Table Setter: Potential Trading Ideas

Play AMZN, Watch BRK.B, TIF, & RTH

PLAY: Buy the AMZN March 120 Calls (O:AMZN 10C120.00) at or under $5.05, good for the day. Place a protective stop limit at $2.90 and a pre-determined sniper sell at $7.00.

Dear Bottarelli Research Member,

In response to my “Options Symbol Change: Some Tricks” alert, it seems like various quote providers are all listing the new options symbols differently. So, as is the case with most things, the attempt to make things better has actually added more confusion.

Going forward, I’ll be sure to always list the symbol, month, and expiration date for all of our positions. Then, I’ll list the commonly used symbol that I have available on my real-time ticker. If this is different from your data, then I ask that you use the descriptive characteristics (stock, strike price, and expiration date) to adjust your symbols accordingly.

Now, having said that, I’ve come across some interesting trading opportunities. I’d like to highlight the candidates for you now…

First off, we now have the ability to trade options on Berkshire Hathaway (BRK.B).

By reducing the value of the B-shares, Warren Buffett has now made his company option-able for the first time. The timing of this move is interesting, since February is always an exciting month for Berkshire Hathaway. After all, at the end of February, Buffett publishes his annual shareholder letter, which has developed its own cult following. Many dissect this letter for clues as to market conditions for the remainder of the year.

But before this letter is published, Berkshire will also disclosure their end-of-Q4 holdings, which will give investors an even further look inside where Buffett has been placing his bets. Buffett’s special investment in Goldman Sachs at the height of the financial crisis, for example, looks to be an enormous winner. As all of this information becomes available, we could see an upside reaction in BRK.B shares. So let’s keep an eye on today’s dip for the opportunity to play upside calls.

Another relevant trading idea comes from high-end jeweler Tiffany (TIF – NYSE).

Over the last few months, TIF insiders have been selling off their stock like mad. Over the last six months, there have been a total of 18 insider sales versus zero insider buys. All told, insiders have sold 1,273,510 shares of TIF, which amounts to over $51 million worth of stock. Not only that, but institutions are also selling like crazy too. Comparing quarter over quarter, institutions have sold over 16 million TIF shares, which is a 15% reduction over last quarter. When I see selling like this, a red flag goes off. Something is not right at TIF. Somebody knows something, so I’ll keep an eye on this chart for an indication of a breakdown.

Extrapolating the TIF news could also lead to a put play on the Retail HOLDRs (RTH – NYSE). Weakness at TIF could lead to retail weakness across the board, and I’ve personally thought that RTH has been overvalued for months. This is another opportunity worth watching closely.

And finally, we’re seeing some big-time selling pressure today in Amazon.com (AMZN – NASDAQ), which is a little surprising on a strong upside day like today.

As I review this situation, it’s clear that today’s downside move is a news-driven situation sparked primarily by misunderstanding. As you’ll see, this could lead to a great opportunity for fast-action traders like us.

Here’s the story…

As I write, shares of AMZN are down over $9.00 on the news that they’ve given into book publisher Macmillan about an e-book pricing dispute.

By default, Amazon typically sets their e-book prices at $9.99. But starting in March, Macmillan will force Amazon to raise the price of the books they publish to $12.99 and $14.99 – and they’ll pas along a 30% commission back to Amazon. This is causing some uneasiness in AMZN stock, but if you look closer, it’s truly not that big of a deal.

After all, from the information that my staff has dug up, guess how much business the e-book business adds to AMZN’s bottom line? Thus far, nothing.

You see, AMZN has kept their Kindle and e-book numbers hidden, simply due to the fact that they’re operating at a loss to gain market share. Therefore, today’s news will not affect their bottom line at all. Does that warrant a $9.00 drop in stock price? I don’t think so.

And plus, despite operating the e-book segment at a loss, AMZN is still blowing the doors off their earnings reports. So, if you think this through, higher e-book prices might actually help Amazon generate a better return on their growing e-book business.

When you digest all of this information, I think today’s selling pressure is a gift. As a more speculative play, let’s enter into a March call position and use this weakness as a great opportunity to add AMZN calls on the cheap. If AMZN bounces, as we all know it can, we’ll be ready to hit a strong winner. Here’s the play…

PLAY: Buy the AMZN March 120 Calls (O:AMZN 10C120.00) at or under $5.05, good for the day. Place a protective stop limit at $2.90 and a pre-determined sniper sell at $7.00.

And as always…

Lock and load!

Sincerely,