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New Option Plays

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Call Options Plays
Put Options Plays
Strangles
BNINoneABC
TGT ET
  GOOG

New Calls

Burlington North/Santa Fe - BNI - cls: 57.43 chg: +0.59 stop: 55.99

Company Description:
Burlington Northern Santa Fe Corporation's subsidiary BNSF Railway Company operates one of the largest railroad networks in North America, with about 32,000 route miles in 28 states and two Canadian provinces. The railway is among the world's top transporters of intermodal traffic, moves more grain than any other American railroad, transports the components of many of the products we depend on daily, and hauls enough low-sulphur coal to generate about ten percent of the electricity produced in the United States. (source: company press release or website)

Why We Like It:
We like BNI as a bullish candidate for its relative strength. Despite all the selling that has hit the market in October shares of BNI only managed to drift back to support near the $56.00 level. This is not a normal play for us because we're only looking for a bounce back to the $60.00 level (target 59.95-60.00). That's only a $2.50 move and normally we look for a bigger move. However, if we play the $55.00 calls a move to $60.00 should still be a nice gain. Keep in mind that if BNI fails to produce any upward follow through on Monday or Tuesday next week we'll bail out! We do plan to exit ahead of the company's October 25th earnings report.

Suggested Options:
We like the November $55.00 call.

BUY CALL NOV 55.00 BNI-KK OI=251 current ask $3.70

Picked on October 00 at $ 00.00
Change since picked: + 0.00
Earnings Date 10/25/05 (unconfirmed)
Average Daily Volume = 2.0 million

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Target Corp - TGT - close: 53.49 change: +1.14 stop: 51.49

Company Description:
Target Corporation's continuing operations include large, general merchandise discount stores, as well as an on-line business called Target.com. The company currently operates 1,400 Target stores in 47 states. (source: company press release or website)

Why We Like It:
In spite of inflation fears some of the retail stocks are trying to bounce. We're actually a little concerned for the retailers this year as consumers struggle with higher gas prices, higher heating bills, and rising interest rates. However, TGT may be an exception to the rule and the stock is leading the sector higher with Friday's 2.17% rally and breakout over its three-month trendline of resistance. Aggressive traders may want to consider bullish positions right here. We want to see more confirmation so we'll use a trigger at $54.01 above its simple 50-dma. There are two key dates that investors need to be aware of. First is Target's analyst conference on October 18th. This could produce some unexpected volatility if they say something negative about earnings. The second date is earnings around November 10th. We will not hold over the earnings report. Our target is the $59.00-60.00 range.

Suggested Options:
If TGT hits our trigger to buy calls at $54.01 then we would suggest the November strikes.

BUY CALL NOV 50.00 TGT-KJ OI=1767 current ask $4.40
BUY CALL NOV 55.00 TGT-KK OI=2082 current ask $1.25

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/10/05 (unconfirmed)
Average Daily Volume = 3.8 million
 

New Puts

None
 

New Strangles

AmerisourceBergen - ABC - cls: 74.81 chg: -0.07 stop: n/a

Company Description:
AmerisourceBergen is one of the largest pharmaceutical services companies in the United States. Servicing both pharmaceutical manufacturers and healthcare providers in the pharmaceutical supply channel, the Company provides drug distribution and related services designed to reduce costs and improve patient outcomes. AmerisourceBergen's service solutions range from pharmacy automation and pharmaceutical packaging to pharmacy services for skilled nursing and assisted living facilities, reimbursement and pharmaceutical consulting services, and physician education. With more than $54 billion in annual revenue, AmerisourceBergen is headquartered in Valley Forge, PA, and employs more than 14,000 people. (source: company press release or website)

Why We Like It:
ABC looks like an attractive strangle candidate because the stock is throwing off mixed signals and has been consolidating sideways the last few sessions near round-number support/resistance. A quick glance at the daily chart shows that ABC has been rising in a steady channel for months. Yet now it looks like that upward channel is in jeopardy. The stock has struggled to breakout over the $79.00 level for days and has now pulled back to the $75.00 region near the bottom of its channel and technical support at the 50-dma. The Point & Figure chart is very bullish and points to a $114 price target. Yet the weekly chart's technical indicators have all turned bearish. We are suggesting a strangle on ABC to capture any move from the $75 region. Once ABC breaks out (under $74 or over $76) we would not suggest new strangle positions. We do plan on holding over the November 3rd earnings report, which should produce more volatility.

