Option Investor
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New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
None BRCM ASF
    LTR

New Calls

None today.
 

New Puts

Broadcom - BRCM - close: 42.45 chg: -1.85 stop: 45.01

Company Description:
Broadcom Corporation is a global leader in wired and wireless broadband communications semiconductors. Our products enable the convergence of high-speed data, high definition video, voice and audio at home, in the office and on the go. Broadcom provides manufacturers of computing and networking equipment, digital entertainment and broadband access products, and mobile devices with the industry's broadest portfolio of state-of-the-art system-on-a-chip and software solutions. These solutions support our core mission: Connecting everything. (source: company press release or website)

Why We Like It:
Investors decided to "sell the news" despite a positive earnings report from BRCM. The stock spiked higher on Friday to $45.45 and then promptly fell. The end effect was a bearish engulfing candlestick on very big volume, which suggests more weakness ahead. We want to see some confirmation that BRCM has indeed reversed course so we're going to use a trigger at $41.95 to open the play. More conservative traders may want to use a trigger under the simple 100-dma (41.37) or under the August low near $41. If triggered we'll target a decline toward the simple 200-dma currently at 36.50 (we'll use $37.00-36.50 as our target for now). The Point & Figure chart points to a $35 target.

Suggested Options:
We are suggesting the November puts.

BUY PUT NOV 45.00 RCQ-WI OI=8140 current ask $3.60
BUY PUT NOV 42.50 RCQ-WS OI=8278 current ask $2.00
BUY PUT NOV 40.00 RCQ-WH OI=4965 current ask $0.95

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/20/05 (confirmed)
Average Daily Volume = 7.3 million
 

New Strangles

Administaff - ASF - close: 39.40 change: +0.96 stop: n/a

Company Description:
Administaff is a leading personnel management company that serves as a full-service human resources department for small and medium-sized businesses throughout the United States. (source: company press release or website)

Why We Like It:
Investors are in love with ASF. The stock began its current bull run after report earnings back in May. Shares have steadily climbed higher and spiked again after reporting earnings in August. Now ASF nears the next earnings report on November 1st. Will the company deliver again and its stock spike to new relative highs? Or will the stock finally see some overdue profit taking? Expectations are probably running pretty high and that makes conditions ripe for a negative surprise. We think the stock's sideways consolidation over the last two weeks make ASF an attractive strangle candidate. We would not suggest new positions once ASF moves out of the $39-41 range.

Suggested Options:
This is a strangle play so traders need to buy both an out-of-the-money call and an OTM put. We're suggesting the Novembers. Our investment should be about $1.60. Try to keep it under $1.75-1.80. We'll exit if either option rises to $2.75 or higher (+65%).

BUY CALL NOV 45.00 ASF-KI OI= 37 current ask $0.80
-and-
BUY PUT NOV 35.00 ASF-WG OI=154 current ask $0.80

Picked on October 23 at $ 39.40
Change since picked: + 0.00
Earnings Date 11/01/05 (confirmed)
Average Daily Volume = 433 thousand

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Loews - LTR - close: 89.94 change: +1.06 close: n/a

Company Description:
Loews Corporation, a holding company, is one of the largest diversified financial corporations in the United States. Its principal subsidiaries are CNA Financial Corporation (NYSE: CNA), Lorillard, Inc., Boardwalk Pipelines, LLC, Diamond Offshore Drilling, Inc. (NYSE: DO), Loews Hotels, and Bulova Corporation. (source: company press release or website)

Why We Like It:
The upward momentum in LTR has stalled and shares have been consolidating sideways with a downward tilt over the last few weeks. Indictors are giving mixed signals. Oscillators on the weekly chart have turned bearish while its P&F chart remains bullish. Earnings are coming up on Thursday, October 27th. We're going to suggest a strangle to capture any post-earnings reaction. We would use an entry window of $89.50-90.50. You'll want to enter before LTR reports earnings.

Suggested Options:
We are going to suggest the December options for this strangle. Currently this will cost about $3.05. Try to keep your investment under $3.25-3.30. We'll plan to sell/exit if either option rises to $5.00 or more.

BUY CALL DEC 95.00 LTR-LS OI= 555 current ask $1.50
-and-
BUY PUT DEC 85.00 LTR-XQ OI= 258 current ask $1.55

Picked on October 23 at $ 89.94
Change since picked: + 0.00
Earnings Date 10/27/05 (confirmed)
Average Daily Volume = 602 thousand
 

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