New Plays, Tuesday, 05/20/2008
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Call Options Plays
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Play Editor's Note: Nimble and aggressive traders may want
to look at a few of the coal stocks as potential bullish candidates. I think
many of them look overbought and due for a correction but ACI is just now
breaking out from its recent consolidation. I had the entire call play for ACI
already written up but chose not to add it. Coal stocks are rising, in part,
because of the rally in crude oil. Just look at the chart for crude and a chart
of ACI. There is a very close correlation in
movement between the two. If we
think crude oil is about to see a sell-off then coal stocks will likely see
profit taking as well. Conversely, if you think oil will keep going higher from
here then ACI may very well be a great candidate for you.
If you are looking for a bearish play, consider buying puts on the XLF financial
ETF. The XLF broke down from its two-week consolidation and under technical
support at its 50-dma today.
IHOP Corp. - IHP - close: 51.28 change: +0.98 stop: 49.49
Based in Glendale, California, IHOP Corp. franchises and operates restaurants
under the International House of Pancakes, or IHOP, and the Applebee's
Neighborhood Grill & Bar brands. With more than 3,300 restaurants combined, IHOP
Corp. is the largest full-service restaurant company in the world. (source:
company press release or website)
Why We Like It:
Shares of IHP look like they are nearing the end of a five-month consolidation.
The prevailing pattern of higher lows suggests the stock is going to breakout
higher. It doesn't have to but that's what we're going to focus on. IHP briefly
traded above technical resistance at its 200-dma today before paring its gains.
If IHP can rally to a new relative high it could spur some real buying and short
covering. Our suggested entry point to buy calls is at $53.75. If triggered our
is the $59.50-60.00 zone. The P&F chart is bullish with a $68 target.
FYI: The most recent data listed short interest at more than 26% of the very
small 14.8 million-share float. That's about two weeks worth of short interest
so if IHP breaks out it could see a huge squeeze.
Note: we have to label this a more aggressive play because the option spreads
are so wide.
Our suggested entry point to buy calls is $53.75. We are suggesting the June
BUY CALL JUN 50.00 IHP-FJ open interest=2147 current ask $3.50
BUY CALL JUN 55.00 IHP-FK open interest=1623 current ask $1.40
BUY CALL JUN 60.00 IHP-FL open interest= 530 current ask $0.60
Picked on May xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/27/08 (unconfirmed)
Average Daily Volume = 326 thousand