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New Option Plays

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CSCO None None
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Play Editor's note: I am going to stick my neck out and add some bullish plays to the newsletter. The market has been crushed in the last couple of weeks with a climactic 7% drop in the Dow Industrials and S&P 500 on Thursday. Stocks closed at their lows for the session, which is normally bearish for the next day's open. There is still a lot of fear in the market place and some are still calling for an even greater crescendo of selling to take place before we truly rebound.

On Tuesday, after the DJIA lost 5%, someone made the joking remark that it would only take another 19 days at that sort of burn rate for the markets to hit zero. After today's session it will only take another 18 days. I am joking too. The market isn't going to zero. In just the last few days I've heard several market pundits call for a bottom around 8500 on the Dow. We are essentially there. However, I wondered what if stocks keep falling? The thought prompted me to look at some long-term monthly charts.

The monthly chart of the DJIA doesn't show anything that looks like significant "support" until the 7500 region although you might be able to argue that there is some support near 8000. The monthly chart of the S&P 500 index doesn't show a lot of "support" until the 800 area. I am not predicting that the market will hit these levels but if we don't see a snap-back, oversold, relief, [insert additional adjective here] rally soon stocks might hit those levels before the month is out.

I want to repeat that the bullish plays I'm adding tonight are very speculative since we're trying to pick a bottom in what has been a bottomless market.


New Calls

Cisco Systems - CSCO - close: 17.19 change: -1.15 stop: 16.45

Company Description:
Cisco (NASDAQ: CSCO) enables people to make powerful connections-whether in business, education, philanthropy, or creativity. Cisco hardware, software, and service offerings are used to create the Internet solutions that make networks possible-providing easy access to information anywhere, at any time.Cisco was founded in 1984 by a small group of computer scientists from Stanford University. (source: company press release or website)

Why We Like It:
You could argue that CSCO's sales will suffer as the globe enters a recession. Or you could argue that shares of this tech titan have merely been caught up in a widespread market panic. It could be both but the stock has finally dropped toward what appears to be very significant support near $17.00 - just look at the charts. We are suggesting that readers buy calls on this drop to support. If there is a place for CSCO to bounce then this is it. The intraday low during that period on the chart was $16.83. We're suggesting a stop loss at $16.45 to give CSCO some room to move. More conservative traders may want to use a stop in the $16.80-16.75 region. Our first target on a rebound in CSCO is the $19.85 mark. Our second target is $21.75.

Suggested Options:
We are suggesting the November calls but we do not want to hold over the early November earnings report.

BUY CALL NOV 19.00 CYQ-KA open interest=2890 current ask $1.12
BUY CALL NOV 20.00 CYQ-KD open interest=7014 current ask $0.83

Picked on October 09 at $ 17.19
Change since picked: + 0.00
Earnings Date 11/05/08 (unconfirmed)
Average Daily Volume = 54 million

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DIAMONDS Trust - DIA - close: 85.55 change: -5.85 stop: n/a

Company Description:
The DIAMONDS Trust Series 1 is an exchange traded fund (ETF) that mimics the performance of the Dow Jones Industrial Average.

Why We Like It:
The DJIA has been savaged over the last several days with a crash from 11,000 to almost 8,500. We've come too far too fast and we're very oversold. Now I'm well aware that you've probably heard that line, "too far too fast", before. There is absolutely nothing stopping the DJIA from plunging to 8,000 (DIA=80.00). However, we strongly suspect that stocks will indeed see a very sharp rebound rally sooner rather than later and it will be a big one! This play is a bet that the snap back rally will happen before October option expiration passes us by. That's right! We're gambling on a bounce in the market with options that expire in a few trading days. Right now the VIX is at record highs so option prices are inflated. We're going to try and minimize that with October calls since their time premium is quickly eroding. Don't play this trade if you can't accept a 100% loss! If we're not in the money by Wednesday's close we're probably out of luck. Choose your strike carefully. What can you afford to lose? It's been said that you should only gamble in Vegas since win or lose in Vegas we at least get free drinks. Right now I'm aiming for 95.00 on the DIA but we'll let it ride depending on market conditions.

Suggested Options:
We are suggesting the October calls.

BUY CALL OCT 90.00 DAV-JL open interest= 861 current ask $2.51
BUY CALL OCT 95.00 DAV-JQ open interest=4884 current ask $1.11
BUY CALL OCT 100.0 DAV-JV open interest=11482 current ask $0.46

Picked on October 09 at $ 85.55
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 26 million

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PowerShares QQQ - QQQQ - close: 31.52 change: -0.87 stop: n/a

Company Description:
The PowerShares QQQ is an exchange traded fund (ETF) that mimics the performance of the NASDAQ-100 index (NDX).

Why We Like It:
This trade on the QQQQ is the same strategy as our bet on the DIA. Stocks are at extremely oversold levels. We're way overdue for a major correction higher. This play is gambling that the bounce will happen before October options expire. If stocks don't bounce soon enough or high enough we'll be facing a 100% loss. October option time premium is quickly eroding. Currently we're aiming for $35.00 but we'll adjust the exit as needed. We might want to let it run if the bounce looks strong enough.

Suggested Options:
We're suggesting the October calls, which expire in a few days.

BUY CALL OCT 34.00 QAV-JH open interest=66300 current ask $0.60
BUY CALL OCT 35.00 QQQ-JI open interest=141659 current ask $0.36
BUY CALL OCT 36.00 QQQ-JJ open interest=66474 current ask $0.23

Picked on October 09 at $ 31.52 <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 195 million
 

New Puts

None today.
 

New Strangles

None today.
 

New Play Archives