Thinking One Step Ahead

Add GLD Calls

By Bryan Bottarelli
Tuesday, September 30, 2008 2:58 PM EDT
Tue, 30 Sep 2008 18:58:00 GMT

PLAY: Buy the GLD October 87 Calls (GLD JI) at or under $3.10, good for the day. Place a protective stop limit at $1.40 and a pre-determined sniper sell at $5.00.

Dear Bottarelli Research Member,

Throughout today’s session, I’ve been surprised that the major market averages have been able to hold onto their gains.

As you know, I expected the major market averages to fall again today, which is why I instructed you to hold onto both sides of your DIA Political Straddle position. I was looking for one final down-stroke to close out the entire basket for a gain somewhere between the 40% to 70% profit target.

But as I write, the Dow has just ticked up to a 400-point gain. Our DIA Straddle position currently trades for a total of $7.35, which is still profitable, but far less than what we had yesterday. Did I miss the ideal exit point?

Perhaps.

But I don’t think so.

You see, the more I thought about it, the more convinced I became that we could see yet another violent downside move. After all, today’s 400-point recovery move is based on a lot of lofty assumptions.

First off, we’re rallying off the assumption that a counter-proposal bailout will get passed later this week. Perhaps it’ll get done. But as of today, it has yet to get passed. Therefore, any big relief rally, in my view, is still premature.

Secondly (and a lot scarier if you ask me), is the common belief that the bailout package will not only get passed — but will work. In my view, that’s a big “IF.”

Think about it. For over 100 years, traders at firms like Bear Stearns, Lehman Brothers, Morgan Stanley, and Merrill Lynch have successfully navigated virtually every market environment. They’re some of the smartest financial minds in the world — and a good majority of them have failed in the current credit crisis.

INDU

Keeping this in mind, what makes you think that a bunch of congressmen (and women) sitting around a mahogany desk are any better equipped to solve this problem? Especially when many of these same characters repeatedly told us that our “economy is strong” and we’re “fundamentally safe.”

In my view, nobody is asking the all-important question right now. And that question is this: “What if the bailout package doesn’t work?”

If some watered-down version gets passed — or the common belief on Wall Street, which is that it won’t do a lick of good — we could be in for another sizable down-move. Therefore, I want you to continue holding your DIA October straddle.

At the same time, I also want to take another upside call position in gold via the SPDR Gold Shares (GLD – NYSE).

GLD

As I mentioned this morning, I’d be a buyer as GLD approaches its 50-day moving average. And as you can see, that has indeed happened today. Therefore, let’s go ahead and add a new series of GLD calls to our ledger now!

PLAY: Buy the GLD October 87 Calls (GLD JI) at or under $3.10, good for the day. Place a protective stop limit at $1.40 and a pre-determined sniper sell at $5.00.

And as always,

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 September 2008