Option Investor
New Plays

New Option Plays

HAVING TROUBLE PRINTING?
Printer friendly version
Call Options Plays
Put Options Plays
Strangle Options Plays
ASH None GS
CNX    
HOV    
LECO    
USO    

Play Editor's Note: There was no shortage of bullish candidates to choose from. A few more stocks we're following are: MOS might be a good bullish candidate if we can catch a dip near $110. SGR would also be tempting as a bullish candidate on a dip near $53. Both PCU and FCX have rallied to resistance and both appear to have inverse head-and-shoulders patterns, which are bullish. A move over $120 for PCU and $110 for FCX would break the neckline of these H&S patterns but I'd prefer to wait and watch for a pull back instead of trying to chase them.


New Calls

Ashland Inc. - ASH - close: 51.25 change: +1.97 stop: 46.99

Company Description:
Ashland Inc., a diversified, global chemical company, provides quality products, services and solutions to customers in more than 100 countries. A FORTUNE 500 company, it operates through four divisions: Ashland Performance Materials, Ashland Distribution, Valvoline and Ashland Water Technologies. (source: company press release or website)

Why We Like It:
Shares of ASH have spent more than four months building a base and the stock just broke out over resistance near $50.00 on Friday. Volume has been surging on the recent rally, which is normally a bullish sign. The P&F chart is bullish and points to a $57 target. We are suggesting call positions now although in reality a better entry point would be on a dip near the $50 level again. We're suggesting a stop loss at $46.99 but you may want to use a stop closer to $48. There is potential resistance at its 200-dma in the $54-55 zone. Our target is the $57.00-58.00 range. We do not want to hold over the late April earnings report.

Suggested Options:
We are suggesting the May calls.

BUY CALL MAY 50.00 ASH-EJ open interest= 58 current ask $3.20
BUY CALL MAY 55.00 ASH-EK open interest= 30 current ask $1.00

Picked on April 06 at $ 51.25
Change since picked: + 0.00
Earnings Date 04/23/08 (unconfirmed)
Average Daily Volume = 774 thousand

---

CONSOL Energy - CNX - cls: 76.11 chg: +3.45 stop: 69.49

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:
News that Massey Energy had raised their price estimates on coal due to rising demand sparked a huge rally in the industry. Shares of CNX rose 4.7% and broke through its 50-dma. Volume soared on the rally. While the recent strength in CNX is bullish we don't want to chase it here. Instead we are suggesting readers buy a dip in the $73.50-72.00 zone. The closer to $72.50 the better but our official entry point for the newsletter is going to be $73.50. The Point & Figure chart is very bullish with a $95 target. We are listing two targets. Our first target is the $79.75-80.00 range. Our second target is the $84.00-85.00 zone. More aggressive traders might want to aim for $90. Remember, we do not want to hold over the late April earnings report.

Suggested Options:
Our suggested entry point is the $73.50-72.00 range. We're suggesting the May calls.

BUY CALL MAY 70.00 CNX-EN open interest=228 current ask $9.60
BUY CALL MAY 75.00 CNX-EO open interest=554 current ask $6.70
BUY CALL MAY 80.00 CNX-EP open interest=419 current ask $4.50

Picked on April xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 3.7 million

---

Hovnanian - HOV - close: 12.33 chg: -0.08 stop: *varies*

Company Description:
Hovnanian Enterprises, Inc., founded in 1959 by Kevork S. Hovnanian, Chairman, is headquartered in Red Bank, New Jersey. The Company is one of the nation's largest homebuilders. (source: company press release or website)

Why We Like It:
The homebuilders had an exceptional week and we think there is still more room to run. The HGX homebuilding index is poised for a major breakout over resistance. Meanwhile HOV has already broken through technical resistance at its 200-dma and is set to rally past resistance near $12.50-13.00. This should be considered a higher-risk, more aggressive play since the homebuilding stocks have become more volatile and we are playing with a relatively wide stop loss. So why do we like HOV out of all the homebuilders? Probably because HOV looks like the biggest short squeeze candidate. The most recent data listed short interest at more than 74% of the 37.8 million-share float. That is a huge amount of short interest. Granted a lot of shorts could have covered since this short interest reading in March but HOV remains poised for another short squeeze. We are listing two potential entry points and stops for each entry. If HOV rallies from here we're suggesting readers buy calls at $13.25 with a wide stop loss at $10.99. If HOV pulls back from here then we suggest readers buy calls in the $10.50-10.00 zone with a stop loss at $9.49. If triggered at $13.25 our first target is the $16.90-17.00 range. Our second target is $19.85-20.00. If triggered near $10 our first target is $14.50-15.00 and our second target would be near $20. Remember, this is an aggressive play. The stocks have seen a lot of whipsaws over the last several weeks.

