Option Investor
New Plays

Puts aPlenty

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Play Editor's Note: This remains one of the most volatile markets in U.S. history. The Dow Jones Industrial Average delivered not one but three different 300-point moves on Friday. The last half of the day saw two 400-point moves. The lack of follow through on Thursday's bounce is bearish and as a trading newsletter we need to adapt to market conditions quickly. We're dropping our new call plays from Thursday night and adding new put plays.

New plays note: We are adding several new put plays. However, traders may want to consider some sort of alternative to just buying puts. The VIX is extremely elevated again and that makes option premiums higher than normal. You may want to consider some sort of strategy that takes advantage of these elevated premiums. If you're bearish then one idea might be a call credit spread where you sell an at the money or out of the money call and hedge it by buying another higher-strike call.

New Option Plays
Call Options Plays
Put Options Plays
Strangle Options Plays
None BCR, COF None
  EWZ, IBM  
  IWM, JOYG  
  KSS, LLL  
  NTRS, POT  
     
     


NEW DIRECTIONAL PUT PLAYS

Bard CR - BCR - close: 82.91 change: -1.40 stop: 86.01

Why We Like It:
BCR, a medical devices company, produced a bearish double-top pattern on Friday (intraday) following Thursday's big rebound. It was a common pattern on Friday but it corresponds with the growing bearish technicals on the stock. The Point & Figure chart is already bearish with a $69.00 target.

We are suggesting readers buy December calls here with a stop loss above Friday's high at $86.01. Our target is $75.50.

Suggested Options:
We are suggesting the December puts.

BUY PUT DEC 80.00 BCR-XP open interest= 119 current ask $3.40
BUY PUT DEC 75.00 BCR-XO open interest=  77 current ask $2.00

Annotated Chart:
BCR

Picked on November 15 at $ 82.91
Change since picked:      + 0.00
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =       1.0 million  


Capital One Financial - COF - close: 31.19 change: -2.37 stop: 35.01

Why We Like It:
The consumer is in a tailspin. The economic slowdown is going global. The credit markets remain illiquid. We can't imagine a worse place to be than consumer credit. COF looks like a prime candidate for further declines. That's why there are so many shorts. The most recent data listed short interest at 11.7% of the 386 million-share float. Unfortunately, this high short position caused a little short squeeze on Thursday. The "rally" quickly reversed on Friday under the $35.00 level. We're suggesting readers buy puts with a stop loss at $35.01. This is a wide, aggressive stop loss but it needs to be wide due to the stock's volatility.

COF appears to have some support near $25.00 dating back a few years ago. We're targeting a drop to $25.50. The Point & Figure chart is very bearish with a $15.00 target.

Suggested Options:
We are suggesting the December puts.

BUY PUT DEC 30.00 COF-XF open interest=11316 current ask $4.10
BUY PUT DEC 25.00 COF-XE open interest=16373 current ask $2.35

Annotated Chart:
COF

Picked on November 15 at $ 31.19
Change since picked:      + 0.00
Earnings Date           01/22/09 (unconfirmed)
Average Daily Volume =      12.5 million  


iShares Brazil - EWZ - close: 34.55 change: -2.69 stop: 36.55

Why We Like It:
Emerging markets are a mixed bag but many think Brazil is a land of opportunity. Yet you wouldn't think that after looking at the EWZ iShares for Brazil. It's been in steady freefall for months. As the global recession heats up Brazil should see less exports and that should hurt its economy and thus its stock market.

At a minimum I would expect the EWZ to retest its lows near $28.50. The Point & Figure chart is bearish with a $23.00 target. We're suggesting puts now with a stop loss at $36.55 and a $29.00 target.

Readers should consider this an aggressive play. The EWZ can be very volatile. On Thursday it's range was almost $31.00 to $37.50.

Suggested Options:
We are suggesting the December puts. Strikes are available at $1.00 increments.

BUY PUT DEC 35.00 ESZ-XI open interest=29304 current ask $4.90
BUY PUT DEC 31.00 ESZ-XE open interest= 1143 current ask $3.30
BUY PUT DEC 30.00 ESZ-XD open interest=44713 current ask $2.95

Annotated Chart:
EWZ

Picked on November 15 at $ 34.55
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =      25.7 million  


Intl. Business Machines - IBM - cls: 80.33 change: -3.88 stop: 85.55

Why We Like It:
Negative earnings guidance from across the tech sector has not inspired the bulls. While IBM did see a significant bounce on Thursday investors quickly sold the rally. The technical picture is getting worse and IBM's Point & Figure chart is forecasting a $57 target.

We are suggesting puts with a stop loss at $85.55. We're setting two targets. Our first target is $75.50. Our second target is $71.00.

Suggested Options:
We are suggesting the December puts.

BUY PUT DEC 80.00 IBM-WP open interest=16062 current ask $3.00
BUY PUT DEC 75.00 IBM-WO open interest=11947 current ask $1.30
BUY PUT DEC 70.00 IBM-WN open interest= 5838 current ask $0.55

Annotated Chart:
IBM

Picked on November 15 at $ 80.33
Change since picked:      + 0.00
Earnings Date           01/15/09 (unconfirmed)
Average Daily Volume =      11.9 million  


iShares Russell 2000 - IWM - close: 45.64 change: -3.67 stop: 49.01

Why We Like It:
The Russell 2000 small cap index hit new five-year lows this week. While this index saw a huge rebound on Thursday it was the weakest on Friday. If fund managers are not buying small caps then this market will continue lower.

There is a chance that the RUT could see another bounce from its recent lows but the rebound will probably not be as violent as Thursday's. Overall the trend remains negative and we're expecting new relative lows.

