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New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
AAPL BSC None
APOL FDX  
CNX GWW  
  SHLD  

Play Editor's Note: I wanted to share some of the stocks on our watch list. Potential bullish candidates are: RTN, SII and some of the metal stocks. Potential bearish candidates are: PFCB, AVB, MAC, VNO, VMC, and TM. Some of these did not make the newsletter because earnings are this week. TM is probably the only carmaker we would consider owning but it has rallied right to significant resistance and looks overbought. This would be decent spot to consider puts because your stop loss is easily defined.


New Calls

Apple Inc. - AAPL - close: 125.48 change: +4.24 stop: see details

Company Description:
Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market with its revolutionary iPhone. (source: company press release or website)

Why We Like It:
We're calling this our AAPL triple play. It would appear that shares of AAPL have bottomed near the $120 level. While the trend is still bearish we're willing to speculate that there is more upside risk than downside risk at this time. We're listing three different strategies and you may want to mix and match whatever suits your trading style and account flexibility.

AAPL play #1 - Directional call options

This is pretty simple. If AAPL has bottomed there is plenty of room for an oversold bounce or a retracement of its decline. We're suggesting readers buy calls. Our short-term target is the $139.00-145 range. Expect resistance at $140 and the 200-dma near $145. We are suggesting a stop loss at 116.99 under last week's low. More conservative traders may want to use a stop closer to $120.

Play #1 options:
We are suggesting the March calls. It is up to the individual trader to decide which month and which strike price best suits your trading style and risk.

BUY CALL MAR 120 QAA-CD open interest=4286 current ask $11.55
BUY CALL MAR 125 APV-CE open interest=7308 current ask $ 8.70
BUY CALL MAR 130 APV-CF open interest=9662 current ask $ 6.30
BUY CALL MAR 135 APV-CG open interest=11308 current ask $ 4.35

AAPL play #2 - Credit put spread

If AAPL has bottomed and due for a bounce then let's sell some puts but we can limit our risk by making it a put spread. Here's the plan. We need to buy the March $110 put (currently around $2.50) and then sell the March $120 put (currently around $5.50). Buying the $110 put is a debit to our account but selling the $120 put is a credit to our account and we should make about $2.60-to-$3.00 on the trade. If AAPL continues to rally then these puts will quickly deteriorate and we can buy back the March $120s for a fraction of what we paid for them and removing our short (risk) position. It is possible to do both AAPL play #1 (buy calls) and AAPL #2 (credit put spread), which would help reduce the cost of our calls. If AAPL closes under $120 we would strongly consider closing this put spread.

BUY PUT MAR 110 QAA-OB open interest=4611 current ask $2.59
-and-
SELL PUT MAR 120 QAA-OD open interest=6301 current ask $5.50

AAPL play #3 - Sell Naked Puts

If you opted for the OptionInvestor year-end deal and you read Jim's strategy section on naked puts then you should already be familiar with this plan. If AAPL is due for a big bounce then we can sell deep in the money puts for a credit and buy them back after the bounce occurs. Deep in the money puts have a high delta (close to 1.00) so it's almost $1 for $1 on the rally. Our plan is to exit the play (buy these puts back) when AAPL hits $139.00. Thus we'll get a credit into our account for about $25.45 (per contract) and we'll buy them back around $10-13 each. We will use a stop loss at $116.99 to limit our loss and buy these puts back. Note: Not all traders have accounts with naked put selling permissions.

AAPL play #3 suggested options:
You could use any of the deep ($20 or more) in the money puts but we're suggesting the March $150s.

SELL PUT MAR 150 APV-OJ open interest=2281 current ask $25.45

Picked on February 10 at $125.48
Change since picked: + 0.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 44.4 million

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Apollo Group - APOL - close: 73.94 chg: +0.98 stop: 69.95

Company Description:
Apollo Group, Inc. has been an education provider for more than 30 years, providing academic access and opportunity to students through its University of Phoenix, Institute for Professional Development, College for Financial Planning, Western International University, Insight Schools and Apollo Global. It also owns Aptimus, a provider of innovative digital media solutions. (source: company press release or website)

Why We Like It:
Last week's market sell-off pulled APOL back down to technical support at the 100-dma. Bulls have been consistently buying dips to the 100-dma for months. It also happens to be Point & Figure chart support, which coincidentally is bullish with a $102 target. Thus looks like a good spot to buy calls. Our target is the $80.00-81.00 range.

