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New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
BPT MHS COP
DVN    
EOG    
FTO    
NCS    

New Calls

Play Editor's note: We are adding more than one new call play in the oil sector. We would suggest against playing them all and only choose the one or two you like the best.

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BP Prudhoe Bay - BPT - close: 73.75 chg: +0.95 stop: 72.45

Company Description:
BP Prudhoe Bay Royalty Trust is a grantor trust that extends royalties on 16.4% of the first 90,000 barrels of daily oil production (source: Yahoo)

Why We Like It:
BPT hit new all-time highs in July but a month later was trading significantly lower following news of the BP pipeline shutdown due to maintenance and leaks. The selling appears to be over with BPT's bounce from its September lows. Shares are now consolidating under resistance at the $75 level with a bullish pattern of higher lows. Given the new strength in the oil sector we suspect that BPT is poised to breakout higher. We're suggesting a trigger to buy calls at $75.05. If triggered our target is the $79.00-80.00 range. FYI: A move over $75 would produce a new Point & Figure chart buy signal.

Suggested Options:
We are suggesting the November calls.

BUY CALL NOV 70.00 BPT-KN open interest= 67 current ask $4.30
BUY CALL NOV 75.00 BPT-KO open interest=413 current ask $1.05
BUY CALL NOV 80.00 BPT-KP open interest= 43 current ask $0.35

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 421 thousand

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Devon Energy - DVN - close: 64.72 chg: +1.08 stop: 60.95

Company Description:
Devon Energy Corporation is an Oklahoma City-based independent energy company engaged in oil and gas exploration, production and property acquisitions. (source: company press release or website)

Why We Like It:
DVN is another oil stock that has shown some decent relative strength over the last few weeks. The stock has also produced the bullish double-bottom pattern that is pretty common in the oil stocks over the last several weeks. Technicals are positive and Friday's rally (sparked by an analyst upgrade) produced a breakout over resistance at the $64.00 level. We're suggesting positions right here but traders can choose to wait for a dip back to $64.00 or a new relative high over $65.70. Our target is the $69.50-70.00 range. We do not want to hold over the November 1st earnings report. FYI: The P&F chart is bullish with a $78 target.

Suggested Options:
We are suggesting the November calls but plan to exit ahead of the company's earnings report. You, the individual trader, should decide which month and strike price best suits your trading style and risk.

BUY CALL NOV 60.00 DVN-KL open interest=2142 current ask $6.40
BUY CALL NOV 65.00 DVN-KM open interest=3263 current ask $3.50
BUY CALL NOV 70.00 DVN-KN open interest=2677 current ask $1.60

Picked on October 15 at $ 64.72
Change since picked: + 0.00
Earnings Date 11/01/06 (confirmed)
Average Daily Volume = 5.6 million

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EOG Resources - EOG - close: 64.94 chg: +1.29 stop: 63.95

Company Description:
EOG Resources, Inc. is one of the largest independent (non-integrated) oil and natural gas companies in the United States with proved reserves in the United States, Canada, offshore Trinidad and the United Kingdom North Sea. (source: company press release or website)

Why We Like It:
The oil sector appears to have produced a bullish double-bottom over the last few weeks and now the group is heading higher with a breakout from its consolidation pattern. One stock that looks poised to move higher is EOG. Shares broke out over the 50-dma on Friday and look ready to breakout past resistance at the $66.00 level. We're suggesting a trigger to buy calls at $66.05. If triggered our target is the $69.50-70.00 range. More aggressive traders may want to aim higher. We do not want to hold over the October 31st earnings report. FYI: A move over $66 would produce a new P&F chart buy signal.

Suggested Options:
We are suggesting the November calls but we plan to exit ahead of the October 31st earnings report. You, the individual trader, should decide which month and strike price best suits your trading style and risk.

BUY CALL NOV 60.00 EOG-KL open interest=1549 current ask $6.80
BUY CALL NOV 65.00 EOG-KM open interest=1086 current ask $3.70
BUY CALL NOV 70.00 EOG-KN open interest=1281 current ask $1.70

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/31/06 (confirmed)
Average Daily Volume = 3.6 million

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Frontier Oil - FTO - close: 28.90 change: +1.10 stop: 25.99

Company Description:
Frontier operates a 110,000 bpd refinery located in El Dorado, Kansas, and a 52,000 bpd refinery located in Cheyenne, Wyoming, and markets its refined products principally along the eastern slope of the Rocky Mountains and in other neighboring plains states. (source: company press release or website)

Why We Like It:
FTO is another oil stock that has produced a bullish double bottom pattern. Plus, the stock has already broken out from its five-week consolidation pattern. Friday's rally was a breakout over technical resistance at its 200-dma. Traders can choose to go long calls right now or wait for a dip back toward the $28.00 level. We do expect some resistance at the $30.00 mark and it wouldn't surprised us to see FTO hit $30, dip back to $28 and then rally again. Our target is the $32.50-33.00 range. We do not want to hold over the early November earnings report. FYI: The P&F chart is still bearish for FTO.