Suggested Options:
This is a strangle play which requires the trader to buy both an out-of-the-money (OTM) call and an OTM put.

BUY CALL NOV 80.00 ABC-KP OI=544 current ask $0.95
-and-
BUY PUT NOV 70.00 ABC-WN OI=746 current ask $1.15

This would put our total cost around $2.10. Try not to pay more than $2.50. We plan to exit if either option trades at $4.00.

Picked on October 16 at $ 74.81
Change since picked: + 0.00
Earnings Date 11/03/05 (confirmed)
Average Daily Volume = 900 thousand

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E*trade Financial - ET - close: 16.28 chg: +0.34 stop: n/a

Company Description:
The E*TRADE FINANCIAL family of companies provide financial services including trading, investing, banking and lending for retail and institutional customers. Securities products and services are offered by E*TRADE Securities LLC (Member NASD/SIPC). Bank and lending products and services are offered by E*TRADE Bank, a Federal savings bank, Member FDIC, or its subsidiaries. (source: company press release or website)

Why We Like It:
ET has been a big winner for the bulls with a multi-month rally from its April lows. Yet now that up trend is in jeopardy as the company approaches its October 19th earnings report. The stock has broken down below support at the 50-dma and many of its technical indicators are bearish. The earnings report should either re-ignite the rally or more likely it will be an excuse to take profits. We are suggesting a strangle play to capture any move.

Suggested Options:
A strangle play requires that traders buy an OTM call and an OTM put. We suggest the following:

BUY CALL NOV 17.00 ET-KR OI=1037 current ask $0.50
-and-
BUY PUT NOV 15.00 ET-WC OI=114 current ask $0.35

Our total investment should be around 0.85. Try not to pay more than $1.00. We'll exit if either option trades into the $1.60-1.75 range.

Some of our readers might want to consider a straddle. You can probably buy a straddle, where you buy both a call and a put at the same strike, at the $16.00 strike for around $1.60.

Picked on October 16 at $ 16.28
Change since picked: + 0.00
Earnings Date 10/19/05 (confirmed)
Average Daily Volume = 3.4 million

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Google Inc. - GOOG - close: 296.14 chg: -1.30 stop: n/a

Company Description:
Google's innovative search technologies connect millions of people around the world with information every day. Founded in 1998 by Stanford Ph.D. students Larry Page and Sergey Brin, Google today is a top web property in all major global markets. Google's targeted advertising program provides businesses of all sizes with measurable results, while enhancing the overall web experience for users. Google is headquartered in Silicon Valley with offices throughout the Americas, Europe and Asia. (source: company press release or website)

Why We Like It:
What are the odds of Google's earnings report, due out on October 20th, producing some volatility in the stock price? Exactly! Odds are probably pretty high. Add to the earnings news rumors that GOOG may make a bid for all or part of AOL and renewed expectations that GOOG will eventually be added to the S&P 500 and you have plenty of catalysts that could move the stock. Shares have spent the last couple of days consolidating around the 100-dma and the $300.00 region. This looks like a great time to consider launching a neutral strategy like a strangle. As long as shares of GOOG trade in the $295-305 range we would consider opening new plays. Once it moves out of that range we would not want to chase it and we want to make sure we have our positions before the company reports earnings. We would classify this as an aggressive, higher-risk play. There is a risk that GOOG just churns sideways, which would negatively affect both our options in a strangle position.

Suggested Options:
We are going to suggest two alternatives. One strategy will be to play the November strikes. Another will use the December strikes with a slightly wider range.
If you want to play the Novembers:

BUY CALL NOV 320.00 GGD-KD OI=8242 current ask $5.70
-and-
BUY PUT NOV 280.00 GGD-WP OI=5003 current ask $6.50

This puts our cost around $12.20. We want to exit if either option trades in the $18.00-20.00 range (sell both options).

If you want to play the Decembers:

BUY CALL DEC 330.00 GGD-LF OI=4121 current ask $6.60
-and-
BUY PUT DEC 270.00 GOU-XN OI=3679 current ask $6.20

This puts our cost around $12.80. We want to exit if either option trades in the $18.00-20.00 range (sell both options).

Picked on October 16 at $296.14
Change since picked: + 0.00
Earnings Date 10/20/05 (confirmed)
Average Daily Volume = 8.1 million
 

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