Two New Puts

Add UNP and BEN Puts

By Bryan Bottarelli
Monday, June 15, 2009 10:02 AM EDT
Mon, 15 Jun 2009 14:02:00 GMT

PLAY: Buy the UNP July 55 Puts (UHP SK) at or under $4.60, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $7.00.

PLAY: Buy the BEN July 75 Puts (BEN SO) at or under $4.00, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $6.50.

Dear Bottarelli Research Member,

Good morning. As a continuation of last week’s fizzling rally, the major market averages are opening the day in the red. Nearly every sector is down, which indicates broad-based selling pressure across the board. Therefore, it’s time to adjust our ledger in a way that gets us back to a more market neutral position. This involves letting go of one of our update call plays and adding two new put plays. So let’s get started.

First off, let’s take a look at today’s Dow chart. As you can see below, the Blue Chips are putting in a large red candlestick formation today, which is closing in on the 200 day moving average. If this level ruptures, then we could see a quick 250-point loss down to the 50-day moving average. If this level does not hold, then all of the gains we’ve seen over the last three months could be in jeopardy. But first thing’s first. We still have two very significant support levels that need to be tested. Expect fireworks.

INDU

On that note, let’s officially sell our JRCC July 22.50 Calls (JQM GX). Every commodity play is now being sold, so that means it’s time we let this one loose for good. Sell.

Next up, I’d like to look at today’s Dow Transports chart, shown below. As you can see below, the Transports have clearly experienced resistance at the 200-day moving average, which does not paint a strong picture for a continued upside rally.

TRAN

As you know, we hit a quick winner last week playing puts on BNI. This week, I’d like to jump into another put play on railroad operator Union Pacific (UNP – NYSE). Similar to BNI, the Union Pacific chart indicates that the strong rally that pushed it from $45 to $55 is now giving out. Therefore, let’s get positioned to benefit from any forthcoming profit-taking.

UNP

PLAY: Buy the UNP July 55 Puts (UHP SK) at or under $4.60, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $7.00.

At the same time, I also feel like the upside catalyst sparked by the financial sector is pretty much over. Therefore, let’s capitalize on the latest spike in Franklin Resources (BEN – NYSE) to enter July puts as well. As you can see below, BEN had a nice upside push lately, but it now appears like it’s ready to re-test the $65.00 level. Let’s profit off this re-test by adding puts now.

BEN

PLAY: Buy the BEN July 75 Puts (BEN SO) at or under $4.00, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $6.50.

To maintain a balanced ledger, I’d like to maintain our APA July 85 Calls (APA GQ) and our GDX July 40 Calls (GDX GN). As always, I’ll follow up throughout the trading day.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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