Close TBT

Troubled Auction Creates Opposite Effect

By Bryan Bottarelli
Thursday, May 07, 2009 2:02 PM EDT
Thu, 7 May 2009 18:02:00 GMT

Dear Bottarelli Research Member,

It’s time to cut bait on our TBT June 50 Puts (TBT RX). As you know, we entered these puts on May 4th for $2.50 in anticipation of a market pullback. After all, a weak market would lead to safe-haven buying in Treasuries, which would push the TBT down. But as it turns out, the governmental auction did not go well this afternoon, which is creating the exact opposite effect on the TBT. Therefore, we have no choice but to call this position closed. Sell.

From a directional standpoint, we’re actually seeing a market that’s extending the losses throughout the day. Leading up to this point, every single dip has been aggressively bought, which has fueled the upside run. But now, perhaps we’re turning the corner?

If that’s the case, then we’ll certainly want to remain in our downside positions, which includes SRS June 25 Calls (SAK FE), FAZ June 8 Calls (FAY FH), SMH May 22 Puts (SMH QJ), and ESI May 85 Puts (ENJ QQ). As I mentioned before, I’ve stubbornly held onto these plays in anticipation of a downside move. Today could be the beginning of this down-leg. Therefore, I’ll continue to follow these plays going forward.

We are also holding IBM June 105 Calls (IBM FA), which should benefit if the market rallies once again. For now, let’s continue holding these calls as well.

It’ll be interesting to see how we close today’s trading. If we close at or near the lows, this would be a good signal going into tomorrow. As always, I’ll keep you fully informed. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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