Option Investor
New Plays

New Option Plays

HAVING TROUBLE PRINTING?
Printer friendly version
Call Options Plays
Put Options Plays
Strangles Plays
NoneBBHLM
TFXMMM
PAY

New Calls

None today.
 

New Puts

Biotech HOLDRs - BBH - close: 181.64 chg: -4.21 stop: 185.25

Company Description:
HOLDRS are trustissued receipts that represent your beneficial ownership of a specified group of stocks. HOLDRS allow you to benefit from the ownership of the stocks in a particular industry, sector or group. (source: www.holdrs.com)

Why We Like It:
Biotech stocks have been under pressure lately and the BTK biotech index produced a sharp bearish reversal in early October. The selling pressure has now pushed the BTK biotech index under support at the 600 level and its simple 100-dma. Given the breakdown we want to try and capture any further weakness by playing the BBH holders. However, the BBH has not yet broken support at the 180 level, even though it did close under its 100-dma today and on volume more than twice its average. We are going to suggest a trigger at $179.75 to open the play. If triggered we'll target a decline into the $172.50-170.00 range near its exponential 200-dma (currently at 171).

Suggested Options:
If triggered we would suggest the November strikes.

BUY PUT NOV 185.00 GBZ-WQ OI=1060 current ask $7.70
BUY PUT NOV 180.00 GBZ-WP OI= 630 current ask $5.30
BUY PUT NOV 175.00 GBZ-WO OI= 355 current ask $3.50

Picked on October xx at $xxx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 622 thousand

---

Teleflex Inc. - TFX - close: 67.30 chg: -1.55 stop: 69.01

Company Description:
Teleflex is a diversified industrial company with annual revenues of more than $2.4 billion. The company designs, manufactures and distributes quality engineered products and services for the automotive, marine, industrial, medical and aerospace markets worldwide. Teleflex employs more than 20,000 people worldwide who focus on providing innovative solutions for customers. (source: company press release or website)

Why We Like It:
It would appear that the rally has stalled in shares of TFX. The stock turned in a strong performance through late spring and summer and then spiked higher after the company announced a big stock buyback program in late July. Since then the trend has still been bullish but the momentum began to fade. Now shares have broken support at the simple 50-dma and the recent decline has produced a new sell signal on its Point & Figure chart that points to a $62 target (for now). Meanwhile the weekly chart's technicals also suggest a consolidation lower. We are going to suggest a trigger at $66.49 to open the play. If triggered we'll target a decline into the $62.50-62.00 range. We do expect an initial bounce near the $65.00 level and its 100-dma. We plan to exit before the close on Wednesday, October 26th. The company announced it will report earnings that afternoon after the closing bell.

Suggested Options:
If triggered we are suggesting the November puts.

BUY PUT NOV 70.00 TFX-WN OI= 10 current ask $3.80
BUY PUT NOV 65.00 TFX-WM OI= 20 current ask $1.40

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/26/05 (confirmed)
Average Daily Volume = 174 thousand

New Strangles

Legg Mason - LM - cls: 102.59 chg: -2.46 stop: n/a

Company Description:
Legg Mason, Inc., headquartered in Baltimore, is a holding company that provides asset management, securities brokerage, investment banking and related financial services through its subsidiaries. (source: company press release or website)

Why We Like It:
Shares of LM are throwing off some mixed signals. The stock has been sliding lower the last several days, which is not a surprise considering the weakness in the XBD broker-dealer index. This weakness has produced a new sell signal on its P&F chart that points to a $92 target. This tends to play along with the bearish technical picture on LM's weekly chart. Yet short-term the stock's technicals already look oversold and due for a bounce. Take into account that LM did manage a bounce today from the $100 level, which is host to technical support at the 100-dma and is also the bottom boundary of its ten-week trading range between $100 and $110. Traders might be tempted to play a bounce from the $100 level and target a move back to $110. Or traders could wait for a breakdown under $100 and target a decline toward the 200-dma near $90.00. We would rather use a strangle to capture any future move in the stock - that way we don't care what direction the stock moves. LM is due to report on October 20th. We will hold over the report with the expectation that any post-earnings reaction will push the stock significantly one direction or the other. Of course it is entirely possible that we could hit our option price targets before hand.

Suggested Options:
We are suggesting the November strikes. As a strangle play we want to buy an out-of-the-money call and an out-of-the-money put.

