Option Investor

Daily Newsletter, Tuesday, 10/11/2005

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Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Market Wrap

New Plays

New Option Plays

Call Options Plays
Put Options Plays
None None

New Calls

None today.

New Puts

None today.

Play Updates

In Play Updates and Reviews

Call Updates

BP Prudhoe Bay - BPT - close: 74.70 chg: +1.63 stop: 72.49

A very strong day for crude oil helped fuel a hefty rally across the board for energy stocks. BPT was one of them adding 2.2% on above average volume. Intraday the stock hit a high of $75.25, which was enough to tag our trigger to buy calls at $75.05 opening the play. Our four-to-six-week target is the $79.50-80.00 range. If you missed the entry today it's probably okay. We suspect that BPT might try to fill the gap from this morning. That means we can look for the stock to dip back toward the $73.00 level before moving higher. More aggressive traders can look for a bounce from $73 as a new entry point. Take note - technically this isn't the prettiest play. There is a bearish divergence in the MACD over the past couple of months and the P&F chart is currently bearish. The failure to hold over resistance at the $75.00 mark today doesn't bode well either.

Picked on October 11 at $ 75.05
Change since picked: - 0.35
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 175 thousand


Bear Stearns - BSC - close: 103.35 chg: -1.30 stop: 102.49

The selling continues in the broker-dealer sector. The XBD index lost 1.5% and fell to technical support at its rising 50-dma. BSC also dropped toward its simple 50-dma and tested the 100-dma on an intraday basis near $103.00. Tuesday's loss in BSC marks the seventh loss in a row. Stocks tend to move in cycles and nothing moves in a straight line for very long. Odds of an oversold bounce have risen pretty high but nothing is guaranteed. BSC has had some spectacular declines in its past but we were unable to find another run of seven declines in row. The closest we could find was six down days in a row back in 1994. Yet if the XBD index breaks down under the 50-dma tomorrow we wouldn't be surprised to see BSC mark its eight decline in a row. Anyone still holding bullish positions might feel tempted to exit on any bounce just to minimize their losses. We are certainly not suggesting new plays at the moment.

Picked on October 02 at $109.75
Change since picked: - 6.40
Earnings Date 09/15/05 (confirmed)
Average Daily Volume = 1.2 million


Cardinal Health - CAH - close: 62.46 chg: -0.03 stop: 59.85

We see no change from Monday's update. Wait for the major indices to show signs of strength before considering new bullish positions in CAH.

Picked on September 25 at $ 61.95
Change since picked: + 0.51
Earnings Date 10/26/05 (confirmed)
Average Daily Volume = 2.0 million


Cameco Corp - CCJ - close: 52.52 chg: +0.80 stop: 49.49

CCJ is still bouncing higher but volume has been very anemic on the move from its recent lows. That's a clue that traders don't want to miss as it suggests a lack of conviction on the part of buyers. We are not suggesting new plays. More conservative players may want to exit early, especially if CCJ can trade back toward the breakeven point.

Picked on September 18 at $ 53.30
Change since picked: - 0.78
Earnings Date 11/01/05 (unconfirmed)
Average Daily Volume = 862 thousand


Cigna - CI - close: 112.42 change: -2.38 stop: 111.49

Red alert! Shares of CI have broken down under minor support at the $114 level and longer-term support at its rising simple 50-dma. Volume came in above average on the decline. If the stock doesn't bounce from the $112.00 level soon we expect to be stopped out. We are not suggesting new plays.

Picked on September 29 at $116.51
Change since picked: - 4.09
Earnings Date 11/02/05 (unconfirmed)
Average Daily Volume = 991 thousand


General Dynamics - GD - cls: 119.41 chg: +0.14 stop: n/a

We see no change from our weekend update. GD is a strangle play. We're trying to capitalize on any post-earnings reaction. The company is expected to report on October 19th. We are suggesting readers buy the November 125 call and the November 115 put.

