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New Option Plays

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SRCL None None

Play Editor's Note: We strongly debated not adding any new plays this weekend. A number of professional traders have gone to all cash or if they are trading they're trading very small positions. I continue to stress that the best trade here is probably no trade at all. Sitting out on the sidelines is perfectly fine. The prevailing wisdom is that congress will eventually come to some sort of agreement on the bailout plan before Monday morning. However, there is a large camp of investors and market pundits who are calling it a coin toss whether or not an agreement is reached. No agreement on Monday means more volatile and probably more losses by the end of the day.

Please note that if/when an agreement on the bailout plan is reached I do expect a bounce but I don't expect the bounce to last very long. The rescue effort doesn't change the underlying economic environment, which is slowing. I would be watching very closely to short the bounce as it begins to falter. We're still in a bear market. Furthermore the end of September could see a lot of selling from funds facing rising redemptions. They don't have to do all of their selling by September 30th. It could carry into the first few days of October.

FYI: CEPH broke out from its multi-week trading range. The MACD turned bullish. Friday's move or a dip back toward $78.00 looks like an entry point on CEPH. Meanwhile Friday's bounce in FLIR also looks like a potential entry point for calls. Unfortunately, my big-picture market outlook is just too bearish. Readers will want to keep an eye on airline stocks. The U.S. dollar is likely to roll over, which will push oil higher and thus airlines lower.


New Calls

Stericycle - SRCL - close: 63.24 change: +0.90 stop: 60.99

Company Description:
We are a business services and consulting company that specializes in protecting people and reducing risk. Our services include medical waste disposal and sharps disposal management, product recalls and retrievals, OSHA compliance training, pharmaceutical recalls and medical device returns, healthcare on-site waste stream management, pharmaceutical waste disposal, medical safety product sales, and high volume notification services. (source: company press release or website)

Why We Like It:
SRCL looks like a tempting bullish candidate. The stock broke out to new highs in mid September. Recent market weakness has pulled shares back toward previous resistance, which is now new support. Friday's bounce from this region of support looks like a new entry point to buy calls. The Point & Figure chart is bullish with an $84 target. While the technicals are positive for SRCL this doesn't mean shares won't decline if the broader market crashes next week. If an agreement on the government's bailout package for the financial sector isn't reached by Monday morning I would strongly hesitate to open new bullish positions in SRCL or anything else for that matter. We're going to try and play with a tight stop loss to minimize our risk. We have two targets. Our first target is $66.00. Our second target is $69.00.

Suggested Options:
We are suggesting the November calls.

BUY CALL NOV 60.00 URL-KL open interest= 308 current ask $5.90
BUY CALL NOV 65.00 URL-KM open interest= 416 current ask $3.10
BUY CALL NOV 70.00 URL-KN open interest= 405 current ask $1.35

Picked on September 28 at $ 63.24
Change since picked: + 0.00
Earnings Date 10/23/08 (unconfirmed)
Average Daily Volume = 624 thousand
 

New Puts

None today.
 

New Strangles

None today.
 

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