One Thing’s For Sure: This is Gonna Be Wild

Add DUG Straddle Now

PLAY: Buy the DUG November 41 Calls (DUG KO) and the DUG November 41 Puts (DUG WO) at market price. The total cost of this basket will be around $10.00. Try to purchase both the calls and the puts around this price. After entering the basket, do not place any pre-determined sniper sell or stop loss order. I will manage this position within our daily trading alerts.

Dear Bottarelli Research Member,

It’s time to buckle up, because tomorrow is shaping up to be a wild, wild day.

As I expected, the major market averages have aggressively sold off over the last two days, which indicates that the October re-test of 7,800 is now in the cards. So as we head into the final 90 minutes of trading, let’s look into the crystal ball and see how this will play out.

As you can see, a re-test of the October low means that we could have another 1,000 points of downside ahead of us. And if this occurs, you better believe it’ll come quick. Adding to the situation are rumors that the “good old boys” at the PPT have been pulled off the job, which basically means that the Republicans are saying to Obama, “the market is not our problem anymore, so we’re not going to prop it up any longer.”

In this case, the most troubling scenario is a breakdown below the October low of 7,800. If this occurs, we could hemorrhage major chunks of market valuation.

A more promising scenario would see the markets establish a level of support above the 7,800 level, which would effectively set a higher low. From a technical perspective, this would indicate that the lows have already been set.

What will happen? To be perfectly honest with you, I’m once again rating the odds of an upside or downside move at 50/50. Another coin flip. But one thing’s for sure. Whatever happens, you can expect more days of intense intra-day volatility.

For the run of the mill “buy and hold” investor, this is once again a major headache. But luckily for options traders like us, this situation is perfect to enter into another “Straddle” position.

As a quick refresher, a straddle is an options strategy where you purchase a position in both a call and put with the same strike price and expiration date. This strategy turns a profit if the markets move significantly in either direction — and this strategy loses money if the markets remain stagnant for an extended period of time. Based on today’s market environment, I’m more than willing to bet on heavy volatility.

Further stacking the odds in our favor is the ability to trade ultra-positions, which move at a rate of twice their benchmark indices. If you’ve been with me for a while, then you know we’ve had a great deal of success playing “Political Straddles” using the DXD. But for today, we have an even better opportunity in the UltraShort Oil & Gas ProShares (DUG – AMEX).Just look at this chart below:

As you can see, the DUG finds itself in a very tricky spot (at least for those trying to pick a direction). As I write, it’s trading right between the 50-day and the 200-day moving averages. As I study this chart, it’s clear that the DUG is on the verge of a tremendous upside breakout above the 50-day, or a tremendous downside move below the 200-day. Therefore, the strategy of adding a straddle can’t be more perfect. Based on this, here’s the play…

PLAY: Buy the DUG November 41 Calls (DUG KO) and the DUG November 41 Puts (DUG WO) at market price. The total cost of this basket will be around $10.00. Try to purchase both the calls and the puts around this price. After entering the basket, do not place any pre-determined sniper sell or stop loss order. I will manage this position within our daily trading alerts.

*STRATEGY NOTE: When purchasing this DUG Straddle position, be sure to add equal amounts of calls and puts. For example, buy 1 call for every 1 put. Both the call and the put positions are designed to be held in tandem, using the total entry price of our “basket” as our profit/loss marker. As always, I’ll guide you through it all via our daily trading bulletins.

*LEAPS NOTE: I’d also like to welcome all of the newest LEAPS members to the group. Starting this Saturday, I’ll begin using this downturn to add January 2010 positions on companies that fall into a category I call “Obama’s List.” In other words, there are a group of stocks that’ll tremendously benefit over the next 12 to 24 months under Democratic leadership, and I’m planning on using this market dip to add LEAP calls on these stocks — starting now. At the same time, we’ll continue adding puts on the stocks that’ll suffer through the worst retail environment in decades. Your newest LEAPS bulletin will hit this Saturday at 8:00 CST, so I hope you’re part of the group that receives it! To lock in your space, simply click the secure link below:

https://www.bottarelliresearch.com/subscribe/?service=leap&offer=3VFP1RYGJT

And as always…

Lock and load!

Sincerely,