Option Investor
New Plays

New Option Plays

HAVING TROUBLE PRINTING?
Printer friendly version
Call Options Plays
Put Options Plays
Strangle Options Plays
CSX ACI None
IWM MON  
  PTR  

Play Editor's Note: Credit markets are just barely beginning to thaw and no one seems to have a good argument to buy stocks except that Warren Buffet said so. Yes, it's possible we're near the bottom. It's also very probable that we'll retest that bottom and from the looks of it sooner rather than later.

This remains one of the toughest markets in history to trade. Multi-hundred point swings in the DJIA are daily occurrences now. Volatility is at all-time record levels. If you consider the high volatility, which inflates option premiums, it is not a very good time to be buying options.

A better strategy would be to sell options (selling volatility). Covered calls are an excellent strategy these days if you can stomach the movement in the underlying equity. If you're looking to buy stocks then I would be selling puts to collect premiums on stocks you are interested in buying. It's like getting paid to buy the stocks you want!

We're stepping into the heart of earnings season. Normally we'd be looking to add strangles to hold over some earnings reports. These days the price of the options are too expensive to buy strangles or straddles.

Speaking of earnings, AAPL is due to report earnings on Tuesday night. I would not be surprised to see a $20 post-earnings move in the stock. The question is what direction will it move? I would still be tempted to buy calls on a dip near $85.00 but only after earnings. Short-term it looks like AAPL is headed lower ahead of its earnings report.


New Calls

CSX Corp. - CSX - close: 43.33 chg: -0.89 stop: 37.99

Why We Like It:
Railroad company CSX reported earnings last week that sparked a rally over $50.00 in the stock. Unfortunately for the bulls investors sold that rally pretty hard. Shares now look poised to retest support near $40.00. Buying a dip near $40.00 looks like a decent bet since the level has been significant support for months. We're suggesting readers buy calls on CSX when the stock dips into the $40.50-40.00 zone. We'll use a stop loss at $37.99 to start. More conservative traders may want to use a tighter stop! We're listing two targets. Our first target is $45.00. Our second target is $48.00. Traders need to be aware that two of CSX's rivals, BNI and UNP both report earnings on October 23rd this week. Their earnings news and guidance could have a big impact on CSX's performance.

Suggested Options:
Our suggested entry point is $40.50. We would use the November calls.

BUY CALL NOV 40.00 CSX-KH open interest= 437 current ask $6.00
BUY CALL NOV 45.00 CSX-KI open interest=2465 current ask $3.30

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/14/08 (confirmed)
Average Daily Volume = 6.5 million

---

iShares Russ.2000 - IWM - cls: 52.45 chg: -1.26 stop: 44.90

Why We Like It:
Sooner or later when fund managers feel confident enough to put money back into the market the small cap stocks could see some big gains. Right now we're willing to bet on a bounce if the Russell 2000 retests the October lows. We'll play the RUT through the IWM iShares. The IWM is an exchange traded fund that mimics the Russell 2000 small cap index. The IWM traded to $48.29 last Thursday. We are suggesting that readers buy calls on a dip into the $48.50-45.00 zone. Optimistically last week's lows will hold. If not we want to give the IWM some room to maneuver. We're suggesting a stop loss at $44.90. If triggered at $48.50 we're listing two targets. Our first target is $54.50, which could be hit in just a few days. Our second target is $58.00, which might take a few weeks.

Suggested Options:
Our suggested entry point is $48.50. We're suggesting the November calls. Strikes are available at $1.00 increments.

BUY CALL NOV 50.00 IWM-KX open interest=8838 current ask $5.55
BUY CALL NOV 54.00 IWM-KB open interest=12901 current ask $3.30

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 123 million
 

New Puts

Arch Coal - ACI - close: 24.15 change: +1.24 stop: 25.90

Why We Like It:
Long-term fundamentals for the coal industry are very strong. The world's energy needs will constantly be growing and clean or not coal will always be in demand. The sell-off in ACI and the coal industry has been a sector rotation out of anything related to commodities thanks to concerns over a global recession and part of the hedge-fund liquidation. Short-term we suspect that ACI will continue lower - at least to its October lows. We're suggesting put positions now with a stop over Friday's high. Our target is $20.25. More aggressive traders could aim lower. If ACI breaks $20.00 the next stop is probably $15.00. If we see the $20 level hold again we'll consider buying calls to catch the next bounce! We do not want to hold over the late October earnings report.

Suggested Options:
We're suggesting the November puts.

BUY PUT NOV 25.00 ACI-WE open interest=1164 current ask $4.10
BUY PUT NOV 22.50 ACI-WS open interest= 742 current ask $2.85
BUY PUT NOV 20.00 ACI-WD open interest=1523 current ask $1.90

Picked on October 19 at $ 24.15
Change since picked: + 0.00
Earnings Date 10/27/08 (confirmed)
Average Daily Volume = 8.7 million

---

Monsanto - MON - close: 80.00 change: +1.75 stop: 85.01

Why We Like It:
MON is part of the fertilizer industry and the group has been hammered pretty hard during the market's sell-off. The oversold bounce from its October lows stalled near its 50% retracement. Furthermore, MON and several stocks in the group have produced bear-flag consolidation patterns, which suggest another leg lower is about to begin. MON has broken out from its flag pattern and Friday's failed rally looks like a new entry point to buy puts. We're suggesting a stop loss at $85.01. We have two targets. Our first target is $70.25. We suggest readers exit the majority of their position here. Our secondary target is the $63.00 mark. Readers need to note that this week is the heart of earnings season. Rival fertilizer companies like POT will be announcing earnings this week and their news could have a big influence on MON's performance. POT reports on October 23rd before the market's opening bell.

Suggested Options:
We are suggesting the November puts.

BUY PUT NOV 75.00 MON-WO open interest=1447 current ask $6.80
BUY PUT NOV 70.00 MON-WN open interest=1278 current ask $5.00

Picked on October 19 at $ 80.00
Change since picked: + 0.00
Earnings Date 10/08/08 (confirmed)
Average Daily Volume = 9.8 million

---

PetroChina - PTR - close: 79.84 change: -2.38 stop: 84.05

Why We Like It:
Energy stocks continue to sell-off as crude oil slides farther and farther from its highs. PTR, an arm of the state-run China National Petroleum Corporation, is no exception. Shares broke through multiple layers of support and where it stops next is anyone's guess. The recent oversold bounces have failed and continue to build the pattern of lower highs. At a minimum we're expecting a retest of the October lows near $70.00. We're suggesting readers buy calls now with a stop above Friday's high. Our target is $70.50. More aggressive traders may want to aim lower. The Point & Figure chart is forecasting a $56 target.

Suggested Options:
We are suggesting the November puts.

BUY PUT NOV 80.00 PTR-WX open interest= 93 current ask $10.30
BUY PUT NOV 75.00 PTR-WO open interest=123 current ask $ 8.00
BUY PUT NOV 70.00 PTR-WN open interest=168 current ask $ 6.00

Picked on October 19 at $ 79.84
Change since picked: + 0.00
Earnings Date 03/06/09 (unconfirmed)
Average Daily Volume = 947 thousand
 

New Strangles

None today.
 

New Play Archives