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New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
ATK APOL MCD
CHA USO  
LUFK    

New Calls

Alliant Techsystems - ATK - cls: 111.82 chg: +0.59 stop: 109.45

Company Description:
ATK is a premier aerospace and defense company with more than 17,000 employees in 21 states and approximately $4.5 billion in revenue. (source: company press release or website)

Why We Like It:
Last week was bullish for defense stocks as the DFI index broke through its trendline of lower highs. While the group might pause to rest this week the trend is definitely up for the DFI and shares of ATK. Meanwhile ATK broke through resistance near $110 two weeks ago and the stock has spent the last two weeks digesting its gains. A breakout from the current consolidation pattern seems imminent. We are listing two different entry points depending on what happens. If ATK pulls back then we want to buy calls on a dip in the $110.50-110.00 zone. If ATK breaks out then we want to buy calls at $112.80. Our target is the $118.00-120.00 range. The Point & Figure chart is bullish with a $145 target.

Suggested Options:
We have two triggers to open positions in ATK. We're suggesting the June calls, which expire in five weeks.

BUY CALL JUN 110 ATK-FB open interest= 82 current ask $4.30
BUY CALL JUN 115 ATK-FC open interest= 91 current ask $1.60

Picked on May xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 07/31/08 (unconfirmed)
Average Daily Volume = 234 thousand

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China Telecom - CHA - cls: 72.35 chg: +1.29 stop: 69.49

Company Description:
China Telecommunications Corporation (China Telecom) is an extra-large state-owned telecom operator organized according to China's telecom industry reform scheme. As a principal telecom enterprise and the greatest basic telecom operator of China, China Telecom owns the global largest fixed-line telephone network that covers the cities and towns as well as the rural areas of China and penetrates to every corner of the world. (source: company press release or website)

Why We Like It:
There have been some analyst comments on CHA suggesting that the company could be hurt by the massive earthquake in China. Yet there has been almost no weakness in the stock price all week. Shares consolidated sideways and investors bought the dip on Thursday at $69.50. Friday's rally was a bullish breakout over resistance near $72.00 and its 100-dma. We are suggesting calls on the move over $72.00 but we're listing the stop under Thursday's low. Our target is the $78.50-80.00 zone. The P&F chart is bullish with a $91 target.

Suggested Options:
We are suggesting the June calls.

BUY CALL JUN 70.00 CHA-FN open interest=1215 current ask $5.70
BUY CALL JUN 75.00 CHA-FO open interest= 365 current ask $2.95

Picked on May 18 at $ 72.35
Change since picked: + 0.00
Earnings Date 08/18/08 (unconfirmed)
Average Daily Volume = 404 thousand

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Lufkin Industries - LUFK - cls: 80.59 chg: +1.42 stop: 77.85

Company Description:
Lufkin Industries, Inc. sells and services oil field pumping units, foundry castings and power transmission products throughout the world. The Company has vertically integrated all vital technologies required to design, manufacture and market its products. (source: company press release or website)

Why We Like It:
I am actually growing more cautious on the oil service stocks and think they might be nearing a short-term top - at least for a few days. Yet the chart for LUFK is screaming buy the bounce. The stock surged back in April on some better than expected earnings news and raised guidance. LUFK spent the next four-weeks consolidating those gains. Shares broke out again Tuesday last week. When the stock pull back to broken resistance near $78.00 bulls didn't hesitate to buy it. I'm suggesting a tight stop under Friday's low. I expect Monday to be up. It's Tuesday and beyond that concerns me but LUFK resisted any serious profit taking the last time crude oil prices swooned. Short-term target is $84.75-85.00. The P&F chart is bullish with an $87 target.

Suggested Options:
We're suggesting the June calls.

BUY CALL JUN 80.00 UFR-FP open interest=559 current ask $4.00
BUY CALL JUN 85.00 UFR-FQ open interest= 83 current ask $1.80

Picked on May 18 at $ 80.59
Change since picked: + 0.00
Earnings Date 07/17/08 (unconfirmed)
Average Daily Volume = 209 thousand
 

New Puts

Apollo Group - APOL - close: 46.71 chg: -2.02 stop: 50.05

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:
The trend in APOL is down and the recent failed rally at $50.00 looks like a new entry point for puts. The stock crashed in late March after reporting an earnings miss. Shares rallied back just enough to "fill the gap" and then rolled over again. We are suggesting puts at current levels or on another failed rally under $50.00. Our target is the $40.50-40.00 zone.

Suggested Options:
We're suggesting the June puts.

BUY PUT JUN 50.00 OAQ-RJ open interest=926 current ask $4.70
BUY PUT JUN 45.00 OAQ-RI open interest=751 current ask $1.90
BUY PUT JUN 40.00 OAQ-RH open interest=706 current ask $0.65

Picked on May 18 at $ 46.71
Change since picked: + 0.00
Earnings Date 06/26/08 (unconfirmed)
Average Daily Volume = 5.4 million

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United States Oil Fund - USO - close: 102.27 chg: +2.06 stop: *

Company Description:
The United States Oil or USO is an exchange traded fund that tries to mimic the spot-price trading in West Texas Intermediate (WTI) light, sweet crude oil.

Why We Like It:
Calling tops is usually dangerous to your trading account so consider this a very speculative play. Here's the plan. We suspect that oil could be due for another short-term sell-off. The last couple of months when the oil futures expire there has been a multi-point dip. This week oil futures expire on Monday night. We remain long-term bullish on oil but we'd like to capture the short-term moves. Our plan here is to buy puts right at Monday's closing bell. Thus we don't know what our entry price is going to be yet and we'll set our stop loss in Monday night's newsletter. Our short-term target is $96.50.

Suggested Options:
We are suggesting the June puts. Strikes are available at $1.00 increments.

BUY PUT JUN 103 IYS-RY open interest= 603 current ask $5.60
BUY PUT JUN 100 IYS-RV open interest=5710 current ask $4.10
BUY PUT JUN 96 IYS-RR open interest=3915 current ask $2.55

Picked on May xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 7.8 million
 

New Strangles

McDonald's - MCD - close: 60.53 chg: -0.33 stop: n/a

Company Description:
McDonald's is the leading global foodservice retailer with more than 31,000 local restaurants in more than 100 countries. More than 75% of McDonald's restaurants worldwide are owned and operated by franchisees and affiliates. (source: company press release or website)

Why We Like It:
After three weeks of trading sideways we think MCD is at a crossroads. Thus we are going to try and capture the next move with a strangle. There is potential support at $57.00 and potential resistance near $63.00. By playing the options in this strangle we should still be able to make a profit if MCD moves quickly to either edge of this range. If MCD breaks through the range then let it ride. We are suggesting the June options so we have five weeks left.

Suggested Options:
A strangle involves buying both an out of the money call and an out of the money put. You want to try and keep your capital investment relatively balanced on both side of the trade to keep the strategy neutral. Our estimated cost for this set up is about $1.10. We want to sell if either option hits $1.65 or higher.

BUY CALL JUN 62.50 MCD-FZ open interest=10026 current ask $0.55
-and-
BUY PUT JUN 57.50 MCD-RY open interest= 7137 current ask $0.55

Picked on May 18 at $ 60.53
Change since picked: + 0.00
Earnings Date 07/24/08 (unconfirmed)
Average Daily Volume = 7.5 million
 

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