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New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
CEPH AAPL KLAC
DIA   USO
SPY    

Play Editor's Note: It is really looking ugly out there. Fortunately, we know that stocks don't normally move in a straight line for very long so we should see an oversold bounce soon. Even bear markets have their rallies. The idea here is to try and buy the dip on any follow though from Friday's sell-off. Friday's session was ugly and as the mom-and-pop investor crowd read their newspapers this weekend there could be another spike lower on Monday morning as they hit the "sell" button. We're expecting the Dow Jones Industrials to bounce from the March lows and that could carry the rest of the market higher even if it's temporary. The really sad news this evening is that we didn't find many candidates that looked good enough that we wanted to buy the dip.


New Calls

Cephalon - CEPH - close: 71.14 change: +0.44 stop: 67.95

Company Description:
Founded in 1987, Cephalon, Inc. is an international biopharmaceutical company dedicated to the discovery, development and commercialization of innovative products in four core therapeutic areas: central nervous system, pain, oncology and addiction. (source: company press release or website)

Why We Like It:
CEPH displayed relative strength last week with a breakout over resistance at the $70.00 level. Even the market's sell-off to new relative lows did not slow the buying pressure in CEPH. We don't want to chase last week's highs. Instead we're suggesting readers buy a dip into the $69.50-69.00 zone. If triggered our target is the $74.00-75.00 range. We do not want to hold over the late July earnings report. FYI: The P&F chart is bullish with an $83 target. The most recent data listed short interest at 18.6% of the 66.2 million-share float. That is a relatively high amount of short interest and raises the risk of a short squeeze, which would obviously be good for the bulls.

Suggested Options:
We are suggesting the July or August calls. It is up to the individual trader to decide which month and which strike price best suits your trading style and risk.

BUY CALL JUL 70.00 CQE-GN open interest=2511 current ask $2.80
BUY CALL JUL 75.00 CQE-GO open interest=1263 current ask $0.70

BUY CALL AUG 70.00 CQE-HN open interest=13347 current ask $4.10
BUY CALL AUG 75.00 CQE-HO open interest= 2786 current ask $1.80

Picked on June xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 07/29/08 (unconfirmed)
Average Daily Volume = 1.4 million

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DIAMONDS - DIA - close: 118.24 chg: -2.12 stop: 116.99

Company Description:
The DIAMONDS Trust Series 1 is an exchange traded fund that mimics the performance in the Dow Jones Industrial Average.

Why We Like It:
We suspect that the Dow Jones Industrial Average (DJIA) will bounce near its March lows. It will probably be a temporary bear-market rally but we want to try and capture a chunk of any rebound. We're suggesting readers buy calls on the DIA in the $117.75-117.45 zone with a stop loss at $116.99. If triggered our target is the $121.50-122.00 zone.

Suggested Options:
We are suggesting the July calls. Strikes are available at $1.00 increments. Our suggested entry point is $117.75.

BUY CALL JUL 117.00 DIA-GM open interest= 536 current ask $3.70
BUY CALL JUL 119.00 DAW-GO open interest= 647 current ask $2.46
BUY CALL JUL 121.00 DAW-GQ open interest=3282 current ask $1.50

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume: 13.1 million

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SPDRs - SPY - close: 131.58 chg: -2.17 stop: 129.19

Company Description:
The SPDR Trust Series 1 is an exchange traded fund that mimics the performance of the S&P 500 index.

Why We Like It:
This trade in the SPY is the same strategy as the DIA it's just focused on the S&P 500. We're looking for a dip toward the $130 level early this week at which point the S&P should see an oversold bounce. Our suggested entry point is the $130.50-130.00 zone. We'll use a stop loss at $129.19. More conservative traders may want to use a tighter stop closer to $130.00. If triggered our target is the $134.00-134.50 zone.

Suggested Options:
We are suggesting the July calls. Strikes are available at $1.00 increments. Our suggested entry point is $130.50.

