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Buy The Dip

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Play Editor's Note: The stock market just delivered its best five-day run in several decades. While this is encouraging we don't want to chase the move. Looking at the big picture we are still in a bear market. The last two weeks may have produced a significant bottom but we don't know yet if it is "the" bottom. I do think there is more upside but we want to see a correction first within this rally. After a +20% or more rebound I'd expect a 5% pull back or more before stocks begin moving higher again.

Don't forget that it is up to the individual trader to decide which month and which strike price best suits your trading style and risk.

New Option Plays
Call Options Plays
Put Options Plays
Strangle Options Plays
AMZN None None
APOL    
DIA    
LMT    
     
     
     


NEW DIRECTIONAL CALL PLAYS

Amazon.com - AMZN - close: 42.70 change: +1.26 stop: 38.70

Why We Like It:
News reports from Friday suggested that Black Friday turned out better than expected for retailers. Of course expectations were pretty low and it may have been a one-day pop for retailers as we still have almost four weeks left before Christmas. However, the upbeat reports should spell good news for "cyber Monday" where hordes of consumers spend their time at work surfing the web and ordering Christmas gifts. AMZN is always expected to be a big winner here and if investor confidence is improving then AMZN may look cheap here at 50% off its highs.

We still don't want to chase the bounce. Our plan is to buy a dip. We are suggesting readers buy calls on a pull back into the $40.50-40.00 zone with a stop loss at $38.70. We are listing two targets. Our first target is $44.50. Our second target is $48.50. FYI: The P&F chart recently produced a new buy signal with a $53 target.

Suggested Options:
We are suggesting the December calls. More conservative traders may want to buy January calls instead. Decembers expire in three weeks.

BUY CALL DEC 40.00 ZQN-LH open interest=3599 current ask $5.35
BUY CALL DEC 42.50 ZQN-LV open interest=4696 current ask $3.85
BUY CALL DEC 45.00 ZQN-LI open interest=6749 current ask $2.65

Annotated Chart:
AMZN

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =      12.7 million  


Apollo Group - APOL - close: 76.84 change: -0.01 stop: 69.90

Why We Like It:
Education stocks have been out performing the market and APOL has helped lead the sector higher. The stock broke out from a multi-week consolidation in the $65-70 range and looks poised to make a run at resistance near the $80-81 zone. We want to buy a dip. Our plan is to buy calls on a pull back into the $73.00-72.00 range with a stop loss at $69.90. Our target is the $79.75 mark. FYI: The Point & Figure chart is bullish with a $99 target.

Suggested Options:
We are suggesting the December calls. More conservative traders may want to buy January calls instead. Decembers expire in three weeks.

BUY CALL DEC 70.00 OAQ-LN open interest=4475 current ask $9.10
BUY CALL DEC 75.00 OAQ-LO open interest=3737 current ask $5.50
BUY CALL DEC 80.00 OAQ-LP open interest=3348 current ask $2.85

Annotated Chart:
APOL

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           01/06/09 (unconfirmed)
Average Daily Volume =       4.0 million  


DIAMONDS - DIA - close: 88.30 change: +1.12 stop: 81.90

Why We Like It:
I don't want to sound like a broken record here but the market just delivered a huge move and we are due for a correction (a.k.a. profit taking). Stocks don't move in a straight line for very long. It's always a variation of two steps forward, one step back. We want to buy the dip. Our plan is to buy calls on a dip into the $84.00-83.00 zone with a tight stop loss at $81.90. If triggered we have two targets. Our first target is $89.00. Our second target is $93.00.

Suggested Options:
We are suggesting the December calls. More conservative traders may want to buy January calls instead. Decembers expire in three weeks. Strikes are available at $1.00 increments.

BUY CALL DEC 84.00 DAV-LF open interest=3469 current ask $7.00
BUY CALL DEC 88.00 DAV-LJ open interest=6603 current ask $4.45
BUY CALL DEC 90.00 DAV-LL open interest=15131 current ask $3.30

Annotated Chart:
DIA

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =      48.5 million  


Lockheed Martin - LMT - close: 77.11 change: +3.58 stop: 69.90

Why We Like It:
LMT just produced a bullish breakout over resistance at the $75.00 level. If you look at the intraday chart is almost looks like a bullish inverse head-and-shoulders pattern, which would forecast a move toward the $82-83 zone. Normally we would be tempted to buy calls right here. However, our big picture expectation is for the market to correct. LMT should follow suit. We want to buy calls on a dip into the $73.50-72.00 zone with a stop loss at $69.90. If triggered we have two targets. Our first target is $78.50. Our second target is $81.50.

Suggested Options:
We are suggesting the December calls. More conservative traders may want to buy January calls instead. Decembers expire in three weeks.

BUY CALL DEC 70.00 LMT-LN open interest= 394 current ask $8.70
BUY CALL DEC 75.00 LMT-LO open interest= 588 current ask $5.10
BUY CALL DEC 80.00 LMT-LP open interest=1071 current ask $2.40

Annotated Chart:
LMT

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           01/22/09 (unconfirmed)
Average Daily Volume =       3.6 million  


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