Re-Establish FAZ Calls

Playing Another Sell-Off

By Bryan Bottarelli
Wednesday, April 22, 2009 10:55 AM EDT
Wed, 22 Apr 2009 14:55:00 GMT

PLAY: Buy the FAZ June 8 Calls (FAY FH) at or under $3.20, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $7.00.

Dear Bottarelli Research Member,

The intra-day market moves continue to amaze me. Right now, the financial sector is maintaining a bullish position after Treasury Secretary Timothy Geithner, speaking in front of a Congressional Oversight Committee yesterday, said, “Currently, the vast majority of banks have more capital than they need to be considered well-capitalized by their regulators.”CBSMarketwatch is running a headline on their home page right now that reads, “Geithner: On the Right Track.”

The bulls who are buying into this comment are brushing off earnings from Morgan Stanley (MS – NYSE), who just reported a net loss of -$0.57 versus an expectation of a $0.03 gain! So once again, it appears like we have policymakers in Washington dictating market direction — despite facts that are indicating more trouble ahead. For traders like us, this will certainly lead to something bad — perhaps in the form of another crushing market sell-off.

Another interesting note is that Geithner said the word “currently” in his quote above. In other words, he’s saying that he believes that the vast majority of banks are adequately capitalized right now, but he doesn’t express any opinion about their health going forward. In my view, it’s all very suspect. In short, I don’t trust it one bit. And today, The Wall Street Journal reported that U.S. banks will be briefed by regulators as early as this Friday on how they performed in the stress tests. Therefore, I’d like to use this opportunity to re-establish a position in the Direxion Financial Bear 3X Shares (FAZ).

FAZ

As you know, the FAZ moves lightning quick, offering us the potential for explosive gains if we time our play correctly. So, just to give us some extra wiggle room, I’d like to add FAZ June calls to our ledger. That way, we can maintain a bearish position in the financials over a 2-month time frame. All we need is more doubt to surface to witness a fear-induced sell-off. At these levels, the risk is worth the reward. Therefore, let’s get positioned now!

PLAY: Buy the FAZ June 8 Calls (FAY FH) at or under $3.20, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $7.00.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From April 2009