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New Option Plays

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Strangle Options Plays
GS None None
RIMM    

Play Editor's Note: I haven't had the chance to read tonight's wrap so hopefully I'm not contradicting anyone. I've been warning readers for a few days now that I've been worried we were near a market bottom. I was looking for a capitulation event, which we have still not seen. Today's news from the Federal Reserve was a surprise. Does it count as a short-term bottom? Maybe. There were a lot of bullish engulfing candlestick patterns produced today. These are usually one-day bullish reversal signals. However, they normally need to see some confirmation. Essentially, one big up day does not represent a new trend but it definitely puts traders on notice that the trend "could" be changing. I know that a few market pundits believe this new tool by the fed is a potential sea change for the financials. I am not 100% convinced this news will lift us out of the bear market but it could definitely spark a multi-day and maybe a multi-week rally. No one knows yet. Again, I don't want to say anything that conflicts with tonight's wrap but I would watch the 12,500 level or the 50-dma on the DJIA and the 50-dma on the S&P 500. A failed rally under these levels would look like a new entry point for bearish positions. A breakout over these levels would look like a potential change to a new bullish trend. Now the challenge for traders, especially if you have bearish positions is this - do you tighten your stops significantly to cut your losses if the rally continues tomorrow? Or do you keep a wide, aggressive, higher-risk stop loss strategy and try to weather the rebound with the expectation it is just temporary short covering. The answer depends on you! What is your trading strategy, style and risk tolerance.


New Calls

Goldman Sachs - GS - close: 163.07 chg: +7.49 stop: 154.99

Company Description:
Goldman Sachs is a leading global investment banking, securities and investment management firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. (source: company press release or website)

Why We Like It:
Jim and I were talking about GS as a potential play this past weekend as the stock neared its August 2007 lows around $157. GS actually hit $155.23 yesterday. The action now, over the last few days, is starting to look like a short-term bottom. If the financials continue to rally then GS could really ramp up into its earnings report. This is going to be a short-term play. GS is due to report earnings on Tuesday, March 18th before the opening bell. We do not want to hold over earnings. This gives us four days. We are suggesting call positions now or on a dip near $160. Our short-term target is the $178.00-180.00 zone.

FYI: If you're bullish on GS, an alternative strategy could be to sell deep, in-the-money naked puts. Example: You could sell the April 180 put (GPY-PP) currently going for $20.70. Buy it back as GS trades into the $175-180 zone. You'll capture a bigger dollar-for-dollar move. You still need a stop loss. If GS turns lower, pick a spot where you buy the put back. Do NOT hold over earnings.

Suggested Options:
Aggressive and more nimble traders could trade March calls that expire after March 21st (which happens to be a holiday). We are suggesting the April calls.

BUY CALL APR 160 GPY-DL open interest=2126 current ask $12.70
BUY CALL APR 165 GPY-DM open interest=2076 current ask $10.00
BUY CALL APR 170 GPY-DN open interest=4142 current ask $ 7.70
BUY CALL APR 175 GPY-DO open interest=4807 current ask $ 5.80

Picked on March 11 at $163.07
Change since picked: + 0.00
Earnings Date 03/18/08 (confirmed)
Average Daily Volume = 12.5 million

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Research In Motion - RIMM - cls: 100.74 chg: +7.15 stop: 94.49

Company Description:
Research In Motion (RIM) is a leading designer, manufacturer and marketer of innovative wireless solutions for the worldwide mobile communications market. (source: company press release or website)

Why We Like It:
We hate chasing a big move in RIMM like today's 7.3% gain but if this market rebound has any legs at all RIMM could be over $110 in a few days. Today's big bounce poses another challenge with stop loss placement. We are going with a wide, aggressive stop under today's low. More conservative traders may want to stick their stop closer to $97.00 or $97.50. Our short-term target is the $110.00-112.00 zone.

Suggested Options:
Aggressive and more nimble traders could trade March calls that expire after March 21st (which happens to be a holiday). We are suggesting the April calls. Note: normally an April $105 call would end in -DA. The CBOE is listing it as -DL. Check with your broker.

BUY CALL APR 100 RUL-DT open interest=3985 current ask $8.70
BUY CALL APR 105 RUL-DL open interest=3709 current ask $6.40
BUY CALL APR 110 RUL-DB open interest=2550 current ask $4.55

Picked on March 11 at $100.74
Change since picked: + 0.00
Earnings Date 04/02/08 (confirmed)
Average Daily Volume = 25 million
 

New Puts

None today.
 

New Strangles

None today.
 

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