Add UYG Calls

A Controversial Play

By Bryan Bottarelli
Tuesday, October 07, 2008 10:48 AM EDT
Tue, 7 Oct 2008 14:48:00 GMT

PLAY: Buy the UYG November 13 Calls (UUF KO) at or under $3.60, good for the day. Place a protective stop limit at $1.50 and a pre-determined sniper sell at $7.00.

Dear Bottarelli Research Member,

I have an unconventional, perhaps even controversial, play that I’d like to share with you.

The play is calls on the Ultra Financials ProShares (UYG – AMEX), which move at a rate of twice the daily performance of the Dow Jones U.S. Financials index. That means we’re adding calls on an ultra-long financial play.

Like I mentioned, perhaps is sounds absurd. But if you hear me out, I think we could have an explosive situation on our hands. You see, as I mentioned this morning, rumors are swirling about coordinated rate cuts by the world’s central banks. This could offer a much-needed spark to the marketplace — with specific emphasis on the financial sector. Over the years, I’ve learned that you never fight against the Fed. And right now, they’re pulling out all the stops. Therefore, I think the time to move into UYG calls is now.

UYG

As you can see, the UYG index is at incredibly low values, which makes it super-cheap to carry call options into November. This play will offer you double the upside exposure to companies like American Express, Citigroup, Goldman Sachs, JP Morgan, U.S. Bancorp, and Wells Fargo. But here’s the true catalyst. This basket also gives you exposure to Bank of America, which is down over $4.00 today due to dilution fears. This down-move is keeping today’s move on UYG quite muted, and the BAC move will only be a one-day occurrence. Going forward, I think we have a very, very strong chance of seeing this asset blast higher. Therefore, let’s go ahead and add November calls now!

PLAY: Buy the UYG November 13 Calls (UUF KO) at or under $3.60, good for the day. Place a protective stop limit at $1.50 and a pre-determined sniper sell at $7.00.

And in terms of an equally-weighted ledger, this call play fits nicely in with our WYNN October 65 Puts (UWY VM).Without question, having both sides of this market covered is absolutely critical. That’s just smart tactical trading.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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