A Semi-Aggressive Maneuver

Add to AEM and RIG Calls

PLAY: Buy more RIG November 95 Calls (RIG KS) at market, good for the day.

PLAY: Buy more AEM November 75 Calls (AEM KO) at market, good for the day.

Dear Bottarelli Research Member,

Good afternoon. In many respects, we got our wish this morning...

• Representing the Blue Chips, shares of economic barometer Caterpillar (CAT – NYSE) are rallying after the company beat estimates and increased their 2009 forecasts.
• Over on the NASDAQ, shares of Apple (AAPL – NASDAQ) rallied up to $200 based on an impressive earnings report of their own.

But unfortunately, neither company is able to help their respective index rally, as both the Dow and the NASDAQ are trading lower on the day. The losses are being attributed to the housing sector, which reported that housing stats were flat in September. But to be honest, this isn’t the reason the markets are drifting lower. To me, it looks like a classic example of “selling on the news,” which is pulling the Dow right down to the 10,000 level. Time for a re-test, perhaps?

Every time we’ve seen this sort of reaction take place in the past, the dip-buyers have stepped in and pushed the market averages higher in the days that followed. Therefore, I’d like to use this reaction to our advantage by getting semi-aggressive on our AEM and RIG positions.

As you know, both of these plays are dependent on the U.S. dollar. With the greenback rallying today, RIG and AEM are both pulling back. But as we’ve seen before, any rallies on the U.S. dollar have been short-lived. Therefore, I feel that we have a nice opportunity here to lower our cost basis and add to both of our November contracts.

In many respects, that’s why playing November options right now works to our advantage. We can use momentary rallies on the U.S. dollar to add to our positions for more attractive prices. Plus, if you look at the 60-minute charts on both companies, you’ll see that the downside moves on both RIG and AEM are now getting over-extended. All it’ll take is a dip on the U.S. dollar for each play to come roaring back. See this over-reaction for yourself:

Let’s capitalize on this situation by adding to both plays now!

PLAY: Buy more RIG November 95 Calls (RIG KS) at market, good for the day.

PLAY: Buy more AEM November 75 Calls (AEM KO) at market, good for the day.

NOTE: If you adhered to the RIG stop, then this position has been closed. Under these market conditions, this is the safest play. After all, the intra-day moves we’re seeing right now are far from clear-cut. But for those traders still holding the RIG calls, I’ll continue to follow it based off today’s add-to advice.

At the same time, maintain your protective FAZ November 18 Calls (FEW KR), which are nice to have in our back pocket on a day like today. Hold. In addition to this play, I’d like to add one more put to the ledger, just to beef up our downside protection. Stay tuned.

Also, the AMZN November 100 Calls (QZN KT) that we’re holding for the average price of $3.70 popped at the open, and then they sold off as the day progressed. But as a side note, Amazon is scheduled to report earnings on October 22^nd, so I’d like to hold this position going into Thursday. If AMZN reports numbers similar to Apple or Google, we could see a strong upside blast. Hold.

And finally our MOO November 41 Calls (MOO KO) are also dipping thanks to the U.S. dollar’s strength, but with earnings on tap from BG and POT, we could see this position snap back quickly as well. Hold.

As always, I’ll keep you updated as the trading day progresses.

Until then…

Lock and load!

Sincerely,