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ETR PD LM

New Calls

Entergy - ETR - close: 80.33 change: +1.03 stop: 77.99

Company Description:
Entergy Corporation is an integrated energy company engaged primarily in electric power production, retail distribution operations, energy marketing and trading, and gas transportation. Entergy owns and operates power plants with approximately 30,000 megawatts of electric generating capacity, and it is the second-largest nuclear generator in the United States. (source: company press release or website)

Why We Like It:
ETR looks like a strong bullish candidate. The stock is breaking out from a two-month sideways consolidation pattern and breaking out over significant resistance near the $80.00 level. Volume on today's rally was double the daily average, which is bullish, and this is a new all-time high. We are suggesting calls with ETR above $80.00 although another dip and bounce near $79.00 would also work. Our short-term target is the $84.00 level. We do not want to hold over the late October earnings report.

Suggested Options:
We are suggesting the November calls.

BUY CALL NOV 75.00 ETR-KO open interest= 20 current ask $6.10
BUY CALL NOV 80.00 ETR-KP open interest=526 current ask $2.05

Picked on October 03 at $ 80.33
Change since picked: + 0.00
Earnings Date 10/31/06 (unconfirmed)
Average Daily Volume = 1.1 million
 

New Puts

Phelps Dodge - PD - cls: 80.05 chg: -5.08 stop: 82.15

Company Description:
We are one of the world's leading producers of copper ... among the largest producers of molybdenum and molybdenum-based chemicals and a leading manufacturer of wire and cable products. (source: company press release or website)

Why We Like It:
Copper futures are breaking down from a multi-month consolidation pattern during which they hit multi-year highs. The weakness in copper, gold and metals in general looks like there is more to come. Shares of PD, one of the largest copper producers, fell sharply on the move in copper today. PD is now trading under technical support at its 200-dma and flirting with a breakdown under support at the $80.00 mark and its long-term trendline of support. We are suggesting that readers use a trigger at $78.45, which is under last month's low and should be a decisive breakdown under support. If triggered our target is the $72.50-70.00 range. We have about twenty days as we want to avoid holding over the company's earnings report (still unconfirmed). PD has been pretty volatile in the past and we consider this an aggressive, higher-risk play.

Suggested Options:
We are suggesting the November puts. Our trigger to open positions is $78.45.

BUY PUT NOV 80.00 PD-WP open interest=3123 current ask $5.80
BUY PUT NOV 75.00 PD-WO open interest=1272 current ask $3.40

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/24/06 (unconfirmed)
Average Daily Volume = 5.1 million
 

New Strangles

Legg Mason - LM - close: 99.72 change: -0.34 stop: n/a

Company Description:
Legg Mason is a global asset management firm, structured as a holding company with on-the-ground management capabilities around the world. As of June 30, 2006, Legg Mason's total assets under management (including all products) aggregated approximately $855 billion. The firm is headquartered in Baltimore, Maryland. (source: company press release or website)

Why We Like It:
The September rally in LM stalled around September 18th and shares have been consolidating sideways ever since. The stock has also been under performing its peers over the last week or so. We see the narrowing consolidation as an opportunity to open a strangle position. This type of pattern almost always sees a surge higher or lower after the consolidation narrows down toward the end of the wedge. The technical picture is mixed with longer-term technicals looking more positive versus short-term technicals looking more bearish. We're suggesting an entry range in the $99.00-101.00 area to open positions. Obviously the closer to the $100.00 mark the better. We do want to hold over LM's late October earnings report.

Suggested Options:
We are suggesting the November options since we plan to hold over LM's earnings report. A strangle involves buying both an out of the money call and an out of the money put. At current prices our estimated cost is about $5.15. We are suggesting an exit if either options rises to $7.25 or more (about +40%).

BUY CALL NOV 105.00 LM-KA open interest=2720 current ask $2.75
-and-
BUY PUT NOV 95.00 LM-WS open interest= 492 current ask $2.40

Picked on October 03 at $ 99.72
Change since picked: + 0.00
Earnings Date 10/24/06 (unconfirmed)
Average Daily Volume = 1.4 million
 

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