Roll SSO into QID
Switching Protection
PLAY: Sell your SSO February 38 Calls (SUC BL) at market, good for the day. Then, buy the QID February 21 Calls (QOI BU) at market, good for the day.
Dear Bottarelli Research Member,
It’s interesting how our trading ledger changes direction.
Back when we added our SSO February 38 Calls (SUC BL), for example, our ledger was primarily biased to the downside. So, in an effort to protect against a market pop, we added these ultra-long calls on the S&P 500.
But in the days that followed, we began taking our put plays off the table, which shifted the directional bias in our trading ledger. As is stands right now, upside plays on ICE, MOS, and GMCR have eliminated the need for upside protection. In fact, we’re now in need of downside protection. Based on this situation, the game plan now requires us to “roll” our SSO calls into a new position in the UltraShort QQQ ProShares (QID – NYSE).
In other words, we’re going to sell our SSO February 38 Calls (SUC BL) at market, and then use the proceeds from this sale to purchase the QID February 21 Calls (QOI BU). Both options are trading around the same price, so no additional funds will be needed to make this transfer. But the idea here is to shift our directional protection and get ready for any market weakness. Why do this using technology? Well, now that the tech heavyweights like Apple and Google have reported their earnings, the risk for an upside surprise has been greatly reduced. In my view, this could lead to a new round of technology selling pressure. Therefore, to prepare for this move while also protecting our upside positions, let’s “roll” our SSO calls into QID calls now. Here’s the play…
PLAY: Sell your SSO February 38 Calls (SUC BL) at market, good for the day. Then, buy the QID February 21 Calls (QOI BU) at market, good for the day.
After initiating this roll play, let’s focus our attention on today’s move in DeVry (DV – NYSE). As you can see from the chart, the stock is making a strong upside push on the news that they posted a profit of $72.5 million ($1.00 per share) versus $42.9 million ($0.59 per share) one year ago.
Because of this news, Robert W. Baird upgraded DV to “Outperform” from “Neutral.” Ooh, what a ballsy move (note sarcasm)! I always get a kick out of analysts who make meaningless upgrades. For example, what is an investor supposed to do with an upgrade from neutral to outperform? That means absolutely nothing — at least in my view. From a trading perspective, here’s what I think…
Going forward, if DV begins to weaken, we could have a great opportunity to short this pop using DV puts. If the timing is right, you’ll be the first to know.
But until then…
Lock and load!
Sincerely,
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