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New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
GSF SHLD BXP
OIH   GOOG

New Calls

GlobalSantaFe - GSF - close: 49.99 change: 1.15 stop: 47.64

Company Description:
GlobalSantaFe is a leading provider of offshore oil and gas drilling and drilling management services. The company owns or operates a mobile fleet of marine drilling rigs that operates in major drilling regions around the world, including premium and heavy-duty, harsh-environment jackups, semisubmersibles, and dynamically positioned ultra-deepwater drillships. (source: company press release or website)

Why We Like It:
Crude oil futures have been pummeled over the last couple of months but it looks like the selling pressure is easing. Talk of production cuts might have helped but it looks like oil and the oil stocks may have finally put in a short-term bottom over the last week or two. The two-month decline in oil, and the stocks that follow it, has done a lot of technical damage to the long-term trend but short-term the sector is very oversold and due for more of a bounce. Now there is no guarantee we'll get a rebound but odds look good. We like GSF as a potential call candidate because the stock is poised to breakout higher from a five-month bullish wedge pattern (see chart). We are suggesting that readers use a trigger to buy calls at $50.51. You could put your trigger closer to Friday's high (50.16) but we want try and avoid seeing the entry point hit on a minor intraday spike. There is potential resistance at the exponential 200-dma and the 100-dma but we suspect that the group is so oversold that any breakout will be a strong one. If triggered our target is the $54.90-55.00 range, which should see potential resistance with its simple 200-dma. We do not want to hold over the early November earnings report.

Suggested Options:
We are suggesting the November calls. Our suggested entry point is $50.51.

BUY CALL NOV 47.50 GSF-KW open interest= 278 current ask $4.30
BUY CALL NOV 50.00 GSF-KJ open interest=2007 current ask $2.80
BUY CALL NOV 52.50 GSF-KA open interest= 142 current ask $1.70
BUY CALL NOV 55.00 GSF-KK open interest= 260 current ask $1.00

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: 0.00
Earnings Date 11/01/06 (unconfirmed)
Average Daily Volume = 3.1 million

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Oil Service HOLDRs - OIH - close: 129.85 chg: 1.80 stop: 124.99

Company Description:
The Oil Service HOLDRs is an exchange-traded fund (ETF) that seeks to track the movement in the oil services industry. Currently there are 18 companies in this fund.

Why We Like It:
If we think the oil stocks are going to move then a good way to play them is the OIH holders. The HOLDRs are very liquid and see lots of option volume. Plus, we reduce our risk from trading just one company that might be more affected by news than the whole industry. Currently the OIH is testing resistance in the $130.00-131.00 region. The $130 level is significant support/resistance but the OIH failed at $131 on Thursday last week, which happened to be the top of the early September gap down. We are suggesting a trigger to buy calls on the OIH at $131.05. You may want to adjust your trigger to just above Friday's high (130.35) or even higher (maybe $131.50). Our target is the $137.00-140.00 range. We recommend reviewing the chart since the OIH does have additional layers of resistance overhead.

Suggested Options:
We are suggesting the November calls.

BUY CALL NOV 125.00 OIH-KE open interest=2460 current ask $9.90
BUY CALL NOV 130.00 OIH-KF open interest=1742 current ask $7.00
BUY CALL NOV 135.00 OIH-KG open interest=2528 current ask $4.70

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: 0.00
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 10.7 million
 

New Puts

Sears Holding - SHLD - close: 158.09 chg: -2.29 stop: 162.05

Company Description:
Sears Holdings Corporation is the nation's third largest broadline retailer, with approximately $55 billion in annual revenues, and with approximately 3,800 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, home electronics and automotive repair and maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands' End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands. It also has Martha Stewart Everyday products, which are offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. (source: company press release or website)

Why We Like It:
The back to school shopping season is over and we are probably a few weeks away before investors start getting excited about retail stocks and the fourth quarter holiday shopping season. Plus, the rally in the retail sector, and shares of SHLD, looks pretty tired. Momentum has faded and SHLD's daily chart has produced a new MACD sell signal. The recent failed rally at $165 in SHLD might also be seen as a potential bearish double-top pattern given the peak last June. We do want to note that SHLD has been rather volatile over the past several months and traders should consider this a higher-risk, more aggressive play. We are going to suggest puts right here with SHLD under the $160 mark and its 10-dma (160.45). More conservative traders might want to use a trigger under $157 to open positions. SHLD may be volatile but we are going to try and limit our risk with a stop loss at $162.05. If you're feeling more cautious then consider tightening yours toward $161 instead. We believe that SHLD can trade near the $150 level but we're going to use a target in the $152.50-150.00 range. We do not want to hold over the mid November earnings report.

Suggested Options:
We are suggesting the November puts. The CBOE is listing a change in root symbol for options at $150 and below.

