Early Session Notes

CRM, QID, SDS, and DUG

By Bryan Bottarelli
Monday, July 07, 2008 10:02 AM EDT
Mon, 7 Jul 2008 14:02:00 GMT

Dear Bottarelli Research Member,

Welcome back! I hope you had a nice 3-day weekend.

Unfortunately for myself, I picked a nasty bout of food poisoning, and I’ll spare you the details of last night’s frequent runs to the bathroom. So as it stands right now, unless I have a miracle recovery over the next 4-5 hours, there will probably not be any further trading alerts after this one.

But before retreating back to my position of hovering over the toilet, I would like to highlight some trading notes that I uncovered over the weekend.

The most important was a research note from GuruFocus, which said only four (4) out of 55 of the world’s most famous investors they follow (a group that includes George Soros, Warren Buffet, Carl Icahn, Bill Miller, and Eddie Lampert) achieved stock gains in the first half of this year. In other words, this truly is a challenging market environment — and not even the crème of the crop are being spared.

I did find it interesting that T. Boone Pickens achieved the biggest gain of the group, achieving a 23% return in the first half of this year — notably with the performance of picks like Interoil (IOC – AMEX) — which coincidently has also achieved a 75.98% return in our small cap portfolio.

Another interesting trading note comes in the form of additional put options that we can play. As I write, the Dow is up over 100 points. But in the past, these rallies have been aggressively shorted, so let’s prepare for adding puts on extended upside gains. One possible put-play candidate is Salesforce.com (CRM – NYSE), whose shares are trading at 100x earnings! Maintaining that high multiple in this weak market environment seems nearly impossible to me.

CRM

Also, some traders have emailed to say that their brokers do not allow options trading on the CBOE Volatility Index (VIX). I find this to be quite amazing, especially in a day and age were volatility dictates so many critical aspects of our intra-day trading. But in an effort to issue proper hedge plays for everyone, we could transition over into playing ultra-short positions on the S&P 500 ETF (SDS) or the NASDAQ 100 ETF (QID). Both instruments gain at a rate of twice the inverse of their respective benchmark indices.

And speaking about ultra-short positions, oil has opened the day down $5.00 (as I was calling for last week!) so we could get another shot at playing calls on UltraShort Oil & Gas ProShares (DUG) as well.

But until further notice, have a good trading day — and I’ll be back with you as soon as possible. And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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