Option Investor
New Plays

New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
IR CYT None
  ESRX  
  FDX  
  HOG  
  IYT  
  MMM  
  PX  

** PLEASE READ **

Play Editor's Note: Thursday night I told readers that I was bearish on stocks, thought we were headed lower, but warned we were probably near a short-term bounce. I am repeating that same concern tonight. My concern is that stocks will bounce near the intraday January lows on the DJIA, the S&P 500 and the Russell 2000. Furthermore, Asian markets should sell-off on the U.S. market's weakness from Friday. That will lead European markets lower and we could see another capitulation day on Monday. Yet to really be interpreted as capitulation we need to see a big volume day and see the VIX spike to more than 30, probably somewhere in the 31-36 zone.

If we actually see a big sell-off with the spike in the VIX it will be a buying opportunity. It's probably a short-term buying opportunity but still worth a multi-day rally. That's why I STRONGLY hesitate to list any new bearish plays right here. However, there is no guarantee that we're going to see that washout any time soon and equities could just keep falling. Do we sit on the sidelines and wait for the sell-off that could take days to show up? Or do we trade what the market is providing?

Right now all the market is providing is bearish opportunities, aside from a few exceptions. That can be an alarming observation in an of itself. When everything looks bearish a trader should have caution flags going off in their heads. Basically if everyone is leaning on the same side of the boat it could tip over and rebound. We also have to remember that we are in a bear market. Bear market rallies tend to be fast and sharp and they sucker in another herd of bulls that eventually get slaughtered when the rally runs out of steam and forms a new lower high. We can still trade the rallies but we have to get in knowing we only have a few days before it's time to exit.

We are adding new put plays tonight. However, readers need to decide if A) they're willing to trade in this market, and B) what sort of stop loss strategy are you going to use? You could use a very tight, conservative stop loss strategy so that if we do see a bear market rally we're stopped out quickly. Or you could use a very aggressive, wide stop loss strategy and try to weather any rebound. If you choose not to trade right now then just wait for the bounce and when the rally starts to stall then start picking your bearish entry points.

New Calls

Ingersoll Rand - IR - close: 42.87 change: +0.22 stop: 39.74

Company Description:
Ingersoll Rand is a global diversified industrial firm providing products, services and solutions to transport and protect food and perishables, secure homes and commercial properties, and enhance industrial productivity and efficiency. (source: company press release or website)

Why We Like It:
IR was one of the few stocks we found that looked like a bullish candidate. The relative strength this stock displayed the last couple of weeks is impressive. Shares have built a bullish pattern of higher lows and looks ready to breakout past the $43.50 zone. We are suggesting positions here. However, readers definitely have choices. You could wait for that new relative high over $43.50. Or better yet, look for a dip near $42.00 or $41.00. If the market moves lower on Monday like we believe it will then IR could easily dip towards its 50-dma near 40.65. Buy the dip or wait for the bounce - either should work. There is potential resistance near $45.00 and its 100-dma but our target is the 47.00-47.50 zone.

Suggested Options:
We are suggesting the April calls.

BUY CALL APR 40.00 IR-DH open interest=150 current ask $4.10
BUY CALL APR 42.50 IR-DV open interest=445 current ask $2.45
BUY CALL APR 45.00 IR-DI open interest=720 current ask $1.30

Picked on March 09 at $ 42.87
Change since picked: + 0.00
Earnings Date 04/28/08 (unconfirmed)
Average Daily Volume = 5.5 million
 

New Puts

Cytec Ind. - CYT - close: 54.72 chg: -1.81 stop: 58.15

Company Description:
Cytec Industries Inc. is a global specialty chemicals and materials company focused on developing, manufacturing and selling value-added products. Our products serve a diverse range of end markets including aerospace, adhesives, automotive and industrial coatings, chemical intermediates, inks, mining and plastics. (source: company press release or website)

Why We Like It:
CYT's rally attempt in late February reversed just above $60 and its 100-dma and exponential 200-dma. The move definitely looks like a bull trap. More recently the stock has now broken down through support at the $55.00 level and technical oscillators have turned bearish. The P&F chart is bearish too with a $48 target. We don't have the best risk:reward ratio with our wide stop loss but $58 is the nearest resistance. The $50.00 level looks like nearest support so we are targeting a drop into the $50.25-50.00 zone.

