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New Plays

New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
AG None None
CAT    
CLF    
FLS    
FWLT    
HSIC    
LLL    

Play Editor's Notes & Trading Philosophy for this Week.

The definition of a bear market varies depending on whom you are talking to but for most analysts a 15% to 20% decline is usually described as a bear market. Looking at the numbers in the wrap this weekend you can see that several significant sectors are deep in a bear market and the major indices are there or they're getting close. That means that in a bear market it should be easier to make money on the downside and we need to be looking for new entry points for bearish positions.

However, we have just endured the stock market's worst start to a new year in the market's history. We're extremely oversold and due for a bounce. Trying to launch new short or put positions now would probably be foolish.

Yet at the same time it's almost unanimous that we haven't hit bottom yet and we haven't seen any market capitulation. Hopefully that will be Tuesday this week or sometime this week. Here is my trading strategy for the time being. We want to be looking for stocks we can buy a bounce and ride for a few days but that's it. Don't get married to them. In reality any bullish play is just an attempt to capture a few dollars while we wait for stocks to roll over again. Investors are going to sell the rallies in a bear market. The only question then is how long will any specific bounce last before it turns into a new entry point for shorts and puts. The pattern to watch for is lower highs and lower lows. Relatively speaking we just hit lower lows so now it's time for a bounce but to lower highs.

We're going to try adding some plays this weekend with the expectation that we will see a market capitulation soon and if we're lucky we can get filled on an intraday dip before the oversold bounce begins. More conservative traders will be better off just stepping aside and watching from the sidelines. What we are effectively trying to do is "catch the knife" and it will be easy to get cut if you're not careful.


New Calls

AGCO - AG - close: 57.81 change: -2.60 stop: 48.99

Company Description:
Founded in 1990, AGCO Corporation is a global manufacturer of agricultural equipment and related replacement parts. AGCO offers a full product line including tractors, combines, hay tools, sprayers, forage, tillage equipment and implements, which are distributed through more than 3,200 independent dealers and distributors in more than 140 countries worldwide. (source: company press release or website)

Why We Like It:
The agriculture-related stocks were big winners in the second half of 2007. Now they're getting punished as investors move to lock in gains. Shares of AG look like they're at support near $55 and the bottom of its gap higher near the November lows. However, these correction moves always seem to get overdone so we suspect there is more profit taking ahead, especially if we see a big market capitulation day. The P&F chart suggests there is support near $53.00, which is close to what should be support at the bottom of its October gap down near $54.00. These would all be levels to watch. However, the $50.00 level is a natural round-number support area plus it is bolstered by the rising 200-dma. Plus, a pull back to $50 would be a 61.8% Fibonacci retracement of AG's rally from its August lows. We are suggesting that readers look for a dip into the $51.50-50.00 zone as a new bullish entry point to buy calls. This is an attempt to catch a quick but powerful oversold bounce higher. We do not want to hold over the February 7th earnings report. Our initial target will be the $56.00-57.50 range.

Suggested Options:
If AG hits our suggested entry point at $51.50 we're suggesting the February calls. Obviously these will be a lot cheaper when AG hits our trigger.

BUY CALL FEB 50.00 AG-BJ open interest=115 current ask $9.70
BUY CALL FEB 55.00 AG-BK open interest=150 current ask $6.50

Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/07/08 (confirmed)
Average Daily Volume = 1.8 million

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Caterpillar - CAT - close: 62.81 change: +0.34 stop: 58.45

Company Description:
Since its inception over 80 years ago, Caterpillar has grown to be the largest maker of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines in the world. Our products, services and technologies fall into three principal lines of business: Machinery, Engines and Financial Products. (source: company press release or website)

Why We Like It:
CAT is another agriculture-related stock that is just getting mowed into the ground. There appears to be support near $60.00 so we're suggesting readers buy a dip in the $60.50-59.50 range. If triggered we'll target a quick bounce back into the $64.50-65.00 zone. This has to be quick. If CAT doesn't dip on Tuesday we are dropping it because we have to be out by Thursday night. CAT reports earnings on Friday morning and we do not want to hold over the report.

Suggested Options:
If CAT hits our entry point at $60.50 we are suggesting the February calls.

BUY CALL FEB 60.00 CAT-BL open interest=455 current ask $4.90
BUY CALL FEB 62.50 CAT-BZ open interest=737 current ask $3.35
BUY CALL FEB 65.00 CAT-BM open interest=2322 current ask $2.07

Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/25/08 (confirmed)
Average Daily Volume = 6.0 million

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Cleveland Cliffs - CLF - cls: 91.84 change: +6.54 stop: 83.90

Company Description:
Cleveland-Cliffs Inc, headquartered in Cleveland, Ohio, is an international mining company, the largest producer of iron ore pellets in North America and a major supplier of metallurgical coal to the global steelmaking industry. (source: company press release or website)

Why We Like It:
I honestly don't see what sparked the rally in CLF on Friday. My first thought would be "short squeeze" since CLF has higher than normal short interest. The stock is bouncing from short-term support near $85.00 and it rallied on volume, which is bullish. Given our market wash-out scenario that we're expecting CLF could revisit the $85 level again. This happens to be support on the P&F chart and it also lines up with the trendline of higher lows. We're suggesting readers buy calls on a dip into the $85.50-85.00 zone. If triggered we'll look for a rally into the $92.50-95.00 range.

