Option Investor
New Plays

New Lows in Energy Provide Yet Another Buying Opportunity

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New Energy Plays

CY - Cypress Semiconductor

Cypress is another stock that was crushed by the market decline and whose future is looking bright. The new administration is strong on solar and many states are now enacting laws and new stimulus to promote wider solar use. The stock is so cheap that options do not make sense so just buy the stock.

Company Info:

Cypress Semiconductor Corporation (Cypress) is a broad-line semiconductor company. The Company delivers mixed-signal, programmable solutions. Its offerings include the Programmable System-on-Chip (PSoC) products, universal serial bus (USB) controllers, general-purpose programmable clocks and memories. Cypress also offers wired and wireless connectivity solutions. Cypress serves numerous markets, including consumer, computation, data communications, automotive and industrial. As of December 30, 2007, Cypress operated five business segments: Consumer and Computation Division, Data Communications Division, Memory and Imaging Division, SunPower Corporation (SunPower) and Other. During the fiscal year ended December 30, 2007 (fiscal 2007), SunPower completed the acquisition of PowerLight Corporation (PowerLight), known as SunPower Corporation, Systems. In September 2008, Cypress announced the acquisition of Simtek Corporation.

Options don't make sense on a $4 stock.

BUY Stock in CY currently $4.11

Chart of CY
[Image 1]

FSLR - First Solar

First Solar is widely believed to be the best of the solar stocks and trades at a high premium and is highly volatile. Buying LEAPS anywhere close to the money is extremely expensive. The way to capitalize on this is to sell options. I am using a put spread in this example but it could also be a naked put if you only do the sell side. The profit would spike significantly but there is added risk. You could also consider a covered call and buy the stock for the current $128 and sell the $150 covered call.

Company description:

First Solar, Inc. designs and manufactures solar modules using a thin film semiconductor technology. Its solar modules employ a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. It has long-term solar module supply contracts (the Long Term Supply Contracts) with 12 European project developers and system integrators. Its customers develops, owns and operates solar power plants or sells turnkey solar power plants to end-users that include owners of land, owners of agricultural buildings, owners of commercial warehouses, offices and industrial buildings, public agencies, municipal government authorities, utility companies, and financial investors that desire to own large scale solar power plant projects.

Covered Call

Buy 100 Shares FSLR currently $128
Sell 2010 $150 LEAP Call LZL-AA currently $40.70
Profit if called is $40.70 in premium + $22 in stock (49%)

Put spread:

Buy 2010 $100 LEAP Put LQM-MT currently $32.90
Sell 2010 $250 LEAP Put LZL-MJ currently $135.70, net credit $103

Chart of FSLR
[Image 2]

New Non-Energy Plays

BZH - Beazer Homes

Beazer posted a really lousy quarter last Tuesday but there is light at the end of the tunnel. The company said new orders had jumped +10% over the same period in 2007 and cancellations were down to 45.7% from 68.1% in the same period. Beazer builds a lower priced home averaging $248,700. Given the new tougher loan requirements and need for a bigger down payment the low priced home builders may see more business than the high ticket home like Toll Brothers builds at an average of $648,000. I may be jumping the gun here but with the stock price at $2 and less than the bid/ask spread of many LEAPS it is cheap. BZH has developments in 17 states and is not expected to need financial help or file bankruptcy. Also, the government is working on ways to subsidize housing and that would help the low priced builders more than the upper end of the spectrum.

Company Info:

Beazer Homes USA, Inc. (Beazer) is a diversified homebuilder. It operates in 17 states. The Company’s homes are designed to appeal to homeowners at various price points across various demographic segments and are generally offered for sale in advance of their construction. The Company acts as the general contractor for the construction of its projects. Its project development operations are controlled by the Company’s operating divisions, whose employees supervise the construction of each project, coordinate the activities of subcontractors and suppliers, subject their work to quality and cost controls and assure compliance with zoning and building codes. The Company also offers title insurance services to its homebuyers in many of its markets. On February 1, 2008, the Company discontinued homebuilding operations in Charlotte, North Carolina, Cincinnati/Dayton, Ohio, Columbia, South Carolina, Columbus, Ohio, Lexington, Kentucky, Colorado and Fresno, California

The stock price is so cheap that options don't make sense.

BUY STOCK in BZH currently at $2.15

Chart of BZH
[Image 3]

New Watch List Plays Triggered

UWM - ProShares Ultra Russell 2000 ETF

We got the breakdown to our $16 entry trigger more than once. It appears the Russell is trying to rally but just can't get over resistance. I was encouraged by the high close on Friday and hopefully a breakout is imminent.

Company Info:

Ultra Russell2000 ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Russell 2000 Index

Breakdown trigger: $16, hit 12/1

Position: April $25 Call ULX-DY $2.55

Chart of UWM
[Image 4]

DIG - Proshares Ultra Oil & Gas

With oil at four year lows of $40 and a full OPEC meeting in ten days it should be time for speculation to appear. The move down after last week's mini meeting ended without a production cut was brutal. Hopefully the eventual rally will be equally as strong.

Company Info:

Ultra Oil & Gas ProShares seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Dow Jones U.S. Oil & Gas Index.

Breakdown trigger: $30, hit 12/1

Position: MAR $35 Call DPB-CG $5.40

Chart of DIG
[Image 5]

AAPL - Apple Inc

Palm warned, Nokia said sales were ok then warned two days later. RIMM warned and crashed. Apple held its ground and said customers downloaded 100 million new apps over the last 4-weeks. The iPhone could not be more popular and once the market finds traction Apple will lead the Nasdaq out of the recession.

Company Info:

Apple Inc. designs, manufactures, and markets personal computers, portable digital music players, and mobile communication devices and sells a variety of related software, services, peripherals, and networking solutions. The Company sells its products worldwide through its online stores, its retail stores, its direct sales force, and third-party wholesalers, resellers, and value-added resellers. In addition, the Company sells a variety of third-party Macintosh (Mac), iPod and iPhone compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores, , and digital content through the iTunes Store. It sells to consumer, small and mid-sized business (SMB), education, enterprise, government, and creative customers

Breakout trigger: $96, hit 12/03

Position: 2010 $120 LEAP Call WAA-AD $18.40

Chart of AAPL
[Image 6]

FLS - Flowserve

Flowserve was captive to the energy markets but it appears the worst may be over with a bottom at $40.

Company Info:

Flowserve Corporation (Flowserve) is a manufacturer and aftermarket service provider of flow control systems. The Company develops and manufactures precision-engineered flow control equipment, such as pumps, valves and seals, for critical service applications. Flowserve offers a range of aftermarket equipment services, such as installation, advanced diagnostics, repair and retrofitting. The Company sells its products and services to more than 10,000 companies, including engineering and construction firms, original equipment manufacturers (OEMs), distributors and end users. The Company operates through three business segments: Flowserve Pump Division (FPD) for engineered pumps, industrial pumps and related services; Flow Control Division (FCD) for engineered and industrial valves, control valves, actuators and controls and related services, and Flow Solutions Division (FSD) for precision mechanical seals and related products and services.

Breakdown trigger: $45, hit 12/1

Position: April $55 Call FGV-DK (no leaps) $5.33

Chart of FLS
[Image 7]

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