Option Investor
New Plays

New Option Plays

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Call Options Plays
Put Options Plays
None ARLP

New Calls

Editor's note:

The market continues to show strength with the tech-heavy NASDAQ leading the way. However, the major averages remain extended and in need of a consolidation lower. Plus, we've just moved into what is seasonally a slow period for stocks in August and September. Thus we don't find it to be very prudent to chase stocks here by initiating new bullish positions. Yet at the same time this is a dangerous spot to try and pick bearish plays. We will continue to provide both bullish and bearish candidates but want to urge our readers to be both patient and cautious when considering new trades.
 

New Puts

Alliance Res.Part. - ARLP - cls: 90.47 chg: +1.94 stop: 91.01

Company Description:
Alliance Resource Partners is the nation's only publicly traded master limited partnership involved in the production and marketing of coal. Alliance Resource Partners currently operates eight mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia. (source: company press release or website)

Why We Like It:
We are longer-term bullish on ARLP as a coal provider in the energy sector. Yet short-term the stock just looks way too extended and due for some profit taking. We have to be up front here about the risk. This is a very speculative, high-risk play, which we feel is even more risky due to ARLP's low trading volume and low option volume. For years we've told our readers not to try and pick tops in stocks yet the action in the stock market over the last couple of weeks has produced a multitude of top-like formations in scores of individual equities. For ARLP today looks like a blow-off top. Shares have been very strong the past several days and today saw ARLP spike to $96.20 before giving back a large chunk of its gains. The stock has run from $76.57 to $96.20 in a week and from $71 to $96 in just over two weeks. The odds of some profit taking in its short-term future are probably pretty good. In an effort to try and mitigate our risk we're going to use a trigger at $89.39 to open the play and a stop loss at $91.01. The worst-case scenario here is that ARLP dips to our trigger and then quickly rebounds stopping us out in a sharp whipsaw action. Our target will be the $85.00-84.00 range although more aggressive traders might target the rising 10-dma.

Suggested Options:
We will suggest the September puts.

BUY PUT SEP 90.00 AFV-UR OI= 20 current ask $4.60
BUY PUT SEP 85.00 AFV-UQ OI= 70 current ask $2.75

Picked on August xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 07/27/05 (confirmed)
Average Daily Volume = 60 thousand
 

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