Option Investor
New Plays

New Option Plays

HAVING TROUBLE PRINTING?
Printer friendly version
Call Options Plays
Put Options Plays
LLY STRA

New Calls

Eli Lilly - LLY - close: 59.75 change: +0.84 stop: 57.49

Company Description:
Lilly, a leading innovation-driven corporation is developing a growing portfolio of best-in-class pharmaceutical products by applying the latest research from its own worldwide laboratories and from collaborations with eminent scientific organizations. Headquartered in Indianapolis, Ind., Lilly provides answers -- through medicines and information -- for some of the world's most urgent medical needs. (source: company press release)

Why We Like It:
We have had our eye on LLY as a bullish candidate for several days now, ever since the stock broke out above the $57-58 level and challenged its technical resistance at the 200-dma and the $60 mark. Not only is LLY trading above its previous five-month trading range but the stock's recent consolidation is suggesting a bullish breakout over the $60.00 level is imminent. The stock's Point & Figure chart also shows a bullish buy signal that currently points to a $74 target. While we are still cautiously bearish on the market in general the DRG drug index has completely ignored the market's recent weakness. Instead the DRG drug index is breaking out to new relative highs. The combined bullish picture with LLY set against a bullish DRG background looks like a tempting play for traders looking for call candidates. Besides if the market does turn lower the drug stocks are traditionally seen as "safe havens". Now that's never a guarantee but over time the drug-related issues can out perform the market when the market is slipping. Our strategy here is to use a TRIGGER to open the play. Our entry point will be $60.15. Our initial target will be the $65.00 region. Our time frame is six-to-eight weeks.

Suggested Options:
We are suggesting the July calls although Junes are available.

BUY CALL JUL 55.00 LLY-GK OI=11218 current ask $5.80
BUY CALL JUL 60.00 LLY-GL OI=45397 current ask $2.20
BUY CALL JUL 65.00 LLY-GM OI= 8005 current ask $0.55

Picked on May xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/18/05 (confirmed)
Average Daily Volume = 4.7 million
 

New Puts

Strayer Education - STRA - cls: 103.41 chg: -5.25 stop: 107.25

Company Description:
Strayer Education, Inc. is an education services holding company that owns Strayer University and certain other assets. Strayer's mission is to make higher education achievable and convenient for working adults in today's economy. Strayer University is a proprietary institution of higher learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, and public administration to more than 23,000 working adult students at 32 campuses in 8 states in the eastern United States and worldwide via the Internet through Strayer University Online. Strayer University is committed to providing an education that prepares working adult students for advancement in their careers and professional lives. Founded in 1892, Strayer University is accredited by the Middle States Commission on Higher Education. (source: company press release)

Why We Like It:
This should be exciting. Normally we always suggest that readers never hold over an earnings report. There are too many unknown and unforeseen variables that can ruin an option play. We're not breaking that rule here with STRA but rarely have we ever played a stock so soon after its report. STRA is expected to report earnings BEFORE the market's opening bell tomorrow. That's important. We do not want to hold a position over the report. You may want to verify that the company has reported by checking the news first. Wall Street is expecting STRA to report earnings of 93 cents a share. Given the three-week down trend and today's 4.8 percent decline on above average volume there doesn't appear to be much confidence in STRA's report tomorrow. Even if they do beat the numbers investors might not trust it. Another education stock, CECO report today, beat the numbers, raised guidance and still the stock sold off. We're drawn to STRA because the stock has broken below its supporting trendline dating back to the August 2004 low. Currently STRA does have price support near $102.00-102.50. If STRA breaks down below this level it will reverse its P&F chart from a buy signal into a sell signal. Our plan is as follows. First, make sure STRA has reported before the bell. Second, if they beat earnings readers may want to consider taking a step back and merely wait a day to see how investors respond. Third, we are suggesting a TRIGGER at $101.95 to open the play. However, if STRA gaps down below the $100.00 mark we do NOT want to open the play. We do realize that these guidelines probably make this play a bit more complicated but we want to try and catch the breakdown not chase it. If STRA trades below $101.95 (but not gap below $100) then the play will be opened and our target will be the $95.00-93.00 range. An alternative entry point would be to look for a bounce back toward the $107 region and then buy puts on a failed rally there. We're going to start the play with a stop loss above the 200-dma.

Suggested Options:
We are suggesting the July puts. June strikes are available but they have very low open interest.

BUY PUT JUL 105.00 SDQ-SA OI=120 current ask $6.50
BUY PUT JUL 100.00 SDQ-ST OI= 30 current ask $?.??
BUY PUT JUL 95.00 SDQ-SS OI= 37 current ask $1.90

Picked on May xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 05/04/05 (confirmed)
Average Daily Volume = 111 thousand
 

New Play Archives