Play MOS Calls

A Quick Over Sold Upside Play

By Bryan Bottarelli
Wednesday, July 09, 2008 9:58 AM EDT
Wed, 9 Jul 2008 13:58:00 GMT

PLAY: Buy the MOS July 140 Calls (MTJ GH) at or under $3.90, good for the day. Place a sniper sell at $5.50 and a protective stop limit at $1.40.

Dear Bottarelli Research Member,

This morning, aluminum giant Alcoa (AA – NYSE) reported Q2 profits of $546 million ($0.66 per share), which was down from $715 million ($0.81 per share) one year earlier. But since analysts were looking for a reduced profit expectation of $0.65 per a share, their number actually “beat” expectations — and as a result, shares of AA are rallying in the early going.

Reactions like this often make me wonder who is the omnipresent being who establishes these expectations? And more importantly, who decides if an earnings reaction will be a positive or a negative one?

After all, we’ve all seen companies report blowout earnings — yet the Wall Street reaction is a sharp sell off (MOS, POT, and BG come to mind). And then you have a situation on AA today, where a company barely beats reduced earnings, and the reaction is a 5% pop.

If anything, this Alcoa reaction could indicate that stock prices have now become so reduced, that any earnings number that even comes close to the consensus estimates will be a reason to push stock values higher. After all, a quick look at the Dow Diamonds (DIA – AMEX) chart clearly shows a severely oversold market that’s desperately looking for an upside catalyst. If earnings season provides this catalyst, then we could see a near-term bounce at these levels.

DIA

As a result, I’d like to make a quick (and cheap) upside call play in the high-flying potash sector, with specific emphasis on Mosiac (MOS – NYSE). As you can see from the MOS chart below, shares have just dipped under the 50-day moving average, signaling an over sold condition on the potash producer. The last time MOS dipped under its 50-day moving average, it rallied to the tune of $40.00 in just under a month. In our case, all we need it a one or two day pop and we’ll be happily out with a nice gain in hand. So as a quick upside play on an over sold market, let’s play July calls on MOS now.

MOS

PLAY: Buy the MOS July 140 Calls (MTJ GH) at or under $3.90, good for the day. Place a sniper sell at $5.50 and a protective stop limit at $1.40.

Let’s also keep a close eye on our little trading gem, DUG. With oil prices up only $1.40 today, we could easily see this gain evaporate into a mid-afternoon loss. If this reversal occurs, we could once again see an upside pop in this ultra-short oil play that we’ve had so much success with, so keep DUG on the radar. I’ll also be watching the VIX and the SDS, as each could offer us a protective hedge against further downside market action. If we need to make any plays on the DUG, VIX, or SDS, you’ll be the first to know. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From July 2008