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New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
CTX GENZ None
DO GSS  
KBH    
MRK    
VLO    

New Calls

Centex - CTX - close: 55.89 change: +0.55 stop: 52.45

Company Description:
Dallas-based Centex, founded in 1950, is one of the nation's leading home building companies. Centex operates in major U.S. markets in 25 states and delivered more than 39,000 homes in the United States in its most recent fiscal year ended March 31, 2006. (source: company press release or website)

Why We Like It:
Housing stocks have jumped back into the spotlight. The past week released some improving data numbers on the housing sector. Plus, the group should benefit from the plunging bond yields, which will bring down mortgage rates. Chatter that the FOMC will probably cut interest rates beginning next spring is another boost to the industry. In just the last couple of days the Dow Jones Home Construction index (DJUSHB) has broken out over significant resistance and its simple 200-dma. Shares of CTX have done the same with its 200-dma and resistance at the $55 level. The breakout looks like a buy signal and big volume on the move is a vote of confidence. The P&F chart has produced a spread triple-top breakout buy signal with a $71 target. We are suggesting calls with CTX above $55.00. We have two targets. Our conservative target is the $59.50-60.00 range. Our aggressive target is the $63.50-64.00 range. Be aware that the bottom of CTX's April 2006 gap down near $57.25 might be resistance as may the to of its gap near $60.00.

Suggested Options:
We are suggesting the January calls. As with all of our plays it is up to the individual trader to decide which month and which strike price best suits your style of trading and risk.

BUY CALL JAN 55.00 CTX-AK open interest=6581 current ask $3.50
BUY CALL JAN 60.00 CTX-AL open interest=7561 current ask $1.25

Picked on December 03 at $ 55.89
Change since picked: + 0.00
Earnings Date 01/23/07 (unconfirmed)
Average Daily Volume = 2.0 million

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Diamond Offshore - DO - close: 80.59 change: +2.97 stop: 75.75

Company Description:
Diamond Offshore provides contract drilling services to the energy industry around the globe and is a leader in deepwater drilling. (source: company press release or website)

Why We Like It:
Oil stocks have been climbing as crude oil futures creep higher. The oil service stocks, which tend to be more volatile, have been naturally out performing their oil production brethren. Shares of DO displayed relative strength on Friday with a 3.8% rally on above average volume to breakout over resistance at its 200-dma and the $80.00 level. DO got a bit of a boost after some rumors of a potential takeover in the oil drilling industry. We are suggesting calls with DO above $78.00. It is up to you, the individual trader, if you want to chase DO here or wait for a potential pull back toward $80 or the $78 level. Broken resistance at both areas could offer new support. Our target is the $85.00-86.00 range near its early July high. The P&F chart points to a $92 target.

Suggested Options:
We are suggesting the January calls. As with all of our plays it is up to the individual trader to decide which month and which strike price best suits your style of trading and risk.

BUY CALL JAN 75.00 DO-AO open interest=2997 current ask $8.00
BUY CALL JAN 80.00 DO-AP open interest=9479 current ask $4.90
BUY CALL JAN 85.00 DO-AQ open interest=3289 current ask $2.65

Picked on December 03 at $ 80.59
Change since picked: + 0.00
Earnings Date 01/26/07 (unconfirmed)
Average Daily Volume = 3.8 million

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KB Home - KBH - close: 52.04 change: +0.35 stop: 47.99

Company Description:
Building homes for nearly half a century, KB Home is one of America's premier homebuilders with domestic operating divisions in the following regions and states: West Coast -- California; Southwest -- Arizona, Nevada and New Mexico; Central -- Colorado, Illinois, Indiana, Louisiana and Texas; and Southeast -- Florida, Georgia, Maryland, North Carolina, South Carolina and Virginia. Kaufman & Broad S.A., the Company's publicly-traded French subsidiary, is one of the leading homebuilders in France. In fiscal 2005, the Company delivered homes to 37,140 families in the United States and France. (source: company press release or website)

Why We Like It:
If you read the CTX play description (above) then you already know that homebuilders are breaking out higher for a variety of reasons. KBH is another builder that is breaking out past resistance. Shares rallied past round-number, psychological resistance at the $50.00 level and the 200-dma on strong volume this past week. We are suggesting call positions with KBH above $50.00. Traders can choose to open positions now or wait for a potential dip back towards the $50 region. Our target is the $57.50-60.00 range. The P&F chart looks pretty bullish with a spread triple-top breakout buy signal with a $73 target.

