Add FCX Puts

Playing A Metals Sell-Off

By Bryan Bottarelli
Tuesday, July 28, 2009 11:28 AM EDT
Tue, 28 Jul 2009 15:28:00 GMT

PLAY: Buy the FCX August 60 Puts (FCX TL) at or under $4.30, good for the day. Place a protective stop limit at $2.40 and a sniper sell at $6.00.

Dear Bottarelli Research Member,

For the most part, the major market averages have been absorbing any selling pressure during their recent 12-day run. But today, we could be seeing some cracks in the armor. As you can see below, the Dow is once again putting in a red candlestick formation at the high end of its range. As I mentioned yesterday, this could very well be another false high. But then again, it could finally prove to be the top of the recent run-up.

INDU

Therefore, let’s get a little more defensive right here by adding puts on gold and copper major Freeport-McMoRan Copper & Gold (FCX – NYSE). As you know, I love the idea of owning a company like FCX over the long-term. But as you can see from the chart below, the stock has engaged in a powerful upside run that is now showing signs of exhaustion. Throw in a double-top formation, and the bearish overtone becomes clear. Therefore, let’s play FCX August puts in preparation for a coming drop. Our plan is to lock in quick gains on any forthcoming drop.

FCX

PLAY: Buy the FCX August 60 Puts (FCX TL) at or under $4.30, good for the day. Place a protective stop limit at $2.40 and a sniper sell at $6.00.

At the same time, let’s also maintain our K August 45 Calls (K HI), V August 65 Calls (VEH HM), AFFX August 7.5 Calls (FIQ HS), SPWRA August 30 Puts (QSU TF), AZO August 160 Calls (AZO HL), and AIG August 15 Puts (AIG TO).Kellogg’s and Visa have earnings coming up on the 29th and 30th, so the strategy will be to use any earnings-based run up to lock in profits. I’ll follow up on this later in the session. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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