Suggested Options:
We are suggesting the April puts.

BUY PUT APR 55.00 CYT-PK open interest=34 current ask $2.95
BUY PUT APR 50.00 CYT-KJ open interest=10 current ask $1.15

Picked on March 09 at $ 54.72
Change since picked: + 0.00
Earnings Date 04/17/08 (unconfirmed)
Average Daily Volume = 601 million

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Express Scripts - ESRX - cls: 58.51 chg: -1.97 stop: 63.55

Company Description:
Express Scripts, Inc. is one of the largest pharmacy benefit management (PBM) companies in North America, providing PBM services to 55 million patients through facilities in 13 states and Canada. (source: company press release or website)

Why We Like It:
Shares of ESRX have definitely broken their bullish trend from 2007 and there is plenty of room for additional profit taking. The stock has been trying to consolidate sideways the last few weeks but investors kept selling the rallies. Now the stock has broken support near $60.00 and its 200-dma. It looks like it's time for another leg lower. We are listing two targets. Our first, short-term target is the $55.50-55.00 zone. Our second, more aggressive target is the $51.50-50.00 zone. Currently the P&F chart is bearish with a $54 target. FYI: The most recent data listed short interest at 3.8% of the 251 million-share float, which is about 3.4 days worth of short interest.

Suggested Options:
We are suggesting the April puts.

BUY PUT APR 60.00 XTQ-PL open interest=5443 current ask $3.90
BUY PUT APR 55.00 XTQ-PK open interest= 300 current ask $1.70

Picked on March 09 at $ 58.51
Change since picked: + 0.00
Earnings Date 04/23/08 (unconfirmed)
Average Daily Volume = 3.7 million

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FedEx - FDX - close: 86.70 change: -2.05 stop: 90.05

Company Description:
FedEx Corp. provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. (source: company press release or website)

Why We Like It:
The transports look like they are poised to breakdown. Honestly, we're surprised that $105 oil hasn't sparked a sell-off sooner. Shares of FDX have pulled back toward support near $86.00. We are suggesting a trigger to buy puts at $85.95. If triggered our target is the $80.50-80.00 zone. We are playing with a relatively wide (aggressive) stop loss at $90.05. You may want to use a tighter stop. Currently the P&F chart is bearish with an $82 target. FYI: The most recent data lists short interest at 3% of the 289 million-share float.

Suggested Options:
We are suggesting the April puts. Our suggested trigger is $85.95.

BUY PUT APR 90.00 FDX-PR open interest=2739 current ask $5.40
BUY PUT APR 85.00 FDX-PQ open interest=2885 current ask $2.90
BUY PUT APR 80.00 FDX-PP open interest=1645 current ask $1.35

Picked on March xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 03/20/08 (unconfirmed)
Average Daily Volume = 3.1 million

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Harley-Davidson - HOG - close: 35.05 chg: -0.76 stop: 40.26

Company Description:
Harley-Davidson, Inc. is the parent company for the group of companies doing business as Harley-Davidson Motor Company, Buell Motorcycle Company and Harley-Davidson Financial Services, Inc. Harley-Davidson Motor Company, the only major U.S.-based motorcycle manufacturer, produces heavyweight motorcycles and offers a complete line of motorcycle parts, accessories, apparel, and general merchandise. (source: company press release or website)

Why We Like It:
If we are in a consumer-lead recession then HOG should continue to sink to new lows. The stock is already well entrenched in a bearish pattern lower and is clinging desperately to support near $35.00. Our preferred entry point would be a failed rally near $37.00 or even the 50-dma near $40 but that may not happen any time soon. If we see a failed rally readers should jump on it. However, odds look better that HOG is ready to breakdown. We're suggesting a trigger to buy puts at $34.69. This particular play is using a very aggressive (a.k.a. wide) stop loss. If the market does bounce then HOG could easily rebound toward its 50-dma. We're listing our stop at $40.26 to start. That may be too wide for you. Our target is the $30.50-30.00 zone although it wouldn't surprise me to see a drop closer to $25. The P&F chart is bearish with a bearish triangle breakdown sell signal. FYI: The most recent data lists short interest at 9.6% of the 236 million-share float. That is an above average amount of short interest and raises our risk of a short squeeze.

