New Plays, Wednesday, 02/09/2005
New Option Plays
by OI Staff
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Phelps Dodge - PD - close: 90.37 chg: -2.17 stop: 92.01
Phelps Dodge Corp. is the world's second-largest producer of
copper, a world leader in the production of molybdenum, the
largest producer of molybdenum-based chemicals and continuous-
cast copper rod, and among the leading producers of magnet wire
and carbon black. The company and its two divisions, Phelps Dodge
Mining Co. and Phelps Dodge Industries, employ more than 14,000
people worldwide. (source: company press release)
Why We Like It:
Investors seem to be turning away from copper producer Phelps Dodge. The stock broke down through the bottom of its nine-month trading range several days ago in addition to breaking down under technical support at the 100-dma. The breakdown was fueled by above average volume, which normally suggests more weakness ahead. Plus, PD is suffering with a bearish divergence in its MACD over the last few months. We also see that PD's point-and-figure chart has produced a bull trap pattern and broken its rising support with a $78 bearish price target. Our plan is to use a TRIGGER under round-number support at $90.00. If the market continues to slip lower then PD should break the $90 level soon. Our entry point will be $89.90. Our target will the $84.00 level just above the 200-dma.
This is likely to be a short-term play so we are suggesting the March puts.
BUY PUT MAR 95 PD-OS OI= 371 current ask $7.10
BUY PUT MAR 90 PD-OR OI=2144 current ask $4.20
BUY PUT MAR 85 PD-OQ OI=2973 current ask $2.20
Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked: - 0.00
Earnings Date 01/27/05 (confirmed)
Average Daily Volume = 2.2 million