Option Investor
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None CMG None

Play Editor's Note: I seriously considered not adding any new plays to the newsletter this weekend. Everything looks bearish. Yet how can any trader confidently add new bearish positions after a 200-point drop in the NASDAQ and a 600-point drop in the DJIA in just the last three days. Stocks are very short-term oversold and due for a bounce. Adding bearish positions now is just asking to get stopped out on an oversold bounce. However, the major averages closed near their lows for the session and the only thing that stopped them from hitting new lows for the day was the closing bell. Without a doubt the market's trend and attitude has changed and any fourth quarter rally is in serious jeopardy right now. We are adding a couple of plays this weekend but I am urging an extra level of caution on entering and exiting anything at the moment. FYI: A few stocks we're keeping an eye on as potential plays are ATI, AZO, BHP, FCX, FDX, MO, PCAR, and RIG.

P.S. I want to remind readers that November options expire this week after Friday, November 16th.

New Calls

None today.

New Puts

Chipotle Mexican Grill- CMG - cls: 121.60 chg: -5.83 stop: 125.55

Company Description:
Chipotle Mexican Grill offers a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads made from fresh, high-quality raw ingredients, prepared using classic cooking methods and served in a distinctive atmosphere. Chipotle opened its first restaurant in 1993 and operates more than 670 restaurants today. (source: company press release or website)

Why We Like It:
CMG reported earnings in late October. The results were better than expected. Following the report two different analyst firms raised their price target on CMG to $150. Shares of CMG quickly shot up to $141 but that proved to be the peak. The bullish trend is now in jeopardy as CMG has pulled back toward support near $120 and its rising 50-dma. Odds are pretty good that the market will see an oversold bounce soon and we wouldn't be surprised to see CMG bounce near $120. However, if the market continues to sell-off then CMG is likely to breakdown. We're suggesting a trigger to buy puts at $119.45. If triggered our target is the $112.00-110.00 range. One of the biggest risks for us is that CMG might dip under $120 on an intraday basis and then rebound again. More conservative traders may want to play with tighter stops.

Suggested Options:
If CMG hits our trigger at $119.45 then we would suggest the December puts.

BUY PUT DEC 120 CMG-XD open interest=770 current ask $8.00
BUY PUT DEC 115 CMG-XC open interest=301 current ask $6.00
BUY PUT DEC 110 CMG-XB open interest=514 current ask $4.40

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/30/07 (confirmed)
Average Daily Volume = 697 thousand


Dryships - DRYS - cls: 97.13 change: -4.07 stop: 108.75

Company Description:
DryShips Inc. is an international provider of drybulk cargo marine transportation services. Headquartered in Athens, Greece, DryShips owns and operates a fleet of 44 drybulk carriers comprising 5 Capesize, 29 Panamax, 1 Supramax, 1 Handymax and 8 newbuilding drybulk vessels, with a combined capacity of approximately 4.0 million deadweight tons. (source: company press release or website)

Why We Like It:
If we have any adrenaline junkies and thrill seekers then this play is for you. DRYS has produced some truly amazing gains in the last twelve months. Now that bullish trend appears to have finally run out of fuel and those gains are clearly being targeted for profit taking. As we all know, it's not a gain until we collect it. The challenge is that DRYS can be a very volatile stock and the options are expensive because of it. Furthermore, we can't find what the current level of short-interest is but it wouldn't surprise us if the short-interest was above average. Given DRYS' small 18.6-million share float that raises the risk of a short squeeze. Now toss into the mix a market that is short-term oversold and due for a bounce and you see some of our risk! Looking at the chart the trend has clearly rolled over and DRYS' breakdown under support at $100 and its 50-dma is our entry point for puts. We have a fairly wide stop loss but our target is the $80.50-80.00 range near the rising 100-dma.

Suggested Options:
We are suggesting the December puts.

BUY PUT DEC 100 DQR-XT open interest=1049 current ask $13.60
BUY PUT DEC 95 DQR-XS open interest=1760 current ask $10.80
BUY PUT DEC 90 DQR-XR open interest=1570 current ask $ 8.40
BUY PUT DEC 85 DQR-XQ open interest= 932 current ask $ 6.30

Picked on November 11 at $ 97.13
Change since picked: + 0.00
Earnings Date 10/27/07 (unconfirmed)
Average Daily Volume = 3.5 million

New Strangles

None today.

New Play Archives