Option Investor
New Plays

New Option Plays

Printer friendly version
Call Options Plays
Put Options Plays
Strangle Options Plays
None None XLF

Play Editor's Note: Tomorrow could be another extremely volatile day. First we have the non-farm payrolls report due out 8:30 a.m., one hour before the market opens. Now it's widely expected that the jobs report is going to come in negative. The question is how negative? If it's a blow-out to the downside it could spark another market sell-off. That's one wildcard for tomorrow. What I think will happen is stocks drift sideways or drift lower as investors wait on the next congressional vote on the bailout plan. Congress meets on Friday at 9:00 a.m. but I can't tell you when the vote will occur. They could debate the bill for hours but a vote is expected tomorrow. If the vote occurs during the trading session and it is passed I'm expecting a bounce. I would expect the bounce to probably last through Monday. The goal here is to use the bounce as another entry point for bearish positions. As I've said before the bill doesn't change the fact that our economy and the global economy is slowing. It's the slow down that fueled the market sell-off today. If you're really nimble you could try scalping some gains from the post-approval bounce. I'm not listing any new plays for Friday except the XLF strangle. I will provide a big list of stocks I'll be watching for possible bearish entry points as the post-approval bounce begins to stall. Remember, the best trade in this environment is probably just sitting on the sidelines and watching.

Here is my current list of candidates: LEAP, SIAL, MMM, BA, GOOG, AXP, MLM, CERN, ESI, CEPH (bull trap pattern), MHK, UNH, NIHD, LRCX, XLNX, LOGI, HOLX, SBUX, CAKE, HAS, LINTA, LVS, HD, TXN, CBS, DNEX, LNN, PPD, TTC, NILE, and AYI. This is not supposed to be an exhaustive list. Frankly, you could probably just throw a dart at the market today and find a bearish candidate.

New Calls

None today.

New Puts

None today.

New Strangles

Financial Sector SPDR - XLF - cls: 19.64 chg: -1.03 stop: n/a

Company Description:
The Financial Select Sector SPDR is an exchange traded fund (ETF) that offers exposure to banks, diversified financials, insurance and real estate.

Why We Like It:
Congress is expected to vote on the latest version of the $700 billion bailout plan this Friday. Where the financial sector goes from there is a toss up. Does the sector see a "sell the news" event? Or do financial stocks rally? I'm expecting a short-term pop but if it lasts longer than a couple of days I'd be surprised. Whatever happens the XLF could see some big price moves. That's why I'm suggesting a strangle on the XLF. We're using Octobers because the options are cheaper than Novembers but that only gives us two weeks. Our biggest risk is that the XLF bounces around a lot but doesn't pick a new direction.

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're suggesting the October options listed below. Try to open positions in the $19.50-20.50 zone. Our estimated cost is $1.54. We want to sell if either option hits $2.25. We only have two weeks left before October options expire.

BUY CALL OCT 22.00 XLF-JV open interest=273481 current ask $0.67
BUY PUT OCT 18.00 XLF-VR open interest=108415 current ask $0.87

Strikes are available at $1.00 strikes so it would be easy to pick a different pair of options to trade.

Picked on October 02 at $ 19.64
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 222 million

New Play Archives