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GD MXIM None
  TXT  

New Calls

General Dynamics - GD - close: 70.61 change: -0.89 stop: 69.74

Company Description:
General Dynamics has leading market positions in mission-critical information systems and technologies; land and expeditionary combat systems, armaments and munitions; shipbuilding and marine systems; and business aviation. It is headquartered in Falls Church, Virginia, and employs approximately 81,900 people worldwide. (source: company press release or website)

Why We Like It:
We do not have a very bullish market outlook for the next few weeks but this next week could be somewhat volatile moving either direction. We're moving into the last week of the third quarter and the markets could be affected by window dressing. What is window dressing? That's when fund managers sell their losers and buy more of their winners or whatever has been winning this last quarter to make your quarterly fund statements look better. If we do see some window dressing this week then GD could benefit from those funds looking to pad their portfolio. The stock is up about 8% over the last quarter and GD has shown a lot of relative strength with new all-time highs in the past two weeks. Friday did see some profit taking in GD but traders bought the dip near $70.00. The $70.00 level was resistance for a long time and now that it is broken it should and appears to be acting as support. This looks like a relatively low risk entry point to buy calls. If we're wrong we should be stopped out pretty quickly with our stop loss at $69.74. The P&F chart has a triple-top breakout buy signal and a $75 target. We agree with the target and will aim for the $74.50-75.00 range. We do not want to hold over the mid October earnings report.

Suggested Options:
We are suggesting the October or November calls. Remember that it is the individual trader who should decide which month and strike price best suits their trading style and risk. Don't forget that October options expire in four weeks.

BUY CALL OCT 65.00 GD-JM open interest= 42 current ask $6.00
BUY CALL OCT 70.00 GD-JN open interest=1805 current ask $2.00
BUY CALL OCT 75.00 GD-JO open interest=2017 current ask $0.25

BUY CALL NOV 65.00 GD-KM open interest=1463 current ask $6.50
BUY CALL NOV 67.50 GD-KU open interest=2379 current ask $4.50
BUY CALL NOV 70.00 GD-KN open interest=3557 current ask $2.75
BUY CALL NOV 72.50 GD-KT open interest=2473 current ask $1.50
BUY CALL NOV 75.00 GD-KO open interest=2857 current ask $0.75

Picked on September 24 at $ 70.61
Change since picked: + 0.00
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume = 1.3 million
 

New Puts

Maxim Integrated - MXIM - close: 28.29 chg: -0.08 stop: 30.05

Company Description:
Established in 1983, Maxim Integrated Products is a worldwide leader in design, development, and manufacture of linear and mixed-signal integrated circuits (ICs). (source: company press release or website)

Why We Like It:
The semiconductor sector and the SOX index that represents the sector appears poised for a move lower as the SOX teeters on the two-month trendline of support. If the SOX does breakdown then MXIM is most likely going with it. A month ago shares of MXIM looked pretty bullish with a breakout over the top of a multi-month bearish channel. A couple of weeks later MXIM finally broke out over resistance at the $30 level. Yet even this show of strength failed and now the stock has given it all back and fallen toward support at the $28.00 level. Technical indicators are mostly negative and the P&F chart points to a $9.00 target. We are suggesting a trigger to buy puts at $27.90. If triggered then our target is the $24.00 level although we would expect a bounce near $26 and traders may want to do some profit taking at $26 to take some money off the table. We do not want to hold over the early November earnings report.

Suggested Options:
We are suggesting the November puts.

BUY PUT NOV 30.00 XIQ-WF open interest=3535 current ask $2.80
BUY PUT NOV 25.00 XIQ-WE open interest=1216 current ask $0.60

Picked on September xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/03/06 (unconfirmed)
Average Daily Volume = 5.4 million

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Textron - TXT - close: 81.61 change: -1.98 stop: 84.01

Company Description:
Textron Inc. is one of the world's largest and most successful multi-industry companies. Founded in 1923, we have grown into a network of businesses with total revenues of $10 billion, and more than 37,000 employees in nearly 33 countries, serving a diverse and global customer base. Headquartered in Providence, Rhode Island, Textron is ranked 190th on the FORTUNE 500 list of largest U.S. companies. (source: company press release or website)

Why We Like It:
If the markets see any window dressing this week then TXT could be in for some trouble. The stock is down about 11.4% this quarter. Shares have been grinding lower under a pattern of lower highs. The stock broke down under significant support in late August ($85 level and 200-dma) and now shares face another test of significant support near $80.00. The Point & Figure chart is already bearish but the P&F pattern only points to an $80 target. We think TXT will exceed this level and trade significantly lower. Currently the stock has bounced twice from the $80 region. Not only is $80 round-number, psychological support but it is also where TXT has a four-year trendline of rising support. A breakdown under $80 would be very negative. We are suggesting that traders wait for that breakdown to occur before opening positions. We'll use a trigger to buy puts at $79.85. More conservative traders may want to use a trigger around $79.50 to reduce the risk of being triggered on an intraday under $80.00. If triggered we're suggesting two targets. Our first target is the $75.50-75.00 range. Our second target is the $71.00-70.00 region. Plan on selling half or more at the first target to lock in a gain. We do not want to hold over the mid October earnings report.

Suggested Options:
We are suggesting the October or November puts. TXT is expected to report earnings around the same time October options expire so we plan to exit before expiration anyway. You should choose which month and strike price best suits your trading style and risk.

BUY PUT OCT 85.00 TXT-VQ open interest= 361 current ask $4.20
BUY PUT OCT 80.00 TXT-VP open interest= 208 current ask $1.50
BUY PUT OCT 75.00 TXT-VO open interest= 45 current ask $0.45

BUY PUT NOV 85.00 TXT-WQ open interest= 5 current ask $4.90
BUY PUT NOV 80.00 TXT-WP open interest= 79 current ask $2.35
BUY PUT NOV 75.00 TXT-WO open interest= 0 current ask $1.00

Picked on September xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/19/06 (confirmed)
Average Daily Volume = 829 thousand
 

New Strangles

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