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New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
ATW DVN CROX
CF VMC  
NUE    
SII    
YHOO    

Play Editor's Note: We have a lot of stocks on our watch list. A few bullish candidates are: STLD, RIG, HES, and OII. Plus, TYC looks like a strangle candidate right here near $40.00.


New Calls

Atwood Oceanics - ATW - cls: 90.37 change: -0.55 stop: 87.45

Company Description:
Atwood Oceanics, Inc. is engaged in the business of international offshore drilling of exploratory and developmental oil and gas wells and related support management and consulting services. The Company currently owns and operates a modern fleet of eight mobile offshore drilling units. (source: company press release or website)

Why We Like It:
We noticed a lot of bullish candidates in the oil services sector. Our biggest concern with the group is that crude oil looks like it might be short-term overbought and poised to move lower, especially as the current contract expires this coming week. However, it doesn't matter if oil is at $95 or $90 it is still record high prices and that is good for business with the service stocks. Our challenge as traders is that the service stocks could still go down if the oil sector retreats on a crude oil pullback. We will try and use a conservative (tight) stop at $87.45 to limit our risk. More conservative traders could also wait for a rally over $92.00 before initiating positions. Our target is the $99.00-100.00 zone. FYI: ATW has a moderate amount of short interest, about 7.4% of the 27.6 million-share float. That is about 4 days worth of short interest.

Suggested Options:
We are suggesting the March or April calls. Remember, 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 85.00 ATW-CQ open interest=297 current ask $8.50
BUY CALL MAR 90.00 ATW-CR open interest=584 current ask $5.50
BUY CALL MAR 95.00 ATW-CS open interest=458 current ask $3.20
BUY CALL MAR 100.0 ATW-CT open interest=285 current ask $1.70

Picked on February 17 at $ 90.37
Change since picked: 0.00
Earnings Date 05/08/08 (unconfirmed)
Average Daily Volume = 654 thousand

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CF Industries - CF - close: 118.17 change: 2.57 stop: 109.49

Company Description:
CF Industries Holdings, Inc., headquartered in Deerfield, Illinois, is the holding company for the operations of CF Industries, Inc. CF Industries, Inc. is a major producer and distributor of nitrogen and phosphate fertilizer products. (source: company press release or website)

Why We Like It:
We have most of the major companies in the fertilizer industry on our play list as bullish candidates but it seems we had forgotten one - CF. Shares of CF out performed its peers on Friday with a 2.2% gain. Volume was a little light but if you own the stock you probably not complaining. Shares are nearing significant resistance at the $120 mark. We are suggesting readers use a trigger at $121.01 to catch the next leg higher. If triggered at $121.01 our target is the $138.00-140.00 zone. The Point & Figure chart is bullish with a $141 target. FYI: The most recent data puts short interest at 6.8% of the 53.4 million-share float. That is only 1.8 days worth of short interest but a breakout higher could certainly spark some short covering. Plus, CF is due to present at the basic materials conference on Feb. 20th.

Note: We have multiple stocks in the same industry listed as bullish candidates. We are suggesting that you do not play all of them. If the group starts to turn lower then most likely they will all turn lower. Limit your exposure.

Suggested Options:
Our suggested trigger is $121.01. If triggered we would use the March or April calls.

BUY CALL MAR 115 CF-CC open interest=597 current ask $10.50
BUY CALL MAR 120 CF-CD open interest=607 current ask $ 7.80
BUY CALL MAR 125 CF-CE open interest=537 current ask $ 5.60
BUY CALL MAR 130 CF-CU open interest=222 current ask $ 3.90

Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked: 0.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 2.8 million

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Nucor - NUE - close: 62.01 change: -0.15 stop: 58.45

Company Description:
Nucor and affiliates are manufacturers of steel products, with operating facilities primarily in the U.S. and Canada. Products produced include: carbon and alloy steel. Nucor is the nation's largest recycler. (source: company press release or website)

Why We Like It:
Many of the steel stocks look attractive as bullish candidates. NUE still has some overhead resistance near $62.50 and $65.00 but the stock has broken its bearish trendline of lower highs (see chart). We are suggesting call positions now but readers could wait for another dip back towards $60.00. Our target is the $68.00-70.00 zone since the $70.00 level is likely to be significant resistance. The P&F chart is bullish with a $76 target.

