Add More DXD Calls

Lower Cost Basis Awaiting a Pull-back

By Bryan Bottarelli
Tuesday, July 21, 2009 10:07 AM EDT
Tue, 21 Jul 2009 14:07:00 GMT

PLAY: Buy more DXD August 46 Calls (DXD HT) at market, good for the day.

Dear Bottarelli Research Member,

Good morning. This market is absolutely, positively, running on fumes. The Dow is up sharply for the 7th straight day, all on the hopes that the market is showing signs of recovery. This is not a sustainable catalyst.

INDU

At the same time, we’re seeing weakness in the financial sector today, which could be an early indication that we’re ready for a pullback. In fact, if it weren’t for CAT’s strong move today, the Dow would most likely be trading in the red. Once this euphoria dissipates, I think we’ll give up some of these recent gains.

As a result, I’d like to hold our MS August 28 Puts (MS TS) and our AIG August 15 Puts (AIG TO). But as an aggressive maneuver, I’d like to add to our DXD August 46 Calls (DXD HT). As you know, we attempted to “fade” the rally by adding these ultra-short calls on July 15th. As of today, they’re trading for $1.30, which gives us a very strong opportunity to lower our cost basis by adding more calls to our ledger now. On any pullback, these calls will shoot higher. Let’s put ourselves in position to profit off any downside move well into August.

PLAY: Buy more DXD August 46 Calls (DXD HT) at market, good for the day.

Let’s also maintain our FFIV August 35 Calls (FLK HG) for the earnings-based run-up that I mentioned yesterday. On any forthcoming pop, we’ll lock in our profits.

As always, I’ll be out with further updates as the day progresses. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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