Two New Plays

Add PSA Puts & GDX Calls

By Bryan Bottarelli
Thursday, November 13, 2008 10:56 AM EST
Thu, 13 Nov 2008 15:56:00 GMT

PLAY: Buy more GDX January 23 Calls (GBJ AW) at or under $1.65, good for the day. Lower your protective stop limit to $0.95 and maintain your pre-determined sniper sell at $4.50.

PLAY: Buy the PSA December 65 Puts (PSA XM) at or under $6.50, good for the day. Place a protective stop limit at $3.10 and a pre-determined sniper sell at $9.00.

Dear Bottarelli Research Member,

Our decision this morning to lock in profits on our KSS and RATE puts was well timed, as over the last 25 minutes, the major market averages have once again bounced into a 100-point gain. And then this 100-point advance evaporated once again. This type of choppy, intra-day behavior will be pretty standard for the rest of the 2008 calendar year. Therefore, we must remain as nimble as ever.

INDU

As you can see from today’s Dow chart, the Blue Chips are once again making a feeble attempt to rally, similar to the upside candlestick formation we witnessed four trading sessions ago. My first instinct is to short the rally by adding another series of puts. And as you’ll see below, we’ll carefully add one new put play that does just this. But in my view, today’s rally could have legs — but it won’t last long. Going into tomorrow — and starting next week — we could see more downside that takes the Dow below the 8,000 level. Therefore, we’ll continue playing each side of the ledger, with more emphasis on the downside. And we’ll also continue locking in quick profits as they come our way.

Because of this forward market prediction, I continue to believe that gold will soon emerge as a safe-haven play. It’s rather shocking that gold has not performed better, especially in these incredibly uncertain times. What’s more, gold miners (essentially real estate companies sitting atop gold deposits) are trading at 25-year lows. As I mentioned before, the ratio that compares gold prices to the prices of gold mining stocks is at levels we haven’t seen since 1984. This makes no sense to me.

Looking at the chart of the Market Vectors Gold Miners ETF (GDX – AMEX), I would argue that a support point at current levels would effectively establish a higher low right at the $20.00 level. And going forward, this would create a bullish technical formation which could easily push shares of GDX back into the $30.00 level prior to our January expiration date. Therefore, let’s play this move by adding to our GDX January 23 Calls (GBJ AW).As you know, we entered this position on November 10th for $2.90, and these calls are now trading for $1.55. Let’s lower our total cost basis and add to our position now!

GDX

PLAY: Buy more GDX January 23 Calls (GBJ AW) at or under $1.65, good for the day. Lower your protective stop limit to $0.95 and maintain your pre-determined sniper sell at $4.50.

Over on the put side, I’d like to play a continued downside move on shares of Public Storage (PSA – NYSE).As you probably know, PSA is the proud owner of 2,012 self-storage facilities in 38 states — many of which occupy worthless real estate alongside major highways and interstates. If you look closely at the PSA chart, you’ll see that shares hit a new 52-week low yesterday at $65.39, which indicates that you will NOT see a double-bottom formation on their stock chart. Rather, the stock will continue falling to $60.00 and below. Let’s profit off this move using December 65 Puts (PSA XM).

PSA

PLAY: Buy the PSA December 65 Puts (PSA XM) at or under $6.50, good for the day. Place a protective stop limit at $3.10 and a pre-determined sniper sell at $9.00.

NOTE: The current bid/ask spread on these puts is a rather wide $5.80 bid to $7.00 ask. I don’t want the floor traders getting such an advantageous spread, so let’s try to eliminate their advantage by bidding no more than $6.50 for these contracts. In other words, do not buy these puts at market price. Use a limit price to determine your entry price.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From November 2008