Two New Plays

Add ABX Calls & AAP Calls

By Bryan Bottarelli
Tuesday, March 03, 2009 10:40 AM EST
Tue, 3 Mar 2009 15:40:00 GMT

PLAY: Buy the AAP April 40 Calls (AAP DH) at or under $2.30, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $3.60.

PLAY: Buy the ABX April 27.5 Calls (ABX DA) at or under $3.40, good for the day. Place a protective stop limit at $2.10 and a protective sniper sell at $5.50.

Dear Bottarelli Research Member,

On the heels of yesterday’s 299-point drop, the major market averages are putting in a slight green tick today — but it’s nothing to write home about.

INDU

To be honest, it appears like the markets could be ready for a short-term bounce. But nevertheless, we’re still in a very dangerous position — one which could pull the Dow down underneath 6,000 very quickly. Therefore, we’ll continue to trade selectively and cautiously in these times of heightened directional risk.

For today, I have two new trades. The first comes in the form of Advance Auto Parts (AAP – NYSE).As you probably know, I’ve been quite skeptical about the $150.00 share price of AutoZone (AZO – NYSE).But today, the auto-parts retailer reported earnings that beat estimates, which has pushed AZO shares up to a new 52-week high. See below:

AZO

In a market like this, I’ll admit: That’s impressive. Now, while AZO’s option premiums are sky-high, AAP offers us a more reasonably priced opportunity to capitalize on this same powerful trend. As you can see below, shares of AAP are following AZO’s lead and moving higher. Since this trend looks ready to extend even higher, let’s get positioned in AAP April calls.

AAP

PLAY: Buy the AAP April 40 Calls (AAP DH) at or under $2.30, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $3.60.

Also hammering out a bottom are shares of Barrick Gold Corporation (ABX – NYSE). As you can see below, ABX has taken quite a fall lately, moving from $40.00 down to $27.50 in eleven trading days. This is exactly the move I expected when we added NEM puts as gold hit $1,000 per ounce. Now that gold stocks have moved lower, it might be time to jump back in. Therefore, let’s add ABX calls going out to April.

ABX

PLAY: Buy the ABX April 27.5 Calls (ABX DA) at or under $3.40, good for the day. Place a protective stop limit at $2.10 and a protective sniper sell at $5.50.

Looking at our current positions, continue holding the PRU March 15 Puts (PRU OZ), JPM March 20 Puts (JSA OD), and TBT April 48 Calls (TBT DV). PRU is in the profit zone, and we might be ready to lock in profits soon. JPM and TBT are also right at our entry prices, and further movement in our direction will allow more profit-taking as well. As always, I’ll keep you fully updated. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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