Two Closing-Day Trades

Add V Puts & QID Straddle

By Bryan Bottarelli
Friday, March 06, 2009 2:31 PM EST
Fri, 6 Mar 2009 19:31:00 GMT

PLAY: Buy the Visa April 50 Puts (V PJ) at or under $4.00, good for the day. Place a protective stop limit at $2.40 and a pre-determined sniper sell at $6.00.

PLAY: Buy the QID March 69 Straddle. This means purchase both the QID March 69 Calls (DYM CQ) and the QID March 69 Puts (DYM OQ) at market, good for the day.

Dear Bottarelli Research Member,

In our last alert, I mentioned that the markets are finding themselves in a very dangerous place. The more I look at things, the more I’m convinced that we’re going to see more volatile days ahead. I’m talking +200 one day, -300 the next, and so on. As a prime example, look no further than the VIX. Back in November, the VIX was trading as high as 80. But now, despite the fact that we’re setting new lows, the VIX is trading all the way down at 50. This tells me that we still haven’t seen the true “wash out” yet. The panic selling that pushed the VIX up to 80 in November is nowhere near what we’re seeing right now. As a result, we could see even more violent weakness ahead.

VIX

In preparation for this, I’d like to close the week with two new trades. The first is a put play on Visa (V – NYSE). Now I admit, we held Visa puts before and got saddle-wacked by a freakish earnings report. But if you look at the Visa chart now, you’ll see that all of this earnings-based euphoria has evaporated. Shares are breaking below their 50-day moving average as we speak, which indicates that a move down to the previous low at $42.50 is possible. Let’s play this downside using April 50 Puts.

V

PLAY: Buy the Visa April 50 Puts (V PJ) at or under $4.00, good for the day. Place a protective stop limit at $2.40 and a pre-determined sniper sell at $6.00.

At the same time, I’d also like to move on the Ultra-Short Straddle position that I hinted at earlier today. And I’d like to play it on the UltraShort QQQ ProShares (QID – NYSE).

Shares of Apple Computer received a downgrade today, which is casting a black cloud on the entire technology sector. After all, if Apple can’t make it right now, then everyone is doomed. This could be the trigger that sparks a downside move in the NASDAQ, and if that’s the case, I certainly want to be positioned to profit off it.

QID

At the same time, a straddle will allow us to participate in any single-day rallies too. And according to the QID chart, we could easily see a move back to support at $57.50 or a re-test of the previous high at $85.00. Either way, a straddle offers us a way to profit. Therefore, let’s get positioned now!

PLAY: Buy the QID March 69 Straddle. This means purchase both the QID March 69 Calls (DYM CQ) and the QID March 69 Puts (DYM OQ) at market, good for the day. The combined price for both plays will be around $10.30. Buy each contract on a 1-for-1 basis.

Once we’re positioned, I’ll guide you through managing the straddle in the most profitable way possible. In short, we’re looking for big movement in either direction. If we see a violent move, we’ll be in position to lock in profits. In a market like this, this is an ideal position to take. So add this QID straddle now, and going into next week, hope for more volatility. And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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