Playing Another “Fade”

Add SDS and APA Calls

By Bryan Bottarelli
Thursday, June 11, 2009 10:50 AM EDT
Thu, 11 Jun 2009 14:50:00 GMT

PLAY: Buy the SDS July 54 Calls (SSH GB) at or under $3.00, good for the day. Place a protective stop limit at $1.90 and a pre-determined sniper sell at $5.00.

PLAY: Buy the APA July 85 Calls (APA GQ) at or under $4.40, good for the day. Place a protective stop limit at $2.30 and a pre-determined sniper sell at $6.50.

Dear Bottarelli Research Member,

Good morning. Around this time yesterday, we used the CBOE Volatility Index (VIX) chart to enter into a short position on the Ultra Short Dow 30 Pro Shares (DXD – NYSE). Shortly after entering this play, the Dow moved over 100 points lower, and we locked in a quick intra-day winner. As it turned out, it was smart to lock in these gains, as the dip-buyers once again trimmed a 100-point loss to only a 24-point loss by the close of trading. Today, the markets have opened higher, so the big question will be whether or not this early rally is once again sold into (similar to yesterday). Thus far, the gains have remained muted.Therefore, I’d like to move now.

In preparation for another quick round of selling pressure, I’d like to once again play calls on an Ultra-Short vehicle. But this time, I’d like to play the Ultra Short S&P 500 ProShares (SDS – NYSE), simply because they have more exposure to the financial sector.

SDS

You see, I’ve been keeping a very close eye on Goldman Sachs (GS – NYSE) lately, and it appears like the stock has gotten over-extended. The stock looks ready to test the $130 level, or possibly even below. This could signal that the entire financial sector is ready to take a breather, which would move the SDS at a higher rate than a Dow 30 play like the DXD.

GS

Therefore, let’s carefully add July calls on SDS. We’ll lock in any quick-hit winners throughout the day. Here’s the play…

PLAY: Buy the SDS July 54 Calls (SSH GB) at or under $3.00, good for the day. Place a protective stop limit at $1.90 and a pre-determined sniper sell at $5.00.

At the same time, I’d also like to add upside calls on natural gas and crude oil player Apache Corp. (APA – NYSE). I get the sense that APA is about to break above the previous high of $85.00, especially as more and more traders are turning bullish on natural gas. Let’s play this move by adding July calls as well.

APA

PLAY: Buy the APA July 85 Calls (APA GQ) at or under $4.40, good for the day. Place a protective stop limit at $2.30 and a pre-determined sniper sell at $6.50.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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