Add GS Puts

Playing Goldman Down

By Bryan Bottarelli
Monday, June 22, 2009 12:25 PM EDT
Mon, 22 Jun 2009 16:25:00 GMT

PLAY: Buy the GS July 135 Puts (GS SG) at or under $4.85, good for the day. Place a protective stop limit at $2.30 and a pre-determined sniper sell at $7.00.

Dear Bottarelli Research Member,

It’s shaping up to be an ugly day on Wall Street. The internals are miserable, as basically every sector is in the red today. Therefore, I’d like to carefully add a new July put play on Goldman Sachs (GS – NYSE).

In a recent LEAPS alert, I introduced a strategy of “selling to open” calls on some of the most expensive stocks. This strategy entails selling over-priced options at a high, and them buying them back at a later date for much cheaper prices. The difference in premiums is profit that you keep. I bring this up today because we utilized this tactical maneuver on MasterCard and Goldman, and thus far, both plays have worked out well. For example, we sold GS January 190 Calls (GPY AR) for $4.60 and they’re currently trading for $3.20. We also sold MA January 220 Calls (MAL AD) for $5.10 and they’re currently trading for $3.50. As I study the charts on both stocks, I continue to believe that both stocks still have significant room to move lower, especially if the markets begin to aggressively sell off. For example, if GS breaks below the 50-day moving average, it legitimately has $40.00 to fall before finding any sort of support level at the 200-day moving average around $105.00.

GS

Therefore, I’d like to carefully play any extended downside move on GS by adding July puts now. Specifically, let’s add the GS July 135 Puts (GS SG) anywhere under $4.85 and play an extended downside move. Here’s the play…

PLAY: Buy the GS July 135 Puts (GS SG) at or under $4.85, good for the day. Place a protective stop limit at $2.30 and a pre-determined sniper sell at $7.00.

At the same time, we’re coming up on a very powerful opportunity to isolate a bottom in metals prices and play a pending bounce. I understand that the GDX play didn’t work for us, but a glance at the Phlx Gold Silver Index (XAU) shows what a dramatic pullback we’ve seen in metals prices lately. If we can correctly time a bottom, we could have a powerful winner on our hands.

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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