Playing the Rip and the Dip

Add ESI, AAPL, and FAZ Calls

By Bryan Bottarelli
Tuesday, September 01, 2009 3:17 PM EDT
Tue, 1 Sep 2009 19:17:00 GMT

PLAY: Buy the ESI September 105 Calls (ESI IA) at or under $2.65, good for the day. Place a protective stop limit at $1.40 and a sniper sell at $5.00.

PLAY: Buy more AAPL September 170 Calls (APV IN) at market, good for the day.

PLAY: Buy the FAZ September 25 Calls (FAY IY) at or under $2.50, good for the day. Place a protective stop limit at $1.40 and a sniper sell at $5.00.

Dear Bottarelli Research Member,

For the most part, the bears have been in complete control of today’s market. What they’ve been unable to control, however, is the market direction for more than one day. Therefore, I’d like to carefully use today’s broad-based market weakness to pick up some high-beta stocks that are now sitting at solid support levels.

The first candidate that meets this criterion is for-profit education firm ITT Educational Services (ESI – NYSE). As you know, we’ve had success playing the daily ups and downs in ESI, and today’s market dip is handing us a nice chance to pick up ESI calls right around the $102 support level. As you can see from the annotated chart below, $102 has served as a strong bounce point, which I’m calling the “sweet-spot.” Let’s play this support level by adding September calls now!

ESI

PLAY: Buy the ESI September 105 Calls (ESI IA) at or under $2.65, good for the day. Place a protective stop limit at $1.40 and a sniper sell at $5.00.

Shares of Apple Computer (AAPL – NASDAQ) are also clawing their way back. As you can see below, today’s downside move looks like nothing more than a bad day within an established upside trend. Whenever Apple trades lower, the resulting reaction is a strong snap-back. Let’s get positioned to ride this move by lowering our cost basis and adding to our AAPL September 170 Calls (APV IN) as well.

AAPL

PLAY: Buy more AAPL September 170 Calls (APV IN) at market, good for the day.

And finally, I’ve mentioned before that the recent market weakness has largely been attributed to the financial sector. We’ve already parlayed this trend into profits via today’s PRU and SDS winners, but going into tomorrow, I’d like to add a highly focused financial downside play using the Direxion Daily Financial Bear 3X Shares (FAZ – NYSE).

As you probably know, the FAZ moves at a rate of 3x the inverse of the Russell 1000 Financial Services Index. So, for example, if the Russell 1000 Financial Services Index is down 1% on the day, the FAZ moves up 3% on the day. As you can see from the FAZ chart below, this trading vehicle has gotten clobbered as the financial sector has lead the market recovery, but now that this trend is showing signs of unwinding, adding a protective FAZ position to our trading ledger makes sense. Let’s add FAZ calls now.

FAZ

PLAY: Buy the FAZ September 25 Calls (FAY IY) at or under $2.50, good for the day. Place a protective stop limit at $1.40 and a sniper sell at $5.00.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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