Add LLL Puts

Plus, Add More DIA Puts Too

By Bryan Bottarelli
Tuesday, October 28, 2008 10:49 AM EDT
Tue, 28 Oct 2008 14:49:00 GMT

PLAY: Buy the LLL November 75 Puts (LLL WO) at or under $6.00, good for the day. Place a protective stop limit at $2.60 and a pre-determined sniper sell at $7.80.

PLAY: Buy more DIA November 80 Puts (DIJ WB) at or under $4.90, good for the day. Maintain your pre-determined sniper sell at $9.00, but lower your protective stop limit at $2.00.

Dear Bottarelli Research Member,

As you know, perception often times translates into reality. This saying is particularly true on Wall Street, where every un-confirmed rumor or whisper can lead to sharp stock price movements. Therefore, as we lead into the November 4th election, I think that defense stocks like Alliant Techsystems (ATK – NYSE) and L-3 Communications Holdings (LLL – NYSE) will continue to experience weakness.

After all, the perception is that Democratic leadership will be bad news for defense stocks. No matter if this is true or not is irrelevant. The mere threat of a cut in defense spending could be the catalyst that sends these shares lower. Therefore, I think it behooves us to get positioned to profit off further weakness in the defense sector using LLL puts.

LLL

I don’t have to tell you this, but as I look at the current market, everything is down. Therefore, the trick is to isolate stocks that are not only trending down — but that also have a lot of room to fall. That’s the case with LLL. As you can see, the new 52-week low at $73.26 could easily push the stock down to $60.00 and even $50.00. Therefore, let’s play this downside move using November puts. Here’s the play:

PLAY: Buy the LLL November 75 Puts (LLL WO) at or under $6.00, good for the day. Place a protective stop limit at $2.60 and a pre-determined sniper sell at $7.80.

*NOTE: Using this same premise, I have also uncovered put play opportunities on stocks like Precision Castparts (PCP – NYSE), Infosys Technologies (INFY – NASDAQ), and Centurytel (CTL – NYSE), but I’ll reserve these potential plays for sometime in the future.

Looking at our current positions, I was glad to see this morning’s upside pop, especially since we were holding AAPL November 105 Calls (QAA KA) and ABX January 17.5 Calls (ABX AW).Unfortunately, the rally couldn’t last more than one hour, and this has limited the upside moves on both of these call plays. As I write, both AAPL and ABX have traded close to our original entry prices, so let’s maintain each position for further upside moves.

At the same time, I’d like to use this morning’s upside push as an opportunity to add more DIA November 80 Puts (DIJ WB) to our position. As you know, we entered these puts for $5.80. Add to them now anywhere under $4.80, and we’ll put ourselves in better position to profit off an intra-day reversal.

DIA

PLAY: Buy more DIA November 80 Puts (DIJ WB) at or under $4.90, good for the day. Maintain your pre-determined sniper sell at $9.00, but lower your protective stop limit at $2.00.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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