Suggested Options:
We are suggesting the April puts. Our suggested trigger is $34.74.

BUY PUT APR 37.50 HOG-PU open interest= 663 current ask $3.60
BUY PUT APR 35.00 HOG-PG open interest=1277 current ask $2.20
BUY PUT APR 32.50 HOG-PT open interest= 276 current ask $1.20
BUY PUT APR 30.00 HOG-PF open interest= 128 current ask $0.60

Picked on March xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/17/08 (unconfirmed)
Average Daily Volume = 3.1 million

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iShares Transportation - IYT - cls: 80.55 chg: -0.56 stop: 82.55

Company Description:
The IYT is the iShares for the Dow Jones Transportation Average. This is an exchange traded fund (ETF) that mimics the transportationindex.

Why We Like It:
The IYT spend weeks consolidating under resistance near $86.50 and its 200-dma. Now it's beginning to breakdown as it flirts with support near $80.00. Aggressive traders might just want to jump in right now. We want to see a new relative low so we're suggesting a trigger at $79.25 to open positions. If triggered our target is the $75.00-74.00 zone. The IYT might find short-term support near $77.50 but it should only be temporary. The Point & Figure chart is bearish with a catapult breakdown sell signal and a $75 target.

Suggested Options:
We are suggesting the April puts. Our suggested trigger is $79.25.

BUY PUT APR 80.00 IYT-PP open interest=200 current ask $3.50
BUY PUT APR 75.00 IYT-PO open interest= 42 current ask $1.75

Picked on March xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 1.7 million

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3M Co. - MMM - close: 76.51 change: -1.44 stop: 80.25

Company Description:
A recognized leader in research and development, 3M produces thousands of innovative products for dozens of diverse markets. 3Ms core strength is applying its more than 40 distinct technology platforms often in combination to a wide array of customer needs. With $24 billion in sales, 3M employs 75,000 people worldwide and has operations in more than 60 countries. (source: company press release or website)

Why We Like It:
MMM will probably be another casualty of the consumer-lead recession. The stock is already in a bearish channel. Now after a month of consolidating sideways the stock is moving lower after producing a failed rally near $80.00 and its 50-dma. We are setting two targets. The first target is the $72.25 level, just above the January 2008 lows. Our second target is the $68.00 level, which should be closer to the bottom edge of MMM's bearish channel. The P&F chart is currently bearish with a $62 target. FYI: The most recent data lists short interest at just 1.5% of the 707 million-share float.

Suggested Options:
We are suggesting the April puts.

BUY PUT APR 80.00 MMM-PP open interest=8513 current ask $4.60
BUY PUT APR 75.00 MMM-PO open interest=9444 current ask $1.80
BUY PUT APR 70.00 MMM-PN open interest=5470 current ask $0.70

Picked on March 09 at $ 76.51
Change since picked: + 0.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 4.3 million

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Praxair Inc. - PX - close: 79.10 chg: -3.54 stop: 81.05

Company Description:
Praxair is the largest industrial gases company in North and South America, and one of the largest worldwide, with 2007 sales of $9.4 billion. (source: company press release or website)

Why We Like It:
After weeks of consolidating sideways it looks like PX is about to breakdown under support at $78.00. Shares have already produced a failed rally under its 50-dmaand closed under its simple 200-dma. We want to see a little more follow through so we're suggesting a trigger to buy puts at $77.90. If triggered our target is the $73.00-72.50 zone. More aggressive traders could aim for $70.00 near its January lows. The P&F chart is bearish with a $73 target. FYI: The most recent data lists short interest at just 1% of the 312 million-share float.

Suggested Options:
We are suggesting the April puts. Our suggested trigger is at $77.90.

BUY PUT APR 80.00 PX-PP open interest=1762 current ask $4.40
BUY PUT APR 75.00 PX-PO open interest=1066 current ask $2.30

Picked on March xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 2.4 million
 

New Strangles

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