Option Investor
New Plays

New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
AMZN None None
CP    
CRDN    
ETN    
MICC    
MTW    
RVBD    

Play Editor's Note: It would appear that the market has found comfort in Bernanke's comments on Friday. However, this remains a very volatile market and September is traditionally the worst month of the year to be bullish on stocks. Considering the whipsaws we have seen in the past few weeks more conservative traders may want to just step back and not trade until we see more of a trend take form. We're going to try and capture any further upside with some bullish positions but they remain higher-risk. In the market wrap this weekend Jim suggests that traders wait for the Russell 2000 smallcap index to break out over resistance near 800 before considering new bullish positions. It is a good idea to wait for the Russell to confirm the trend but it is up to you if you want to wait and follow that strategy. FYI: A few stocks we considered as potential bullish candidates but chose to just watch for now are... TEX, AXE, CLF, ROK, RIMM, UIC, and UNP.


New Calls

Amazon.com - AMZN - close: 79.91 change: +1.32 stop: 77.45

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:
We are adding AMZN back to the newsletter again. Earlier this month we were able to catch part of the bounce from $70 to $80. Now it looks like AMZN's sideways consolidation over the last few days is ending and the stock is poised to breakout higher. If shares can clear resistance in the $80.00-80.75 range then it should have a good shot at its highs near $89.00. We are suggesting a trigger to buy calls on AMZN at $80.85. If triggered our target is the $88.00-89.00 range. The P&F chart is very bullish with a $99 target and if AMZN can trade over $81.00 it would produce another bullish buy signal.

Suggested Options:
We are suggesting a trigger to buy calls on AMZN at $80.85. If triggered we are suggesting the September or October calls. FYI: It is up to the individual trader to decide which month and which strike price best suits their trading style and risk.

BUY CALL SEP 80.00 ZQN-IP open interest=25525 current ask $2.80
BUY CALL SEP 85.00 ZQN-IQ open interest= 8578 current ask $0.90

BUY CALL OCT 80.00 ZQN-JP open interest=18315 current ask $4.70
BUY CALL OCT 85.00 ZQN-JQ open interest= 9636 current ask $2.50

Picked on September xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/23/07 (unconfirmed)
Average Daily Volume = 9.5 million

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CanadianPacific Rail - CP - cls: 70.48 chg: 2.60 stop: 66.75

Company Description:
Based in Calgary, Alberta, Canadian Pacific (CP) is a Class 1 North American railway providing freight transportation services over a 14,000-mile network in Canada and the U.S. CP also provides logistics, supply chain expertise, and intermodal transportation services. (source: company press release or website)

Why We Like It:
The railroad sector was one of the best performing groups in the market on Friday. This play is a little bit aggressive because the railroad index still has a bearish trend of lower highs and has not yet cleared technical resistance at the 200-dma. Readers considering bullish positions in the railroad industry may want to wait for the DJUSRR index to rise past the 455 or 460 level before initiating long positions. CP appears to be a leader in the group since CP has broken its trend of lower highs. The stock cleared resistance at its 100-dma and the $70.00 level on Friday. The MACD on the daily chart has turned bullish. There is potential technical resistance at CP's 50-dma around 71.90 but if the market continues to bounce we suspect that CP can hit the $75 level or higher. Our target initial target is the $74.75-75.00 range. We do have a wide, aggressive stop due to the stock's recent volatility. If CP tries to fill the gap from Friday morning look for a dip back toward $67.75. FYI: The stock was upgraded on Thursday.

Suggested Options:
We are suggesting the September or October calls.

BUY CALL SEP 70.00 CP-IN open interest=473 current ask $2.40
BUY CALL SEP 75.00 CP-IO open interest=529 current ask $0.55

BUY CALL OCT 70.00 CP-JN open interest=178 current ask $3.60
BUY CALL OCT 75.00 CP-JO open interest= 76 current ask $1.40

Picked on September 02 at $ 70.48
Change since picked: + 0.00
Earnings Date 10/30/07 (unconfirmed)
Average Daily Volume = 595 thousand

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Ceradyne - CRDN - cls: 72.27 change: +2.08 stop: 68.49

