Dow Gaps Down 300

Maintain DIA and HIG Puts

By Bryan Bottarelli
Wednesday, October 22, 2008 9:58 AM EDT
Wed, 22 Oct 2008 13:58:00 GMT

Dear Bottarelli Research Member,

On a year to date basis, the Dow, S&P 500, and NASDAQ are down 31%, 34%, and 36% respectively. And this morning, the losses are getting even worse.

As I write, the Dow is down 300 points. Strong earnings news from Apple (AAPL – NASDAQ) can’t even spark an upside rally on the NASDAQ. But that’s exactly why we entered the DIA November 90 Puts (DAV WL) on Monday for $6.00. This so-called “protective” position was added in case we see a downside move like this, and as of today, these puts have traded as high as $7.05, good for a modest 18% gainer.

DIA

At the same time, the HIG November 30 Puts (HIG WZ) that we entered last Friday for $5.50 are also breaking into the profit zone. They’ve traded as high as $5.80 and are moving higher. As of right now, hold both positions for more gains.

Over on the call side, today’s move has lowered our call values, but we’re still holding on (using our November expiration to our advantage). The AMGN November 50 Calls (AMQ KJ) that we entered for $4.80 are now trading for $4.45. Going into tomorrow’s earnings, we could see this position quickly snap back.

We also have WFT November 15 Calls (WFT KC), which we entered for $3.10 and set a $1.30 stop. Based on WFT’s powerful earnings, I think owning this position will pay off going into November. And then we have our ICE November 90 Calls (ICE KR), which we entered for $5.50 with a $2.40 stop. As I write, these calls are trading between $2.90 and $3.10 per contract. Maintain the position, but be sure to adhere to your stop if prices continue dropping.

As always, I’ll be out with further updates as the day progresses. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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