Going Into the Close

Talking Strategy on FFIV

By Bryan Bottarelli
Wednesday, July 22, 2009 2:48 PM EDT
Wed, 22 Jul 2009 18:48:00 GMT
“It is hard to imagine a more stupid or more dangerous way of making a decision than by putting those decisions in the hands of people who pay no price for being wrong.”
– Economist and Social Commentator Thomas Sowell

Dear Bottarelli Research Member,

I have a new favorite economist, and his name is Thomas Sowell. In my view, his quote (above) perfectly describes my feelings about our current economic and financial position. It’s spot on the money.

Looking at today’s markets, aside from the first 30 minutes of trading, it’s been a relatively boring and uneventful day. Right at the open, shares of Morgan Stanley aggressively sold off after reporting that they swung to a second-quarter loss of $1.26 billion ($1.10 per share) compared with a profit of $1.06 billion ($1.02 cents per share) one year ago. This is a shocking 12-month difference, and it’s exactly why I recommended the MS August 28 Puts (MS TS) back on July 14th. Remember, Goldman Sachs just reported a blowout quarter, and then Morgan comes in today and lays an egg. But for some reason, investors bought into this morning’s dip, which has helped MS trade relatively flat for most of the session. Don’t let this inexplicable trading scare you off. Maintain these puts for more downside.

The other important decision for today comes in the form of our FFIV August 35 Calls (FLK HG). As you know, we entered these calls on Monday for $2.95 per contract in anticipation of an earnings-induced upside run. After showing a slight profit on this position, it has now moved back to break-even, as FFIV has not mounted the run-up leading into tonight’s earnings that I expected. Given a situation like this, here is what I recommend: If you’re not a risk-taker, close your position at break-even right now. That way, you avoid any risk associated with the after-the-bell earnings report. If you’re more of a speculator, then you may consider reducing your exposure by selling off half of your position now, and then holding the remaining half into tomorrow’s earnings. And if you’re a true swing-for-the-fences trader, simply hold all of your calls going into tomorrow. In my opinion, selling half leading into the earnings report makes the most sense. As always, I’ll continue to follow this position.

CONFERENCE NEWS: In other news, I’ve once again been invited to speak at the annual Taipan Investor’s Conference. This year’s get-together will be held in my hometown of Chicago, so I’m very excited about acting as the host. If you are interested in attending this conference, I’d like to officially invite you to join the party. I will be presenting from 2:45 to 3:30 PM on Thursday, August 13th, and I’d love to meet you in person. For all of the details, view the official invitation from Taipan at the following link:

https://www.web-purchases.com/500SCFRN/L500K706/landing.html

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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