Add TBT Calls

Plus: Maintain PRU, V, RGLD, ADM, and QID

By Bryan Bottarelli
Tuesday, March 17, 2009 10:56 AM EDT
Tue, 17 Mar 2009 14:56:00 GMT

PLAY: Buy the TBT April 48 Calls (TBT DV) at or under $2.30, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $4.00.

Dear Bottarelli Research Member,

It’s pretty clear that the 7,500 level on the Dow and the 750 level on the S&P 500 are both very crucial levels. As you can see from the two charts below, both major market indices are currently in the process of deciding whether or not they’re strong enough to hold at these levels — and that’s why we’ve seen such a mixed bag of trading. You can clearly see this pivotal decision point reflected in the Dow and SPX charts below:

INDU

SPX

At critical decision points like these, the most sensible trading tactic is to play alongside the prevailing trend. And as you can guess, the prevailing trend is down. Therefore, we’ll remain biased to the downside until the market gives us a powerful reason to change this viewpoint.

Looking at our current positions, we’re positioned to play a downside move using our PRU April 20 Puts (PRU PX) and our Visa April 50 Puts (V PJ). Our PRU puts traded as high as $4.20 today before reversing, so this play still looks good. And as you can see below, Visa is on the verge of breaking below the 50-day moving average for good. If this occurs, our Visa puts will move back into the black very quickly.

V

I also want to maintain upside exposure to gold via the RGLD April 40 Calls (MJQ DH). As you can see, RGLD is currently stuck between the 50-day and the 200-day moving averages, but I’d expect to see an upside breakout move soon.

RGLD

On the upside, we’re holding the ADM April 30 Calls (ADM DF), simply because the stock chart is technically strong and the upside call options are super cheap. That makes for a nice combination.

ADM

We’re also still holding the call side of our QID March 69 Straddle, which is the QID March 69 Calls (DYM CQ). As you know, we need these calls to trade above $1.00 to break even on our straddle position — and time is running short. In retrospect, I should have waited another day or two before selling the put side of the straddle, because that would have handed us a nice 35% gain. But that’s old news. Unless we see a strong downside move on the NASDAQ, we’ll most likely take a small loss on this straddle position.

QID

In terms of new trades, I’d like to once again jump into calls on the UltraShort 20+ Year Treasury ProShares (TBT – NYSE).It’s becoming clear that the global market for Treasuries is quickly drying up. Right now, the only buyers are our own Fed, which is a troubling situation. We can no longer count on money flowing in from the Chinese and the Japanese, which should act as a negative catalyst. As a result, playing calls on the TBT will hand us a nice return as Treasuries fall. As you can see from the TBT chart below, we’re getting close to touching a strong support level at the 50-day moving average, so let’s jump into calls now!

TBT

PLAY: Buy the TBT April 48 Calls (TBT DV) at or under $2.30, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $4.00.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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