Suggested Options:
We are suggesting the November calls but plan to exit before the company's earnings report.

BUY CALL NOV 25.00 FTO-KE open interest=1357 current ask $4.70
BUY CALL NOV 30.00 FTO-KF open interest=2030 current ask $1.65

Picked on October 15 at $ 28.90
Change since picked: + 0.00
Earnings Date 11/02/06 (unconfirmed)
Average Daily Volume = 3.2 million

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NCI Building Sys. - NCS - cls: 60.36 chg: +0.61 stop: 57.99

Company Description:
NCI Building Systems, Inc. is North America's largest integrated manufacturer of metal products for the nonresidential construction industry. The Company operates 44 manufacturing and distribution facilities in 17 states, as well as Mexico and Canada. (source: company press release or website)

Why We Like It:
NCS produced a huge rally in late August and September after guiding higher for the fourth quarter. The rally ran out of steam in mid September and shares have been consolidating sideways ever since. Now it looks like NCS is poised to breakout higher. We are suggesting a trigger to buy calls at $61.26, which is above the September 20th high. If triggered our target is the $67.00-70.00 range. Currently the P&F chart points to a $90 target.

Suggested Options:
We are suggesting the November calls although Decembers would also work well. You, the individual trader, should decide which month and strike price best suits your trading style and risk.

BUY CALL NOV 60.00 NCS-KL open interest=38 current ask $2.75
BUY CALL NOV 65.00 NCS-KM open interest= 0 current ask $0.80

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/29/06 (unconfirmed)
Average Daily Volume = 386 thousand
 

New Puts

Medco Health Sol. - MHS - cls: 56.10 chg: -1.24 stop: 58.05

Company Description:
Medco Health Solutions, Inc. is the nation's leading pharmacy benefit manager based on its 2005 total net revenues of nearly $38 billion. (source: company press release or website)

Why We Like It:
Trouble with shares of MHS began with the stock failed to breakout over resistance near $64.00 in late August and early September. The stock's bullish trend was already in jeopardy when news hit in September that Wal-Mart would offer about 300 generic drugs for $4.00 a prescription. That's what really started the sell-off in MHS. Shares of MHS fell again as investors worried that a legal settlement between the government and First DataBank about inflated drug prices might be a sign of things to come for the rest of the industry. The stock has trouble holding on to any bounce as investors sell into strength. Last week's bounce died under the $58.00 level and we see more weakness ahead. The P&F chart points to a $49 target. We think shares can slip toward the $52.00-51.00 range. We do not want to hold over the early November earnings report.

Suggested Options:
We are suggesting the November puts.

BUY PUT NOV 60.00 MHS-WL open interest=2280 current ask $4.60
BUY PUT NOV 55.00 MHS-WK open interest= 933 current ask $1.70

Picked on October 15 at $ 56.10
Change since picked: + 0.00
Earnings Date 11/03/06 (confirmed)
Average Daily Volume = 1.9 million
 

New Strangles

ConocoPhillips - COP - close: 60.03 chg: +1.22 stop: n/a

Company Description:
ConocoPhillips is an integrated petroleum company with interests around the world. (source: company press release or website)

Why We Like It:
Our bias for COP is bullish. The stock appears to have produced a bottom of the last few weeks and is bouncing back from the August-September sell-off. However, earnings are fast approaching and we don't want to hold over the report - unless we're using a strangle position. This way we get the benefit of any post-earnings move. We're suggesting opening a strangle position in the $59.50-60.50 range (the closer to $60.00 the better). We do plan to hold over the October 26th earnings report. At current prices our estimated cost is about $1.15. We are suggesting an exit if either option rise to $2.00 or more.

Suggested Options:
We are suggesting a strangle on COP. A strangle involves buying both an out-of-the-money call and an out-of-the-money put.

BUY CALL NOV 65.00 COP-KM open interest=19327 current ask $0.60
-and-
BUY PUT NOV 55.00 COP-WK open interest=14150 current ask $0.55

Picked on October 15 at $ 60.03
Change since picked: + 0.00
Earnings Date 10/26/06 (confirmed)
Average Daily Volume = 9.8 million
 

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