Suggested Options:
If CLF hits our entry point at $85.50 then we're suggesting the February calls.

BUY CALL FEB 85.00 CLF-BQ open interest= 53 current ask $10.80
BUY CALL FEB 90.00 CLF-BR open interest=598 current ask $ 7.80

Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/21/08 (unconfirmed)
Average Daily Volume = 1.3 million

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Flowserve - FLS - close: 81.18 change: +1.00 stop: 74.45

Company Description:
Flowserve Corp. is one of the worlds leading providers of fluid motion and control products and services. Operating in more than 55 countries, the company produces engineered and industrial pumps, seals and valves as well as a range of related flow management services. (source: company press release or website)

Why We Like It:
Shares of FLS, like most of the previous high-flyers, have been getting killed lately. The stock is down 20% from its highs. This looks like support near $80.00 and a tempting entry point. However, if we do get another spike lower we'd rather buy FLS near its 200-dma. Thus we're suggesting readers use a trigger to buy calls on FLS in the $77.00-75.00 range. The 200-dma is at $76.65. If triggered our initial target is the $84.00-85.00 zone.

Suggested Options:
If FLS hits our entry point at $77.00 we are suggesting the February or March calls.

BUY CALL FEB 75.00 FLS-AO open interest= 49 current ask $6.60
BUY CALL FEB 80.00 FLS-AP open interest=120 current ask $1.55

Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/28/08 (unconfirmed)
Average Daily Volume = 664 thousand

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Foster Wheeler - FWLT - cls: 129.94 chg: +1.36 stop: 118.99

Company Description:
Foster Wheeler Ltd. is a global company offering, through its subsidiaries, a broad range of engineering, procurement, construction, manufacturing, project development and management, research and plant operation services. (source: company press release or website)

Why We Like It:
We are going to try buying the dip in FWLT again. Last time we were able to catch a quick rebound but shares failed to hit our second target. This time we'll just go for the initial bounce. The $120-122 zone looks like support and should be bolstered by its rising 200-dma at $119.50. We are suggesting readers buy a dip in the $123.00-120.00 zone. The closer to $120 the better but last week bulls stepped in at $122.27. If FWLT hits our trigger at $123.00 our initial target is the $132.50-135.00 range.

It is IMPORTANT to note that FWLT should begin trading split adjusted for a 2-for-1 stock split on Tuesday. This means our suggested entry zone will become the $61.50-60.00 range. Our stop will be $59.49. Our target will be $66.25. The option symbols listed today will change due to the split.

Suggested Options:
If FWLT hits our trigger (123.00 or $61.50) then we are suggesting the February calls.

BUY CALL FEB 120 UFB-BD open interest=226 current ask $15.80
BUY CALL FEB 125 UFB-BW open interest=441 current ask $12.60
BUY CALL FEB 130 UFB-BX open interest=606 current ask $10.00

Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/27/08 (unconfirmed)
Average Daily Volume = 1.6 million

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Henry Schein - HSIC - cls: 62.90 chg: +0.26 stop: 59.90

Company Description:
Henry Schein, Inc., is recognized for its excellent customer service and highly competitive prices. Henry Scheins four business groups - Dental, Medical, International and Technology - serve more than 500,000 customers worldwide, including dental practices and laboratories, physician practices and veterinary clinics, as well as government and other institutions. (source: company press release or website)

Why We Like It:
Shares of HSIC have a very long-term up trend and have been displaying impressive relative strength the past couple of weeks. It would be tempting to open bullish positions now but HSIC has resistance near $63.75. We're suggesting a trigger to buy calls at $64.01. An alternative entry point we will be considering is an intraday dip in the $61.00-60.00 zone. Our target is the $69.00-70.00 range.

Suggested Options:
We are suggesting the February calls if HSIC can hit our trigger at $64.01.

BUY CALL FEB 60.00 HQE-BL open interest= 39 current ask $4.20
BUY CALL FEB 65.00 HQE-BM open interest=432 current ask $1.10

Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/21/08 (unconfirmed)
Average Daily Volume = 623 thousand

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L-3 Comm. - LLL - cls: 103.43 change: +0.51 stop: 98.90

Company Description:
Headquartered in New York City, L-3 Communications employs over 63,000 people worldwide and is a prime system contractor in aircraft modernization and maintenance, C3ISR (Command, Control, Communications, Intelligence, Surveillance and Reconnaissance) systems and government services. L-3 is also a leading provider of high technology products, systems and subsystems. The company reported 2006 sales of $12.5 billion. (source: company press release or website)

Why We Like It:
LLL has been able to maintain its longer-term bullish up trend even though short-term the stock looks bearish like everything else. Given the chance a dip near $100 and/or its 200-dma looks like a new bullish entry point to buy calls. The 200-dma is at $100.75. We're suggesting a trigger to buy calls in the $101.00-99.50 zone. There was an intraday spike down in earl December to $99.87 so we're suggesting a stop at $98.90. If triggered at $101 our target is the $107.50-108.00 range. We do not want to hold over the late January earnings report.

Suggested Options:
If LLL hits our trigger at $101 we are suggesting the February calls.

BUY CALL FEB 100 LLL-BT open interest=126 current ask $6.00
BUY CALL FEB 105 LLL-BA open interest=545 current ask $3.10

Picked on January xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/31/08 (confirmed)
Average Daily Volume = 1.0 million
 

New Puts

None today.
 

New Strangles

None today.
 

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