Suggested Options:
We are suggesting the March calls.

BUY CALL MAR 70.00 OAQ-CN open interest=481 current ask $7.40
BUY CALL MAR 75.00 OAQ-CO open interest=622 current ask $4.60
BUY CALL MAR 80.00 OAQ-CP open interest=857 current ask $2.60

Picked on February 10 at $ 73.94
Change since picked: + 0.00
Earnings Date 04/07/08 (unconfirmed)
Average Daily Volume = 3.1 million

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CONSOL Energy - CNX - cls: 77.54 change: +2.88 stop: 69.95

Company Description:
CONSOL Energy Inc., a high-Btu bituminous coal and coal bed methane company, is a member of the Standard & Poor's 500 Equity Index and has annual revenues of $3.8 billion. It has 17 bituminous coal mining complexes in six states and reports proven and probable coal reserves of 4.5 billion tons. (source: company press release or website)

Why We Like It:
Some of the coal-related stocks have been real screamers lately yet some of the coal stocks like CNX look like they are breaking out from a consolidation phase and into a new leg higher. Cold weather, rising demand, and shortages in China is having a big impact on coal. Plus there has been more investor interest in coal since the new ETF came out (symbol:KOL) recently. Meanwhile rising oil prices tends to lift other forms of energy as well. Technical oscillators on CNX have turned bullish again and the stock broke out to new highs on Friday. We do have a wide stop loss so more conservative traders may want to consider a tighter stop. We have two targets for CNX. Our first target is the $84.50-85.00 range. Our second, more aggressive target is the $88.00-90.00 zone. The P&F chart has a brand new triple-top breakout buy signal with a $124 target.

Suggested Options:
We are suggesting the March calls. Note: normally a March $85 call would end in -CQ but the CBOE is listing the CNX March $85 call as -CA. Double check with your broker.

BUY CALL MAR 75.00 CNX-CO open interest=3366 current ask $7.30
BUY CALL MAR 80.00 CNX-CP open interest= 653 current ask $4.80
BUY CALL MAR 85.00 CNX-CA open interest= 864 current ask $2.95

Picked on February 10 at $ 77.54
Change since picked: + 0.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 3.3 million
 

New Puts

Bear Stearns - BSC - cls: 80.67 chg: -2.36 stop: 84.31

Company Description:
The Bear Stearns Companies Inc. (NYSE: BSC) is the parent company of Bear, Stearns & Co. Inc., a leading global investment banking, securities trading and brokerage firm. Since 1923, we have helped corporations, institutions, governments and individuals reach their financial objectives. (source: company press release or website)

Why We Like It:
We still think there is pain ahead for the financial stocks, especially if the bond insurers go under (or get downgraded). We have been watching BSC since it flirted with breaking support near $85.00. Now shares have tested support at $80.00 twice and look poised to breakdown again. We are suggesting a trigger to buy puts at $79.49. If triggered our target is the $71.00-70.00 zone near its January lows. We'll use a stop loss at $84.31. Our biggest risk is that a bailout plan for the bond insurers does get done (and probably this coming week). If plan is announced and the street thinks it has a good chance of actually coming to pass then shares of BSC are bound to rally sharply due to its exposure to the sub-prime mess. Considering this explosive situation we thought about a strangle but even if we used the March $90 calls and March $70 puts it would still cost about $6.00 for a strangle, which we thought was too much. A March $80 straddle was even more outrageous at close to $13 for a position. Therefore we settled on playing the trend, which is bearish. Unfortunately, if BSC gaps open higher on news one day our stop loss may not be much help. FYI: The P&F chart is bearish with a $68 target.

Suggested Options:
Our suggested trigger to buy puts is $79.49. We are suggesting the March puts.

