Option Investor
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Heavy on the Commodities

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Play Editor's Note:
I want you to keep an eye on a few more stocks this week. Deere (DE) and Caterpillar (CAT) might offer a trade. CAT reports earnings on Monday morning. The results will probably be bad. CAT and DE might plunge toward support at $32.00 for CAT and $29.00 for DE. Another stock to watch is the high-dollar CME. CME bounced (for the third time) from support near $155 on Friday. If it breaks $155 the fall could be pretty deep. Aggressive traders may want to use a trigger under $155 but beware the company's earnings report in early February.


NEW DIRECTIONAL CALL PLAYS

Baxter Intl. - BAX - close: 57.45 change: +0.70 stop: 53.95

Why We Like It:
BAX was a big winner last week. The company reported earnings that were better than expected and investors were happy to hear at least someone was not guiding earnings forecasts lower. The stock broke out over resistance at $55.00. I do not want to chase the move here but if BAX comes back to test prior resistance as support then we want to buy the dip.

I am suggesting readers buy calls on a dip into the $55.50-55.00 zone. We'll start the play with a stop loss at $53.95. Our target is the $59.50-61.00 zone (just under the 200-dma). FYI: The point & figure chart is bullish with a $74 target.

Suggested Options:
We are suggesting the February calls because March doesn't have much open interest.

BUY CALL FEB 55.00 BAX-BK open interest=6043 current ask $3.70
BUY CALL FEB 57.50 BAX-BY open interest=5187 current ask $1.90
BUY CALL FEB 60.00 BAX-BL open interest=1195 current ask $0.85

Annotated Chart:
BAX

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


Gold ETF - GLD - close: 88.53 change: +3.95 stop: 82.90

Why We Like It:
After weeks of watching the price of gold finally broke out over resistance and it broke out in a big way. The GLD soared 4.6% and cleared the $87 hurdle. The move was so big that I think the GLD will see some profit taking on Monday. I am suggesting that readers buy calls on the GLD in the $86.50-85.00 zone. If you really want to be conservative look for a dip near $84.00 but I expect the $85 level to act as support.

If triggered at $86.50 we have two targets. Our first target is $89.85. Our second target is $94.50. We should expect to find resistance in the $90-92.50 region.

Suggested Options:
I am suggesting the March calls. Strikes are available in $1.00 increments.

BUY CALL MAR 85.00 GLD-CG open interest= 3742 current ask $7.30
BUY CALL MAR 90.00 GLD-CL open interest=12881 current ask $4.90

Annotated Chart:
GLD

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


Oil ETF - USO - close: 32.33 change: +2.31 stop: 29.90

Why We Like It:
Is it time to finally buy oil? Personally, I don't think it's time to really load up on oil but we can probably catch a short-term bounce here. Oil put in a "higher" lower last week compared to its December lows. Friday's rally was strong enough to break the two-week bearish trend of lower highs.

While I am suggesting readers buy calls right here I think more patient traders may want to wait for a dip back toward $31.00 and open bullish positions there. Our target is $36.00. Watch out for the 50-dma (approaching $36), which may be overhead resistance.

Suggested Options:
This should be a short-term play so I'm suggesting the February calls. Strikes are available in $1.00 increments.

BUY CALL FEB 30.00 UBO-BD open interest=24809 current ask $4.20
BUY CALL FEB 32.00 UBO-BF open interest=16318 current ask $3.00
BUY CALL FEB 35.00 UBO-BI open interest= 8959 current ask $1.70

Annotated Chart:
USO

Picked on January 24 at $ 32.33
Change since picked:     + 0.00
Earnings Date          00/00/00
Average Daily Volume =        ? million  


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