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New Plays

New Option Plays

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Call Options Plays
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Strangle Options Plays
MOS None

Play Editor's note: There is still a lot of uncertainty and fear in the markets and stocks could still go lower even though Friday had a lot of potential to be a significant bottom. The best trade is probably to sit on the sidelines. The dust hasn't even begun to settle yet. FYI: Keep an eye on AAPL. If AAPL trades over 101.50 it might be a buy. I'd even consider buying calls on another dip to $85.00 with a tight stop! I'd also watch CF, which is another fertilizer stock. Shares have been showing a little relative strength lately.


New Calls

Mosaic - MOS - close: 36.40 change: -0.12 stop: varies

Company Description:
The Mosaic Company is one of the world's leading producers and marketers of concentrated phosphate and potash crop nutrients. Mosaic is a single source provider of phosphates and potash fertilizers and feed ingredients for the global agriculture industry. (source: company press release or website)

Why We Like It:
MOS is part of the fertilizer-chemical industry and the group appears to be forming a bottom. Stocks in this group have been trading in a sideways range after some massive declines in the last four weeks. We want to be ready if MOS makes a move. However, we're listing two different entry points. There is a good chance that MOS dips toward the bottom of its range again. Our preferred entry point would be to buy a dip in the $33.25-32.00 zone with a stop loss at $29.95. More conservative traders could use a stop loss at $31.35 instead. Our alternative entry point, if MOS rallies from here, is to buy calls at $42.15 with a stop loss at $37.90. Our first target is $49.00. Our second target is $59.00.

Suggested Options:
We are suggesting the November calls.

BUY CALL NOV 45.00 MOS-KI open interest=11932 current ask $4.20
BUY CALL NOV 50.00 MOS-KJ open interest= 1178 current ask $2.85

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/06/08 (unconfirmed)
Average Daily Volume = 10.5 million
 

New Puts

None today.
 

New Strangles

CBOE Volatility Index - VIX - cls: 69.95 chg: +6.03 stop: n/a

Company Description:
The CBOE Volatility Index - more commonly referred to as "VIX" - is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500 Index (SPX) option bid/ask quotes. VIX uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index. (CBOE website)

Why We Like It:
We're not suggesting a strangle but a spread on the VIX - actually two of them depending what your time frame is. Market volatility has surged to all-time historic highs. This isn't the best time to buy options (volatility) but to sell volatility. What better vehicle to sell options on but the VIX, which by its nature always reverts back to its mean. Granted there are never any guarantees but odds for this play are pretty strong.

Here's the plan. We cannot conceive that the VIX can maintain its position this high for very long. It can stay elevated (a.k.a. above 30) for a while but no way it's staying up near 70% volatility. We're listing two different plays. One uses October options. The other uses November options. We are selling some deep in the money calls and buying much higher calls as a form of insurance should the unthinkable happen. We'll collect the money on selling the deep in-the-money calls, which will sit in our account until we decide to exit the play and buy them back or until the options settle. As the VIX contracts the premiums on all of these options will collapse.

Note: VIX options are European style options that settle for cash at expiration. Furthermore VIX options have unique expiration dates. October options expire on Wednesday, October 22, 2008 and will stop trading on Tuesday, Oct. 21. November options expire on Wednesday, November 19, 2008 and will stop trading on Tuesday, November 18th.

Note on Margin - Here's what the CBOE website has to say about margin: "Purchases of puts or calls with 9 months or less until expiration must be paid for in full. Writers of uncovered puts or calls must deposit / maintain 100% of the option proceeds* plus 15% of the aggregate contract value (current index level x $100) minus the amount by which the option is out-of-the-money, if any, subject to a minimum for calls of option proceeds* plus 10% of the aggregate contract value and a minimum for puts of option proceeds* plus 10% of the aggregate exercise price amount. (*For calculating maintenance margin, use option current market value instead of option proceeds.) Additional margin may be required pursuant to Exchange Rule 12.10."

Suggested Options:
We are listing two different plays.

VIX spread #1 with October options:

We want to SELL the October 40 calls (bid is $16.70) and BUY the October 60 (ask $5.60) as a hedge against the VIX remaining elevated.

SELL CALL OCT 40.00 VIX-JH open interest=27528 current bid $16.70
-and-
BUY CALL OCT 60.00 VIX-JN open interest= 4971 current ask $5.60

--

VIX spread #2 with November options:

We want to SELL the November 30 calls (bid is $10.20) and BUY the November 50 (ask $2.25) as a hedge against the VIX remaining elevated.

SELL CALL NOV 30.00 VIX-KF open interest=41669 current bid $10.20
-and-
BUY CALL NOV 50.00 VIX-KJ open interest=18586 current ask $2.25

Picked on October 12 at $ 69.95
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = ---
 

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