Take EXM Profits!

Plus: Maintain WB and BG

By Bryan Bottarelli
Wednesday, August 13, 2008 9:41 AM EDT
Wed, 13 Aug 2008 13:41:00 GMT

PLAY: Sell your EXM September 35 calls (EXM IG) at or above $3.90, good for the day.

Dear Bottarelli Research Member,

Good morning. The reason I re-loaded our ledger with Wachovia (WB — NYSE) puts is becoming evident today. First off, the SEC’s controversial rule against investors taking naked short positions in 19 financial stocks has now expired, which could trigger another round of downside selling pressure.

Not only that, but WB also carries a $122 billion portfolio of “pick-a-pay” mortgages. If you’re looking for that so-called “next shoe to drop” in the financial sector, than these instruments could be it.

“Pick-a-pay” mortgages are negative-amortization mortgages that allow the borrower to pay less than the required monthly amount, thus increasing the size of the loan. Sounds like bad news to me. Also, Wachovia also has more than $200 billion in commercial loans that could trigger even more losses if the U.S. economy slides into recession. Therefore, we’re currently holding WB September 16 Puts (WB UH). We entered them yesterday for $2.20 and they’ve traded as high as $2.70 this morning, good for a quick 22% gainer. Maintain your pre-determined sniper sell at $3.20.

At the same time, let’s go ahead and lock in profits on our EXM September 35 calls (EXM IG).We entered these calls on Monday for $2.90 and they’ve now traded as high as $4.00, good for a 37% gainer. Let’s lock in these profits now!

PLAY: Sell your EXM September 35 calls (EXM IG) at or above $3.90, good for the day.

Also, maintain your BG September 100 Calls (BG IT) for more upside. And as always.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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