Option Investor
New Plays

New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
AMZN None None
FCX    
GS    
IYT    
SHLD    

Play Editor's Note: All of the major market averages have produced a bullish reversal pattern over the last few sessions. However, that does not mean that stocks will go straight up from here. There is still a good chance that we will see some profit taking on Monday and Tuesday. There is an even better chance that we will continue to see volatility. Just because we add some bullish plays to the newsletter tonight doesn't mean you need to buy them on Monday morning. Be patient and be cautious. Yes, stocks are still oversold and could easily bounce but we're still in the worst two months of the year for stocks and the credit crisis hasn't been completely ironed out yet. If you cannot be actively monitoring your positions you may want to just sit out of the market for the next few weeks. Right now one of our biggest challenges is stop loss placement because the rebound from Thursday's low has been so strong.


New Calls

Amazon.com - AMZN - cls: 75.02 chg: +2.23 stop: 69.95

Company Description:
Amazon.com, Inc., a Fortune 500 company based in Seattle, opened on the World Wide Web in July 1995 and today offers Earth's Biggest Selection. Amazon.com, Inc. seeks to be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. (source: company press release or website)

Why We Like It:
AMZN's last couple of earnings reports have sent the stock to highs not seen in several years. The stock has been digesting its latest earnings-induced pop from July for the last four weeks. Now AMZN has finally "filled the gap" and traders are buying the dip near $70.00 and its supporting trendline of higher lows. The $75.00 level is a key support/resistance marker so more conservative traders may want to wait for a little more strength before opening positions. If the markets show any consolidation we would look for the $72.50 zone to offer some support for AMZN. We have two targets. Our conservative target is the $79.50-80.00 range. Our more aggressive target is the $84.00-85.00 zone.

Suggested Options:
We are suggesting the September calls.

BUY CALL SEP 70.00 ZQN-IN open interest= 908 current ask $7.20
BUY CALL SEP 72.50 ZQN-ID open interest=11692 current ask $5.50
BUY CALL SEP 75.00 ZQN-IO open interest= 3153 current ask $4.10
BUY CALL SEP 80.00 ZQN-IP open interest=22956 current ask $2.00

Picked on August 19 at $ 75.02
Change since picked: + 0.00
Earnings Date 10/23/07 (unconfirmed)
Average Daily Volume = 10.1 million

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Freeport McMoran - FCX - cls: 76.90 chg: +3.83 stop: 71.49

Company Description:
Freeport-McMoRan Copper & Gold Inc. is an international mining industry leader based in North America with large, long-lived, geographically diverse assets and significant proven and probable reserves of copper, gold and molybdenum. (source: company press release or website) The company recently acquired rival Phelps Dodge making it the largest publicly traded copper company.

Why We Like It:
The global economies are still doing well so demand for commodities like copper and gold should remain strong. Part of the news last week was that hedge funds, desperate for cash, were selling their winners including any positions in commodities. We suspect that FCX was caught up in that sell-off and affected by any dip in precious metals. Traders stepped in and bought the dip near support around $67.00 and its 200-dma. FCX has already seen a very sharp rebound but the bounce may not be over yet. Unfortunately, given the big rebound we have to use a wide stop loss. We're suggesting positions now but readers could wait for a dip in the $75-72.50 zone (actually if you're going to wait then wait for a bounce). There is potential resistance near $80.00 but our target is the $83.50-85.00 range.

Suggested Options:
We are suggesting the September calls.

BUY CALL SEP 75.00 FCX-IO open interest=1403 current ask $6.30
BUY CALL SEP 80.00 FCX-IP open interest=8225 current ask $3.70
BUY CALL SEP 85.00 FCX-IQ open interest=3369 current ask $2.05

Picked on August 19 at $ 76.90
Change since picked: + 0.00
Earnings Date 10/17/07 (unconfirmed)
Average Daily Volume = 10.3 million

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Goldman Sachs - GS - cls: 175.00 chg: +5.15 stop: 167.45

Company Description:
Goldman Sachs is a leading global investment banking, securities and investment management firm. (source: company press release or website)

