Option Investor
New Plays

Hardware, Wholesale, and Energy

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Play Editor's Note: We are adding some new bullish plays to the newsletter but all of them should be considered aggressive, higher-risk trades. The market's bounce was encouraging but the prevailing trend is still down. These new positions below are speculative bets that the bounce (a.k.a. bear-market rally) really isn't over yet and just took a huge step back on Monday. If we're wrong I would expect to be stopped out very quickly.


NEW DIRECTIONAL CALL PLAYS

Apple Inc. - AAPL - close: 92.47 change: +3.54 stop: 88.45

Why We Like It:
If the stock market can build on today's bounce then we want to be in stocks that will capture investor attention and money flow. AAPL was really under performing this morning with a drop to $86.50 but rebounded sharply when the market turned higher this afternoon. We are suggesting call positions now with a stop loss at $88.45. Our target is the $99.00 mark. The $100 level and its 50-dma could be tough resistance to break. Readers might also notice that AAPL has short-term resistance at $95.00. If the stock fails to breakout over $95.00 in the next day or two we'll be looking for an exit.

Suggested Options:
We are suggesting the December calls. More conservative traders may want to use January calls since Decembers expire in less than three weeks.

BUY CALL DEC 90.00 QAA-LR open interest=19611 current ask $7.65
BUY CALL DEC 95.00 QAA-LS open interest=15220 current ask $4.90
BUY CALL DEC 100.0 QAA-LT open interest=16524 current ask $2.87

Annotated Chart:
AAPL

Picked on December 02 at $ 92.47
Change since picked:      + 0.00
Earnings Date           01/22/09 (unconfirmed)
Average Daily Volume =        53 million  


Axsys Tech. - AXYS - close: 67.43 change: +2.97 stop: 63.35

Why We Like It:
We were successful in playing the recent bounce in AXYS toward resistance near $70.00. Now it looks like shares might be poised to breakout over that resistance. Traders bought the dip at AXYS' 100-dma and 10-dma both yesterday and today. If the stock can breakout past $70.00 it would be the completion of an inverse (bullish version) of a head-and-shoulders pattern that would forecast a rally toward $90.00. This just happens to coincide with the bullish P&F chart that points to an $89 target.

This is an aggressive, high-risk entry point because AXYS still has that resistance at $70.00. We're suggesting a stop loss under today's low. Our first target is $74.85. We're considering a secondary target near $80.

Suggested Options:
We are suggesting the December or January calls. Double check the bid ask with your broker as the prices on the CBOE looks like typos.

BUY CALL DEC 65.00 QHU-LM open interest=115  current ask $x.xx
BUY CALL DEC 70.00 QHU-LN open interest= 53  current ask $x.xx
BUY CALL DEC 75.00 QHU-LO open interest= 24  current ask $x.xx

BUY CALL JAN 65.00 QHU-AM open interest= 0   current ask $x.xx
BUY CALL JAN 70.00 QHU-AN open interest= 0   current ask $x.xx
BUY CALL JAN 75.00 QHU-AO open interest= 0   current ask $x.xx

Annotated Chart:
AXYS

Picked on December 02 at $ 67.43
Change since picked:      + 0.00
Earnings Date           02/19/09 (unconfirmed)
Average Daily Volume =       246 thousand 


Costco Wholesale - COST - close: 50.10 change: +2.19 stop: 47.75

Why We Like It:
A number of the short-term technicals for COST are showing a bullish reversal higher. Yet the stock has not broken its bearish pattern of lower highs. A quick glance at the 20-dma or 30-dma directly overhead can show you COST's immediate resistance. This makes buying calls today at higher-risk proposition. More conservative traders may want to wait for a rise past the $52.00 level. We are suggesting call positions now with a stop loss under today's low. Our first target is $54.85.

Suggested Options:
We are suggesting the December calls because our plan is to exit ahead of the December 11th earnings report. Note: Decembers expire in less than three weeks.

BUY CALL DEC 50.00 PRQ-LJ open interest=1763 current ask $3.10
BUY CALL DEC 55.00 PRQ-LK open interest=2142 current ask $0.95

Annotated Chart:
COST

Picked on December 02 at $ 50.10
Change since picked:      + 0.00
Earnings Date           12/11/08 (confirmed)
Average Daily Volume =       7.2 million  


XTO Energy - XTO - close: 35.61 change: +1.41 stop: 33.49

Why We Like It:
XTO is an oil and gas stock that looks ready to bounce after today's mini double-bottom pattern. Traders bought the dip near $33.50 twice today and XTO is set up for a bounce back toward the $40.00 level. We're suggesting a stop loss under today's low. We are listing two targets but strongly suggest that readers exit most of their position at our first target. The $40.00 level remains overhead resistance. Our first target is $39.85. Our second target is $43.50.

Suggested Options:
We are suggesting the December calls but more conservative traders may want to use January calls. Decembers expire in less than three weeks.

BUY CALL DEC 35.00 XTO-LG open interest=5793 current ask $3.00
BUY CALL DEC 40.00 XTO-LH open interest=4971 current ask $1.05

Annotated Chart:
XTO

Picked on December 02 at $ 35.61
Change since picked:      + 0.00
Earnings Date           02/10/09 (unconfirmed)
Average Daily Volume =      13.3 million  


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