Maintain DUG Puts

Back in the Black: Hold for More Gains

By Bryan Bottarelli
Wednesday, September 10, 2008 10:04 AM EDT
Wed, 10 Sep 2008 14:04:00 GMT

Dear Bottarelli Research Member,

Talk about hanging by a thread!

At the close of trading yesterday, shares of the ProShares UltraShort Oil&Gas (DUG – AMEX) continued to rally, and this upside move came within $0.05 of triggering a stop loss on our DUG September 44 Puts (DUG UR). But luckily, we were able to maintain the position going into this morning. And now, DUG is pulling back exactly as I expected.

DUG

As I write, your DUG puts have recovered all of yesterday’s losses, and have actually traded as high as $3.00 today, good for a slight gainer. Let’s maintain your pre-determined sniper sell at $4.10 and see if we can use today’s downside momentum to maximize our returns.

In other news, I came across two interesting news items that I’d like to share with you this morning. First up is an eye-popping fact from Merrill Lynch (MER – NYSE). According to The Financial Times, in the 36 years that Merrill Lynch has been a public company, it has achieved cumulative profits of $56 billion. But get this: In the past 18 months, MER has lost $14 billion, representing 25% of the profits they’ve achieved over their 36-year time span. This shocking figure truly puts our current financial crisis into perspective.

Another interesting tidbit came from The New Yorker, which answered the question, “why has the market been so volatile?” According to author James Surowiecki, the volatility is due to a phenomenon that behaviorists call “herding.” In times of uncertainty, investors “herd together for protection,” which means they buy when others buy and sell when others sell. The result is rapid levels of buying and selling intensity that simply mimic the actions of other traders. This “herding” effect could explain the series of 300-point up and 300-point down days we’ve been seeing lately.

Going forward, we’ll continue to play this intense volatility in the best manner possible. Vehicles like SDS and DUG have been working out very well for us, so we’ll keep making these strategic trades at the proper moments. Should something new come up, you’ll be the first to know. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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