BUY CALL NOV 110.00 LM-KB OI=4414 current ask $1.65
-and-
BUY PUT NOV 90.00 LM-WR OI= 203 current ask $0.75

This would put our investment around $2.40. Try not to pay more than $3.00. We plan to exit if either option trades in the $7.00 to $8.00 range, more than doubling our investment. Our time frame is five weeks.

Picked on October 12 at $102.59
Change since picked: + 0.00
Earnings Date 10/20/05 (unconfirmed)
Average Daily Volume = 966 thousand

---

3M Co. - MMM - close: 70.38 chg: -0.17 stop: n/a

Company Description:
Every day, 3M people find new ways to make amazing things happen. Wherever they are, whatever they do, the company's customers know they can rely on 3M to help make their lives better. 3M's brands include Scotch, Post-it, Scotchgard, Thinsulate, Scotch-Brite, Filtrete, Command and Vikuiti. Serving customers in more than 200 countries around the world, the company's 67,000 people use their expertise, technologies and global strength to lead in major markets including consumer and office; display and graphics; electronics and telecommunications; safety, security and protection services; health care; industrial and transportation. (source: company press release or website)

Why We Like It:
The trend in MMM has been bearish for months but the volatility has almost disappeared. We expect that the company's upcoming earnings report on October 18th will change that. Currently MMM's Point & Figure chart is bearish and points to a $63 target and looks poised to produce another triple-bottom sell signal if the stock breaks down under the $70.00 level. Of course with this much bearishness there is an opportunity for an earnings surprise and a violent reaction as traders overreact. Then again a lousy earnings report may just be the catalyst investors need to dump the stock and send it to new lows. What we like about MMM is that the options are cheap and that makes any significant move more likely to put our investment into the black. We will hold over the earnings report. Our time frame is five weeks.

Suggested Options:
We are suggesting the November strikes. This is a strangle play so investors want to buy both an OTM call and an OTM put.

BUY CALL NOV 75.00 MMM-KO OI=11157 current ask $0.45
-and-
BUY PUT NOV 65.00 MMM-WM OI= 673 current ask $0.35

This should put our investment around $0.80. We plan to exit if either option trades in the $1.60-2.00 range.

Picked on October 12 at $ 70.38
Change since picked: + 0.00
Earnings Date 10/18/05 (confirmed)
Average Daily Volume = 3.0 million

---

Verifone Holdings - PAY - cls: 19.98 chg: -0.02 stop: n/a

Company Description:
VeriFone Holdings, Inc. ("VeriFone"), a global leader in secure electronic payment technologies, provides expertise, solutions and services for today with a migration strategy for tomorrow. VeriFone delivers solutions that add value to the point of sale, resulting in improved merchant retention and the generation of new sources of revenue for its partners and customers. VeriFone solutions are specifically designed to meet the needs of vertical markets including financial, retail, petroleum, government and healthcare. (source: company press release or website)

Why We Like It:
PAY was a huge winner for investors through the months of May through July but after it peaked in July the upward momentum vanished. The stock has been consolidating sideways for the last ten weeks and more recently the consolidation has really narrowed. Normally when a stock coils this tightly it portends a big breakout one way or the other is coming. The company doesn't report earnings until mid-November so we would have liked to have played the December options but currently there aren't any. That leaves us with November or January strikes. We'll leave which month to play up to you. We suspect that PAY will breakout one way or the other relatively soon (next couple of weeks) but there is no guarantee. Right now we're partial to the Januarys.

Suggested Options:
Before we continue we have to alert our readers to the fact that these options on PAY have huge spreads right now. More experienced traders might want to play with trying to split the spread. Sometimes it works, sometimes it doesn't. This is a strangle play so we want to buy an OTM call and an OTM put.

If you choose to play Novembers:

BUY CALL NOV 22.50 PAY-KX OI=132 current bid 0.20 ask $0.50
-and-
BUY PUT NOV 17.50 PAY-WW OI= 0 current bid 0.15 ask $0.65

We would look for a $3.00 or better move in the stock.

If you choose to play Januarys:

BUY CALL JAN 22.50 PAY-AX OI= 38 current bid 1.00 ask $1.45
-and-
BUY PUT JAN 17.50 PAY-MW OI= 0 current bid 0.65 ask $1.15

We would look for a $4.25-5.00 move in the stock.

Picked on October 12 at $ 19.98
Change since picked: + 0.00
Earnings Date 11/18/05 (unconfirmed)
Average Daily Volume = 259 thousand

New Play Archives