BUY PUT MAR 80.00 BVD-OP open interest=2310 current ask $6.20
BUY PUT MAR 75.00 BVD-OO open interest=1312 current ask $4.30
BUY PUT MAR 70.00 BVD-ON open interest=3855 current ask $2.90

Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 03/13/08 (unconfirmed)
Average Daily Volume = 7.4 million

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FedEx - FDX - close: 88.00 change: -2.16 stop: 92.05

Company Description:
FedEx Corp. provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $36 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brand. (source: company press release or website)

Why We Like It:
FDX could be in real trouble here. If we're facing a consumer-lead recession then business is definitely going to slow down. Plus, FDX and the rest of the transports are struggling with the high cost of fuel thanks to high oil prices. Shares of FDX just rolled over under a new lower high and the stock looks poised to retest the January lows. There is potential support at $86 but our target is the $81.00-80.00 zone.

Suggested Options:
We are suggesting the March puts.

BUY PUT MAR 90.00 FDX-OR open interest=1864 current ask $4.90
BUY PUT MAR 85.00 FDX-OQ open interest=1264 current ask $2.60
BUY PUT MAR 80.00 FDX-OP open interest= 338 current ask $1.25

Picked on February 10 at $ 88.00
Change since picked: + 0.00
Earnings Date 03/20/08 (unconfirmed)
Average Daily Volume = 3.2 million

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W.W.Grainger - GWW - close: 76.65 chg: -2.43 stop: 80.05

Company Description:
W.W. Grainger, Inc., with 2007 sales of $6.4 billion, is the leading broad-line supplier of facilities maintenance products serving businesses and institutions in Canada, China, Mexico and the United States. (source: company press release or website)

Why We Like It:
We are suggesting puts on GWW right here but readers may really want to wait and see if a better entry point presents itself. The stock has an easy to see trendline of lower highs and shares just produced a bearish failed rally at $80.00, which happened on strong volume. The alternatives are to wait for a bounce back toward $78-79 and buy puts there. The market is arguably short-term oversold and due for a bounce. Another alternative would be to wait for a breakdown under support at $75.00. Our target is the $70.75-70.00 zone.

Suggested Options:
We are suggesting the March puts.

BUY PUT MAR 80.00 GWW-OP open interest= 54 current ask $8.90
BUY PUT MAR 75.00 GWW-OO open interest=298 current ask $2.90
BUY PUT MAR 70.00 GWW-ON open interest= 39 current ask $1.40

Picked on February 10 at $ 76.65
Change since picked: + 0.00
Earnings Date 04/16/08 (unconfirmed)
Average Daily Volume = 1.0 million

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Sears Holding - SHLD - cls: 98.59 chg: -4.09 stop: 100.25

Company Description:
Sears, Roebuck and Co., a wholly owned subsidiary of Sears Holdings Corporation, is a leading broadline retailer providing merchandise and related services. Sears, Roebuck offers its wide range of home merchandise, apparel and automotive products and services through more than 2,400 Sears-branded and affiliated stores in the United States and Canada, which includes approximately 870 full-line and 1,100 specialty stores in the U.S. (source: company press release or website)

Why We Like It:
If we are facing a consumer-lead recession then the retailers could be in for hard times. The trend in SHLD is already bearish but we want to see a breakdown under short-term support at $95.00. We are suggesting readers use a trigger to buy puts at $94.75. However, we will be watching for an alternative entry on a failed rally in the $101-102 zone. If triggered at $94.75 our target is the $86.00-85.00 range. We do not want to hold over the end of February (unconfirmed) earnings report.

Suggested Options:
If triggered at $94.75 we are suggesting the March puts.

BUY PUT MAR 95.00 KTQ-OS open interest=2964 current ask $8.00
BUY PUT MAR 90.00 KTQ-OR open interest=8380 current ask $5.50
BUY PUT MAR 85.00 KTQ-OQ open interest=7552 current ask $4.00

Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/28/08 (unconfirmed)
Average Daily Volume = 3.0 million
 

New Strangles

None today.
 

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