Suggested Options:
We are suggesting the March or April calls.

BUY CALL MAR 60.00 NUE-CL open interest=3155 current ask $4.50
BUY CALL MAR 65.00 NUE-CM open interest=1846 current ask $2.00

Picked on February 17 at $ 62.01
Change since picked: 0.00
Earnings Date 04/17/08 (unconfirmed)
Average Daily Volume = 5.0 million

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Smith Intl - SII - close: 60.52 change: -0.69 stop: 58.45

Company Description:
Smith International, Inc. is a leading worldwide supplier of premium products and services to the oil and gas exploration and production industry, the petrochemical industry and other industrial markets through its four principal business units M-I SWACO, Smith Technologies, Smith Services and Wilson. (source: company press release or website)

Why We Like It:
SII is another oil services play. Please read our comments in the ATW play tonight regarding our concerns for oil and the oil sector and our risk with the oil service stocks. We are suggesting calls in SII here at current levels near $60.00. Our short-term target is the $64.25-65.00 range. The $65.00 level is probably short-term resistance and the descending 50-dma might give us trouble (currently 65.15). The P&F chart for SII is very bullish with a $77 target.

Suggested Options:
We are suggesting the March or April calls.

BUY CALL MAR 55.00 SIK-CK open interest= 291 current ask $6.80
BUY CALL MAR 57.50 SIK-CY open interest= 698 current ask $5.00
BUY CALL MAR 60.00 SIK-CL open interest=4002 current ask $3.50
BUY CALL MAR 62.50 SIK-CZ open interest= 458 current ask $2.25
BUY CALL MAR 65.00 SIK-CM open interest=1402 current ask $1.40

Picked on February 17 at $ 60.52
Change since picked: 0.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 3.5 million

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Yahoo! Inc. - YHOO - close: 29.66 change: -0.32 stop: n/a

Company Description:
Founded in 1994 by Stanford Ph.D. students David Filo and Jerry Yang, Yahoo! began as a hobby and has evolved into a leading global brand that has changed the way people communicate with each other, conduct transactions and access, share, and create information. (source: company press release or website)

Why We Like It:
If you haven't heard Microsoft (MSFT) has made a hostile bid to buy Yahoo! (YHOO) for about $31 a share. The stock is trading under $31.00 a share for a couple of reasons. First is that there are those on Wall Street who think the deal won't get past an anti-trust review. Second, there could be significant hurdles to actually merging the two companies with so much duplication. Third, there are a lot of Yahoo employees that strongly dislike MSFT and will do anything to not sell (or work) for MSFT. CEO and co-founder Jerry Yang is one such person and he is desperately seeking an alternative to MSFT's hostile bid. Other members of YHOO's board are worried that he may not be holding up his fiduciary responsibility to shareholders. So why are we suggesting calls on YHOO? Because odds are still greater that MSFT will make a higher bid for the company. Many are speculating that it will be in the $33-34-35 range. We considered making this a covered call play where we buy YHOO and sell the $30 or $32.50 calls since this ordeal could take months. However, if and when MSFT does raise its bid it will surely seal YHOO's fate and the stock should react positively. Obviously, this play is not without risk. MSFT could walk away or YHOO could do something silly that would poison the deal (and probably launch a hundred different shareholder lawsuits). If something occurs and it looks like a MSFT-YHOO merger doesn't happen then the stock and these options will evaporate faster than we can click our mouse button. We're electing to not use a stop loss. This is truly a speculative play.

Suggested Options:
You could choose the March, April, or July options but we suspect any new bid will occur in the next 30 days so we're using the March calls. Take your pick.