Suggested Options:
We have two different entry points listed. If triggered we are suggesting the May calls.

BUY CALL MAY 10.00 HOV-EB open interest=5100 current ask $3.10
BUY CALL MAY 12.50 HOV-EV open interest=6499 current ask $1.60
BUY CALL MAY 15.00 HOV-EC open interest=3227 current ask $0.65

Picked on April xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 05/29/08 (unconfirmed)
Average Daily Volume = 4.1 million

---

Lincoln Elec. - LECO - cls: 69.25 chg: +2.20 stop: 66.99

Company Description:
Lincoln Electric is the world leader in the design, development and manufacture of arc welding products, robotic arc-welding systems, plasma and oxyfuel cutting equipment and has a leading global position in the brazing and soldering alloys market. (source: company press release or website)

Why We Like It:
Both short-term and long-term technicals are suggesting that LECO has bottomed and is poised to breakout higher into a new bullish trend. The stock has been consolidating sideways under its 200-dma for more than a month. We want to catch a breakout with a trigger to buy calls at $70.75, which would clear the late February high. An alternative entry we'll be keeping an eye on would be another dip or bounce near the 50-dma near $65. If we are triggered at $70.75 we have two targets. Our first target is the $74.85-75.00 range. Our second target is the $78.00-80.00 zone. The Point & Figure chart is bullish with a $91 target. We do not want to hold over the late April earnings report.

Suggested Options:
If triggered at $70.75 we are suggesting the May calls.

BUY CALL MAY 65.00 HUF-EM open interest= 0 current ask $6.60
BUY CALL MAY 70.00 HUF-EN open interest= 5 current ask $3.70
BUY CALL MAY 75.00 HUF-EO open interest=30 current ask $1.70

Picked on April xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 233 thousand

---

United States Oil - USO - close: 84.88 chg: +1.23 stop: varies

Company Description:
The USO is an exchange traded fund that reflects the price of West Texas Intermediate light, sweet crude oil.

Why We Like It:
I'm not going to get into details on whether or not oil or more specifically the USO should be trading at $85 at this time. Jim discusses oil enough in his wraps. However, that doesn't mean we can't trade the technicals on this commodity. Right now it looks like the USO is setting up for another leg higher. The challenge is picking the entry point. I'm listing two potential entries. If the USO breaks out higher we're suggesting calls at $86.05 and a stop loss at $82.45. If the USO turns lower I'm suggesting calls on a dip into the $80.50-80.00 zone with a stop loss at $79.25. If triggered at $86 our first target is the $92.50 mark and our second target is the $97.50-100.00 zone. If triggered near $80.00 our first target is the $87.50 mark and our second target is the 97.50-100 zone. We'd prefer to buy a dip near $80 but want to be ready if the USO breaks out higher.

Suggested Options:
We are suggesting the May calls. Strikes are available at $1.00 increments.

BUY CALL MAY 80.00 UNA-EB open interest=321 current ask $7.20
BUY CALL MAY 82.00 UNA-ED open interest=135 current ask $5.90
BUY CALL MAY 84.00 UNA-EF open interest=187 current ask $4.80
BUY CALL MAY 86.00 UNA-EH open interest=233 current ask $3.90
BUY CALL MAY 88.00 UNA-EJ open interest=297 current ask $3.10
BUY CALL MAY 90.00 UNA-EL open interest=550 current ask $2.45

Picked on April xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 5.4 million
 

New Puts

None today.
 

New Strangles

Goldman Sachs - GS - cls: 175.40 chg: -1.13 stop: n/a

Company Description:
Goldman Sachs is one of the largest and most respected investment banks and brokerages in the world.

Why We Like It:
Shares of GS are at an important inflection point. The stock has rallied to its long-term five-month trendline of lower highs (resistance). A breakout from here and the stock could soar. However, the trend, in spite of the stock's big bounce from its lows, is still lower. This situation sounds like a good spot for a strangle play. We are suggesting strangles in the $173.50-178.50 zone. If you really wanted to you could widen that to $170-180 but watch your investment and keep it neutral.

Suggested Options:
A strangle involves buying both an out of the money call and an out of the money put. We are suggesting the May options below. Our estimated cost is $8.70. We want to sell if either option trades at $14.50 or higher.

BUY CALL MAY 190 GPY-ER open interest=2083 current ask $4.10
-and-
BUY PUT MAY 160 GPY-QL open interest=1616 current ask $4.60

Picked on April 06 at $175.40
Change since picked: + 0.00
Earnings Date 06/12/08 (unconfirmed)
Average Daily Volume = 14.5 million
 

New Play Archives