Monday Update

Watch KLAC

Dear Bottarelli Research Member,

Good morning. Late in the day on Friday, we were going into the weekend with a trading ledger positioned entirely to the downside. Specifically, we noted weakening strength in the financial sector to reload our SDS September 45 Calls (SSH IS). We’re now holding this position for an average entry price of $1.55. As of this morning, these ultra-short calls hit a high of $1.50, so we’re one downside push away from moving into the black.

At the same time, we’re also holding the WYNN September 55 Puts (UWY UK) that we entered on August 19^th for $4.50. As a refresher, this position represents a completely over-bought stock that could push lower at any time. As you can see below, WYNN has been trading in a tight pattern around the $55.00 level. Although WYNN is currently trading around the same price levels where we entered our puts, slippage in the options premiums have pushed our contracts down around the $3.60 level. One good downside push and we’ll be back in business.

We’re also holding SHLD September 65 Puts (KTQ UM), based on the idea that Sears Holding Company is the absolute worst retailer in America. From a chart perspective, SHLD is hanging onto the $64.00 level by a piece of dental floss. When this level finally breaks down, SHLD has lots of room to fall. We entered these puts on August 25^th for $3.70, and they’ve traded as high has $4.10 in today’s action. Once again, we’re one breakdown away from a nice gain here.

In addition to these three downside positions, I added a “safety net” position late in the day on Friday in the form of the AMZN September 85 Calls (QZN IQ). As I mentioned above, I never like going into a weekend positioned all on one side of the market, especially when you have a market (like this one) that shrugs off bad news and celebrates lukewarm news. That’s why I liked these AMZN calls. For a high-beta stock like AMZN, paying $1.80 for the September 85 calls seemed like a very reasonable price. After all, AMZN tends to move in large price increments, so paying less than $2.00 for a near-term strike price was a pure value play.

This morning, a market downside move has come into play, benefitting our SDS, WYNN, and SHLD positions, and dropping the value of our AMZN calls. Nevertheless, we’ve all seen this market aggressively buy into any temporary price dip. Therefore, in preparation for this “dip-buying,” I want to maintain these calls. In fact, AMZN could be hammering out a double-bottom at $80.00 right now, which could work in our favor if the market uses this dip as another buying opportunity. Hold.

In fact, if we do see the market turn this morning’s losses into gains, we could very well add a new upside call play on KLA-Tencor (KLAC – NASDAQ). If you recall, I highlighted this play last Friday, but decided to go with AMZN calls. As you can see below, KLAC has put in a nice reversal today, which could lead to more upside strength in the days ahead. If the timing is right, don’t be surprised to see a new September call play on KLAC.

As always, if it’s time to move, you’ll be the first to know. Until then…

Lock and load!

Sincerely,