Two End-of-Day Plays

Add DRYS and EOG Calls

By Bryan Bottarelli
Tuesday, September 29, 2009 3:44 PM EDT
Tue, 29 Sep 2009 19:44:00 GMT

PLAY: Buy the DRYS October 6 Calls (OOC JF) at or under $1.00, good for the day. Place a protective stop limit at $0.60 and a sniper sell at $1.70.

PLAY: Buy the EOG October 80 Calls (EOG JP) at or under $3.60, good for the day. Place a protective stop limit at $2.20 and a sniper sell at $5.70.

Dear Bottarelli Research Member,

First and foremost, congratulations on today’s three winners. By taking quick and nimble winners of 22.58% on AEM October 65 Calls (AEM JM), 14.29% on DRQ October 45 Calls (DRQ JI), and 17.86% on POT October 90 Puts (PYP VR), we’ve now locked in winners on seven (7) straight positions! Going into today’s close of trading, let’s get positioned to extend this winning streak by adding two final positions to our ledger.

We’ll start with a very quiet (yet potentially explosive) support level that’s now being formed on the Baltic Dry Index (BDI).

Although the Baltic Dry Index isn’t commonly followed in the Unites States, many market followers consider it to be more important and influential than the Dow Transportation Index. After all, since the BDI tracks worldwide international shipping prices, it offers a global snapshot of the cost of moving major raw materials (ranging from coal, iron, and grain) by sea.

As you can see from the BDI chart below, this index makes massive upside and downside price movements. In July of 2008, for example, the BDI traded for 10,000 before falling all the way down below 1,000 by the end of the 2008 calendar year.

Then, as we moved into 2009, the BDI put in a sharp recovery, moving from 1,000 up to 4,000 by late April. Folks, this is massive volatility. And this opens up today’s opportunity.

BDI

As you can see from the chart, the BDI has just moved from 4,000 down to 2,000 in less than a month. As it happens, this dip has brought the index right back down to a very nice support level at the 50-day moving average. In my opinion, this is a very strong entry point for a company like DryShips (DRYS – NASDAQ).

DRYS

As you can see from the weekly DRYS chart, the volatility in the BDI has also had a tremendous effect on shares of DRYS, moving from $80.00 per share down to a low of $2.50. Once again, we’re talking massive volatility here. But here’s the thing: If the BDI finds support and pops off the 50-day moving average, shares of DRYS could rally sharply. That’s why I feel that the risk-versus-reward scenario is now completely in our favor. Therefore, let’s get positioned to play a recovery in the Baltic Dry Index by adding DRYS calls to our ledger now!

PLAY: Buy the DRYS October 6 Calls (OOC JF) at or under $1.00, good for the day. Place a protective stop limit at $0.60 and a sniper sell at $1.70.

At the same time, I’d also like to get repositioned in the oil and gas sector using EOG Resources (EOG – NYSE). Once again, the weekly EOG chart shows you that the stock is popping above the 200-day moving average, which is a strong indication going into the end of the year. Let’s get positioned to ride another bounce in oil prices by adding EOG calls.

EOG

PLAY: Buy the EOG October 80 Calls (EOG JP) at or under $3.60, good for the day. Place a protective stop limit at $2.20 and a sniper sell at $5.70.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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