QID Filled, Maintain UYG

Floor Traders Keeping Prices Muted

By Bryan Bottarelli
Monday, October 13, 2008 2:09 PM EDT
Mon, 13 Oct 2008 18:09:00 GMT

Dear Bottarelli Research Member,

As we moving into the final 2 hours of trading, the Dow has officially registered the first 600-point upside move in history. This is exactly why we took a day off on Friday and maintained our two upside positions going into today. As I write, the QID October 70 Puts (DYM VR) have officially triggered at our $5.00 profit target, locking in a 19% gainer. I completely understand just how volatile this position was, so once again, congrats on another volatile-market winner.

QID

On the same hand, we’re also seeing a nice bounce on the Ultra Financials Pro Shares (UYG – AMEX). But for whatever reason, we’re not seeing the appropriate upside move reflected in our UYG November 13 Calls (UUF KO). After making a strong upside push right at the open of today’s trading, these contracts have drifted lower throughout the powerful intra-day rally. While I can’t be certain, here’s how I’d explain this move.

UYG

On one hand, we could be seeing some hesitation from CBOE floor traders to fully price today’s up-move into these calls. After all, I’m sure they’re gun-shy about increasing the value of financial calls after being burned on them for the last 4-5 months. On that same hand, they’re also watching shares of JP Morgan Chase (JPM – NYSE) trade lower today, which might cause some apprehension as well. But I’ll tell you this. If the financials can maintain their gains today, and extend on these gains into tomorrow, then you have a trend (aside from a one-day move). And in this situation, you’ll see the UYG calls quickly re-priced to properly reflect their true levels. Therefore, let’s maintain these calls for more upside.

In terms of new trades, I’d like to maintain a light ledger. Let’s watch how the market treats today’s gains going into the close — and also see how we open up trading tomorrow. Armed with this information, we can outline our next tactical strategy. So until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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