Add WFT Calls

Take Advantage of Panic Selling

By Bryan Bottarelli
Thursday, October 02, 2008 10:47 AM EDT
Thu, 2 Oct 2008 14:47:00 GMT

PLAY: Buy the WFT January 20 Calls (WFT AD) at or under $3.70, good for the day. Place a protective stop limit at $1.90 and a pre-determined sniper sell at $6.00.

Dear Bottarelli Research Member,

Truth be told, I was not expecting the major market averages to be down so precipitously this morning. But a reduced outlook in the fertilizer sector (notably MOS, POT, MON) has once again sparked weakness across every commodity group, and this helped contribute to another 200-point loss on the Dow.

INDU

Looking at the weekly Dow chart, the 10,500 level is making a strong effort to hammer out a support level. I sense that the markets still have a high level of fear and anxiety with the bailout plan headed for a House vote, which is understandable considering that the last failure sparked the largest single-day loss in the history of the markets. But when you look at today’s moves on some specific stocks, the selling pressure is getting rather absurd. Case in point, look at the weekly chart of global oil and natural gas driller Weatherford International (WFT – NYSE).

WFT

As you can see, the stock is making an aggressive move below its 2-year support level at the 200-day moving average. This is such a grossly overblown move to the downside, its’ not even funny. For example, I think that the market is treating WFT like the global search for oil is over. No more oil and gas drilling. Ever.

I admit, that’s probably the most ridiculous statement you’ve ever heard. But as ridiculous as it sounds, that’s how Wall Street is treating WFT right now. Sometimes, panic and fear can overcome rational thinking, and that’s what we’re seeing on many phenomenal companies right now. Therefore, I’d like to use these incredibly low valuations to add January 20 calls on WFT. With prices so low, we can certainly pay for more expiration time. And if the bailout bill sparks an upside rally, WFT could quickly bounce above its 200-day moving average. Let’s use the panic selling to our advantage and add the January 20 calls now.

PLAY: Buy the WFT January 20 Calls (WFT AD) at or under $3.70, good for the day. Place a protective stop limit at $1.90 and a pre-determined sniper sell at $6.00.

*NOTE: I admit, it takes some brass balls (for lack of a better description) to make a play like this, but buying into this extreme low within the powerful oil drilling sector looks like a smart move. Combine this play with an extended January expiration, and we have some time to witness a snap-back recovery. Therefore, I think the risk versus reward factor works in our favor.

At the same time, continue holding your ICE October 85 Calls (ICE JQ). As you know, we entered these calls yesterday for $4.80 and sold half for position when they hit $6.90, good for a quick 43.75% gainer. As I write, these calls have moved back down to $5.30, so we’re still showing a slight profit on the position. But like I mentioned, a passage of the bailout plan could spark a strong upside move in ICE, so maintain the second half of these calls for more upside. And as always.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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