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New Plays

New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
IBM FRE AAPL
USO   WB
    WM

Play Editor's Note: Don't get married to this bounce. We expect it to fail. The only question is when and where. I'm watching the DJIA 11,700 to 12,000 zone as overhead resistance and the probable area this bounce will fail. Obviously there are no guarantees but be ready. Until then be very selective and cautious on new positions.


New Calls

Intl. Bus. Mach. - IBM - cls: 129.89 chg: +3.37 stop: 124.45

Company Description:
International Business Machines Corp. (IBM) is one of the largest technology and information services company on the planet.

Why We Like It:
IBM was the hero on Friday. Investors applauded its earnings report from Thursday night. Shares surged toward resistance and its highs near $130 on strong volume Friday. The early July low was close to a 38.2% Fib retracement of the 2008 bull run. Everything is suggesting that IBM is poised to continue that run. The alternative is that IBM could be forming a big bearish double top but that remains to be seen. We don't want to buy IBM's rally on Friday. Instead we want to see a pull back. We're suggesting readers buy calls on a dip into the $127.00-126.00 zone. More aggressive traders might want to also use an alternative entry point on a breakout to new highs over $130. IBM could keep climbing and run away from us. If we are triggered at $127.00 our target is the $134.75 mark.

Suggested Options:
We are suggesting the August calls. You might want to consider using October strikes. Septembers aren't available yet.

BUY CALL AUG 125.00 IBM-HE open interest=9530 current ask $6.50
BUY CALL AUG 130.00 IBM-HF open interest=9248 current ask $3.10
BUY CALL AUG 135.00 IBM-HG open interest=8628 current ask $1.05

Picked on July xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 07/17/08 (confirmed)
Average Daily Volume = 7.7 million

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United States Oil - USO - close: 104.44 chg: -1.09 stop: *

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

Why We Like It:
After a huge weekly drop in crude oil what are the odds of an oversold bounce? Now add to those odds Iran coming out of its meeting with the U.S. and saying something belligerent? Yes, it's true that oil has broken its bullish channel. It could easily rally up to kiss that channel as overhead resistance before rolling over again. We are suggesting that readers buy calls on the USO at whatever it opens at on Monday morning. We'll use a 3.5% stop loss. Thus if USO opens at $105.00 on Monday morning our stop loss will be $101.32. Our target is the $110-112 zone. We are fighting the new trend so consider this an aggressive play.

Suggested Options:
We are suggesting the August calls. Our entry point is Monday's open. Strikes are available at $1.00 increments.

BUY CALL AUG 105.00 IYS-HA open interest=581 current ask $5.60
BUY CALL AUG 107.00 IYS-HC open interest=518 current ask $4.70
BUY CALL AUG 109.00 IYS-HE open interest=1111 current ask $4.00

Picked on July xx at $ xx.xx
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 14.8 million
 

New Puts

Freddie Mac - FRE - close: 9.18 change: +0.85 stop: n/a

Company Description:
Freddie Mac is a government "sponsored" entity involved in the secondary mortgage loan market.

Why We Like It:
The massive bounce this week in FRE from $5 to $10 could be a trap. There was recent news out on FRE where the company said they were trying to raise capital and FRE considering a sale of up to $10 billion in preferred stock with a 13% yield. How can this company make any money if they're loaning money at 7% (mortgage rates) and paying out 13%? Obviously I'm over-simplifying things here. However, everyone talks about how FRE has government backing. That's true. They do have government backing for their debt, not their common stock. FRE could end up trashing the common stock in an effort to stabilize their debt. We're listing a put play on FRE as a lottery ticket play. That means it's a gamble but if we win it should pay off pretty well. We're not listing a stop loss at this time. More conservative traders may want to use a stop. Our short-term target would be a move back to $5.00. More aggressive traders may want to aim lower.

Suggested Options:
We don't know how long it's going to take before FRE destroys their stock price further so we're suggesting the October puts.