Suggested Options:
We are suggesting the January calls.

BUY CALL JAN 50.00 KBH-AJ open interest=8695 current ask $4.30
BUY CALL JAN 52.50 KBH-AX open interest=8337 current ask $2.85
BUY CALL JAN 55.00 KBH-AK open interest=5262 current ask $1.75

Picked on December 03 at $ 52.04
Change since picked: + 0.00
Earnings Date 03/00/07 (unconfirmed)
Average Daily Volume = 2.7 million

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Merck Co. - MRK - close: 45.06 change: +0.55 stop: 43.29

Company Description:
Merck & Co., Inc. is a global research-driven pharmaceutical company dedicated to putting patients first. Established in 1891, Merck currently discovers, develops, manufactures and markets vaccines and medicines to address unmet medical needs. The Company devotes extensive efforts to increase access to medicines through far-reaching programs that not only donate Merck medicines but help deliver them to the people who need them. (source: company press release or website)

Why We Like It:
In spite of the innumerable lawsuits that MRK is facing over its Vioxx fiasco the stock is showing lots of relative strength. MRK has a bullish trend of higher lows and the technical picture has turned bullish. The MACD is on the verge of a new buy signal. The P&F chart is bullish with a $74 target. We think MRK will be able to push past resistance near $46.30 and trade near the $50 level, especially now as the DRG drug index rebounds higher. The big risk here with any sort of position in MRK would be an unforeseen headline regarding its legal woes that could send the stock moving either direction but thus far MRK is holding its own. We're suggesting a stop under last week's lows. Our target is the $49.50-50.00 range.

Suggested Options:
We are suggesting the January calls.

BUY CALL JAN 40.00 MRK-AH open interest=34586 current ask $5.30
BUY CALL JAN 42.50 MRK-AV open interest=13631 current ask $3.10
BUY CALL JAN 45.00 MRK-AI open interest=35985 current ask $1.45
BUY CALL JAN 47.50 MRK-AW open interest= 5883 current ask $0.55

Picked on December 03 at $ 45.06
Change since picked: + 0.00
Earnings Date 01/25/07 (unconfirmed)
Average Daily Volume = 10.3 million

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Valero Energy - VLO - close: 55.85 change: +0.78 stop: 52.85

Company Description:
Valero Energy Corporation is a Fortune 500 company based in San Antonio, with approximately 22,000 employees and annual revenues of more than $90 billion. The company owns and operates 18 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of approximately 3.3 million barrels per day, making it the largest refiner in North America. (source: company press release or website)

Why We Like It:
Oil refining stocks are also on the move. Shares of VLO have broken out over significant resistance at the $55.00 level and its exponential 200-dma. The refiners got a boost on Friday after some positive analyst comments. The bullish breakout this past week has produced a triple-top breakout buy signal on the P&F chart with a $67 target. We are suggesting call positions with VLO above $55.00. Our target is the $59.50-60.00 range. Keep an eye on the 100-dma near $56.25 since it might act as short-term overhead resistance.

Suggested Options:
We are suggesting the January calls.

BUY CALL JAN 50.00 VLO-AJ open interest=16846 current ask $6.80
BUY CALL JAN 52.50 VLO-AX open interest= 5646 current ask $4.80
BUY CALL JAN 55.00 VLO-AK open interest=21792 current ask $3.10
BUY CALL JAN 57.50 VLO-AY open interest=14667 current ask $1.90
BUY CALL JAN 60.00 VLO-AL open interest=33505 current ask $1.10

s

Picked on December 03 at $ 55.85
Change since picked: + 0.00
Earnings Date 01/30/07 (unconfirmed)
Average Daily Volume = 14.3 million
 

New Puts

Genzymme - GENZ - close: 62.77 change: -1.69 stop: 66.05

Company Description:
One of the world's leading biotechnology companies, Genzyme is dedicated to making a major positive impact on the lives of people with serious diseases. This year marks the 25th anniversary of Genzyme's founding. Since 1981, the company has grown from a small start-up to a diversified enterprise with more than 8,500 employees in locations spanning the globe and 2005 revenues of $2.7 billion. (source: company press release or website)

