- New Trades -

Bank of America - BAC - close: 7.76

Company Info

Why We Like It:
BAC has been leading the U.S. financial sector lower for months thanks to constant worries over its balance sheet and liabilities from its Countrywide acquisition years ago. For weeks BAC's management has been telling Wall Street that they did not need to raise capital. Yet this past week they gave Warren Buffett's Berkshire a sweetheart deal for $5 billion.

Is $5 billion in new capital going to make a difference? Probably not. They are paying a premium on Buffett's cash because his investment will be viewed as a vote of confidence in BAC and hopefully stop the stock's multi-month slide lower.

I am suggesting we launch long-term call positions now but we want to keep our position size small and try to ignore the daily volatility in this stock. Consider this like a lottery ticket play. The options are cheap and if we win, then we could win big. If not, then we didn't have much invested.

On a short-term basis (this week) the markets could see additional volatility thanks to the parade of economic reports and the jobs data out on Friday. Cautious traders may want to wait and see if BAC dips back toward the $7.00-6.00 range and then initiate bullish positions.

- Suggested Positions -
AUG 29, 2011 - entry price on BAC @ --.--, option @ -.--
symbol: BAC1221A10 2012 JAN $10 call - current bid/ask $ 0.50/ 0.52
No Stop on this position (at this time)

- or -

AUG 29, 2011 - entry price on BAC @ --.--, option @ -.--
symbol: BAC1319A10 2013 JAN $10 call - current bid/ask $ 1.36/ 1.39
No stop loss on this position (at this time)

Chart of BAC:

Current Target: $12.00-to-$15.00
Current Stop loss: --.--
Play Entered on: 08/29/11
Originally listed in the New Plays 08/27/11


Baker Hughes Inc. - BHI - close: 56.59

Company Info

Why We Like It:
BHI is an oil services stock that was crushed during the market's August sell-off. Shares fell from their late July highs near $80 to trade near $53 this past week. It looks like after this -33% correction that BHI has finally found support this past week. I am suggesting we buy Friday's bounce but this is an aggressive entry point considering the trend. We want to keep our position size small and we'll use a tight stop loss at $52.40.

Our long-term targets are $67 and $74. I do want to caution traders that one of our biggest risks is probably news that BHI will make an acquisition. If BHI does purchase another company, then shares of BHI could gap open lower on us, which is another reason to keep our position size small.

- Suggested Positions -
AUG 29, 2011 - entry price on BHI @ --.--, option @ -.--
symbol: BHI1221A65 2012 JAN $65 call - current bid/ask $ 3.45/ 3.55

- or -

AUG 29, 2011 - entry price on BHI @ --.--, option @ -.--
symbol: BHI1319A70 2013 JAN $70 call - current bid/ask $ 6.50/ 6.70

Chart of BHI:

Weekly Chart of BHI:

Current Target: $67.00 and 74.00
Current Stop loss: 52.40
Play Entered on: 08/29/11
Originally listed in the New Plays 08/27/11