Ahead of Fed: Careful Speculation

Add QID Puts

By Bryan Bottarelli
Wednesday, September 23, 2009 1:13 PM EDT
Wed, 23 Sep 2009 17:13:00 GMT

PLAY: Buy the QID October 23 Puts (QOI VW) at or under $1.40, good for the day. Place a protective stop limit at $0.90 and a sniper sell at $2.00.

Dear Bottarelli Research Member

Going into this afternoon’s Fed meeting, we took the safe route by taking our modest profits off the table. Notably, we sold our KLAC October 35 Calls (QJR JG) and our SHLD October 65 Puts (KTQ VM) – each for around 13% to 16% gains. While I continue to like the upside bias in KLAC and the downside bias in SHLD, these moves represented a cautious approach leading into the Fed meeting.

This leaves us holding GMCR October 65 Puts (QGM VM) and LVS October 20 Calls (LJJ JS) going into this afternoon. We’re also holding a protective position in the SDS October 40 Calls (SSH JT) as well. This collection of positions offers us both upside and downside exposure, which is something we need in today’s market.

But just as a cheap and speculative play going into the Fed announcement, I’d also like to carefully add a trade that’s biased to the upside. You see, with the markets stuck in a strong upside trend, it’s pretty clear that the Fed will do everything they can to entice investors to jump back into this market. In my view, this could lead to a strong upside move in the technology sector. With stocks like Apple, Research in Motion, and Amazon all moving higher today, let’s add put options on the UltraShort QQQ ProShares (QID – NYSE), which moves at the rate of twice the inverse of the NASDAQ technology sector. In other words, if tech stocks rally, the QID will continue falling (as noted by the chart below). Let’s play the potential for a strong upward move in the technology sector by adding QID puts now.

QID

PLAY: Buy the QID October 23 Puts (QOI VW) at or under $1.40, good for the day. Place a protective stop limit at $0.90 and a sniper sell at $2.00.

After adding this speculative position, hold your water going into the Fed announcement. Depending on the market’s reaction, we’ll formulate our next strategic move.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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