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New Calls

None today.
 

New Puts

Meritage Homes - MTH - close: 58.76 chg: -1.05 stop: 62.05

Company Description:
Meritage Homes Corp. is one of the nation's largest homebuilders. The company has been on Forbes' Platinum 400 "Best Managed Big Companies in America" list for three years, on Fortune's "Fastest Growing Companies in America" list five of the last seven years, and is included in the S&P SmallCap 600 Index. Additionally, Fortune ranked Meritage 747th in its "Fortune 1000" list of America's largest corporations and included the company as a "top pick from 50 great investors" in its Investor's Guide 2004. Meritage operates in fast-growing states of the southern and western United States, including six of the top 10 single-family housing markets in the country, and has reported 18 consecutive years of record revenue and net earnings. (source: company press release or website)

Why We Like It:
MTH's latest earnings report was a whopper. The company blew away estimates yet the stock's positive rally on the news quickly failed. It proved to be nothing more than an oversold bounce in a stock that is already in a bearish trend of lower highs that began back in August. The rest of the sector is also breaking down. The recent sales report from the National Association of Realtors said that home sales slipped 3% in December. If you look at the weekly chart for MTH is almost looks like a massive (bearish) head-and-shoulders pattern with the neckline (support) in the $57-58 region. We are suggesting put positions with MTH under the $60.00 mark. Our target will be the $52.00-50.00 range, which coincides with the $52 target on the Point & Figure chart.

Suggested Options:
We are suggesting the March puts.

BUY PUT MAR 60 MTH-OL open interest= 387 current ask $4.10
BUY PUT MAR 55 MTH-OK open interest=1269 current ask $1.90

Picked on February 02 at $ 58.76
Change since picked: + 0.00
Earnings Date 01/26/06 (confirmed)
Average Daily Volume = 560 thousand

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Phelps Dodge - PD - close: 158.10 chg: -3.66 stop: 167.15

Company Description:
Phelps Dodge Corp. is one of the world's leading producers of copper and molybdenum and is the largest producer of molybdenum-based chemicals and continuous-cast copper rod. The company and its two divisions, Phelps Dodge Mining Co. and Phelps Dodge Industries, employ approximately 15,500 people worldwide. (source: company press release or website)

Why We Like It:
We are fundamentally bullish on PD. The company is a major player in the copper-mining industry and the commodity has been hitting new highs for a while now. Demand seems to be outstripping supply for the malleable metal. PD's recent earnings report came in above expectations and management issued a big buy back program. Both events are positives. Yet shares of PD appear to have gotten ahead of themselves. Today's trading hit a new all-time high and then crashed. The move produced a big bearish engulfing candlestick, which is typically a bearish reversal pattern. This is an aggressive, higher-risk bearish play since we are trying to time a pull back toward its trendline of support. We're going to suggest put positions here (under $160) with a stop above today's high. More conservative traders may want to wait for PD to move under $158 or $156 before initiating positions. We are aiming for the simple 50-dma, currently at 144.50, but since the moving average is naturally a moving target we'll use an exit/target range of $147.50-145.00 for now.

Suggested Options:
We are suggesting the March puts.

BUY PUT MAR 160 PD-OL open interest=606 current ask $11.80
BUY PUT MAR 155 PD-OK open interest=388 current ask $ 9.00
BUY PUT MAR 150 PD-OJ open interest=195 current ask $ 6.60

Picked on February 02 at $158.10
Change since picked: + 0.00
Earnings Date 01/31/06 (confirmed)
Average Daily Volume = 2.6 million
 

New Strangles

None today.
 

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