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New Option Plays

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KBH None None
MHK    
MRO    

New Calls

KB Home - KBH - close: 51.74 change: +0.81 stop: 48.99

Company Description:
Building homes for nearly half a century, KB Home is one of America's premier homebuilders with domestic operating divisions in some of the top markets. 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. KB Home also offers complete mortgage services through Countrywide KB Home Loans, a joint venture with Countrywide Financial Corporation. (source: company press release or website)

Why We Like It:
Once again investors are hoping that the homebuilders really have put in a bottom. The markets ignored earnings warnings and a rash of bad news with homebuilders taking huge hits as they write off options on land they no longer plan to build on. The DJUSHB home construction index turned in a decent week and shares of KBH rallied sharply to breakout through resistance at the top of its consolidation (bull flag) pattern. Technical indicators are turning bullish again and the MACD has produced a new buy signal. We are suggesting call option positions on KBH with the stock above $50.00. Readers can choose to open positions now or look for a dip back toward the $51.00-50.00 region. Our target is the $54.90-55.00 level. More aggressive traders may want to aim higher. Traders should be aware that rival homebuilder DHI is due to report earnings on January 23rd and their results and guidance could have a big impact on the sector's direction.

Suggested Options:
We are suggesting the February calls. Aprils strikes could also work well.

BUY CALL FEB 50.00 KBH-BJ open interest=2339 current ask $2.90
BUY CALL FEB 55.00 KBH-BK open interest=2636 current ask $0.70

Picked on January 21 at $ 51.74
Change since picked: + 0.00
Earnings Date 03/19/07 (unconfirmed)
Average Daily Volume = 2.2 million

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Mohawk Ind. - MHK - close: 78.38 chg: +1.15 stop: 76.49

Company Description:
Mohawk is a leading supplier of flooring for both residential and commercial applications. Mohawk offers a complete selection of carpet, ceramic tile, wood, stone, laminate, vinyl, rugs and other home products. (source: company press release or website)

Why We Like It:
If the market's bias on the homebuilders is turning bullish again then it's only natural that flooring provider MHK will begin to follow the builders higher. The stock has been trading with a bullish pattern of higher lows but struggled with resistance near $80.00. We are suggesting new call positions now but this is an aggressive, higher-risk entry point. More conservative traders should use a trigger above resistance at the $80.00 mark! We'll try and keep our risk to a minimum with a stop loss under Friday's lows. Our target is the $84.00-85.00 range. We do not want to hold over the February earnings report.

Suggested Options:
We are suggesting the February calls. As with all of our suggested plays it is you, the individual trader, who should decide which month and strike price best suits your trading style and risk.

BUY CALL FEB 75.00 MHK-BO open interest=1008 current ask $4.90
BUY CALL FEB 80.00 MHK-BP open interest=1956 current ask $1.95
BUY CALL FEB 85.00 MHK-BQ open interest= 45 current ask $0.50

Picked on January 21 at $ 78.38
Change since picked: + 0.00
Earnings Date 02/16/07 (confirmed)
Average Daily Volume = 557 thousand

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Marathon Oil - MRO - close: 87.17 change: +1.99 stop: 83.90

Company Description:
Marathon is the fourth-largest U.S.-based fully integrated international energy company engaged in exploration and production; integrated gas; and refining, marketing and transportation operations. (source: company press release or website)

Why We Like It:
Crude oil has plunged from its highs but appears to have found some support near $50.00. Whether or not this is a real reversal or just an oversold bounce remains to be seen. That's why we're dipping our toe into the oil sector with just one bullish candidate. MRO looks like a stronger candidate than some of its peers because shares have spent almost two weeks consolidating sideways above rising technical support at its 200-dma. Should the oil sector rebound then MRO will probably breakout from its trading range. If that occurs we want to be ready. Our suggested entry point to buy calls is at $88.05. If triggered our target is the $93.50-94.00 range. There is potential resistance near $90 and its 50-dma.

Suggested Options:
We are suggesting the February calls but we do not want to hold over the February 1st earnings report so we have less than two full weeks. Our trigger is at $88.05.

BUY CALL FEB 85.00 MRO-BQ open interest=1418 current ask $4.50
BUY CALL FEB 90.00 MRO-BR open interest=2464 current ask $2.00

Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/01/07 (confirmed)
Average Daily Volume = 3.7 million
 

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