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Call Options Plays
Put Options Plays
Strangle Options Plays
None PCAR BMHC

New Calls

None today.
 

New Puts

PACCAR Inc. - PCAR - close: 70.12 change: -0.26 stop: 72.51

Company Description:
PACCAR is a global technology leader in the design, manufacture and customer support of high-quality light-, medium- and heavy-duty trucks under the Kenworth, Peterbilt and DAF nameplates. It also provides financial services and information technology and distributes truck parts related to its principal business. (source: company press release or website)

Why We Like It:
The late October and early November rally has died for PCAR. The stock has spent the last several weeks consolidating sideways as upward momentum slowly faded and was replaced with more bearish technicals. PCAR has been sinking for months after peaking in late 2004. Since then the stock has a steady trend of lower highs and this recent "high" in November and December is essentially a failed rally under the long-term trendline (see chart). This isn't a perfect set up. The P&F chart is still bullish but we see the recent weakness in the last two sessions as a sign of things to come. Currently PCAR is trading at its 200-dma and just above its 50-dma. We want to set a trigger under last Thursday's low to catch the next breakdown. Our trigger will be $69.49. If triggered we'll target a drop into the $65.25-65.00 range before

Suggested Options:
We are going to suggest February puts although we plan to exit ahead of the January earnings report. Our trigger to buy puts is at $69.49.

BUY PUT FEB 75 PAQ-NO open interest=485 current ask $5.80
BUY PUT FEB 70 PAQ-NN open interest=796 current ask $2.75
BUY PUT FEB 65 PAQ-NM open interest=422 current ask $1.60

Picked on December xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/24/06 (unconfirmed)
Average Daily Volume = 838 thousand
 

New Strangles

Building Materials - BMHC - cls: 80.95 chg: +0.89 stop: n/a

Company Description:
BMHC, a Fortune 1000 company, is one of the largest providers of residential construction services and building materials in the United States. We serve the homebuilding industry through two subsidiaries: BMC West distributes building materials and manufactures building components for professional builders and contractors in the western and southern states; BMC Construction provides construction services to high-volume production homebuilders in key growth markets across the country. (source: company press release or website)

Why We Like It:
This looks like a pretty good set up for a strangle on BMHC. The stock has been coiling tighter and tighter into a pattern of higher lows and lower highs (a.k.a. a wedge or pennant). The more tightly it coils the closer it gets to a breakout. The company is due to report earnings in late January so we're going to suggest the March options. We'll suggest an $81.50-79.00 entry window but the closer to $80.00 the better.

Suggested Options:
This is a strangle so traders need to buy an out of the money call and an out of the money put. You might consider a straddle, buying a call and put at the $80 strike, but it would cost about $16 or more. We're suggesting the March options. At current prices this strangle should cost about $8.20. We'll target a rise to $12.50 by March expiration. Try and balance your investment on both sides (calls and puts) unless you have a specific bias for the stock. If you want you could do a $75put, $85 call strangle for about $11.70.

BUY CALL MAR 90 BGU-CR open interest=397 current ask $4.60
-and-
BUY PUT MAR 70 BGU-ON open interest=323 current ask $3.60

Picked on December 18 at $ 80.95
Change since picked: + 0.00
Earnings Date 01/24/06 (unconfirmed)
Average Daily Volume = 527 thousand
 

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