Editor's Note:

It looks like volatility may have peaked. The S&P500 has tried to put in a bottom in the 1120-1100 zone. Yet just because we've seen two days of back to back gains does not mean the sell-off is necessarily over. We need to stay defensive here.

I am listing some new bullish LEAPS trades but we do want to keep our position size small to limit our risk.

Pick the stock (or stocks) that best suits you. You don't have to trade them all.

-James


- New Trades -


McDonalds Corp. - MCD - close: 86.50

Company Info

Why We Like It:
When the market started to collapse MCD was at new all-time highs. Shares reluctantly trended lower and eventually near the $82 level before rebounding this past week. Investors see MCD as a defensive trade for a weak economy. Consumers are likely to frequent MCD's business thanks to the "value" meal approach.

I am suggesting we start small bullish positions now. Keep our position size one half of your normal trade. There is still a chance the market and MCD might retest last week's lows. We want to keep some cash in reserve so we can add to positions. More conservative traders could wait for a dip near the 50-dma or the $84 level as your entry point instead.

Our long-term target is $99.00. We'll use a stop under last week's low.

- Suggested Positions -
Aug 15, 2011 - entry price on MCD @ --.--, option @ -.--
symbol: MCD1221A90 2012 JAN $90 call - current bid/ask $ 2.58/ 2.65

- or -

Aug 15, 2011 - entry price on MCD @ --.--, option @ -.--
symbol: MCD1319A95 2013 JAN $95 call - current bid/ask $ 3.95/ 4.25

Chart of MCD:

Current Target: $99.00
Current Stop loss: 81.75
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


McDermott Int. Inc. - MDR - close: 14.46

Company Info

Why We Like It:
This is more of an oil services play than a bet on construction since MDR focuses on off shore oil and gas projects. Shares were hit very hard during the market drop with a plunge from almost $22 to just under $12. MDR has been rebounding since the Aug. 8th low.

I am suggesting we take advantage of this weakness and buy call LEAPS now. Readers may want to only launch half a position now and keep some money in reserve just in case the market and MDR retests the recent lows. That way we could double down on a dip. The low on Aug. 8th was $11.82. I am setting our stop loss at $11.75. Our long-term targets are $19.50 and $23.50 but the $18 level and $22 level could prove to be tough resistance.

- Suggested Positions -
Aug 15, 2011 - entry price on MDR @ --.--, option @ -.--
symbol: MDR1221A15 2012 JAN $15 call - current bid/ask $ 1.80/ 1.95

- or -

Aug 15, 2011 - entry price on MDR @ --.--, option @ -.--
symbol: MDR1221A17.5 2012 JAN $17.50 call - current bid/ask $ 2.10/ 2.65

Chart of MDR:

Current Target: $19.50, and $23.50
Current Stop loss: 11.75
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


SPX Corp. - SPW - close: 56.50

Company Info

Why We Like It:
Wow! Talk about moving too far too fast. SPW was crushed from nearly $84 down to $52.50 in about two weeks. The company reported earnings during this time and the results were not bad but shares were murdered on the news anyway. The recent sell-off has erased almost a year's worth of trading. I doubt SPW's business suddenly dropped -35% in the last three weeks. We want to take advantage of this over reaction and buy call LEAPS now.

If you think the market might retest its lows then wait. SPW bounced twice in the 52.50 area last week. You could look for another dip into the $53.50-52.50 area as an alternative entry point. I'll set our initial stop loss at $51.90. Our upside targets are $64.75 and $72.50.

NOTE: SPW does not have LEAPS so we're playing the March $60 and $65 calls.

- Suggested Positions -
Aug 15, 2011 - entry price on SPW @ --.--, option @ -.--
symbol: SPW1217C60 2012 MAR $60 call - current bid/ask $ 5.50/ 6.00

- or -

Aug 15, 2011 - entry price on SPW @ --.--, option @ -.--
symbol: SPW1217C65 2012 MAR $65 call - current bid/ask $ 3.80/ 4.20

Chart of SPW:

Current Target: $64.75, and 72.50
Current Stop loss: 51.90
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


Terex Corp. - TEX - close: 16.89

Company Info

Why We Like It:
TEX makes construction machinery and the stock has been pummeled lower for months. Shares may have finally hit a bottom this past week after the stock was cut in half from its early July high near $30.00. Now if you think the U.S. is going to see a double dip recession then you may want to avoid this stock. Although bulls might be able to argue that a recession has already been factored in at these levels.

I do consider an aggressive trade so we want to keep our position size small to start off. I am suggesting we buy the bounce now. If you think the market will retest its lows then you may want to wait for TEX to pull back into the $15.50-15.00 zone as your entry point instead. The low on Aug. 9th was $14.88. I am setting our stop loss at $14.45. Our first upside target is $24.75.

- Suggested Positions -
Aug 15, 2011 - entry price on TEX @ --.--, option @ -.--
symbol: TEX1221A20 2012 JAN $20 call - current bid/ask $ 1.35/ 1.45

- or -

Aug 15, 2011 - entry price on TEX @ --.--, option @ -.--
symbol: TEX1319A20 2012 JAN $20 call - current bid/ask $ 2.95/ 3.40

Chart of TEX:

Current Target: $24.75
Current Stop loss: 14.45
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11


Walter Energy Inc. - WLT - close: 81.49

Company Info

Why We Like It:
The first week of August saw coal stocks get murdered with a massive drop in the market. Part of the problem was WLT. The company reported earnings on August 3rd and missed the estimate by a mile! Revenues rose +88% but still missed Wall Street's estimates. The stock dropped from $110.50 to close under $78 on the earnings news. Yet shares found support at the $70.00 level several times the past few days. It looks like WLT has found a new bottom. That's not too surprising since $70 is a 50% haircut from its highs near $140 this past year.

WLT can be a volatile stock so I do consider this an aggressive, higher-risk trade. We have a wide stop loss and the option we're using is very out of the money. We definitely want to keep our position size small, especially to start. I am suggesting we buy the bounce now but cautious traders may want to wait. A dip back to $75.00 would be a better looking entry point and the newsletter might add to positions if we do see a dip or bounce from $75.00. We'll start this trade with a stop loss at $69.00. Our upside targets are $97.75 and $129.00 (a very long-term target).

- Suggested Positions -
Aug 15, 2011 - entry price on WLT @ --.--, option @ -.--
symbol: WLT1221A100 2012 JAN $100 call - current bid/ask $ 5.65/ 5.95

- or -

Aug 15, 2011 - entry price on WLT @ --.--, option @ -.--
symbol: WLT1319A100 2013 JAN $100 call - current bid/ask $11.75/14.20

Chart of WLT:

Current Target: $97.75 and $129.00
Current Stop loss: 69.00
Play Entered on: 08/15/11
Originally listed in the New Plays 08/13/11