Option Investor
New Plays

New Option Plays

Printer friendly version
Call Options Plays
Put Options Plays
Strangle Options Plays

Play Editor's Note: Be careful. Don't be seduced by the 485-point bounce. We remain in a bear market and any rescue plan isn't going to fix the economic outlook. Consumer spending is already slowing and the fourth quarter is shaping up to be a very tough quarter. We're adding a couple of speculative call plays on banks who might benefit the most. I am also keeping an eye on SHLD as a potential bearish play under $90.00. Meanwhile aggressive traders might want to consider an October strangle on the XLF with the $22 call and $18.00 put for about $1.30. The financials could still see some big moves in the next three weeks.

New Calls

JPMorgan Chase - JPM - close: 46.70 change: +5.70 stop: 39.95

Company Description:
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $2.0 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management, and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase serves millions of consumers in the United States and many of the worlds most prominent corporate, institutional and government clients under its J.P. Morgan and Chase brands. (source: company press release or website)

Why We Like It:
Some of the largest, best-in-breed banks are not only going to survive this crisis but they're going to make out like bandits. JPM is easily considered the best of the best when it comes to the large banks. They stole BSC and WM for pocket change. Once congress finally does pass some sort of legislation some of the big banks like JPM, WFC and maybe BAC could see some huge rallies. The rest of the market I remain skeptical and concerned about the overall economic slow down. Stop loss placement on JPM is going to be very tough with the market and the financials so volatile. We're going to play with a very wide stop loss. You may need to adjust it for your own risk appetite. Let me repeat - this could be a very bumpy ride. Consider this a speculative bet on JPM out performing on any financial system rescue plan and/or accounting changes. We're going to set our first target at $53.00 and suggest readers exit 50% to 75% of their position at $53. Our secondary target is $57.50.

Suggested Options:
We are suggesting the November calls.

BUY CALL NOV 50.00 JPM-KJ open interest=3480 current ask $3.10
BUY CALL NOV 52.50 JPM-KX open interest=1271 current ask $2.15
BUY CALL NOV 55.00 JPM-KK open interest=2455 current ask $1.44

Picked on September 30 at $ 46.70
Change since picked: + 0.00
Earnings Date 10/15/08 (unconfirmed)
Average Daily Volume = 50.6 million


Wells Fargo - WFC - close: 37.53 change: +4.28 stop: 32.95

Company Description:
Wells Fargo & Company is a diversified financial services company with $609 billion in assets, providing banking, insurance, investments, mortgage and consumer finance through almost 6,000 stores and the internet (wellsfargo.com) across North America and elsewhere internationally. Wells Fargo Bank, N.A. is the only bank in the U.S., and one of only two banks worldwide, to have the highest possible credit rating from both Moodys Investors Service, "Aaa," and Standard & Poor's Ratings Services, "AAA." (source: company press release or website)

Why We Like It:
WFC is another one of the massive banks that are likely to come out of this credit crisis a lot stronger and better positioned than before. Shares could see a lot of buying pressure once congress approves a rescue plan or the government changes some of the accounting rules. The stock and sector remains a very volatile group so this play may not be for the weak of stomach. Stop loss placement remains a challenge and we're going to go with a wide stop loss to give WFC room to move. Our first target is the $42.50 mark and suggest readers sell 50% to 75% of their position there. Our secondary target is $47.50.

Suggested Options:
We are suggesting the November calls.

BUY CALL NOV 38.00 FHU-KL open interest= 548 current ask $3.80
BUY CALL NOV 40.00 FHU-KH open interest=3848 current ask $2.80
BUY CALL NOV 45.00 FHU-KI open interest=3096 current ask $1.25

Picked on September 30 at $ 37.53
Change since picked: + 0.00
Earnings Date 10/16/08 (unconfirmed)
Average Daily Volume = 54.5 million

New Puts

Whirlpool - WHR - close: 79.29 change: -3.28 stop: varies

Company Description:
Whirlpool Corporation is the world's leading manufacturer and marketer of major home appliances, with annual sales of more than $19 billion, more than 73,000 employees, and more than 72 manufacturing and technology research centers around the world. The company markets Whirlpool, Maytag, KitchenAid, Jenn-Air, Amana, Brastemp, Bauknecht and other major brand names to consumers in nearly every country around the world. (source: company press release or website)

Why We Like It:
WHR's failure to rally during today's very widespread market bounce is pretty negative. The stock produced a failed rally at its 10-dma and temporarily broke down under its 200-dma. The stock lost almost 4% on a day the S&P 500 gained more than 5%. The economic outlook for the U.S. is getting worse and the rest of the world is really slowing down. Consumers are already cutting back and the current credit crunch makes it harder for consumers to get credit for big ticket items like appliances. Plus, the housing slowdown is a big influence on WHR and we're moving into the worst months of the year for housing. I am suggesting two different entry points for WHR. Our first entry point is a new relative low at $77.40. If triggered at $77.40 we'll use a stop loss at $82.05. I know that's kind of wide for a stop but this is a volatile market. My second, alternative entry point is a bounce into the 83.00-84.00 zone. If triggered at $83.00 we'll use a stop loss at $85.25. We're setting two targets at $75.25 and another one at $70.25. More aggressive traders may want to aim lower. The P&F chart points to a $64 target.

Suggested Options:
We're suggesting the November puts.

BUY PUT NOV 80.00 WHR-WP open interest= 410 current ask $8.30
BUY PUT NOV 75.00 WHR-WO open interest= 283 current ask $5.90

Picked on September xx at $ xx.xx <-- see TRIGGERS
Change since picked: + 0.00
Earnings Date 10/23/08 (unconfirmed)
Average Daily Volume = 1.6 million

New Strangles

None today.

New Play Archives