Option Investor
New Plays

New Option Plays

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Call Options Plays
Put Options Plays
Strangle Options Plays
AAPL None None
DIA    
HANS    
MA    
     

Play Editor's Note: Time and time again we have heard the old Wall Street maxim "don't try to catch a falling knife", which essentially states don't try to pick the bottom in a stock or a market. You'll end up getting cut. Unfortunately, that's all the market is offering us these days - a rain of knives!

Long-term investors can just hold their nose and close their eyes and wait for the selling to stop. Or if you're brave you can dollar-cost average as your market gets "cheaper" for you. This newsletter isn't about long-term investors. It's about trading.

I don't think traders have many options right now. If you can't watch your positions and the market during the day then you absolutely need to be sitting out. The volatility swings are horrific. If we don't sit out then we can either go with the trend, which is down, or we can try to buy dips near support. Lately, stocks have been slicing through support with barely a tap on the brakes.

Personally, as bad as the charts look, I do not want to short this market. That may be my emotion getting in the way but it would be too easy to see another +800 point day if something spooks the shorts into covering. That sort of violent rebound is what bear markets typically provide. Granted bear market rallies aren't normally as big as last Monday's move but you get the idea.

If we're not going to buy puts or short equities then we need to be looking for entry points to buy the dip and in this market that means trying to catch the knife! (Or you can sell puts, the strategy I mentioned yesterday and again in today's plays) All of the new plays I am publishing below should be considered very high-risk. It would be all too easy for the market to keep falling. I'm trying to play with a stop wide enough that stocks have room to move but not too wide. Stop loss placement is probably the greatest challenge in this market if you're not day trading.

In addition to tonight's plays I wanted to list a few stocks and where they might find support if the markets keep falling.

SPY: The S&P SPDRs, A drop to 84.00 could be a buy. I'd be a lot more bullish at $80.00.

BIDU: This is a big mover and a drop to $200 could be support.

GILD: I almost played this one tonight but earnings are tomorrow. A drop toward $35.00 could be an entry point near support.

FAST: Watch for a pull back toward $32.50.

ERTS: A dip toward $24.00 might be an entry point.

JOYG: I was tempted to add JOYG to the play list. I'd be tempted to buy calls in the $22.50-20.00 zone with a stop under $20.00.

UTX: A dip near $44.00 with a stop under $40.00 might work.

CAT: I'm watching for a plunge toward $34.00.

COF: I think the company is in trouble but a dip near $31.00 might be a short-term entry point.

BHI: Watching for a dip near $27.00.

YHOO: There is still speculation that someone will acquire YHOO. I would be tempted to speculate on some long-term options on a dip near $10.00. Of course I'd be a lot more bullish on a plunge toward stronger support around $5.00.


New Calls

Apple Inc. - AAPL - close: 97.95 change: -6.13 stop: 79.45

Why We Like It:
Please read tonight's Play Editor's note if you haven't already. If AAPL suffers another irrational sell-off then we want to be ready to buy the bounce. We're suggesting readers buy calls on AAPL if the stock dips into the $85.50-85.00 zone. We'll use a stop loss at $79.45. If triggered our first target is $98.00. Our second target is $109.00.

An alternative strategy, if you read my Play Editor's note from 10/14/08, would be to wait for AAPL to dip toward $90-85 and then sell the November $85 or November $80 puts. That is assuming you don't mind owning shares of AAPL at $85 or $80. A plunge toward $90 could send the November $85 puts toward double-digits.

Suggested Options:
If AAPL hits $85.50-85.00 we're suggesting the November calls. Please note we do not want to hold over the late October earnings report. (These option prices will drop if AAPL hits our trigger, hopefully all in the single digits.)

BUY CALL NOV 90.00 QAA-KR open interest=3812 current ask $17.00
BUY CALL NOV 95.00 QAA-KS open interest=3418 current ask $14.20
BUY CALL NOV 100.0 QAA-KT open interest=6789 current ask $11.70

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/22/08 (unconfirmed)
Average Daily Volume = 10.6 million

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DIAMONDS - DIA - close: 84.87 change: -8.80 stop: 74.40

Why We Like It:
The DIAMONDS are an ETF that allow us to trade the huge movement in the Dow Jones Industrial Average. We are betting on a retest of last week's lows. Right now the plan is to buy calls on the DIA when it dips into the $80.25-79.00 zone with a stop loss at $74.40. More conservative traders may want to use a tighter stop loss. If triggered at $80.25 our first target is $88.50. Our second target is $94.50.

Suggested Options:
We are suggesting the November calls.

BUY CALL NOV 85.00 DAV-KG open interest=1085 current ask $7.45
BUY CALL NOV 90.00 DAV-KL open interest=2474 current ask $3.75
BUY CALL NOV 95.00 DAV-KQ open interest=2376 current ask $2.99

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 30 million

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Hansen Natural - HANS - close: 24.16 change: -1.94 stop: 19.45

Why We Like It:
This is another play where we are trying to buy the fear and sell the bounce. Nimble and aggressive traders might want to use bearish plays to ride HANS lower. We're suggesting readers buy the dip in the $20.65-20.00 zone with a stop loss at $19.45. A breakdown under $20.00 would be extremely bearish for a stock that's already in a bearish trend (as is most of the market). If triggered at $20.65 our first target is $24.50. Our second target is $27.50.

An alternative strategy would be wait for the drop toward $21-20 and then sell the November $20 puts as long as you don't mind owning HANS at $20.00. If HANS dips toward $20 the November $20 puts could spike to $4.50-5.00ish. That offers a lot of room to protect yourself. See my Play Editor's note on 10/14/08 for more details.

Suggested Options:
If triggered at $20.65 we're suggesting the November calls. We do not want to hold over the early November earnings report.

BUY CALL NOV 22.50 QHO-KX open interest= 113 current ask $4.70
BUY CALL NOV 25.00 QHO-KE open interest= 481 current ask $3.50

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/06/08 (unconfirmed)
Average Daily Volume = 10.6 million

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MasterCard - MA - close: 153.55 chg: -20.52 stop: 118.99

Why We Like It:
MasterCard is purely a credit card processing company. They don't have any exposure to consumer credit and yet the stock is getting killed. Bears could argue that if the economy is slowing down that consumers will make few transactions, which might hurt MA, but the trend toward using less checks and less cash and more plastic is a long-term bullish trend for MA. We're suggesting readers speculate on a bounce with buying a dip in MA in the $130.00-120.00 zone. If triggered our first target is $149.50. Our second target is $167.50. This is a very volatile stock and options are extremely expensive. This play is not for everyone.

A smarter strategy might be selling puts if you're familiar with the concept I suggested yesterday in my note. If MA trades near its lows near $140 or to where I think it might trade near $130, then investors could sell the November $130 or $125 puts. If MA trades that low these puts could be trading around $15-20 each. That gives you a lot of room to be wrong if MA keeps falling. Remember you have to be willing to own shares of MA if you get put the stock and you'll definitely need the funds to cover the stock purchase.

Suggested Options:
We are suggesting readers buy November calls on MA if the stock trades in the $130-120 zone. Remember, these options will be priced a lot lower with MA near our entry point.

BUY CALL NOV 140.00 MAL-KH open interest= 139 current ask $26.40
BUY CALL NOV 150.00 MAL-KJ open interest= 236 current ask $20.70
BUY CALL NOV 160.00 MAL-KL open interest= 298 current ask $16.10

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/03/08 (confirmed)
Average Daily Volume = 3.8 million
 

New Puts

None today.
 

New Strangles

None today.
 

New Play Archives