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Call Options Plays
Put Options Plays
Strangle Options Plays
AET None GOOG
KBH    
ESRX    

New Calls

Aetna - AET - close: 92.69 change: +1.77 stop: 89.99

Company Description:
As one of the nation's leading providers of health care, dental, pharmacy, group life, disability and long-term care benefits, Aetna puts information and helpful resources to work for its approximately 14.65 million medical members, 13.03 million dental members, 9.34 million pharmacy members and 13.68 million group insurance members to help them make better informed decisions about their health care and protect their finances against health-related risks. Aetna provides easy access to cost-effective health care through a nationwide network of more than 700,000 health care professionals, including over 418,000 primary care and specialist doctors and 4,231 hospitals. (source: company press release or website)

Why We Like It:
We suspect that the consolidation in AET is about over. The stock's upward momentum stalled under the $100 level back in December. Now shares are trying to bottom against rising technical support at the simple 100-dma. The short-term technical oscillators like the RSI and stochastics are already turning positive and its MACD has already produced a new buy signal. Shares still have some resistance at the 50-dma near $94.00. If the stock can breakout over the $94 level it will produce a new Point & Figure chart buy signal. We are going to suggest a trigger to buy calls at $94.05. If triggered we'll target a rally into the $99.00-100.00 range. Part of the risk with this play is the time frame. AET is due to report earnings on February 9th. That gives us less than two weeks. FYI: during Friday's session last week AET announced a 2-for-1 stock split set for February 17th. Management also announced a $750 million share buy back program.

Suggested Options:
We are suggesting the February calls since we plan to exit ahead of the February earnings report.

BUY CALL FEB 90 AAF-BR open interest=3771 current ask $4.40
BUY CALL FEB 95 AAF-BS open interest=4793 current ask $1.65

Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/09/06 (confirmed)
Average Daily Volume = 1.7 million

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Express Scripts - ESRX - close: 92.42 chg: +3.20 stop: 87.45

Company Description:
Express Scripts provides integrated PBM services, including network- pharmacy claims processing, home delivery services, benefit-design consultation, drug-utilization review, formulary management, disease management, and medical- and drug-data analysis services. The Company also distributes a full range of injectable and infusion biopharmaceutical products directly to patients or their physicians, and provides extensive cost- management and patient-care services. (source: company press release or website)

Why We Like It:
The bullish breakout in ESRX on Friday is very positive. The stock has been consolidating under resistance at the $90.00 level for the last six weeks. Now shares have turned higher again and the technicals look very attractive. Friday's breakout produced a new quadruple top breakout buy signal on its P&F chart with a new $105 price target. We are suggesting call positions with ESRX above the $90.00 mark. If you're the patient type then consider waiting for a pull back toward $90.00-90.75 as an entry point to buy calls. It's very common for stocks to pull back and retest broken resistance as new support. Our target is the $99.50-100.00 range. We do not want to hold over the February 22nd (unconfirmed) earnings report.

Suggested Options:
We are going to suggest the March calls so we can hold positions up to but not over the February earnings report.

BUY CALL MAR 90 XTQ-CR open interest=236 current ask $6.50
BUY CALL MAR 95 XTQ-CS open interest=191 current ask $3.90
BUY CALL MAR 100XTQ-CT open interest=138 current ask $2.05

Picked on January 29 at $ 92.42
Change since picked: + 0.00
Earnings Date 02/22/06 (unconfirmed)
Average Daily Volume = 2.1 million

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KB Home - KBH - close: 76.30 chg: +1.10 stop: 73.30

Company Description:
Building homes for nearly half a century, KB Home is one of America's premier homebuilders with domestic operating divisions in some of the fastest-growing regions and states: West Coast-California; Southwest-Arizona, Nevada and New Mexico; Central-Colorado, Illinois, Indiana, Louisiana and Texas; and Southeast-Florida, Georgia, Maryland, North Carolina, South Carolina and Virginia. Kaufman & Broad S.A., the Company's publicly-traded French subsidiary, is one of the largest homebuilders in France. In fiscal 2005, the Company delivered homes to 37,140 families in the United States and France. KB Home also offers complete mortgage services through Countrywide KB Home Loans, a joint venture with Countrywide Financial Corporation. (source: company press release or website)

Why We Like It:
The new home sales figures that came out on Friday were better than expected and it may have stalled the current two-week sell-off in the homebuilding sector. Shares of KBH are bouncing from its three-month old trendline of support. This looks like an attractive entry point to buy the bounce and ride KBH back to its January highs and probably beyond. We are going to set our stop loss just under the simple 50-dma and its trendline of support. We are suggesting calls here with KBH above $76.00. More conservative traders might want to wait for more confirmation and a move over the $77.50 or $78.00 levels before buying calls. We're going to target a rally into the $84.00-85.00 range. Short-term traders can target the January highs near $82.00. The P&F chart is bullish and points to a $93.00 target.

Suggested Options:
We are suggesting the March calls.

BUY CALL MAR 75.00 KBH-CO open interest=314 current ask $4.80
BUY CALL MAR 80.00 KBH-CP open interest=141 current ask $2.40

Picked on January 29 at $ 76.30
Change since picked: + 0.00
Earnings Date 03/16/06 (unconfirmed)
Average Daily Volume = 2.0 million
 

New Puts

None today.
 

New Strangles

Google Inc. - GOOG - close: 433.49 chg: -0.77 stop: n/a

Company Description:
Google is a public and profitable company focused on search services. Named for the mathematical term "googol," Google operates web sites at many international domains, with the most trafficked being www.google.com. Google is widely recognized as the "world's best search engine" because it is fast, accurate and easy to use. The company also serves corporate clients, including advertisers, content publishers and site managers with cost-effective advertising and a wide range of revenue generating search services. Google's breakthrough technology and continued innovation serve the company's mission of "organizing the world's information and making it universally accessible and useful." (source: company press release or website)

Why We Like It:
We are going to try it again. Back in October we were successful with a strangle play centered on catching the volatility produced by the company's earnings report. The last earnings report saw GOOG gap open and close with a $36 gain and two weeks later the stock had pushed that gain to almost $100 (+33%). Expectations are still extremely high for GOOG and the stock could easily see another huge move. That is of course why the options are so darn expensive. This is a high-risk, aggressive play so if you can't handle the volatility or the potential loss don't play it! GOOG is set to report earnings on Tuesday, January 31st after the market's closing bell. Estimates are for the company to report earnings of $1.77 a share. We are suggesting the February $450 call and the February $420 put. At current prices our estimated cost is $40.10. We will look for a rise to $60.00 or more before February options expire. Translation = we expect GOOG to hit $475 or fall under $370 before February expiration. You could try a straddle (where you buy a call and a put at the same strike) at the $430 strike price for about $55.00. You could also try our strangle with March strikes for about $54.00. We don't expect a lot of movement in GOOG ahead of its earnings report although the FOMC announcement on Tuesday afternoon might produce some volatility. Be prepared.

Suggested Options:
We are suggesting a short-term, aggressive, high-risk strangle on GOOG. This requires that traders buy an out of the money call and an out of the money put. We would not suggest new strangle positions after Tuesday.

BUY CALL FEB 450 GOP-BJ open interest=15294 current ask $19.90
-and-
BUY PUT FEB 420 GOP-ND open interest= 6495 current ask $20.20

Picked on January 29 at $433.49
Change since picked: + 0.00
Earnings Date 01/31/06 (confirmed)
Average Daily Volume = 11.1 million
 

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