Option Investor
New Plays

New Option Plays

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MTL None None

Play Editor's note: This past week's failure in the major market indices does not bode well for the summer. I suspect we will see a bounce soon but it may end up being a new entry point to establish bearish positions. I haven't had the chance to read this week's market commentary so I don't know how my own hypothesis lines up with this weekend's wrap. FYI: A few stocks that I am watching as potential put candidates on a bounce are ISRG, FDX and UTX. I also think that MT might be a strangle candidate right here near $100. Another candidate readers might want to consider is buying calls on the VIX. Yup, the Volatility index. A dip near 18.00 or a breakout over 20.00 could be used as a new entry point to buy calls. Target 22.50-24.00.


New Calls

Mechel OAO - MTL - close: 49.19 change: -1.91 stop: 47.69

Company Description:
Mechel is one of the leading Russian companies. Its business includes three segments: mining, steel, and power. Mechel unites producers of coal, iron ore concentrate, nickel, steel, rolled products, hardware, heat and electric power. Mechel products are marketed domestically and internationally. (source: company press release or website)

Why We Like It:
MTL has seen a very painful sell-off in the last few days but the long-term trend is still bullish and traders bought the dip near its trendline of support on Friday. We are suggesting readers buy the dip with a tight stop loss under Friday's lows. We do admit this is an aggressive play. We are essentially trying to call a bottom on last week's sell-off and we're buying the stock after it has produced a bearish engulfing candlestick (reversal) pattern on its weekly chart. Our short-term target is the $54.00-55.00 zone. Note: The gap some of you might see on May 20th was due to a ratio change in the number of shares each U.S. traded ADR of MTL is worth.

Suggested Options:
We are suggesting the June or July calls.

BUY CALL JUN 50.00 MTL-FJ open interest=600 current ask $2.70
BUY CALL JUN 55.00 MTL-FK open interest=230 current ask $1.15

BUY CALL JUL 50.00 MTL-GJ open interest= 28 current ask $4.60
BUY CALL JUL 55.00 MTL-GK open interest=195 current ask $2.70

Picked on May 25 at $ 49.19
Change since picked: + 0.00
Earnings Date 06/23/08 (unconfirmed)
Average Daily Volume = 1.4 million
 

New Puts

None today.
 

New Strangles

None today.
 

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