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LEH    

New Calls

Cigna - CI - close: 123.63 change: +1.08 stop: 117.85

Company Description:
CIGNA HealthCare, headquartered in Bloomfield, CT, provides medical benefits plans, dental coverage, behavioral health coverage, pharmacy benefits and products and services that integrate and analyze information to support consumerism and health advocacy. (source: company press release or website)

Why We Like It:
The markets can't seem to decide on a direction. The DJIA is arguably stuck in a trading range and the S&P 500 isn't much help either. Thus we're left to find stocks trading on their own relative strength. CI is one such stock. Shares had been trading in their own trading range for the last six months. That changed January 27th after Morgan Stanley upgraded CI to an "over weight". The broker upgrade launched CI higher and the stock eventually broke out over resistance at the $120 level. The rally began to fade until CI's recent earnings report on February 8th. The company beat estimates by 33 cents but guided lower for the current quarter. Normally if a company issues a warning the stock price is punished. Not so with CI. There was a gap down but traders bought the dip and now CI is hitting new five-year highs. The stock was upgraded again on February 9th by Prudential. The recent strength has also produced a new Point & Figure chart buy signal that now points to a $154 target. We are going to suggest bullish positions with CI above the $120 mark. Our six-week target will be the $129.50-130.00 range.

Suggested Options:
We are suggesting the April calls but March calls should also work fine.

BUY CALL APR 120 CI-DD open interest=446 current ask $8.00
BUY CALL APR 125 CI-DE open interest=685 current ask $5.00
BUY CALL APR 130 CI-DF open interest=291 current ask $2.80

Picked on February 12 at $123.63
Change since picked: + 0.00
Earnings Date 02/08/06 (confirmed)
Average Daily Volume = 979 thousand

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Lehman Brothers - LEH - cls: 137.50 chg: -0.71 stop: 134.49

Company Description:
Lehman Brothers, an innovator in global finance, serves the financial needs of corporations, governments and municipalities, institutional clients, and high net worth individuals worldwide. Founded in 1850, Lehman Brothers maintains leadership positions in equity and fixed income sales, trading and research, investment banking, private investment management, asset management and private equity. The Firm is headquartered in New York, with regional headquarters in London and Tokyo, and operates in a network of offices around the world. (source: company press release or website)

Why We Like It:
This is a bit of a speculative play. LEH, like most of the broker-dealer sector, has been in a long-term up trend for months. This relative strength should help out the bulls since the major indices are range bound. The broker stocks hit some profit taking on Thursday afternoon and Friday morning but bulls were quick to buy the dip when shares hit short-term support. We are suggesting that traders buy the bounce from Friday. More conservative traders may want to wait for a move over $138.50 as confirmation or even wait for a new move over $140.00. It is very common for the broker-dealer stocks to rally higher in the three-to-four weeks ahead of their earnings report. LEH is due to report in mid March so if shares are going to have pre-earnings run up now is the time for us to be looking for an entry point. We'll put our stop loss under Friday's low at $134.49. Our target is the $144.95-145.00 range. More aggressive traders could aim higher maybe $149.

Suggested Options:
We are suggesting the March calls. We plan to exit ahead of LEH's March earnings report.

BUY CALL MAR 135 LES-CG open interest=361 current ask $5.90
BUY CALL MAR 140 LES-CH open interest=914 current ask $3.10
BUY CALL MAR 145 LES-CI open interest=394 current ask $1.35

Picked on February 12 at $137.50
Change since picked: + 0.00
Earnings Date 03/14/06 (unconfirmed)
Average Daily Volume = 2.0 million
 

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New Strangles

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