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New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
None None FWLT
    SBUX
    UYG

Play Editor's Note: There has been a lot of talk of a potential bottom. Volume is surging on the declines. Volatility is spiking. New lows are hitting extreme levels. Yet this doesn't appear to be a true capitulation. A lot of people want to call a bottom and that is actually bearish. We don't want to add new bearish plays when the market is so oversold and due for a bounce. Of course the other side of that coin is the old market maxim, "the trend is your friend". There is going to be a lot of investors looking for the bounce as a new entry point for shorts. Don't expect any market rebound to last longer than a week (if we're lucky it lasts that long). One signal to watch for that might change my tune would be a spike in the Volatility index to the 34-35-36 region.


New Calls

None today.
 

New Puts

None today.
 

New Strangles

FosterWheeler - FWLT - close: 61.24 chg: -2.96 stop: n/a

Company Description:
Foster Wheeler Ltd. is a global company offering, through its subsidiaries, a broad range of engineering, procurement, construction, manufacturing, project development and management, research and plant operation services. Foster Wheeler serves the upstream oil and gas, LNG and gas-to-liquids, refining, petrochemicals, power, pharmaceuticals, biotechnology and healthcare industries. (source: company press release or website)

Why We Like It:
FWLT can be a big mover. So far this month the stock has plunged from $75 to $60. We think there could be more fireworks ahead. I'm tempted to just buy puts with today's weakness after a four-day consolidation pattern. However, with the market so oversold, stocks could really go either way in a hurry. We're suggesting a strangle to capture any volatility in FWLT.

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 the stock moves far enough one side of our trade will rise in value and pay for the entire trade and make a profit.

We are suggesting the August options below. Our estimated cost is $2.60. We want to sell if either option hits $4.00.

BUY CALL AUG 70.00 UFB-HN open interest=1767 current ask $1.55
-and-
BUY PUT AUG 50.00 UFB-TJ open interest= 774 current ask $1.05

Picked on July 15 at $ 61.24
Change since picked: + 0.00
Earnings Date 08/06/08 (unconfirmed)
Average Daily Volume = 2.5 million

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Starbucks - SBUX - close: 13.58 change: -0.42 stop: n/a

Company Description:
Starbucks Corp. is the ubiquitous coffee shop and stand that seems to be around every corner.

Why We Like It:
Shares of SBUX have been in a slow freefall the last few weeks and shares just tagged a multi-month trendline of "support". I put the word "support" in quotes because it's a trendline of lower lows and lately these types of trendlines haven't been holding up. Volume was pretty strong on today's session, which might indicate a potential bottom. Bulls have not been very successful calling bottoms in this market so we're not going to try. Instead we're suggesting a strangle.

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 the stock moves far enough one side of our trade will rise in value and pay for the entire trade and make a profit.

We are suggesting the August options below. Our estimated cost is $1.38. We want to sell if either option hits $3.50 or more.

BUY CALL AUG 14.00 SQX-HK open interest=1086 current ask $0.73
-and-
BUY PUT AUG 13.00 SQX-TJ open interest=2531 current ask $0.65

Picked on July 15 at $ 13.58
Change since picked: + 0.00
Earnings Date 07/30/08 (confirmed)
Average Daily Volume = 14 million

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Ultra Financials - UYG - close: 14.75 chg: -0.90 stop: n/a

Company Description:
The Ultra Financials ProShares (UYG) is an exchange traded fund (ETF) that moves twice the performance of the Dow Jones U.S. Financials index.

Why We Like It:
If you think the financials have bottomed then UYG should be a good buy. If you think financials still have farther to fall then UGY should be a good short. The UYG moves twice as much as the DJ Financial index and today it fell 5.5% to a new low on record volume (about four times the normal volume). Is this finally a bottom or is it just picking up speed on the way down? Whichever way the financials move this should continue to produce big moves. We're suggesting a strangle. I suspect the financials will produce another big move in the next four weeks so we're picking some wide strikes.

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 the stock moves far enough one side of our trade will rise in value and pay for the entire trade and make a profit.

We are suggesting the August options below. Our estimated cost is $1.38. We want to sell if either option hits $3.50 or more. (We would have picked the August $10 put but they aren't available yet.) Strikes are available at $1.00 increments so it's easy to pick different strikes and create your own strangle. For example the Aug. $17 call and Aug. $13 put would cost $2.75.

BUY CALL AUG 20.00 UYG-HD open interest=1274 current ask $0.75
-and-
BUY PUT AUG 11.00 UUF-TM open interest= 90 current ask $0.70

Picked on July 15 at $ 14.75
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 27.3 million
 

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