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New Option Plays

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C ESI None
  HAS  

Play Editor's Note: Friday's sell-the-news reaction to the bailout bill's approval is not a good sign for stocks. It would appear that investors are still trying to sell on any strength. There has been some talk that the Federal Reserve might surprise the market with an inter-meeting rate cut next week. A rate cut is a potential risk for us since it could spark a short-covering rally. I wouldn't expect any rally to last too long but it could hit a lot of stop losses. Furthermore I need to point out that the VIX, while extremely elevated, can go higher. More importantly, the VIX is not usually this high for very long and these types of spikes in the VIX tend to mark bottoms in the stock market. Don't get married to your bearish positions.

FYI: A few more stocks that look like bearish candidates or I'm watching for potential entry points are: FRO, HD, NILE, TTC.


New Calls

Citigroup - C - close: 18.35 change: -4.15 stop: 17.45

Company Description:
Citi is today's pre-eminent financial services company and was built to create a highly diversified financial services company that could act as one to deliver solutions to clients throughout the world. With the most diverse array of products and the greatest distribution capacity of any financial firm in the world, our 350,000 employees manage 200 million customer accounts across six continents in more than 100 countries. (source: company press release or website)

Why We Like It:
Citigroup was hammered for an 18% loss on Friday when it looked like Wells Fargo had outfoxed C from scooping up ailing rival Wachovia (WB). Shares of C bounced near short-term support around the $18.00 region. After such a one-day, news-driven move this might be a new bullish entry point to buy calls. Citigroup is going to be one of the few large banks that comes out of this credit crisis with room to grow. We're suggesting a stop loss at $17.45. More conservative traders might want to use a stop just under Friday's low (17.70). Our short-term target is $22.25. More aggressive traders may want to aim higher but keep in mind that we would not want to hold over the earnings report coming up soon.

Suggested Options:
We are suggesting the November calls.

BUY CALL NOV 17.50 C-KR open interest=1664 current ask $3.35
BUY CALL NOV 20.00 C-KD open interest=8568 current ask $2.08
BUY CALL NOV 22.50 C-KA open interest=11074 current ask $1.23

Picked on October 05 at $ 18.35
Change since picked: + 0.00
Earnings Date 10/16/08 (confirmed)
Average Daily Volume = 109 million
 

New Puts

ITT Educational Servc - ESI - cls: 76.08 chg: -2.03 stop: varies

Company Description:
Carmel, Ind.-based ITT Educational Services, Inc. owns and operates more than 100 ITT Technical Institutes in 36 states across the country. ITT Technical Institutes offer career-focused, technology-oriented programs of study that reflect U.S. employment trends and employer needs. Approximately 54,000 students are currently enrolled in the ITT Technical Institutes. (source: company press release or website)

Why We Like It:
ITT could be in trouble as the credit crisis is having a huge impact on student loans. The student loan market is evaporating. Meanwhile shares of ESI appear to have produced a bearish double-top like pattern. Friday's move had ESI flirting with a breakdown under its 200-dma. We have two different entry points to buy puts on ESI. Entry point number one is a continuation lower with an entry at $74.35. If triggered at $74.35 we'll use a stop loss at $80.51. We know that's a wide stop but shares were very volatile on Friday. Trigger point number two is $82.75. Should ESI unexpectedly rally higher we'd expect it to fail under the $83.00 region. If triggered at $82.75 we'll use a stop loss at $85.05. We have two targets. Our first target is $67.50. Our second target is $61.00. The P&F chart points to a $65 target.

Suggested Options:
We are suggesting the November puts. See the play entry above on entry points.

BUY PUT NOV 80.00 ESI-WP open interest=604 current ask $11.10
BUY PUT NOV 75.00 ESI-WO open interest=158 current ask $ 8.40
BUY PUT NOV 70.00 ESI-WN open interest= 32 current ask $ 6.10

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/23/08 (unconfirmed)
Average Daily Volume = 957 thousand

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Hasbro Inc. - HAS - close: 32.84 change: -0.01 stop: 34.15

Company Description:
Hasbro, Inc. is a worldwide leader in children's and family leisure time products and services with a rich portfolio of brands and entertainment properties that provides some of the highest quality and most recognizable play and recreational experiences in the world. (source: company press release or website)

Why We Like It:
HAS could be facing a tough fourth quarter. Not only is consumer spending slowing down but not many retailers who buy from HAS may not be able to get credit to purchase inventory for the holidays. The stock of HAS has produced a big bearish head-and-shoulders pattern. HAS has already broken the neckline but has found support at its 200-dma. We're suggesting a trigger to buy puts at $32.25. If triggered our target is the $27.65 mark. Don't be surprised to see a temporary bounce near $30.00. More aggressive traders may want to aim lower but we don't want to hold over the late October earnings report. FYI: The P&F chart is bearish with a $24 target.

Suggested Options:
We are suggesting the November puts. At this time we do not see any Nov. 27.50 puts.

BUY PUT NOV 32.50 HAS-WZ open interest=1767 current ask $2.95
BUY PUT NOV 30.00 HAS-WF open interest=1071 current ask $1.95

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/20/08 (unconfirmed)
Average Daily Volume = 2.1 million
 

New Strangles

None today.
 

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