Add DUG Calls

Getting Ahead of Any Unwinding

By Bryan Bottarelli
Tuesday, July 01, 2008 2:24 PM EDT
Tue, 1 Jul 2008 18:24:00 GMT

PLAY: Buy the DUG July 28 Calls (DZG GB) at or under $1.10, good for the day.

Dear Bottarelli Research Member,

I’d like to offer a quick and cheap trade for all you speculators, and it comes in the form of the Ultra Short Oil and Gas Pro Shares (DUG – AMEX). As I mentioned previously, DUG is an asset that moves at a rate of twice the inverse of oil. So, if oil prices retrace 5%, shares of DUG will move up 10%.

As you can see below, shares of DUG have been moving lower — which is the obvious result of oil’s 48% upside advance here in 2008. But in terms of our speculative call trade, all we need is oil to move down $4.00 to $5.00 to achieve a big winner playing DUG calls.

DUG

Furthermore, if you look at the USO chart, you’ll see that today’s tick could be setting a near-term high at $115.00. One sure-fire way to blast the major market averages higher is a relief in oil prices, and I certainly think a down-move is coming soon. Heck, Congress would love nothing more than passing an “oil speculator” regulation that pushes oil prices dramatically lower — so the possibility of an oil price reduction isn’t outside the realm of possibilities. But, I do admit that perhaps I’m insane for playing oil prices lower, but there has to be a reversal (or un-winding) sometime. And therefore, I’d like to place a cheap upside July call on DUG to profit off any such move.

USO

Specifically, let’s enter the DUG July 28 Calls (DZG GB) at or under $1.10, good for the day. Once again, this is a speculative play, but all we need is one day of oil prices moving down to witness a very strong winner. For only $1.10 per contract, I feel it’s worthy of taking a shot, so let’s bone up and enter the trade now!

PLAY: Buy the DUG July 28 Calls (DZG GB) at or under $1.10, good for the day. Place a protective stop limit at $0.45, but do not place a sniper sell at this time. If oil prices do indeed reverse, we could see a 100% return on this one. I’d like to maximize our returns as much as possible.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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