Why We Like It:
The rally in biotech stocks is looking tired. The BTK index appears to have broken its bullish trend and looks poised to consolidate lower. Weighing on the group is GENZ. Shares of GENZ under performed on Friday with a 2.6% decline in spite of positive analyst comments. One analyst said that handful of biotechs with more international exposure might benefit with the falling dollar. GENZ was one of the companies mentioned. We see the breakdown in GENZ under support at the $64.00 level as a new entry point to buy puts. Volume on the breakdown was above average and technicals are getting worse. The weekly chart's MACD is producing a new sell signal. The P&F chart has already produced quadruple-bottom breakdown sell signal with a $55 target. We are suggesting puts with GENZ under $64.00. Our target is the $58.00-56.00 range. We're setting the initial stop loss at $66.05 but more conservative traders might want to try with a tighter stop (maybe around 64.85).

Suggested Options:
We are suggesting the January puts.

BUY PUT JAN 65.00 GZQ-MM open interest=1361 current ask $3.40
BUY PUT JAN 62.50 GZQ-MZ open interest=4842 current ask $2.00
BUY PUT JAN 60.00 GZQ-ML open interest=3650 current ask $1.10
BUY PUT JAN 57.50 GZQ-MY open interest=1023 current ask $0.55

Annotated Chart:

Picked on December 03 at $ 62.77
Change since picked: + 0.00
Earnings Date 02/15/07 (unconfirmed)
Average Daily Volume = 1.9 million

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Kohl's - KSS - close: 69.09 change: -0.51 stop: 72.05

Company Description:
Kohl's, a retail department store, operates 817 stores in 45 states, compared with 732 in 41 states at the same time last year. (source: company press release or website)

Why We Like It:
Investors are nervous about the consumer and holiday sales this year. Last Monday's same-store sales numbers were generally weaker than expected. KSS' same-store sales figures came in under analysts' expectations. It looks like the rally in KSS has finally expired with the stock's short-term trend of lower highs and the breakdown under $70 and its 50-dma. Friday produced a failed rally at its simple 10-dma. We're suggesting new put plays with KSS under $70.00. More conservative traders may want to wait for a new decline under Thursday's low of $68.30 before opening plays but if you do we'd suggest a tighter stop loss. KSS appears to have potential support near $65.00 so we're suggesting a target in the $65.25-65.00 range. More aggressive traders may want to aim lower. The 200-dma near $60 could be a target.

Suggested Options:
We are suggesting the January puts.

BUY PUT JAN 70.00 KSS-MN open interest=7049 current ask $3.00
BUY PUT JAN 65.00 KSS-MM open interest=5744 current ask $1.15

Picked on December 03 at $ 69.09
Change since picked: + 0.00
Earnings Date 02/08/07 (unconfirmed)
Average Daily Volume = 3.8 million

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NewMarket - NEU - close: 60.32 change: -2.46 stop: 62.25

Company Description:
NewMarket Corporation through its subsidiaries, Afton Chemical Corporation and Ethyl Corporation, develops, manufactures, blends, and delivers chemical additives that enhance the performance of petroleum products. From custom-formulated chemical blends to market-general additive components, the NewMarket family of companies provides the world with the technology to make fuels burn cleaner, engines run smoother and machines last longer. (source: company press release or website)

Why We Like It:
Shares of NEU have been a big winner in 2006 but it looks like the rally is over - at least short-term. The stock has been consolidating sideways the past few weeks and Friday's breakdown under support near $62 and its 50-dma was fueled by strong volume, which is usually bearish. NEU got a bounce near its multi-month trendline of support and its 100-dma but we suspect that the Friday afternoon bounce is temporary. Aggressive traders may want to open positions now or on a failed rally under $62.00. We are suggesting a trigger to open plays at $58.25, which is under Friday's low. The P&F chart is already bearish with a $51 target. We are going to aim for the $52.50-52.00 range, just above potential technical support at its rising 200-dma.

Suggested Options:
We are suggesting the January puts.

BUY PUT JAN 60.00 NEU-ML open interest=121 current ask $4.00
BUY PUT JAN 55.00 NEU-MK open interest= 11 current ask $2.20

Picked on December xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/29/07 (unconfirmed)
Average Daily Volume = 275 thousand
 

New Strangles

None today.
 

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