Add DXD Calls

Biasing the Ledger Down

By Bryan Bottarelli
Tuesday, June 16, 2009 10:22 AM EDT
Tue, 16 Jun 2009 14:22:00 GMT

PLAY: Buy the DXD July 45 Calls (DXD GS) at or under $3.40, good for the day. Place a protective stop limit at $1.75 and a pre-determined sniper sell at $5.50.

Dear Bottarelli Research Member,

Good morning. After yesterday’s low-volume sell-off, the major market averages are attempting to bounce back today. Thus far, it’s been slow going. As you can see from the Dow chart below, the Blue Chips are hanging by their fingernails to the 200-day moving average. It’s quite clear to me that the sentiment is slowly transitioning over to the bears, sparked entirely by a full stable of exhausted bulls. As I look at today’s formation, I continue to believe that we’ll re-test the 50-day moving average at 8,250. If so, that’s 350 points of potential downside from current levels. And then, as I’ve mentioned before, if the 50-day moving average does not hold, then look out below. The move from 8,250 down to 7,500 could be swift and sharp.

INDU

But once again, we’ll take this one day at a time. From a positioning standpoint, we currently own UNP July 55 Puts (UHP SK) and BEN July 75 Puts (BEN SO), both of which have been in and out of profitability since we entered yesterday. BEN is looking particularly vulnerable today, so maintain both plays.

BEN

On the flip-side, we also own APA July 85 Calls (APA GQ) and GDX July 40 Calls (GDX GN), which stand to benefit if commodities snap back going into July. We’re seeing a little bit of this recovery move today, but it’s still early on. The bounce in GDX today is encouraging, and APA is still holding its own. Maintain both plays.

APA

GDX

In terms of new trades, I’d like to begin balancing our ledger a little more to the downside – and that means it’s now time to add a new July call position on the Ultra Short Dow 30 ProShares (DXD – NYSE). As you know, the DXD moves at a rate of twice the inverse of the Dow 30. This trade is designed to capitalize on a quick and sudden downside push, which could happen at any time in this market. So let’s get positioned to ride any sort of downside push by adding DXD July calls now.

DXD

PLAY: Buy the DXD July 45 Calls (DXD GS) at or under $3.40, good for the day. Place a protective stop limit at $1.75 and a pre-determined sniper sell at $5.50.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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