Two New Plays

Add DRYS Calls & BA Puts

By Bryan Bottarelli
Wednesday, November 05, 2008 11:37 AM EST
Wed, 5 Nov 2008 16:37:00 GMT

PLAY: Buy the DRYS December 22.5 Calls (OOC LX) at or under $3.80, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $5.50.

PLAY: Buy the BA November 50 Puts (BA WJ) at or under $2.50, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $5.00.

Dear Bottarelli Research Member,

Good morning.As I expected, we’ve begun the day with a slight round of selling pressure. Like we discussed yesterday, the major market averages have put on over 1,000 points over the last six trading days — and we were simply due for a breather. A classic “sell on news” situation surrounding the presidential election did just the trick.

As you can see from the Dow chart below, today’s red tick has done little to eat into the recent market advance. But it could be the start of an extended downside move, especially if Wall Street begins to fret about any tax increases.

INDU

Although Obama has said that he will not raise taxes if we’re still in a recession come January, sometimes the mere threat of a tax increase is all it takes to push the markets lower. Therefore, I want to continue holding both of our downside positions to profit off a further decline. Specifically, the DXD November 65 Calls (DXD KM) that we entered yesterday for $6.80 have inched up to $7.10 today. Chart-wise, this ultra-short position has a lot of room to move up on any forthcoming market declines. Hold.

DXD

Plus, the VZ November 32.5 Puts (VZ WZ) that we entered for $2.55 are showing signs of life, trading as high as $1.86 in today’s session. Looking at the VZ chart, I cannot offer any other read other than the stock moving back down under the 50-day moving average over the next week. Therefore, maintain your puts.

VZ

Over on the call side, our U.S. Steel November 40 Calls (X KH) have withstood a negative news report out of Arcelor Mittal (MT – NYSE) to actually show a slight profit today. As you know, we entered these calls for $3.60, and they’ve traded as high as $3.90 in today’s session. The purpose of this play was to protect ourselves off a continued market advance, and thus far, this play is doing its job. Hold.

X

In terms of new trading opportunities, I’ve uncovered two plays that look quite appealing. First off, shares of the world’s top dry-bulk shipper, DryShips (DRYS – NASDAQ), have been quietly rallying. As I look at the chart, I think that the bottom has been set, and shares of DRYS could extend their current upside move towards the 50-day moving average just under $40.00. That’s an $18.00 up-move from current levels.

DRYS

If you’ve been with me for a while, you know that DRYS can move very, very fast. After all, we were profiting off DRYS calls when the stock was over $70.00 per share. Let’s take an upside position going out into December now.

PLAY: Buy the DRYS December 22.5 Calls (OOC LX) at or under $3.80, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $5.50.

At the same time, we also have a downside opportunity on shares of Boeing (BA – NYSE). As you can see from the chart below, shares of the aerospace giant have encountered major resistance right at their 50-day moving average. This is no coincidence. BA has been unable to break through this level for most of the 2008 calendar year, and this latest attempt is no exception. The stock looks set to move back under the $45.00 level, so let’s profit off this move using November puts.

BA

PLAY: Buy the BA November 50 Puts (BA WJ) at or under $2.50, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $5.00.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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