We're suggesting a stop loss at 49.05 on the IWM. Our target is the $41.00 mark. FYI: The P&F chart points to an $18 target.

Suggested Options:
We are suggesting the December puts. Strikes are available at $1.00 increments.

BUY PUT DEC 45.00 IWM-XS open interest=32736 current ask $3.80
BUY PUT DEC 42.00 IWM-XP open interest=31611 current ask $2.59
BUY PUT DEC 40.00 IWM-XN open interest=13072 current ask $1.98

Annotated Chart:
IWM

Picked on November 15 at $ 45.64
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =       121 million  


Joy Global - JOYG - close: 25.18 change: -1.36 stop: 27.51

Why We Like It:
We're going to take another swing at JOYG. We listed it as a bearish play last week but exited early on the reversal higher. There was no follow through on Friday so we're re-listing it as a put play.

Our target is $20.50. We're suggesting a stop loss at $27.51. FYI: The P&F chart is bearish with a $17.00 target.

Suggested Options:
We are suggesting the December puts.

BUY PUT DEC 25.00 JQY-XZ open interest= 721 current ask $3.80
BUY PUT DEC 22.50 JQY-XX open interest= 725 current ask $2.65
BUY PUT DEC 20.00 JQY-XY open interest=1176 current ask $1.75

Annotated Chart:
JOYG

Picked on November 15 at $ 25.18
Change since picked:      + 0.00
Earnings Date           12/17/08 (unconfirmed)
Average Daily Volume =       4.0 million  


Kohl's Corp. - KSS - close: 29.09 change: -1.48 stop: 32.05

Why We Like It:
Everyone expected the October retail sales figures to be bad and yet the retail sector sold off on the news anyway. Currently the market is expecting this Christmas to be the worst holiday shopping season in about 20 years. You might be able to argue that it's already been priced in but the trend for retailers is still lower.

We're suggesting puts with a stop loss at $32.05 and two targets. Our first target is $25.50 since KSS appears to have some long-term support around $25.00. Our second target is $22.00. Believe it or not the P&F chart is still bullish from the late October rally but a new move under $26.00 would change that. FYI: More conservative traders may want to use a tighter stop near the late Friday rebound around $31.15.

Suggested Options:
We are suggesting the December puts.

BUY PUT DEC 30.00 KSS-XF open interest= 6898 current ask $3.60
BUY PUT DEC 25.00 KSS-XE open interest=14870 current ask $1.65

Annotated Chart:
KSS

Picked on November 15 at $ 29.09
Change since picked:      + 0.00
Earnings Date           02/26/09 (unconfirmed)
Average Daily Volume =       8.4 million  


L-3 Communications - LLL- close: 69.33 change: -1.75 stop: 73.25

Why We Like It:
The defense sector has mirrored the declines in the S&P 500. Unfortunately for LLL shareholders the stock has under performed both the market and the DFI index. Even Thursday's rebound in LLL failed to push the stock back into the green.

We're suggesting puts with a stop loss above Friday's high a $73.25. We're listing two targets. Our first target is $65.25, which would be a new relative low. Our second target is $61.00.

Suggested Options:
We are suggesting the December puts.

BUY PUT DEC 70.00 LLL-XN open interest= 334 current ask $5.20
BUY PUT DEC 65.00 LLL-XM open interest= 373 current ask $3.10
BUY PUT DEC 60.00 LLL-XL open interest= 341 current ask $1.80

Annotated Chart:
LLL

Picked on November 15 at $ 69.33
Change since picked:      + 0.00
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =       1.2 million  


Northern Trust - NTRS - close: 44.92 change: -4.88 stop: 50.05

Why We Like It:
The banking indices look poised to hit new relative lows soon. In front of the pack is NTRS, a regional bank, that is already hitting multi-year lows. Now the financials have become one of the most volatile sectors in the market. NTRS' range on Thursday was almost $43 to $50. We're going to play with a relatively wide stop loss, which raises our risk.

We're suggesting readers buy puts with a stop loss at $50.05. More conservative traders may want to try $47.55 instead. Our first target is the $40.00-38.50 zone. The Point & Figure chart is bearish with a $34.00 target.

Suggested Options:
We are suggesting the December puts.

BUY PUT DEC 45.00 NRQ-XI open interest= 765 current ask $5.10
BUY PUT DEC 40.00 NRQ-XH open interest=  14 current ask $3.10

Annotated Chart:
NTRS

Picked on November 15 at $ 44.92
Change since picked:      + 0.00
Earnings Date           01/15/09 (unconfirmed)
Average Daily Volume =       3.7 million  


Potash Corp. - POT - close: 69.81 change: -4.38 stop: 74.51

Why We Like It:
The post-bubble burst in POT and the rest of the fertilizer stocks has been horrendous. POT was trading around $240 in June. The group continues to slide lower whether the move is warranted or not. I would argue that the demand for fertilizer remains strong and these companies have said before they're in multi-year bullish business trends. We can't trade what we think should happen but only what the markets gives us. At the moment, POT is headed lower.

We are suggesting a stop loss at $74.51, just above Friday's high. Our target is the $61.50 mark. More aggressive traders may want to aim lower. The P&F chart is bearish with a $48 target.

Suggested Options:
We are suggesting the December puts.

BUY PUT DEC 70.00 PVZ-XN open interest=5870 current ask $8.70
BUY PUT DEC 65.00 PVZ-XM open interest=1703 current ask $6.40
BUY PUT DEC 60.00 PVZ-XL open interest=1570 current ask $4.60

Annotated Chart:
POT

Picked on November 15 at $ 69.81
Change since picked:      + 0.00
Earnings Date           01/22/09 (unconfirmed)
Average Daily Volume =      20.3 million  


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