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New Option Plays

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None DRQ None
  ESRX  
  SLB  

New Calls

None today.
 

New Puts

Dril Quip - DRQ - close: 74.77 chg: -3.50 stop: 80.05

Company Description:
Dril-Quip is a leading manufacturer of highly engineered offshore drilling and production equipment which is well suited for use in deepwater, harsh environment and severe service applications. (source: company press release or website)

Why We Like It:
If you can't beat them, join them! Oil stocks have reversed sharply from a nascent bullish buy signal into very clear sell signals. Oil service stocks seem to be taking the worst beating and the group closed near their lows for the session suggesting more weakness to come. The risk here is that the OIX oil index might bounce from its 200-dma and the OSX oil services index might bounce from its 200-dma but that would require another significant drop. Part of the risk is that DRQ is already down about $9 from the recent high three days ago and shares are going to be due for a bounce soon. The challenge is that everything looks bearish. The MACD buy signal has reversed, the RSI is bearish, stochastics are bearish, DRQ has closed under potential support at $75.00 and its 50-dma after producing a failed rally under $80.00 (all bearish). Volume has been above average on the declines, which is also bearish. We are going to suggest puts with DRQ under $75.00 for now. Please note we're suggesting two targets. Our conservative target is the $70.25 level. Our aggressive target is the 100-dma (currently 65.96) so we'll put that at $66.25 for now. Another risk to consider is that if Iran refuses to discuss the new proposal and defies the U.N. and the West again oil futures could spike higher and inspiring new strength in the oil stocks.

Suggested Options:
We are suggesting the July puts.

BUY PUT JUL 75.00 DRQ-SO open interest= 41 current ask $5.60
BUY PUT JUL 70.00 DRQ-SN open interest=127 current ask $3.40

Picked on June 07 at $ 74.77
Change since picked: + 0.00
Earnings Date 08/02/06 (unconfirmed)
Average Daily Volume = 390 thousand

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Express Scripts - ESRX - close: 70.96 chg: +0.43 stop: 72.65

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:
ESRX looks poised to breakdown from its five-week consolidation under its simple 200-dma and exponential 200-dma. The stock has produced a big bearish rounded-top pattern over the last several months and shares finally broke down under the $80.00 level in late April. Now ESRX looks poised to begin its next leg lower. The MACD is on the verge of a new sell signal and the P&F chart has already broken through support and points to a $64 target. You'll also see that the 50-dma is about to cross under the 200-dma, which is normally a pretty bearish development. We are going to suggest a trigger under Tuesday's low at $69.59. If triggered at $69.59 we'll suggest two targets. Our first target is potential support at the $65.00 level so we'd suggest selling at $65.25. Our second target is old support near $60 so we would suggest selling around $60.50. More aggressive traders may want to jump the gun and buy puts on a break under $70.00.

Suggested Options:
We are suggesting the July puts.

BUY PUT JUL 70.00 XTQ-SN open interest= 860 current ask $2.80
BUY PUT JUL 65.00 XTQ-SM open interest= 319 current ask $1.25

Picked on June xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 07/26/06 (unconfirmed)
Average Daily Volume = 1.8 million

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Schlumberger - SLB - close: 60.51 chg: -3.45 stop: 65.01

Company Description:
Schlumberger is the world's leading oilfield services company supplying technology, information solutions and integrated project management that optimize reservoir performance for customers working in the oil and gas industry. The company employs more than 64,000 people of over 140 nationalities working in more than 80 countries. Schlumberger supplies a wide range of products and services from seismic acquisition and processing; formation evaluation; well testing and directional drilling to well cementing and stimulation; artificial lift and well completions; and consulting, software and information management. In 2005, Schlumberger operating revenue was $14.31 billion. (source: company press release or website)

Why We Like It:
SLB is another big-cap oil services stock that is leading the group lower. The recent bounce from the 100-dma and breakout over the 50-dma was a bull trap and proved to be a bear-flag consolidation pattern. Now that shares are breaking down we're going to try and ride the wave. Readers can choose to wait for a breakdown under $60.00 or wait for a bounce and a failed rally under the 100-dma (near $63.00) as their preferred entry point to buy puts. Our target is the $55.75-55.50 range, above its rising 200-dma. The P&F chart shows a fresh triple-bottom breakdown sell signal with a $49 target.

Suggested Options:
We are suggesting the July puts. Pick the strike that best suits your trading style.

BUY PUT JUL 65.00 SLB-SM open interest=3032 current ask $5.90
BUY PUT JUL 62.50 SLB-SZ open interest= 146 current ask $4.20
BUY PUT JUL 60.00 SLB-SL open interest=3104 current ask $2.90
BUY PUT JUL 57.50 SLB-SY open interest= 406 current ask $1.85
BUY PUT JUL 55.00 SLB-SK open interest= 598 current ask $1.15

Picked on June 07 at $ 60.51
Change since picked: + 0.00
Earnings Date 07/21/06 (unconfirmed)
Average Daily Volume = 10.0 million
 

New Strangles

None today.
 

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