BUY PUT NOV 160.00 KDU-WL open interest=1006 current ask $8.60
BUY PUT NOV 155.00 KDU-WK open interest= 697 current ask $6.30
BUY PUT NOV 150.00 KTQ-WU open interest= 988 current ask $4.50

Annotated Chart:

Picked on October 01 at $158.09
Change since picked: 0.00
Earnings Date 11/16/06 (unconfirmed)
Average Daily Volume = 1.8 million
 

New Strangles

Boston Properties - BXP - close: 103.34 chg: 0.88 stop: n/a

Company Description:
Boston Properties is a fully integrated, self-administered and self-managed real estate investment trust that develops, redevelops, acquires, manages, operates and owns a diverse portfolio of Class-A office properties that also includes two hotels. The Company is one of the largest owners and developers of Class-A office properties in the United States, concentrated in five select markets -- Boston, Midtown Manhattan, Washington, D.C., San Francisco, and Princeton, N.J. (source: company press release or website)

Why We Like It:
It's October and the month has a history of being volatile. Plus, it's almost earnings season again, which brings another layer of volatility to the market. We like BXP as a strangle candidate because the stock is at a pivotal point. The consolidation over the past three weeks has been flat to down and now BXP is resting near the bottom edge of its rising channel. The stock should see a significant breakdown or a bounce into another leg higher. Normally we would say "the trend is your friend" but considering the season and the fact that the major averages look overbought odds are that BXP could really go either way. Typically during earnings season we like to add a strangle play with the expectation to hold over the earnings report and capture any post-earnings move. This play with BXP is going to be different. We don't feel the stock moves enough to make playing the November strikes profitable even by holding over the earnings report. We could be wrong but we're not willing to risk it. Yet the October strikes, which expire in three weeks, are a lot cheaper and BXP should be poised to move right now. We are still going to label this an aggressive, higher-risk play due to the short time frame. Please note that we

Suggested Options:
We are suggesting a strangle play on BXP. A strangle means that we need to buy both an out of the money call and an out of the money put. With the options listed below our estimated cost is about $1.90. Theoretically we need to see BXP move more than $2.00 and one side of our strangle will be profitable but that doesn't take into account time premium decay, which will begin to pick up speed as we near October expiration. We're going to set a suggested exit at $3.80 for either option.

BUY CALL OCT 105.00 BXP-JA open interest=248 current ask $1.20
-and-
BUY PUT OCT 100.00 BXP-VT open interest=820 current ask $0.70

Picked on October 01 at $103.34
Change since picked: 0.00
Earnings Date 10/24/06 (confirmed)
Average Daily Volume = 694 thousand

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Google - GOOG - close: 401.90 chg: -1.68 stop: n/a

Company Description:
Google's innovative search technologies connect millions of people around the world with information every day. Founded in 1998 by Stanford Ph.D. students Larry Page and Sergey Brin, Google today is a top web property in all major global markets. Google's targeted advertising program provides businesses of all sizes with measurable results, while enhancing the overall web experience for users. Google is headquartered in Silicon Valley with offices throughout the Americas, Europe and Asia. (source: company press release or website)

Why We Like It:
As we move into October shares of GOOG look poised to move. The stock has been consolidating sideways virtually all year long in these big swings but always with higher lows and lower highs. This big pennant-type pattern tends to boil down to a point and then a stock with this type of pattern usually breaks out big one way or the other. We're expecting GOOG to breakout big soon. Of course we don't know if the breakout will occur before or after the company's earnings report due in mid October. You could also argue that GOOG has not reached the "point" of its pennant-shaped consolidation yet. However, we think that after the sideways consolidation over the past two weeks near the $400 level this is a good place to consider positions. Unfortunately, the problem with playing GOOG is that it's expensive. The stock is expensive and the options are expensive. We considered a straddle (a straddle is different than a strangle) at the $400 level but the October call and put at the $400 strike price would cost about $29.60 together. That would only give us three weeks before October options expire and the GOOG earnings date isn't confirmed yet. Then we considered a straddle with November options at the $400 strike. The November $400 strike call and put would cost about $40.60. GOOG would have to move more than 10% for either option to be profitable. Now moving 10% is not a big challenge for GOOG. We've seen the stock do that in a week. Yet we don't like forking out so much money for a single position. Since a 10% move is common for the stock, especially around earnings season we decided to add a strangle with the November $440 call and the $360 put. We have a lot less money at risk and if GOOG produces another big swing we'll have an option ready to capture it. If you think that's too wide you could obviously try a strangle with the $410 call and $390 put or the $420 call and $380 put, etc. The big risk here is that GOOG bounces around sideways and doesn't move one direction enough before our November options expire in about seven weeks. Please note that we're listing a $405-395 entry range but the closer to $400 the better!

Suggested Options:
We are suggesting a strangle play on GOOG. A strangle means that we need to buy both an out of the money call and an out of the money put. With the options listed below our estimated cost is about $13.00. We're going to set a suggested exit at $24.00 for either option.

BUY CALL NOV 440 GOP-KH open interest=619 current ask $7.50
-and-
BUY PUT NOV 360 GGD-WL open interest=436 current ask $5.50

Picked on October 01 at $401.90
Change since picked: 0.00
Earnings Date 10/19/06 (unconfirmed)
Average Daily Volume = 5.6 million
 

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