The Volatility Trader
105 W. Monument Street
Baltimore, MD 21201
Wednesday, March 28, 2007
Email – #260
Volatility Trader Update
Dear Subscribers,
First, I’d like to mention that our portfolio is quite calm all the way around. We’re currently holding Tyson Chicken (NYSE: TSN) and Digital Realty (NYSE: DLR) puts and an Intercontinental Exchange (NYSE: ICE) strangle.
We’re just waiting for the trades to break, so patience is key.
Of particular interest, I was shocked to find out that the CEO of Digital Realty recently sold 1.14 million shares at $39.74. This news gives me utmost confidence in this trade. If the CEO doesn’t want shares up here, why would anyone else?
When this stock begins to crumble, it’s going to fall fast.
** NEW TRADE **
Following the trend of insider buying, Ronald Perelman (the world’s 94th richest man) just invested $1.24 million in Scientific Games (Nasdaq: SGMS), which sells instant and online lottery tickets globally.
I have to tell you, I love this company. You just can’t go wrong in the lottery market, because when times get tough, people buy tickets. And, when times are good, people buy more tickets.
The stock hasn’t exactly ripped through the roof in the past months, but this is because the P/E is a little high at 45, while price-to-sales sits at 3.5. And although the company’s fourth quarter profit recently declined, it is currently restructuring, and management recently commented that it expects revenue and margins to improve over the year.
What we’re doing is buying a sound company in a business that’s only going to grow in the years to come. And, in the case of options, it’s always best to buy when a reversal is possible. But the stock isn’t in bad shape… it’s just been moving slower than the rest of the market.
I expect shares to catch on soon, as the company announces improved earnings and additional deals. Incidentally, with Mr. Perelman’s recent investment, I have a feeling that news of a merger could appear soon.
ACTION TO TAKE:
Buy the Scientific Games (Nasdaq: SGMS) October 2007 $35 calls (TUJ-JG) for no more than $2.00. If the stock falls below $30, I will e-mail you with an alert, telling you what to do with the options.
Exit is everything,
Mark Whistler
Current Portfoli
Scientific Games (Nasdaq: SGMS)
Oct 07 $35 calls TUJ-JG
Purchased: New
Current Price: Buy at for no more than $2.
InterContinental Exchange (NYSE: ICE)
Jun 07 $100 puts ICE-RT
Purchased: 3/21/2007
Current Price: $2.25
June 07 $155 calls IHH-FK
Purchased: 3/21/2007
Current Price: $2.15
Digital Realty Trust (NYSE:DLR)
July 07 $40 puts DLR-SH
Purchased: 3/14/2007
Current Price: $2.10
Tyson Foods (NYSE:TSN)
Apr 07 $17.50 puts TSN-PW
Purchased: 12/18/2006
Current Price: $0.10
