Add WYNN Puts

Plus: Too Bad DUG and ICE Got Away

By Bryan Bottarelli
Tuesday, October 07, 2008 10:11 AM EDT
Tue, 7 Oct 2008 14:11:00 GMT

PLAY: Buy the WYNN October 65 Puts (UWY VM) at or under $5.70, good for the day. Place a protective stop limit at $2.90 and a pre-determined sniper sell at $9.00.

Dear Bottarelli Research Member,

Good morning. Our new era of “regulation” continues this morning, as the Fed announced plans to enter into the commercial-paper market. This news, combined with rumors of a coordinated round of rate cuts by the world’s central banks, has temporarily offered an upside catalyst in early market action. But looking at today’s Dow chart, I still think we’ll revisit levels that were left over from yesterday’s candlestick “tail.” In other words, I think we’ll be spending more time below 10,000 than above 10,000 over the next few days. You might think that this viewpoint contrasts my sentiments of yesterday, which indicated that we could have a momentary upside pop. But guess what? That pop could have already come and gone. It sounds crazy, but in this market, your directional bias simply has to change hour by hour. It’s truly that volatile.

INDU

Now as you know, the two plays that we attempted to enter yesterday did not trigger at our pre-determined entry prices. This is unfortunate, because both positions are doing exactly what I expected this morning. The ICE October 85 Calls (ICE JQ) that we tried to buy for $3.30, expecting an upside move, are now trading for $9.40.

ICE

And the DUG October 55 Puts (DUD VC) that we tried to buy for $4.90, expecting a pullback, are now trading for $9.10.

DUG

That’s two positions that more than doubled over the last 24 hours — which goes to show you what tremendous opportunities exist in a market that’s filled with panicked investors. Of course, I tried to take a safe approach and time our entry prices in a way that we bought at the lows. In a market like this, I wanted to take the safest road possible. And to be honest, despite the fact that we missed two quality trades, I think it’s still smart to trade as cautiously as possible in this environment.

In terms of today’s new plays, I’d like to cautiously enter one new put on casino-operator Wynn Resorts (WYNN – NASDAQ). Similar to the Dow candlestick formation above, I think that shares of WYNN will re-visit the levels underneath $60.00.

WYNN

In fact, when you consider the recent movements of Las Vegas Sands (LVS – NYSE), you’ll see the opportunity we have in WYNN. For most of 2006 and 2007, LVS and WYNN have traded in lockstep with each other. But recently, LVS has fallen at a much higher rate than WYNN. Since both companies are exposed to Las Vegas and Macau, I think the fate of LVS will soon show up in WYNN. Therefore, let’s enter October puts on WYNN now!

LVS

PLAY: Buy the WYNN October 65 Puts (UWY VM) at or under $5.70, good for the day. Place a protective stop limit at $2.90 and a pre-determined sniper sell at $9.00.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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