Why We Like It:
We hesitated to add GS to the newsletters as a bullish candidate. There are a lot of reasons to avoid the stock. An easy reason to avoid it are the option prices. Market volatility combined with the huge volatility in GS has made GS options expensive. Another reason to avoid it would be the current drama over sub-prime fears, hedge-fund risks, and the credit/liquidity crisis, which isn't over yet. In spite of the big rebound in GS the trend is still bearish and volume has been huge on the sell-off. Yet at the same time the stock is still oversold even after a twenty-point bounce. We are suggesting call positions now at $175. You may want to wait for a rise past $181 before jumping in. However, keep in mind that we have two targets. Our first target is the $184.75-185.00 range. Our second target is the $194.00-195.00 range. If the financial sector continues to rebound and if we continue to see or perceive "help" from the FOMC then GS could produce some huge gains. One of our biggest risks is the intraday swings that could easily stop us out. The $170 level looks like it should be short-term support if you want to use a tighter stop loss. This is a very high-risk, aggressive play.

Suggested Options:
We are suggesting the September calls. As with all of our candidates, the options listed in the newsletter are suggestions. It is up to the individual trader to decide which month and which strike price best suits their personal trading style and risk.

BUY CALL SEP 170 GPY-IN open interest=2572 current ask $13.60
BUY CALL SEP 175 GPY-IO open interest=2163 current ask $10.60
BUY CALL SEP 180 GPY-IP open interest=2578 current ask $ 8.10
BUY CALL SEP 185 GPY-IQ open interest=2232 current ask $ 5.80
BUY CALL SEP 190 GPY-IR open interest=8652 current ask $ 4.30

Picked on August 19 at $175.00
Change since picked: + 0.00
Earnings Date 09/12/07 (unconfirmed)
Average Daily Volume = 11.6 million

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DJ Transports iShares - IYT - cls: 85.43 chg: +1.79 stop: 82.45

Company Description:
The IYT is an Exchanged Traded Fund (ETF) that is designed to track the Dow Jones Transportation average.

Why We Like It:
This is another buy-the-bounce play. The Transports, and these iShares that represent the transports, have produced a very clear bullish reversal pattern. We're suggesting call positions here but readers may want to wait and see if there is any profit taking on Monday before jumping in. We believe that if the market continues higher then the IYT will probably rebound back toward resistance near $90.00. Our target is the $89.75-90.00 range.

Suggested Options:
We are suggesting the September calls.

BUY CALL SEP 85.00 IYT-IQ open interest= 65 current ask $5.80
BUY CALL SEP 90.00 IYT-IR open interest=564 current ask $4.90

Picked on August 19 at $ 85.43
Change since picked: + 0.00
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 600 thousand

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Sears - SHLD - cls: 137.24 chg: +3.47 stop: 134.85

Company Description:
Sears Holdings Corporation is the nation's fourth largest broadline retailer, with approximately $50 billion in annual revenues, and with approximately 3,800 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, home electronics and automotive repair and maintenance. (source: company press release or website)

Why We Like It:
The RLX retail index has produced the same sort of bullish reversal pattern we see in the major averages. If the market can build on this reversal then the group could experience a big rebound. One way to capture that rebound in retail would be SHLD. The stock has been building a base in the $128-140 range for a couple of weeks now. We are suggesting a trigger to buy calls at $141.50, which would be a new relative high. If triggered we have two targets. Our first target is the $149.50-150.00 range. Our more aggressive target is the $157.00-160.00 zone. We do not want to hold over the very late August earnings report (unconfirmed date). The only information we found was a press release saying SHLD plans to report earnings on or before August 30th.

Suggested Options:
We are suggesting the September calls. Our suggested trigger to open positions is at $141.50.

BUY CALL SEP 140 KTQ-IW open interest=3603 current ask $6.30
BUY CALL SEP 145 KTQ-IV open interest=1831 current ask $4.10
BUY CALL SEP 150 KTQ-IU open interest=3895 current ask $2.65

Picked on August xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 08/30/07 (unconfirmed)
Average Daily Volume = 2.1 million
 

New Puts

None today.
 

New Strangles

None today.
 

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