Option Investor
New Plays

New Option Plays

HAVING TROUBLE PRINTING?
Printer friendly version
Call Options Plays
Put Options Plays
CLF BZH
  IBM
  TOL

New Calls

Cleveland Cliffs - CLF - cls: 76.20 chg: +4.45 stop: 71.00

Company Description:
Cleveland-Cliffs Inc, headquartered in Cleveland, Ohio, is the largest producer of iron ore pellets in North America and sells the majority of its pellets to integrated steel companies in the United States and Canada. The Company operates six iron ore mines located in Michigan, Minnesota and Eastern Canada. (source: company press release)

Why We Like It:
Traders are buying the bounce in CLF. The rising costs of commodities don't hurt Wall Street's expectations for CLF's profits. The stock shows it too with a very strong run over the last several months. Traders have bought dips to CLF's simple 40 and 50-dma's before and they are doing it again. We also like how CLF's recent consolidation has already produced a new P&F buy signal. However, shares are long-term overbought and the major market indices are looking bearish. We're encouraged by CLF's relative strength today but this should be considered a higher-risk play. We will use a TRIGGER at $77.05, above current short-term resistance at $77.00. Our target will be the $85.00-87.50 range.

Suggested Options:
We are going to suggest April calls. Julys are also available if you feel you need extra time.

BUY CALL APR 70.00 CLF-DN OI=1742 current ask $8.20
BUY CALL APR 75.00 CLF-DO OI=1346 current ask $5.00
BUY CALL APR 80.00 CLF-DP OI= 956 current ask $2.65
BUY CALL APR 85.00 CLF-DQ OI= 594 current ask $1.35


Picked on March xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/16/05 (confirmed)
Average Daily Volume = 1.2 million
 

New Puts

Beazer Homes - BZH - close: 154.30 chg: -4.40 stop: 162.01

Company Description:
Beazer Homes USA, Inc., based in Atlanta, Georgia, is one of the country's ten largest single-family homebuilders with operations in Arizona, California, Colorado, Delaware, Florida, Georgia, Indiana, Kentucky, Maryland, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and West Virginia. Beazer Homes also provides mortgage origination and title services to its homebuyers. (source: company press release)

Why We Like It:
The five-and-a-half month rising channel in the DJUSHB home construction index appears to be breaking down. The DJUSHB lost 1.79 percent on Thursday to close under its rising, simple 50-dma. Technicals are bearish on the sector index and the picture looks very similar on shares of BZH. BZH pulled back from its highs a week ago and have been consolidating near support at its own 50-dma near the $155 level. Today's decline is a breakdown of support at both the 50-dma and the $155.00 level. The P&F chart looks very bearish with a $134 price target. We're not sure investors will let BZH trade to $134. There are still a lot of bulls in the homebuilding sector and some of them would like a pull back to use as a new entry point. We would certainly consider doing the same especially with the spring and summer home selling season just around the corner! However, BZH and the sector are long-term overbought and due for a more significant correction. Today's decline looks like the beginning of the next leg lower. We are going to target the $140-144 region, which is where we expect BZH to find new support. More conservative traders might wait for BZH to confirm this breakdown with a drop under $152 before initiating positions. Readers should also know that BZH has an upcoming 3-for-1 stock split next week on March 23rd. Normally we would view a stock split as positive influence on shares but this time we believe the prevailing influence of a breakdown in the sector index (and the markets in general) will pull BZH lower.

Suggested Options:
We are going to suggest the April puts.

BUY PUT APR 160.00 BZH-PL OI= 677 current ask $11.10
BUY PUT APR 155.00 BZH-PK OI=1032 current ask $ 8.40
BUY PUT APR 150.00 BZH-PJ OI=1272 current ask $ 6.20
BUY PUT APR 145.00 BZH-PI OI= 437 current ask $ 4.60


Picked on March 17 at $154.30
Change since picked: - 0.00
Earnings Date 01/27/05 (confirmed)
Average Daily Volume = 742 thousand

---

Intl Bus. Mach. - IBM - close: 89.86 chg: -0.79 stop 92.15

Company Description:
IBM is the world's largest information technology company, with more than 80 years of leadership in helping businesses innovate (source: company press release)

Why We Like It:
We have had our eye on IBM for weeks as it consolidated sideways above the $91-92 level but under a trend of lower highs. This bearish pattern came to fruition on Wednesday's breakdown but we chose to wait on bearish plays because IBM still had additional support at the $90.00 level, which was underpinned by its 200-dma. Plus, the $90 level also coincided with IBM's long-term trendline of support dating back to the 2002 low (see chart). Now that IBM has broken down under the $90.00 mark on above average volume we feel free to suggest puts. Our short-term target is the $85.00 region.

Suggested Options:
We are going to suggest the April puts.

BUY PUT APR 95.00 IBM-PS OI=27627 current ask $5.40
BUY PUT APR 90.00 IBM-PR OI=27013 current ask $1.70
BUY PUT APR 85.00 IBM-PQ OI=11249 current ask $0.35


Picked on March 17 at $ 89.86
Change since picked: - 0.00
Earnings Date 04/14/05 (unconfirmed)
Average Daily Volume = 4.8 million


---

Toll Brothers - TOL - close: 76.81 chg: -3.69 stop: 81.50

Company Description:
(source: company press release)

Why We Like It:
Our play in TOL is based on the same strategy in BZH, except this time we don't have to worry about any upcoming stock split and the breakdown looks more dramatic. TOL has been a real winner for the homebuilders for months but the stock pulled back toward the bottom of its rising channel and support near $80.00 and its 50-dma a few days ago. Today's drop in the DJUSHB index under its 50-dma helped spur the breakdown in TOL on volume that was over twice the average. We are targeting a drop toward the $70.00 level.

Suggested Options:
We are suggesting the April puts.

BUY PUT APR 80.00 TOL-PP OI=4111 current ask $5.90
BUY PUT APR 75.00 TOL-PO OI=4222 current ask $3.40
BUY PUT APR 70.00 TOL-PN OI=4474 current ask $1.90


Picked on March 17 at $ 76.81
Change since picked: - 0.00
Earnings Date 02/23/05 (confirmed)
Average Daily Volume = 2.1 million
 

New Play Archives