Add SDS Calls & DBA Calls

Two More Protective Plays

By Bryan Bottarelli
Monday, September 22, 2008 12:06 PM EDT
Mon, 22 Sep 2008 16:06:00 GMT

PLAY: Buy the SDS October 71 Calls (SBJ JS) at or under $3.50, good for the day. Place a protective stop limit at $2.20 and a pre-determined sniper sell at $5.00.

PLAY: Buy the DBA November 33 Calls (DBA KG) at or under $2.50, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $3.90.

Dear Bottarelli Research Member,

As I mentioned earlier, last week’s 800-point gain over two trading days was just too much of an upside push. After all, as the details of the Fed’s “rescue plan” come to fruition, there’s a good chance that Wall Street will not be as relieved as they originally thought, and this disappointment-effect could spark a new round of selling pressure. In fact, we’re beginning to see this already, especially as financial stocks are giving up big chunks of last week’s advance. As a result, I’d like to add a new series of calls on the Ultra Short S&P 500 ProShares (SDS – AMEX).

SDS

Now this is important: Even thought these ultra-short ETFs don’t actually engage in short-selling to produce inverse returns on their stated benchmarks (they typically use swaps and futures), I still fear that the short-selling ban could come into play. After all, we are in uncharted territory with this ban, and the effects are still being sorted out on Wall Street. Therefore, I’d like to make a quick play on the SDS, targeting an upside pop that’ll fill the gap up to the $72.50 level. The tactical strategy is to play the up-move and then get out for a fast gainer. If we see selling pressure leading up to the end of the short-selling ban, we could have a nice winner on our hands. So on that note, here’s the play…

PLAY: Buy the SDS October 71 Calls (SBJ JS) at or under $3.50, good for the day. Place a protective stop limit at $2.20 and a pre-determined sniper sell at $5.00.

At the same time, we’re also seeing money flow back into the commodity markets — and this paints a bullish picture for vehicles like the PowerShares DB Agriculture (DBA – AMEX).

DBA

As you can see, the DBA has now established a low at the $31.00 level, and this should spark a move back up to the 50-day and 200-day moving average cross between $35.00 and $37.00. In this case, I’d like to go out until November, which gives the DBA some room to run. With the call premiums attractively valued, buying an extra month makes sense. Here’s the play:

PLAY: Buy the DBA November 33 Calls (DBA KG) at or under $2.50, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $3.90.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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