Add AGU Puts

Playing Downside Momentum

By Bryan Bottarelli
Thursday, May 21, 2009 11:50 AM EDT
Thu, 21 May 2009 15:50:00 GMT

PLAY: Buy the AGU June 50 Puts (AGU RJ) at or under $3.90, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $6.00.

Dear Bottarelli Research Member,

First off, congratulations on this morning’s DXD winner. As I mentioned, the Dow’s inability to penetrate the 8,600 level has now lead to today’s profit-taking. As you can see from the chart below, the Blue Chips now have the 7,750 to 8,000 level in their sights. You can see this annotated on the chart below:

INDU

To tell you the truth, if the financial, retail, and real estate sectors were fully participating in this sell-off, the Dow could easily be down over 300 points. But as it stands, all three sectors are showing only fractional losses today. Therefore, if the pendulum fully swings to the downside, there could be a lot more red ink on the way. That’s why I’ll continue to monitor our SRS June 25 Calls (SAK FE) and our FAZ June 8 Calls (FAY FH). I admit, both positions have a lot of ground to cover. But since they’re leveraged at a 2-to-1 rate, they could recover quickly. My plan is to hold these plays until the first week of June. At this time, if we’re not showing any signs of life, we’ll close them off. But now that the markets are selling off, let’s see if they can mount a comeback.

In terms of our DRYS June 7.50 Calls (OOC FU), the dry bulk shipper should be sitting at a strong level of support right now. Let’s hold this one a little longer, just to see if we can get another upside pop off the 50-day moving average.

DRYS

Now, in response to today’s selling pressure, we’re seeing a pullback in many of the stocks that have gotten over-extended over the last few weeks. Notably, the agricultural and fertilizer sector is taking it on the chin today, and this could present an opportunity to play puts on Agrium (AGU – NYSE).

AGU

As you can see, the fertilizer company engaged in a powerful run that took shares nearly $10.00 higher over seven trading days. But today, it’s pulling back hard. In my view, a move to $45.00 appears to be a lock, with a possible move down to the 50-day moving average at $42.00. So, as a quick downside momentum play going into a long holiday weekend, let’s play AGU puts now.

PLAY: Buy the AGU June 50 Puts (AGU RJ) at or under $3.90, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $6.00.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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