Three New Plays
Add POT Puts, ATPG and GMCR Calls
PLAY: Buy the POT October 85 Puts (PYP VQ) at or under $2.70, good for the day. Place a protective stop limit at $1.70 and a sniper sell at $4.00.
PLAY: Buy the GMCR October 70 Calls (QGM JN) at or under $3.10, good for the day. Place a protective stop limit at $1.90 and a sniper sell at $5.50.
PLAY: Buy the ATPG October 17.50 Calls (HKU JW) at or under $1.15, good for the day. Place a protective stop limit at $0.65 and a sniper sell at $2.00.
Dear Bottarelli Research Member,
As we get set to kick off the final earnings season of the year, I’m seeing some very conflicting signals in the banking sector. Over the weekend, for example, Bloomberg ran a troubling story that said that the number of U.S. lenders who can’t collect on at least 20% of their loans has now hit an 18-year high. This is a clear-cut signal that more bank failures are coming.
This is not good news for the FDIC. After all, 95 banks have failed this year, which is the fastest pace of failures in almost two decades. With such a high rate of failures, the FDIC’s insurance fund has gotten completely depleted. It’s so bad right now that the agency proposed that banks prepay three years worth of premiums, which would add $45 billion to the fund (which has reportedly sunk to $10.4 billion in June, representing its lowest level since 1993). What’s worse, given the failure trend, the FDIC insurance fund will run at a deficit starting this quarter.
Given this weekend news, it was very interesting to see that Goldman Sachs came out today and raised their coverage on a handful of large U.S. banks, saying that the sector looks attractive to them. In my opinion, this is a classic case of “The Manipulators” (which is the term that I use to describe the financial elite that are controlling the puppet strings of this market) using an old “smoke and mirrors” tactic. After all, by upgrading a series of large banks, this has pushed the entire market higher this morning, and at the same time distracted investors away from the troubling FDIC news over the weekend. The folks who are orchestrating these manipulative tactics are very good at what they do. But as traders, we must remain plugged into their trickery, while also being fully aware of the reality of today’s financial situation. That way, we can make quick and nimble trades that capitalize on both truth and nonsense at the same time.
When it comes to today’s new trades, I’d like to enter into a position that continues to offer us both upside and downside exposure. As you know, we’re currently holding the AU October 40 Calls (AU JH), which we entered on October 1st for $1.66. As I write, these calls have hit a high of $1.75, so we’re basically right on track. I like today’s bounce off the 50-day moving average, so maintain this position for more upside. Hold.
At the same time, I’d also like to establish a downside put position on our old friend Potash of Saskatchewan (POT – NYSE). As I’ve been saying, the fertilizer/potash situation will remain weak for the rest of 2009, and this has cast a bearish shadow over the entire group of potash-based plays (such as MOS, POT, and AGU). From a simple trading perspective, I’d like to short any rally, but as you can see from the POT chart below, the stock is floundering below the 200-day moving average. In other words, we might not get a rally to short into, so let’s simply add puts now!
PLAY: Buy the POT October 85 Puts (PYP VQ) at or under $2.70, good for the day. Place a protective stop limit at $1.70 and a sniper sell at $4.00.
Over on the call side, I’d like to jump back into my favorite short-squeeze position Green Mountain Coffee Roasters (GMCR – NASDAQ). As you know, GMCR is a fast-growing company with off-the-charts price multiples. As a result, the stock has a very large short position. So what happens is that whenever GMCR dips in price, the large collection of short players cover their position which then ignites an extended upside rally. This is called a “short squeeze,” and the upside moves can get very powerful. Recently, I read an article that predicted that this year’s top Christmas present will be Green Mountain’s individual cup-sized coffee makers, which could offer a nice upside catalyst. Let’s get positioned to ride more upside short-squeeze momentum using October calls.
PLAY: Buy the GMCR October 70 Calls (QGM JN) at or under $3.10, good for the day. Place a protective stop limit at $1.90 and a sniper sell at $5.50.
And finally, I’d like to take advantage of the recent dip in oil prices (and subsequently oil stocks) to establish an upside call position on ATP Oil & Gas (ATPG – NASDAQ). As you can see from the chart below, this oil and natural gas firm has enjoyed a powerful upside run, moving from $6.00 up to $22.00 in a three-month span. But recently, shares have dipped back down to $18.00, which is where I’d like to jump on board. Let’s use this oil price dip to establish an upside position now.
PLAY: Buy the ATPG October 17.50 Calls (HKU JW) at or under $1.15, good for the day. Place a protective stop limit at $0.65 and a sniper sell at $2.00.
And as always…
Lock and load!
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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