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New Calls

Chaparral Steel - CHAP - cls: 73.69 chg: +1.32 stop: 69.95

Company Description:
Chaparral Steel Company, headquartered in Midlothian, Texas, is the second largest producer of structural steel beams in North America. The Company is also a supplier of steel bar products. In addition, Chaparral is a leading North American recycling company. (source: company press release or website)

Why We Like It:
The market is experiencing merger-and-acquisition fever right now. The media reminds us daily that companies and the market is awash in liquidity. With that in mind the steel stocks might see more speculation again about future consolidation in the industry. CHAP has already announced, back on April 25th, that they have retained Goldman Sachs (GS) to explore all of their strategic alternatives. Now that could be an acquisition in which case shares of CHAP will probably drop on any announcement but then again it might mean CHAP is a takeover target. Given the stock's upward trend it looks like investors are betting on a takeover. We are suggesting call positions now with CHAP above $70.00. More conservative traders might feel more comfortable waiting for a breakout over resistance at the $75.00 level or the high at $75.60. We're going to set two targets. Our first target is the $79.50-80.00 range. Our aggressive target is the $84.00-85.00 range. The P&F chart currently points to a $99 target.

Suggested Options:
We are suggesting the July calls.

BUY CALL JUL 70.00 ZHQ-GN open interest= 520 current ask $6.60
BUY CALL JUL 75.00 ZHQ-GO open interest=2322 current ask $3.50
BUY CALL JUL 80.00 ZHQ-GP open interest=1826 current ask $1.75

Picked on May 30 at $ 73.69
Change since picked: + 0.00
Earnings Date 07/10/07 (unconfirmed)
Average Daily Volume = 801 thousand

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Sunoco - SUN - cls: 79.46 chg: +1.76 stop: 75.95

Company Description:
Sunoco, Inc., headquartered in Philadelphia, PA, is a leading manufacturer and marketer of petroleum and petrochemical products. With 900,000 barrels per day of refining capacity, nearly 4,700 retail sites selling gasoline and convenience items, approximately 5,500 miles of crude oil and refined product owned and operated pipelines and 38 product terminals, Sunoco is one of the largest independent refiner-marketers in the United States. Sunoco is a significant manufacturer of petrochemicals with annual sales of approximately five billion pounds, largely chemical intermediates used to make fibers, plastics, film and resins. Utilizing a unique, patented technology, Sunoco also manufactures approximately 3.9 million tons annually of high-quality metallurgical-grade coke for use in the steel industry. (source: company press release or website)

Why We Like It:
Memorial Day was the unofficial start of summer but the official start of the summer "driving season". Gas prices are near record highs and are likely to remain very high throughout the season. The refiners are likely to benefit from that dynamic. SUN is bouncing strongly from a test of the $76 level and looks poised to breakout over resistance near $80.00. We are suggesting a trigger to buy calls at $80.26. More conservative traders may want to wait for a breakout past the August 2006 high at $80.45 before initiating positions. We will have two targets. Our first target is the $84.00-85.00 range. Our second target is the $88.00-90.00 range. The P&F chart displays a spread triple-top breakout buy signal with a $94 target.

Suggested Options:
We are suggesting the July calls although August calls would also work well.

BUY CALL JUL 75.00 SUN-GO open interest= 139 current ask $6.80
BUY CALL JUL 80.00 SUN-GP open interest=2077 current ask $3.80
BUY CALL JUL 85.00 SUN-GQ open interest= 708 current ask $1.85

Picked on May xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 08/01/07 (unconfirmed)
Average Daily Volume = 3.3 million

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