July 2011

The stock has pulled back after tripping an entry signal for a ride to as high as 42.89 over the near term.  Since we’re shooting for the 48.54 target of an even larger pattern, let’s try to leg into a virtually riskless butterfly spread on weakness. For starters, in order to wind up with the Sep 42/46/50 ‘fly, we can bid 1.32 for four September 42 calls.  (They settled yesterday at 1.56. If we aren’t even close, I’ll simply adjust. There is no hurry to get this spread done.)  If the stock weakens today and we buy the calls at our price, we would then be looking to short-sell eight September 46 calls against them at a later date.  The third and final leg would come with the purchase of four September 50 calls, presumably on weakness in the underlying stock.  For now, though, put in a “stink bid” at 0.26 for four of them. They don’t trade very much and are hard to buy, but it can’t hurt to be ready if a few come in for sale at a great price.  My goal is to leg into the spread over the next 8-12 days at no cost. (In trader’s parlance, that would be “doing the butterfly” for “even.”)

If successful, this position would give us no possibility of a loss at expiration, no matter where the stock is trading; but the prospect, in theory, of a gain of as much as $400 per spread if SLW is approaching 46 come September. Since every penny counts, I am requesting that you not jump the gun on this order or improvise.  Also, if an unanticipated opportunity should present itself intraday, I’ll send out a timely e-mail alert to paid Rick’s Picks members who have signed up for them.   (And if you don’t subscribe, click here for a free trial that will give you access not only to daily trading recommendations and forecasts, but to a 24/7 chat room that draws experienced traders from all over the world.) ______ UPDATE (July 27 2:15 a.m. EDT): For now, maintain bids for the September 42 and September 50 calls as recommended above.