Add JPM and PRU Puts

“One Ugly Market”

By Bryan Bottarelli
Monday, March 02, 2009 11:50 AM EST
Mon, 2 Mar 2009 16:50:00 GMT

PLAY: Buy the PRU March 15 Puts (PRU OZ) at or under $2.50, good for the day. Place a protective stop limit at $1.30 and a pre-determined sniper sell at $4.30.

PLAY: Buy the JPM March 20 Puts (JSA OD) at or under $1.50, good for the day. Place a protective stop limit at $0.60 and a pre-determined sniper sell at $2.90.

Dear Bottarelli Research Member,

This is one ugly stock market.

As you can see below, the Dow is now completely underneath the 7,000 level. From a technical perspective, the Dow no longer has a safety net. There’s slight support at the 6,500 level, but its’ easy to see that the next 1,000 points could move rather quickly.

INDU

Now, like we’ve seen before, the markets could also engage in a day or two of upside. If this occurs, we’ll short it. After all, we’re getting into a dangerous place right now, and we want to maintain as much downside exposure as possible. So for today, I’d like to carefully add two additional put plays to our ledger. Both are relatively inexpensive, yet they’ll each increase our downside protection.

The first comes in the form of Prudential Financial (PRU – NYSE).AIG’s stunning loss is setting a black cloud over the entire financial/insurance industry, and PRU could be the next victim. I’m expecting shares to drop into the single-digits soon, so let’s play this fall using March puts.

PRU

PLAY: Buy the PRU March 15 Puts (PRU OZ) at or under $2.50, good for the day. Place a protective stop limit at $1.30 and set a pre-determined sniper sell at $4.30.

At the same time, we could also see a pullback in shares of JP Morgan Chase (JPM – NYSE).Many consider JPM one of the most well-run banks under the leadership of Jamie Dimon. For the most part, that’s correct. But JPM is certainly not immune to the troubles facing the financial sector, and today’s chart indicates that shares could once again pull back under the $20.00 level. Let’s get positioned to profit off this move using March puts as well.

JPM

PLAY: Buy the JPM March 20 Puts (JSA OD) at or under $1.50, good for the day. Place a protective stop limit at $0.60 and a pre-determined sniper sell at $2.90.

At the same time, be sure to close out your AGU March 40 Calls (AGU CH). The market’s unrelenting selling pressure just couldn’t hold up AGU for an extended period of time. Therefore, our calls have been stopped out. Officially close out the position. Sell.

This leaves us holding the TBT April 48 Calls (TBT DV) and the CMG April 60 Calls (CMG DL). Just to maintain some sort of upside protection, I’d like to maintain both plays. If we do witness a reversal, we’ll be glad that we’re holding both of these two plays. Should anything else come up, you’ll be the first to know. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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