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Strangle Options Plays
None AMGN None
  ESRX  
  GENZ  
  RAI  

New Calls

None today.
 

New Puts

Amgen Inc. - AMGN - close: 71.03 chg: -0.82 stop: 72.55

Company Description:
Amgen discovers, develops and delivers innovative human therapeutics. A biotechnology pioneer since 1980, Amgen was one of the first companies to realize the new science's promise by bringing safe and effective medicines from lab, to manufacturing plant, to patient. Amgen therapeutics have changed the practice of medicine, helping millions of people around the world in the fight against cancer, kidney disease, rheumatoid arthritis, and other serious illnesses. With a broad and deep pipeline of potential new medicines, Amgen remains committed to advancing science to dramatically improve people's lives. (source: company press release or website)

Why We Like It:
The biotech stocks have helped lead the market decline recently. The BTK index peaked in late February and consolidated lower through the month of March. The last couple of weeks the BTK index has been consolidating above support near the 700 level and its simple 100-dma. Yet on Thursday the index broke down and Friday only seemed to confirm the breakdown. AMGN has been sliding lower for weeks too but the stock has not yet broken significant resistance at the $70.00 level. Should the major indices, and the BTK index, continue lower next week then we suspect that AMGN will breakdown. Thus we are suggesting a trigger at $69.90 to open bearish positions. If triggered we'll target a decline into the $65.50-65.00 range. AMGN's P&F chart is already bearish and points to a $60 target but a drop under $70 would produce a new triple-bottom breakdown sell signal. This is going to be a short-term play. We do not want to hold over the April 18th earnings report, which will be announced after the closing bell. FYI: any time you trade a biotech company there is always increased risk of some sort of unexpected headline news like a new drug success or failure that could send shares surging either direction.

Suggested Options:
We are suggesting the May puts but plan to exit on or before April 18th.

BUY PUT MAY 72.50 YAA-QV open interest= 998 current ask $2.85
BUY PUT MAY 70.00 YAA-QN open interest=1518 current ask $1.65
BUY PUT MAY 67.50 YAA-QU open interest= 951 current ask $0.90

Picked on April xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/18/06 (confirmed)
Average Daily Volume = 10.7 million

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Express Scripts - ESRX - close: 85.39 chg: -0.06 stop: 90.01

Company Description:
Express Scripts, Inc. is one of the largest PBM companies in North America, providing PBM services to over 50 million members. Express Scripts serves thousands of client groups, including managed-care organizations, insurance carriers, employers, third-party administrators, public sector, and union-sponsored benefit plans. (source: company press release or website)

Why We Like It:
The rally has definitely stalled in ESRX. The stock was on fire from the end of 2004 through most of 2005 but the stock has been building a bearish head-and-shoulders pattern for the last four months. ESRX now looks on the verge of breaking support at the neckline of this pattern. The stock has already broken support at its 50-dma and 100-dma. The P&F chart is already bearish and points to an $80 target but that target could get worse. We are suggesting put positions here with an $80.25-80.00 target. However, more aggressive traders may want to aim lower. The H&S pattern points to a target in the $73-74 range, which, coincidentally is where you'll find the simple 200-dma. We do not want to hold over the April 26th earnings report.

Suggested Options:
We are suggesting the May puts.

BUY PUT MAY 85.00 XTQ-QQ open interest=1984 current ask $3.40
BUY PUT MAY 80.00 XTQ-QP open interest=4707 current ask $1.55

Picked on April 09 at $ 85.39
Change since picked: + 0.00
Earnings Date 04/26/06 (confirmed)
Average Daily Volume = 1.6 million

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Genzyme Corp. - GENZ - close: 65.50 chg: -0.81 stop: 68.01

Company Description:
One of the world's leading biotechnology companies, Genzyme is dedicated to making a major positive impact on the lives of people with serious diseases. This year marks the 25th anniversary of Genzyme's founding. Since 1981, the company has grown from a small start-up to a diversified enterprise with more than 8,000 employees in locations spanning the globe and 2005 revenues of $2.7 billion. (source: company press release or website)

Why We Like It:
GENZ is another bearish play in the struggling biotech sector. GENZ has been consolidating lower under a trend of sinking highs for months but the stock has been finding support near the $65.00 level. Given the breakdown in the BTK index and the weakness in the major averages there is a rising chance that GENZ will finally break support at $65.00. We are suggesting a trigger to buy puts at $64.90. If triggered then we will target a decline into the $61.00-60.00 range. This is going to be a short-term play because we do not want to hold over the April 19th earnings report. Currently the P&F chart points to a $56 target but a move under $65.00 would produce a new triple-bottom breakdown sell signal. FYI: any time you trade a biotech company there is always increased risk of some sort of unexpected headline news like a new drug success or failure that could send shares surging either direction.

Suggested Options:
We are suggesting the May puts but more aggressive traders could trade the April puts.

BUY PUT MAY 67.50 GZQ-QU open interest=130 current ask $3.50
BUY PUT MAY 65.00 GZQ-QM open interest=190 current ask $2.20
BUY PUT MAY 62.50 GZQ-QZ open interest=302 current ask $1.25

Picked on April xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/19/06 (confirmed)
Average Daily Volume = 2.1 million

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Reynolds American - RAI - close: 104.97 chg: -1.07 stop: 108.01

Company Description:
R.J. Reynolds Tobacco Company (R.J. Reynolds) is the second-largest tobacco company in the United States, manufacturing about one of every three cigarettes sold in the country. (source: company press release or website)

Why We Like It:
At first we planned to suggest put positions on MO the stock is weak and has broken down through multiple levels of support. Unfortunately, MO is due to report earnings in just over a week and given the market holiday on Friday the 14th we chose to pass. Instead we're suggesting puts on another tobacco stock: RAI. The stock peaked at $110 a few weeks ago and have now broken down below technical support at the 50-dma and price support near $105. It could be that traders have finally decided to do some profit taking after an impressive run up since the October lows. It's also important to note that while RAI still offers an impressive dividend yield in the 4.7-5.0% range this dividend is growing less attractive as bond yields rise. Our target is the 100-dma near the $100.00 mark. We'll use an exit range of $100.50-100.00. We do not want to hold over the late April earnings report.

Suggested Options:
We are suggesting May puts.

BUY PUT MAY 105 RAI-QA open interest= 653 current ask $3.50
BUY PUT MAY 100 RAI-QT open interest=4083 current ask $1.95

Picked on April 09 at $104.97
Change since picked: + 0.00
Earnings Date 04/27/06 (unconfirmed)
Average Daily Volume = 637 thousand
 

New Strangles

None today.
 

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