Option Investor
New Plays

Surgery, Smallcaps, & Travel

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Play Editor's Note: I am reluctantly adding new bullish positions to the newsletter tonight. Selling rallies has been a successful move for months, why is this time any different? You could argue that we're still deeply oversold in spite of the best two-day rally in years. I suspect the bounce still has a few days left. I do believe this is just a bear-market bounce until the market proves me wrong but it still feels like being long is less risky than being short albeit both seem like high-risk propositions at this time. Our new plays should be considered aggressive and higher-risk. --


NEW DIRECTIONAL CALL PLAYS
Intuitive Surgical - ISRG - close: 124.39 change: +0.55 stop: 118.75

Why We Like It:
The trend in ISRG is still very much down. We're just trying to catch a short-term bounce. It looks like ISRG made a trading bottom last week and we might be able to catch a move back toward the $140-150 zone. Our plan is to buy out of the money calls now or on a dip back toward $120. Our target is $140.00. More aggressive traders may want to aim higher but we would expect resistance near $150. The P&F chart is still bearish but a move over $130 would be a new buy signal.

Suggested Options:
Options on ISRG, a volatile stock, tend to be expensive. We're suggesting December calls.

BUY CALL DEC 130.0 AXQ-LV open interest= 107 current ask $8.30
BUY CALL DEC 135.0 AXQ-LG open interest= 130 current ask $6.50
BUY CALL DEC 140.0 AXQ-LX open interest= 134 current ask $4.80

Annotated Chart:
ISRG

Picked on November 25 at $124.39
Change since picked:      + 0.00
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =       1.4 million  


iShares Russell 2000 - IWM - close: 44.22 change: +0.72 stop: 42.49

Why We Like It:
The IWM ishares and the RUT showed some relative strength closing near their highs for the session. It looks like the small caps might actually lead us higher. We're suggesting readers buy calls here with a stop loss under today's low. Our target is the $48.00 mark. More aggressive traders may want to try the double-long Russell ETF with the UWM instead.

Suggested Options:
We're suggesting the December calls. Strikes are available at $1.00 increments.

BUY CALL DEC 42.00 IWM-LP open interest=7054 current ask $4.05
BUY CALL DEC 44.00 IWM-LR open interest=5779 current ask $2.86
BUY CALL DEC 48.00 IWM-LV open interest=15440 current ask $1.21

Annotated Chart:
IWM

Picked on November 25 at $ 44.22
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =       119 million  


Priceline.com - PCLN - close: 62.82 change: +1.21 stop: 57.45

Why We Like It:
It would appear that PCLN has built a bottom over the last several weeks. Shares began building a bullish trend of higher lows after its October 28th dip to $45. Shares broke through resistance near $57.50 last week and traders pushed shares past round-number resistance at $60.00 and technical resistance at its 50-dma. PCLN out performed the broader market indices today. This might be a seasonal play as investors bet on consumers traveling more during the holiday season.

We are suggesting readers buy calls here or on a dip near $60.00. We are listing a wide, aggressive (higher-risk) stop loss at $57.45. More conservative traders may want to use a stop loss under today's low near $59.00 instead. We are listing two targets. Our first target is $69.90, just under the mid October high. Our second target is $74.85. We suggest readers take most of the position off the table at our first target. FYI: The Point & Figure chart is bullish with an $84 target.

Suggested Options:
We are suggesting the December calls. More conservative traders may want to use January calls instead.

BUY CALL DEC 60.00 PUZ-LL open interest= 534 current ask $6.90
BUY CALL DEC 65.00 PUZ-LM open interest= 947 current ask $4.10
BUY CALL DEC 70.00 PUZ-LN open interest=1917 current ask $2.15

Annotated Chart:
PCLN

Picked on November 25 at $ 62.82
Change since picked:      + 0.00
Earnings Date           02/12/09 (unconfirmed)
Average Daily Volume =       1.9 million  


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