Betting on a Bevy of Options

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Or did they?

If you look behind the headlines focused on U.S. employment numbers, the pullback in global stocks, and particularly those in your Global Bull Market Alert portfolio, wasn’t exactly dire.

Brazilian construction play, Gafisa S.A. (GFA), actually ended the week higher. And four of your positions — the iShares MSCI Chile Investable Market Index (ECH), the iShares MSCI Israel Cap Invest Mkt Index (EIS), the SPDR S&P Emerging Markets Small Cap (EWX) and Mechel OAO (MTL) — all hit highs for the year.

Therefore, I continue to stick to my fundamental investment thesis that global stock markets are set for a strong Q4.

That said, the U.S. and Asian markets are suddenly as technically oversold as they have been since early July. And with your current Global Bull Market Alert portfolio already chock full of bullish stock picks to take advantage of a Q4 rally, this is a good time to buy options on your existing positions.

So this week, I want to highlight three of my existing options recommendations, as well as make two new ones.

My existing option recommendations are:

Baidu, Inc. (BIDU) — buy the $360 December calls (BPJLL).

First Trust ISE-Revere Natural Gas (FCG) — buy the December $15 calls (FCGLO).

Gafisa S.A. (GFA) — buy the March $35 calls (GFACG).

My new options recommendations are:

iShares MSCI Hong Kong Index (EWH) — buy the December $15 calls (EWHLK).

PowerShares Financial Preferred (PGF) — buy the January $15 calls (PGFAO).

Here’s a word of warning:

Options may not be for you. They are a quick way to make money. But they are a quick way to lose it as well.

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You should limit the size of your investment to an amount that you feel you can afford to lose. And if you are a beginner, start small, buying one or two contracts at first, just so you can get a feel for how volatile options can be.

Portfolio Update

The iShares MSCI BRIC Index ETF (BKF) was back near record highs in the middle of last week, before falling back slightly. With Rio winning the Olympic bid, expect a short-term bump to Brazilian stocks, which make up four of the top 10 holdings of this ETF. BKF remains a BUY.

Baidu, Inc. (BIDU) dropped 2.8% last week — though on Friday it had already come off of its lows. This institutional favorite is a BUY.

iShares MSCI Chile Investable Market Index (ECH) hit a high for the year of $47.89 last week. With Chile showing surprising resilience on the down side, I am moving this relatively low volatility pick back to a BUY.

The iShares MSCI Israel Cap Invest Mkt Index (EIS) also hit a high for the year of $49.19. EIS remains a BUY.

The iShares MSCI Hong Kong Index (EWH) fell below $15 for the first time since the beginning of September. Hong Kong is a BUY on its current pullback.

SPDR S&P Emerging Markets Small Cap ETF (EWX) hit a high of $44.15 for the year last Wednesday. This leveraged play on emerging markets is a BUY.

First Trust ISE-Revere Natural Gas (FCG) pulled back only slightly last week. Yes, gas supplies are up, but rig capacity is down by more than 50% from last year. That spells big rises in the price of natural gas as the economy turns. With this ETF now technically oversold, FCG is a BUY.

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Gafisa S.A. (GFA) rose back above the $31.00 level last week. With news of Rio winning the Olympic bid, you can expect this Brazilian construction play to pop in today’s trading. Gafisa remains a BUY.

Mechel OAO (MTL) hit a high for the year of $18.12 last week before pulling back on Friday. This is a high risk/high return play that will soar on any market turnaround. MTL is a BUY.

PowerShares Financial Preferred (PGF) pulled back last week, as it was dragged down by bad news about the U.S. economy. The pullback is overdone and this high-yielding play remains a BUY.

Claymore/AlphaShares China Real Estate ETF (TAO) ended the week slightly lower. This will soar as Chinese markets regain their footing. But for now, TAO remains a HOLD.

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