Picked on October 09 at $119.59
Change since picked: - 0.18
Earnings Date 10/19/05 (confirmed)
Average Daily Volume = 713 thousand


Altria Group - MO - close: 72.06 change: +0.54 stop: 69.90

MO produced a minor bounce on Tuesday. We remain cautious and we're not suggesting new plays at this time. A rebound over $73 might change our mind but we plan to exit before MO's October 19th earnings report.

Picked on September 18 at $ 73.14
Change since picked: - 1.08
Earnings Date 10/19/05 (unconfirmed)
Average Daily Volume = 6.7 million


Pre Paid Legal - PPD - close: 39.51 chg: -0.19 stop: 37.85

PPD spent most of the day churning sideways. We remain bullish on the stock. Readers can choose to initiate new positions on a bounce from the $39.00 level or a new relative high (40.30). Our target is the $44.00-45.00 range. We will plan to exit ahead of the October 24th earnings report.

Picked on October 10 at $ 40.10
Change since picked: - 0.59
Earnings Date 10/24/05 (unconfirmed)
Average Daily Volume = 72 thousand

Put Updates

Black & Decker - BDK - close: 78.22 chg: -0.92 stop: 82.01*new*

That's probably close enough for government work. BDK dipped to $78.04 - not quite enough to hit our target in the $78.00-77.00 range. We're going to hold out for one final push lower but we're suggesting to our readers that it's time to exit right here. We are going to lower the stop loss to $82.01.

Picked on September 14 at $ 83.31
Change since picked: - 5.09
Earnings Date 10/25/05 (unconfirmed)
Average Daily Volume = 636 thousand


O'Reilly Auto. - ORLY - close: 27.45 chg: -0.64 stop: n/a

Buckle those seat belts and keep your arms and legs inside at all times. It looks like the ORLY is about to begin. This is a strangle play so we don't care what direction the stock moves but our bias is bearish. We've been suggesting the November 30 call and the November 25 put. We will hold over the late October earnings report.

Picked on October 09 at $ 28.23
Change since picked: - 0.78
Earnings Date 10/26/05 (unconfirmed)
Average Daily Volume = million


Ryland Group - RYL - close: 63.40 chg: +1.15 stop: 66.75

RYL produced a strong oversold bounce today. Shares gapped higher only to spend the rest of the session trading sideways. What is noticeable is that volume came in very heavy at 150% above its daily average. That's reason enough to double check your stop losses and make sure they're where you want them. Our target is the $60.50-60.00 range.

Picked on October 05 at $ 65.70
Change since picked: - 2.30
Earnings Date 10/18/05 (confirmed)
Average Daily Volume = 1.0 million


Wynn Resorts - WYNN - close: 43.75 chg: +1.02 stop: 45.11

A positive article about the state of Nevada's gambling revenues rising in August may have given shares of WYNN a bounce today. Rising tax revenues on gambling suggests the casinos had a good month. The stock added 2.3% on above average volume. That's a warning sign for the bears. Conservative traders may want to think about exiting early if the stock trades over $44.25. We are not suggesting new plays at the moment.

Picked on October 06 at $ 42.18
Change since picked: + 1.57
Earnings Date 10/31/05 (unconfirmed)
Average Daily Volume = 1.3 million

Dropped Calls

Broadcom - BRCM - close: 43.35 chg: -1.33 stop: 44.49

Another day of heavy selling in the semiconductor sector was too much for shares of BRCM. The stock lost almost three percent on heavy volume to breakdown under support at its simple 50-dma. We've been stopped out at $44.49. Aggressive and nimble traders may want to consider bearish positions here. The next level of support is the 100-dma, which is nearing the $41.00-41.25 levels where BRCM found support in July and August.

Picked on September 25 at $ 45.05
Change since picked: - 1.70
Earnings Date 10/20/05 (confirmed)
Average Daily Volume = 7.0 million

Dropped Puts



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