Company Description:
Ceradyne develops, manufactures and markets advanced technical ceramic products and components for defense, industrial, automotive/diesel and commercial applications. (source: company press release or website)

Why We Like It:
Defense stocks should do well while finding themselves insulated from the sub-prime woes in the market. That didn't stop CRDN from sliding sharply in July and August but the stock has rebounded. The recent sideways consolidation is over and CRDN is marching higher again. There has been some bullish comments lately about how CRDN will benefit from the U.S. military's surging demand for MRAP vehicles. MRAP stands for mine resistant ambush protected. Looking at shares of CRDN we see Friday's move as a new bullish entry point to buy calls. There is potential resistance at the 50-dma around $74.40 and around the $75.00 level but our target is the $78.00-80.00 range. Readers can choose to open positions now or look for a dip back into the $71.50-70.00 range. The rebound from its August lows happens to be a perfect bounce from its P&F chart support.

Suggested Options:
We are suggesting the September or October calls.

BUY CALL SEP 70.00 AUE-IN open interest=2608 current ask $4.30
BUY CALL SEP 75.00 AUE-IO open interest=2763 current ask $1.70

BUY CALL OCT 70.00 AUE-JN open interest= 93 current ask $6.00
BUY CALL OCT 75.00 AUE-JO open interest= 212 current ask $3.50

Picked on September 02 at $ 72.27
Change since picked: + 0.00
Earnings Date 11/01/07 (unconfirmed)
Average Daily Volume = 714 thousand

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Eaton Corp. - ETN - cls: 94.22 change: +1.43 stop: 91.99

Company Description:
Eaton Corporation is a diversified industrial manufacturer with 2006 sales of $12.4 billion. Eaton is a global leader in electrical systems and components for power quality, distribution and control; fluid power systems and services for industrial, mobile and aircraft equipment; intelligent truck drivetrain systems for safety and fuel economy; and automotive engine air management systems, powertrain solutions and specialty controls for performance, fuel economy and safety. Eaton has 62,000 employees and sells products to customers in more than 125 countries. (source: company press release or website)

Why We Like It:
The rebound in ETN looks ready to begin another leg higher. The stock has shown a large amount of volatility over the last several weeks. More recently the consolidation has narrowed to the $90-95 range. We want to catch a bullish breakout over resistance near $95.00 and its 50-dma. We are suggesting a trigger to buy calls at $95.25. If triggered we will have two targets. Our first target is the $99.75-100.00 range. Our second target is the $103.50-104.00 zone. Aggressive traders may want to put their stop loss under support near $90.00. More conservative traders could put their stop closer toward what should be technical support at the 10-dma around $92.50.

Suggested Options:
We're suggesting a trigger at $95.25. If triggered we'd use the September or October calls.

BUY CALL SEP 90.00 ETN-IR open interest=159 current ask $5.60
BUY CALL SEP 95.00 ETN-IS open interest=362 current ask $2.30
BUY CALL SEP 100.0 ETN-IT open interest=515 current ask $0.65

BUY CALL OCT 95.00 ETN-JS open interest=1147 current ask $4.20
BUY CALL OCT 100.0 ETN-JT open interest=1118 current ask $2.10

Picked on September xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/16/07 (unconfirmed)
Average Daily Volume = 1.3 million

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Millicom - MICC - cls: 84.33 change: +2.08 stop: 79.90

Company Description:
Millicom International Cellular S.A. is a global telecommunications investor with cellular operations in Asia, Latin America and Africa. It currently has cellular operations and licenses in 16 countries. The Group's cellular operations have a combined population under license of approximately 281 million people. (source: company press release or website)

Why We Like It:
After an amazing multi-month bullish run MICC was ripe for profit taking this summer. During the market's sell-off shares of MICC dipped to its 50% retracement of its rally. Now the stock is looking bullish again with a pattern of higher lows and higher highs. The P&F chart has already reversed into a (bullish) ascending triple-top breakout buy signal with a $115 target. More aggressive traders may want to buy calls now. We see resistance at the $85.00 level so we're suggesting a trigger to buy calls at $85.25. More conservative traders may want to wait for MICC to clear technical resistance at its 100-dma and 50-dma near $86.45 first before starting plays. We have two targets. Our first target is the $89.75-90.00 range. Our second, more-aggressive target is the $94.00-95.00 range.

