Time For Another Straddle

1,000-Point Move in Either Direction?

PLAY: Buy the QLD December 22 Straddle. This entails buying equal amounts of QLD December 22 Puts (QLA XV), which are currently trading between $3.60 and $3.90, and QLD December 22 Calls (QLA LV), which are currently trading between $3.00 and $3.20 per contract. All told, try to enter this entire straddle position for around $7.00. Once you’re in, do not place a pre-determined sniper sell or stop loss on either side of the straddle. Both options are designed to work in tandem with one another. I’ll manage this position within your daily trading alerts.

Dear Bottarelli Research Member,

Good morning.As you very well know, we witnesses the re-test of the October lows, just as I had expected. Over the last two days, the Dow has dropped over 800 points, bringing it to a new low on the year. In fact, since the Blue Chip average not only penetrated but also closed BELOW the October 10^th lows, this indicates that more lows are on the horizon (technically speaking). Dow chart below:

At the same time, it’s also imperative that we monitor the movements of the CBOE Volatility Index (VIX).After all, the VIX is the one and only vehicle that can graphically display market movements driven by fear and panic. And in this market environment, that’s critically important. Now, as you can see from the VIX chart below, we’re now at a double-top. In other words, the last time the market volatility got this high, we engaged in a strong market rally. Therefore, it’s reasonable to say that we could have a strong snap-back rally on the horizon.

To be perfectly honest with you, when I study the technical levels that were just broken yesterday on the Dow — and compare them with the double-top formation on the VIX — I can only conclude one thing. And that is, we could very well see a 1,000-point move in one day. But here’s the thing. It could be 1,000 points up, or it could be 1,000 points down. I could make a compelling argument for either direction. Right now, I rate the odds at 50/50. And in situations like this, the perfect tactical move is to play a straddle.

If you’ve been with me for a while, then you’re familiar with our straddle positions. The idea is to buy an equal amount of calls and puts on the same vehicle at the same strike price, and use any major directional moves to sell your entire basket for premiums that are higher than what you paid.

Further stacking the odds in our favor is the fact that we can play straddles on ultra-positions, which move at a rate of twice their benchmark averages. And despite tremendous price premiums that are now baked into ultra-plays like the DXD, SDS, QID, and DUG, I’ve discovered a new ultra-vehicle that offers us major leverage for reasonable prices. That position is the Ultra QQQ ProShares (QLD – AMEX), which seeks daily investment results that correspond to twice (200%) the daily performance of the NASDAQ 100 Index.

As you can see from the QLD chart, we can easily see further deterioration in the stock price, or we could see a major, major upside move. And with the QLD prices so low (thanks to severe losses recently in Google, Apple, Garmin, Amazon, and Research in Motion) we can enter into a December straddle for much cheaper than any other ultra-play. Therefore, let’s get positioned now!

PLAY: Buy the QLD December 22 Straddle. This entails buying equal amounts of QLD December 22 Puts (QLA XV), which are currently trading between $3.60 and $3.90, and QLD December 22 Calls (QLA LV), which are currently trading between $3.00 and $3.20 per contract. All told, try to enter this entire straddle position for around $7.00. Once you’re in, do not place a pre-determined sniper sell or stop loss on either side of the straddle. Both options are designed to work in tandem with one another. I’ll manage this position within your daily trading alerts.

At the same time, continue to hold your MON December 85 Calls (MON LO) and your GDX January 23 Calls (GBJ AW). The GDX calls are just about to break even, and MON is still on the verge of an explosive upside move. Therefore, maintain both plays.

And as always…

Lock and load!

Sincerely,