCD displays, outdoor LED billboards, and Internet advertising networks in the People’s Republic of China, and they’ve also fallen hard — moving from $52.50 down to $27.50 over three months.

FMCN

As you can imagine, these losses have escalated as the Chinese markets have experienced a severe haircut. But as you can see from both charts above, these stocks are each beginning to mount an upside comeback. And if the Chinese markets can find a near-term support level, we could get positioned now to hit a rather large upside winner. One possible way to play this move would be using the iShares on the FXI, as noted below.

FXI

But in my view, an even more explosive play comes in the form of Aluminum Corp. of China (ACH – NYSE). ACH engages in bauxite mining, alumina refining, and aluminum smelting businesses in the People’s Republic of China, and as you can see below, the shares have gotten absolutely decimated lately.

ACH

But unlike CTRP and FMCN, we have yet to see an upside tick occur on ACH. If all of these China-based plays are due for an up-tick, then this could lead to a really nice speculative play going out until August. After all, with such low prices, all we need is one or two strong days on ACH between now and August expiration to lock in a nice return. And in my view, the reward far outweighs the risk. Therefore, let’s add August calls on ACH now!

PLAY: Buy the ACH August 30 Calls (ACH HF) at or under $2.60, good for the day. Place a protective stop limit at $1.20 but do not place a pre-determined sniper sell. I will manage the exit of this position within our daily trading alerts.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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