Option Investor
New Plays

New Option Plays

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Play Editor's Note: It looks like we finally found a tradable bottom in the markets. This is the spot to consider bullish positions but remember - we're still in a bear market. Bear market rallies are usually fast and sharp but they end in a new lower high. The question we have to ask is how long before the rebound rolls over. After a 600-point bounce in the DJIA today I would not be surprised to see a little profit taking tomorrow morning.

FYI: Just a few stocks I'm watching. JEC looks like a bullish candidate here. Nimble traders might be able to catch a $30 run in ISRG toward $300. Overseas markets should rally on the bounce in U.S. markets today. That means PTR could see a big rebound. I would target a move into the $160-170 zone for PTR.

New Calls

Flowserve - FLS - close: 82.35 change: -0.84 stop: 75.49

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:
We were successful trading FLS yesterday and we're going to take another swing at it. The stock dipped toward technical support at its 200-dma again this morning. Traders bought the dip at $75.76, which was a higher low compared to yesterday's decline. The sharp rebound today is a bit hard to chase but if the market sees any sort of follow through then FLS could be a real mover. Volume on today's sessions was more than twice the norm. We are suggesting call positions now but another dip near $80.00 would also be an attractive entry. Our short-term target is the $87.50-90.00 range. Unfortunately, due to the stock's volatility we have a very wide stop loss. More conservative traders will want to consider a much tighter stop.

Suggested Options:
We are suggesting the February calls. This should be a short-term play.

BUY CALL FEB 80.00 FLS-BP open interest= 47 current ask $6.10
BUY CALL FEB 85.00 FLS-BQ open interest=325 current ask $3.50

Picked on January 23 at $ 82.35
Change since picked: + 0.00
Earnings Date 02/28/08 (unconfirmed)
Average Daily Volume = 736 thousand


Google Inc. - GOOG - cls: 548.62 chg: -35.73 stop: 514.00

Company Description:
Google's innovative search technologies connect millions of people around the world with information every day. Founded in 1998 by Stanford Ph.D. students Larry Page and Sergey Brin, Google today is a top web property in all major global markets. Google's targeted advertising program provides businesses of all sizes with measurable results, while enhancing the overall web experience for users. Google is headquartered in Silicon Valley with offices throughout the Americas, Europe and Asia. (source: company press release or website)

Why We Like It:
There were a couple of analysts out with cautious comments on GOOG's upcoming earnings report (end of January), which is one reason why the stock under performed the market. The stock had a $65 range from yesterday's close to today's low at $519.00. GOOG produced a $38 bounce off its lows and that makes stop loss placement a real challenge. We tend to avoid playing GOOG because the options are so expensive and the recent volatility has only made the options even more pricey. However, if the markets do see any sort of follow through higher then GOOG could easily rally another $50 this week. I would label this an extremely high-risk and speculative play. All the options are going to be out of the money and we'll be gambling on a sharp rebound. While we are suggesting calls right here if a dip appears tomorrow look for a bounce in the $530-540 zone as an attractive entry to buy calls. I am listing a stop loss under today's low but if GOOG hits our stop we'll be taking some serious losses in the options. Our short-term target is the $595.00-600.00 range. We do not want to hold over earnings.

Suggested Options:
We are suggesting the February calls. This should be a short-term bounce.

BUY CALL FEB 570 GOP-BQ open interest=1512 current ask $21.00
BUY CALL FEB 580 GOO-BP open interest= 745 current ask $17.20
BUY CALL FEB 590 GOO-BR open interest=3901 current ask $14.20
BUY CALL FEB 600 GOO-BT open interest=2799 current ask $10.90

Picked on January 23 at $548.62
Change since picked: + 0.00
Earnings Date 01/31/08 (confirmed)
Average Daily Volume = 5.3 million

New Puts

None today.

New Strangles

None today.

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