Suggested Options:
If triggered at $85.25 we would suggest the September or October calls.

BUY CALL SEP 80.00 CQD-IP open interest=776 current ask $6.30
BUY CALL SEP 85.00 CQD-IQ open interest=423 current ask $3.20
BUY CALL SEP 90.00 CQD-IR open interest=1249 current ask $1.20

BUY CALL SEP 85.00 CQD-JQ open interest=565 current ask $5.20
BUY CALL SEP 90.00 CQD-JR open interest=700 current ask $3.20

Picked on September xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/25/07 (unconfirmed)
Average Daily Volume = 789 thousand

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Manitowoc - MTW - cls: 79.49 change: +1.90 stop: 73.99

Company Description:
The Manitowoc Company, Inc. is one of the world's largest providers of lifting equipment for the global construction industry, including lattice-boom cranes, tower cranes, mobile telescopic cranes, and boom trucks. As a leading manufacturer of ice-cube machines, ice/beverage dispensers, and commercial refrigeration equipment, the company offers the broadest line of cold-focused equipment in the foodservice industry. In addition, the company is a leading provider of shipbuilding, ship repair, and conversion services for government, military, and commercial customers throughout the U.S. maritime industry. (source: company press release or website)

Why We Like It:
The profit taking in MTW appears to be over. The stock produced a very bullish double-bottom pattern on top of its rising 200-dma back in August. Friday's rally was a breakout over resistance near $78.00 and its 50-dma. More aggressive traders may want to buy calls now. We're suggesting a trigger to buy calls at $80.25. If triggered our target is the $88.00-90.00 range. Nimble traders will want to try and be patient and look for a dip back into the $78.00-75.00 zone as a potential entry point. Conservative traders might want to cinch up their stop loss toward $75.00. The Point & Figure chart is very bullish with a triple-top breakout buy signal and a $103 target. FYI: MTW is due to split 2-for-1 on September 11th.

Suggested Options:
If triggered at $80.25 we would suggest the September or October calls.

BUY CALL SEP 75.00 MTW-IO open interest=1385 current ask $6.00
BUY CALL SEP 80.00 MTW-IP open interest=1574 current ask $2.45
BUY CALL SEP 85.00 MTW-IQ open interest=1193 current ask $0.80

BUY CALL OCT 80.00 MTW-JP open interest=348 current ask $4.70
BUY CALL OCT 85.00 MTW-JQ open interest=123 current ask $2.50

Picked on September xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/31/07 (unconfirmed)
Average Daily Volume = 1.0 million

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Riverbed Tech. - RVBD - cls: 44.40 chg: +0.15 stop: 41.95

Company Description:
Riverbed Technology is the performance leader in wide-area data services (WDS) solutions for companies worldwide. By enabling application performance over the wide area network (WAN) that is orders of magnitude faster than what users experience today, Riverbed is changing the way people work, and enabling a distributed workforce that can collaborate as if they were local. (source: company press release or website)

Why We Like It:
Networking stocks have been doing well and the NWX networking index just broke through resistance at its 50-dma. The sector looks poised for more gains. RVBD is trading in a similar pattern with a bullish trend of higher lows. We're suggesting an aggressive entry point here. More conservative traders will want to wait for RVBD to breakout past resistance in the $45.75-46.00 region first. Our target is the $49.40-50.00 range. If RVBD can trade over $46.00 it will reverse the P&F chart into a new buy signal.

Suggested Options:
We are suggesting the September or October calls.

BUY CALL SEP 40.00 UEX-IH open interest=2524 current ask $5.00
BUY CALL SEP 45.00 UEX-II open interest=5615 current ask $1.70
BUY CALL SEP 50.00 UEX-IJ open interest=2510 current ask $0.40

BUY CALL OCT 45.00 UEX-JI open interest= 954 current ask $3.20
BUY CALL OCT 50.00 UEX-JJ open interest= 314 current ask $1.35

Picked on September 02 at $ 44.40
Change since picked: + 0.00
Earnings Date 10/25/07 (unconfirmed)
Average Daily Volume = 1.2 million
 

New Puts

None today.
 

New Strangles

None today.
 

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