BUY CALL JUL 130.00 SFB-GZ open interest=9317 current ask $4.30
BUY CALL JUL 132.00 SFB-GB open interest=5672 current ask $3.10
BUY CALL JUL 134.00 SFB-GD open interest=16554 current ask $2.06

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume: 200 million
 

New Puts

Apple Inc. - AAPL - close: 175.27 chg: -5.63 stop: 182.55

Company Description:
Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market with its revolutionary iPhone. (source: company press release or website)

Why We Like It:
Unless you have nerves of steel and quick fingers don't even look at this one. We're expecting the market to produce an oversold bounce when the DJIA tests the March lows. This is a play betting that AAPL is going to under perform the market this week. Just about everything about this stock is screaming "look out below". Technicals are bearish. The stock has a pattern of lower highs now. There was a bearish double top last week. The P&F chart is bearish with a $150 target. We have to label this a very aggressive play. The stock price can be volatile and the options aren't cheap and we are using a fairly wide stop compared to our target. We're suggesting a stop loss above last week's highs. We're aiming for $166.00. More aggressive traders could aim for the 200-dma near $162.00. If AAPL were to test $160 we'd expect a bounce and consider buying calls for a short-term rebound.

Suggested Options:
Remember, this is a very aggressive play. We're suggesting the July puts.

BUY PUT JUL 175.00 APV-SO open interest=13686 current ask $8.30
BUY PUT JUL 170.00 APV_SN open interest=26483 current ask $6.50
BUY PUT JUL 165.00 APV_SM open interest=13427 current ask $4.30

Picked on June 22 at $175.27
Change since picked: + 0.00
Earnings Date 07/27/08 (unconfirmed)
Average Daily Volume = 34.2 million
 

New Strangles

KLA-Tencor - KLAC - close: 40.07 chg: -1.19 stop:

Company Description:
KLA-Tencor is the world leader in yield management and process control solutions for semiconductor manufacturing and related industries. (source: company press release or website)

Why We Like It:
KLAC has pulled back to support near $40.00 and is now poised to rebound back toward $45.00 or plunge toward $35.00. We don't know what direction it's going to move so we're suggesting a strangle. We would open positions in the $40.50-39.50 zone. The closer to $40.00 the better.

Suggested Options:
A strangle involves buying both an out of the money call and an out of the money put. We don't care what direction the stock goes as long as it moves one direction. If it moves far enough one side of our trade will rise enough to pay for the entire trade and make a profit.

We are suggesting two different strangles. The strangle with the wider strikes costs less but has higher risk.

KLAC Strangle #1
$42.50-37.50 strangle: Our estimated cost is $1.65 We want to sell if either option hits $3.00.

BUY CALL JUL 42.50 KCQ-GV open interest=1682 current ask $0.85
-and-
BUY PUT JUL 37.50 KCQ-SU open interest= 598 current ask $0.80

KLAC Strangle #2
$45.00-35.00 strangle: Our estimated cost is $0.70. We want to sell if either option hits $1.50.

BUY CALL JUL 45.00 KCQ-GI open interest=2091 current ask $0.35
-and-
BUY PUT JUL 35.00 KCQ-SG open interest= 326 current ask $0.35

Picked on June 22 at $ 40.07
Change since picked: + 0.00
Earnings Date 07/24/08 (unconfirmed)
Average Daily Volume = 3.7 million

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United States Oil - USO - cls: 109.14 chg: +2.23 stop: n/a

Company Description:
The United States Oil Fund (USO) is an exchange traded fund that mimics the spot price performance of West Texas Intermediate (WTI) light, sweet crude oil.

Why We Like It:
The USO oil etf has been trading sideways for more than two weeks. It conveniently closed near the $110 strike price allowing us a chance to launch some strangles in what will probably be another very volatile month of trading. Hopefully the USO doesn't gap open to much on Monday morning following this Sunday's meeting with the Saudis regarding oil availability. We are suggesting readers open positions in the $109.00-111.00 zone and the closer to $110.00 the better!

Suggested Options:
A strangle involves buying both an out of the money call and an out of the money put. We don't care what direction the stock goes as long as it moves one direction. If it moves far enough one side of our trade will rise enough to pay for the entire trade and make a profit.

We are suggesting two different strangles. The strangle with the wider strikes costs less but has higher risk.

USO Strangle #1
$115-105 strangle: Our estimated cost is $7.10 We want to sell if either option hits $9.75.

BUY CALL JUL 115 IYS_GK open interest=3066 current ask $3.30
-and-
BUY PUT JUL 105 IYS-SA open interest=6337 current ask $3.80

USO Strangle #2
$120-100 strangle: Our estimated cost is $4.10. We want to sell if either option hits $6.50.

BUY CALL JUL 120 QSO-GP open interest=9590 current ask $1.95
-and-
BUY PUT JUL 100 IYS-SV open interest=16561 current ask $2.15

Picked on June 22 at $109.14
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 12.5 million
 

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