BUY CALL MAR 30.00 YHQ-CF open interest=103675 current ask $1.43
BUY CALL MAR 32.50 YHQ-CZ open interest= 86708 current ask $0.51

Picked on February 17 at $ 29.66
Change since picked: 0.00
Earnings Date 04/17/08 (unconfirmed)
Average Daily Volume = 54 million
 

New Puts

Devon Energy - DVN - close: 93.20 chg: -0.47 stop: 95.15

Company Description:
Devon Energy Corporation is an Oklahoma City-based independent energy company engaged in oil and gas exploration and production. Devon is the largest U.S.-based independent oil and gas producer. (source: company press release or website)

Why We Like It:
While DVN deals in both oil and gas we see it more as a natural gas play. The stock has rallied right to resistance near $95.00. At the same time both crude oil and natural gas look short-term overbought and due for a correction. Thus this looks like a decent spot to buy some puts on DVN with a stop just above resistance. We are suggesting puts now or on another failed rally near $95.00. Our target is the $87.50-87.00 zone.

Suggested Options:
We are suggesting the March puts.

BUY PUT MAR 95.00 DVN-OS open interest= 483 current ask $4.90
BUY PUT MAR 90.00 DVN-OR open interest=1890 current ask $2.55

Picked on February 17 at $ 93.20
Change since picked: 0.00
Earnings Date 05/01/08 (unconfirmed)
Average Daily Volume = 3.5 million

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Legacy Vulcan - VMC - cls: 66.64 chg: -0.40 stop: 70.86

Company Description:
Vulcan Materials Company, a member of the S&P 500 index, is the nation's foremost producer of construction aggregates and a major producer of other construction materials. (source: company press release or website)

Why We Like It:
As a major provider of construction materials VMC is probably suffering due to the housing slump in the U.S. The most recent earnings report (last week) didn't seem that bad but the stock sold off anyway. The trend is lower. Shares just produced a failed rally near $70.00. This looks like a spot to capture a drop back toward the January lows. Our target is the $60.50-60.00 zone. The stop loss is a little bit wider than we would like but VMC can see some big $3-$4 swings intraday so readers should consider this an aggressive, higher-risk play.

Suggested Options:
We are suggesting the March puts.

BUY PUT MAR 70.00 VMC-ON open interest=316 current ask $5.90
BUY PUT MAR 65.00 VMC-OM open interest=378 current ask $3.20
BUY PUT MAR 60.00 VMC-OL open interest=436 current ask $1.50

Picked on February 17 at $ 66.64
Change since picked: 0.00
Earnings Date 04/30/08 (unconfirmed)
Average Daily Volume = 2.1 million
 

New Strangles

CROCS Inc. - CROX - close: 33.43 chg: 0.43 stop: n/a

Company Description:
Crocs, Inc. is a rapidly growing designer, manufacturer and retailer of footwear for men, women and children under the Crocs brand. (source: company press release or website)

Why We Like It:
There are a lot of expectations riding on CROX's earnings report due out Tuesday, after the closing bell. Wall Street estimates are for a profit of $0.44 a share. We suspect that the stock will see a huge move on the report. Only problem is we don't know which direction so we're suggesting a strangle. We looked at buying the March $30 puts and the March $36 calls but it would cost more than $5.00 thus CROX would have to move $7 or $8 and we might breakeven. We picked wider options but that makes it more risky as well. Part of the risk is that $40 looks like overhead resistance and $25 is support so CROX could just bounce around this area and our strangle would eventually wither and die.

Suggested Options:
A strangle involves buying both an out of the money call and an out of the money put. Our estimated cost on this strangle is $2.50. We want to sell if either option hits $4.25 or higher.

BUY CALL MAR 40.00 CQJ-CH open interest=13692 current ask $1.60
-and-
BUY PUT MAR 25.00 CQJ-OE open interest= 4839 current ask $0.90

Picked on February 17 at $ 33.43
Change since picked: 0.00
Earnings Date 02/19/08 (confirmed)
Average Daily Volume = 5.2 million
 

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