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New Option Plays

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New Calls

Legg Mason - LM - cls: 111.69 change: +0.71 stop: 104.95

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:
We actually listed LM as a new bullish candidate in Wednesday night's newsletter but due to a publishing error the content did not make it to the newsletter. We remain bullish on the stock and have adjusted our entry point from Wednesday's close of $110.98 to today's close at $111.69. If you think the market looks overbought and due for a dip consider waiting for another pull back toward the $110.00-110.75 region and initiate positions there. Broken resistance at $110 should now act as new support. We are reposting our new play description from Wednesday night here:

We are going to double up on LM as a play candidate. The stock is already on the play list as a strangle play but we're not suggesting new strangle positions. We are going to suggest new call positions on today's breakout. The stock has been stuck in a trading range between $100 and $110 for more than three months. Today's push past the $110 level was fueled by stronger than average volume and could be the beginning of its next leg higher. The Point & Figure chart is already bullish and points to a target in the $130s. The stock has been very volatile over the last two weeks and the biggest risk here is that today's breakout is a bull trap. More conservative traders may want to wait for more confirmation of the breakout with a move over $112 or use a tighter stop loss. If you're the patient type then consider waiting for a dip back to the $110 mark and enter positions there. Our target is the $119-120 range. Our time frame is seven weeks.

Suggested Options:
We are suggesting the December calls.

BUY CALL DEC 105.00 LM-LA open interest= 135 current ask $9.50
BUY CALL DEC 110.00 LM-LB open interest=1732 current ask $6.30
BUY CALL DEC 115.00 LM-LC open interest= 190 current ask $3.80

Picked on November 02 at $111.69
Change since picked: + 0.00
Earnings Date 10/25/05 (confirmed)
Average Daily Volume = 904 thousand


Rockwell Autom. - ROK - cls: 55.90 chg: +1.78 stop: 53.49

Company Description:
Rockwell Automation, Inc., is a leading global provider of industrial automation power, control and information solutions that help customers meet their manufacturing productivity objectives. The company brings together leading brands in industrial automation for Complete Automation solutions, including Allen-Bradley controls and services, Dodge mechanical power transmission products, Reliance motors and drives, and Rockwell Software factory management software. Headquartered in Milwaukee, Wisconsin, the company employs about 21,000 people serving customers in more than 80 countries. (source: company press release or website)

Why We Like It:
We normally try not to immediately chase an earnings move but the technical pattern on ROK looks pretty bullish. The company reported earnings this morning that where inline with Wall Street estimates. Typically a lackluster earnings report like that can spark a "sell the news" type of reaction. Not so with ROK today. The stock continued yesterday's rally and broke out over significant resistance at the $55.00-55.25 level. The Point & Figure chart was already bullish with a $72 target but a move over $56 will produce a new triple top breakout buy signal. We are going to suggest new call positions with the stock over the $55.00 level. However, odds are pretty good that ROK may pull back and retest broken resistance at $55.00 as new support. More patient traders may want to wait for that dip back to $55 before initiating positions. ROK should have support at $55 and again at $54 near its simple 200-dma. We're setting our stop loss at $53.49. Our eight-week target is the $61.00-62.00 range.

Suggested Options:
We are suggesting the January calls because they have more open interest than Decembers.

BUY CALL JAN 55.00 ROK-AK open interest=838 current ask $3.40
BUY CALL JAN 60.00 ROK-AL open interest=198 current ask $1.25

Picked on November 03 at $ 55.90
Change since picked: + 0.00
Earnings Date 11/03/05 (confirmed)
Average Daily Volume = 804 thousand

New Puts

None today.

New Strangles

None today.

New Play Archives