BUY PUT OCT 7.50 FRE-VU open interest=2419 current ask $2.55
BUY PUT OCT 6.00 FRE-VQ open interest=2531 current ask $1.80
BUY PUT OCT 5.00 FRE-VA open interest=8092 current ask $1.40

Picked on July 20 at $ 9.18
Change since picked: + 0.00
Earnings Date 08/28/08 (unconfirmed)
Average Daily Volume = 45.5 million
 

New Strangles

Apple Inc. - AAPL - close: 165.15 chg: -6.66 stop: n/a

Why We Like It:
We just closed a successful put play on AAPL with its plunge to the 200-dma on Friday. We gave our readers a heads up last week that we would add AAPL as a strangle play ahead of their earnings report. AAPL reports on Monday night after the market's closing bell. Analysts are looking for a profit of $1.08/share. There is a lot of optimism about AAPL and their outlook for the rest of the year so if AAPL says anything negative it could get real ugly. On the other hand they could really surprise on the upside with the Mac sales. That's why we're suggesting a strangle. Tomorrow (Monday) is our only day to open positions ahead of earnings.

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 $8.90. We want to sell if either option hits $14.50 or more.

BUY CALL AUG 180.00 APV-HP open interest=9178 current ask $4.60
-and-
BUY PUT AUG 150.00 APV-TJ open interest=5615 current ask $4.30

Picked on July 20 at $165.15
Change since picked: + 0.00
Earnings Date 07/21/08 (confirmed)
Average Daily Volume = 31.7 million

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Wachovia - WB - close: 12.97 change: -0.47 stop: n/a

Company Description:
Wachovia is a diversified financial services company that provides a broad range of retail banking and brokerage, asset and wealth management, and corporate and investment banking products and services. We are one of the largest providers of financial services in the United States, with retail and commercial banking operations in 21 states from Connecticut to Florida and west to Texas and California, and nationwide retail brokerage, mortgage lending and auto finance businesses.

Why We Like It:
Last week Wells Fargo helped launch the financials higher with a better than expected earnings report. This week a lot of investors are watching WB and WM for similar news. WB's earnings report and their comments could either add fuel to the financials' fire or dowse the rally with negativity. The company reports earnings on Tuesday morning before the bell. Monday is our only day to open strangles ahead of the report.

Suggested Options:
We are suggesting the August options below. Our estimated cost is $2.00. We want to sell if either option hits $3.50 or more.

BUY CALL AUG 15.00 WB-HC open interest=18278 current ask $1.00
-and-
BUY PUT AUG 10.00 WB-TB open interest=32347 current ask $1.00

Picked on July 20 at $ 12.97
Change since picked: + 0.00
Earnings Date 07/22/08 (confirmed)
Average Daily Volume = 64 million

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Washington Mutual - WM - close: 5.92 chg: +0.92 stop: n/a

Company Description:
WaMu, through its subsidiaries, is one of the nation's leading consumer and small business banks. At Mar. 31, 2008, WaMu and its subsidiaries had assets of $319.67 billion. The company has a history dating back to 1889 and its subsidiary banks currently operate approximately 2,500 consumer and small business banking stores throughout the nation. (source: company press release or website)

Why We Like It:
WM is another big financial that investors are going to be watching closely this week. The company reports earnings on July 22nd after the closing bell. That gives us two days to open strangle positions to capture any post-earnings volatility. If you look at the open interest for the August puts there have been some huge bets made on the downside. If WM has any good news it could rocket.

Suggested Options:
We are suggesting the August options below. Our estimated cost is $0.72. We want to sell if either option hits $2.25 or more.

BUY CALL AUG 8.00 WM-HV open interest= 3014 current ask $0.30
-and-
BUY PUT AUG 4.00 WM-TH open interest=35989 current ask $0.42

Picked on July 20 at $ 5.92
Change since picked: + 0.00
Earnings Date 07/22/08 (confirmed)
Average Daily Volume = 57 million
 

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