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New Calls

SurModics - SRDX - close: 40.95 chg: 2.14 stop: 39.49

Company Description:
SurModics, Inc. is a leading provider of surface modification technologies, in the areas of biocompatibility, site-specific drug delivery, biological cell encapsulation, and medical diagnostics. SurModics partners with the world's foremost medical device, pharmaceutical and life science companies to bring innovation together for better patient outcomes. A significant portion of SurModics' revenue is generated by royalties from the sale of commercial products resulting from its corporate relationships. Recent collaborative efforts include the implementation of the SurModics' BRAVO drug delivery polymer matrix as a key component in the first-to-market drug-eluting coronary stent. SurModics is headquartered in Eden Prairie, MN. (source: company press release or website)

Why We Like It:
This is an old-fashioned breakout play. SRDX has been consolidating sideways for the last couple of months above technical support at its 200-dma but under resistance at its 100-dma and the $40.00 mark. The stock rebounded sharply from the 200-dma on big volume a few days ago. Shares surged higher on big volume again today (about twice the average) to breakout over significant resistance. The move also helped produce a new buy signal on its P&F chart that now points to a $52 target. The biggest risk we see here is the overall market environment and our time frame. The major averages look vulnerable to more selling and if they turn lower it will probably halt any bullish follow through on SRDX. The next risk is our time frame. We want to exit ahead of SRDX's October 26th earnings report. That only gives us a week! Actually, there is a greater risk here. The 26th report date is unconfirmed and a second source estimates SRDX will report on the 20th (that's tomorrow). We don't want to hold over an earnings report with a directional play like this. We're going to suggest bullish positions with the stock above $40.00 and target a move into the $44.50-45.00 range. Unless we find new data for an earnings date we'll plan on exiting next Tuesday (Oct. 25th) at the closing bell. If the market's do pull back tomorrow then look for SRDX to dip back toward the 40.00 level and buy a bounce! FYI: traders should note that the latest data does put short interest in SRDX at a high 16.4% of its 18.5 million shares outstanding. Tuesday's breakout might spark some short-covering.

Suggested Options:
We are suggesting the November calls since this will be a short-term play.

BUY CALL NOV 40.00 UZF-KH OI=686 current ask $2.55
BUY CALL NOV 45.00 UZF-KI OI=947 current ask $0.60

Picked on October 18 at $ 40.95
Change since picked: 0.00
Earnings Date 10/26/05 (unconfirmed)
Average Daily Volume = 249 thousand

New Puts

None today.

New Strangles

eBay Inc. - EBAY - close: 40.42 chg: -0.42 stop: n/a

Company Description:
Founded in 1995, eBay pioneers communities built on commerce, sustained by trust, and inspired by opportunity. eBay enables ecommerce on a local, national and international basis with an array of websites -- including the eBay Marketplace, PayPal, Kijiji, Rent.com and Shopping.com -- that bring together millions of buyers and sellers every day. (source: company press release or website)

Why We Like It:
Tomorrow is our one chance to try and catch an earnings move out of EBAY. The stock has spent the last few days consolidating sideways above its 200-dma but also on either side of the $40.00 level. The Point & Figure chart is currently bullish but there's no way to know how investors will react to the earnings report, which is due out tomorrow after the closing bell. Wall Street is looking for EBAY to turn in profits of 20-cents a share. We're going to suggest a strangle play to capture any post-earnings excitement. Please note that if EBAY gaps above $41.25 or under $39.50 we would not open new plays.

Suggested Options:
We are suggesting a strangle with the November options. We looked at January's, which are a possibility, but they are significantly more expensive.

BUY CALL NOV 45.00 XBA-KI OI=8584 current ask $0.65
BUY PUT NOV 35.00 XBA-WG OI=1783 current ask $0.40

We'd like to keep our total investment in the $1.00-1.15 range if possible. Our goal is to double our money so we'll plan on selling if either option trades in the $2.00-2.30 range.

Picked on October 18 at $ 40.42
Change since picked: 0.00
Earnings Date 10/19/05 (confirmed)
Average Daily Volume = 18.3 million


Harman Intl - HAR - cls: 100.80 chg: -0.80 stop: n/a

Company Description:
Harman International Industries, Incorporated is a leading manufacturer of high-quality, high fidelity audio products and electronic systems for the consumer and professional markets. (source: company press release or website)

Why We Like It:
The stock consolidated sideways above the $100 level today as investors waited for the company's earnings report that is due out tomorrow (Wednesday, October 20th) after the market's closing bell. We like HAR as a strangle candidate because the stock has a pretty good history of producing big moves following its earnings report. A straddle at the $100 level looked too expensive so we're suggesting a strangle with the November strikes. We need to launch positions before the company reports earnings but we do NOT want to initiate a new position if HAR moves too far from the $100 level. If the stock gaps open above $101.50 or under $99.50 we will abort the play.

Suggested Options:
There are four and a half weeks left until the November option expiration. We're suggesting the following strikes.

BUY CALL NOV 110.00 HAR-KB OI=319 current ask $2.05
BUY PUT NOV 90.00 HAR-WR OI=308 current ask $1.75

This put our cost around $3.80. We probably don't want to play more than $4.00 if we can avoid it. We'll aim for a 50% profit so we'll sell if either option rises to $6.00 or more.

Picked on October 18 at $100.80
Change since picked: 0.00
Earnings Date 10/19/05 (confirmed)
Average Daily Volume = 739 thousand

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