Option Investor
New Plays

Financials, Energy, Travel and More

HAVING TROUBLE PRINTING?
Printer friendly version


NEW DIRECTIONAL CALL PLAYS

Citigroup - C - close: 3.91 change: +0.38 stop: 2.75

Why We Like It:
I am suggesting some covered call plays on Citigroup. This week could be a big week for the banks depending on the markets interpret Geitner's new plan on Monday. We are giving up potential gains if shares of C decide to really take off but we're giving them up for a 25% gain with a hedge.

Citigroup is at $3.91. I am suggesting two different covered call plays. Pick the one that most appeals to you and your trading style. Covered call #1 is selling the March $4.00 calls (C-CW) for $0.97 (the current bid). That's a 24.8% gain on our stock purchase and we don't loose money until C trades under $2.94. Now this play is not without risk. The financials move fast and C could be trading under $3.00 tomorrow but odds are that is unlikely. I want to reiterate that we are giving up potential gains should C explode higher and trade near $6.00 or more by next Friday. If you think Citigroup will rally sharply higher then consider a move aggressive play. We should be called out of the position (Covered Call play #1) not long after C closes over $4.00.

We still want to play with a stop loss. We're setting the stop at $2.75 at which point we buy back the calls we sold and sell the stock.

Covered Call #1
BUY shares of C
SELL CALL MAR 4.00 C-CW open interest=49836 current bid $0.97

Covered Call Play #2,

This alternative strategy is to buy Citigroup's stock and sell the March $5.00 call (C-CP) for $0.59, which is a 15% gain and we only have so called "protection" down to $3.32. However, if C does move higher you could capture a 27% gain in the stock price and the 15% gain in the sold call. This is a more aggressive covered call play and we'll go with a more aggressive stop at $2.79. You may want to use a tighter stop loss.

SELL CALL MAR 5.00 C-CP open interest=175025 current bid $0.59

Annotated Chart:
Citigroup (C)

Picked on February 07 at $  3.91
Change since picked:      + 0.00
Earnings Date           04/17/09 (unconfirmed)
Average Daily Volume =       284 million  


Diamond Offshore - DO - close: 67.49 change: +2.67 stop: 61.90

Why We Like It:
There are several bullish candidates in the oil and energy sector. You may want to look around the group for more. I liked DO because the stock wasn't quite so volatile but still looked like it had turned a significant corner and was no longer falling. DO's long-term picture is bearish but the last two weeks have created a potential "higher low" and DO has broken several levels of resistance. Thus the stock could be in the process of reversing.

I am suggesting bullish call positions now but if you're patient consider waiting for a dip toward $66.00 or $65.00 as a better entry point. Our first target is $72.45, which is under potential resistance at the 100-dma. I am setting a secondary target at $77.40.

Suggested Options:
I am suggesting traders buy the March calls. It is up to the individual trader to decide which month and which strike price best suits your trading style and risk.

BUY CALL MAR 65.00 DO-CM open interest=1656 current ask $6.60
BUY CALL MAR 70.00 DO-CN open interest=1823 current ask $3.90
BUY CALL MAR 75.00 DO-CO open interest= 816 current ask $2.15

Annotated Chart:
Diamond Offshore (DO)

Picked on February 07 at $ 67.49
Change since picked:      + 0.00
Earnings Date           04/23/09 (unconfirmed)
Average Daily Volume =       2.8 million  


Energizer Holdings - ENR - close: 52.11 chg: +2.91 stop: 47.95

Why We Like It:
ENR is breaking out from a two-week trading range and the technical picture has turned bullish. I am suggesting bullish call positions now. However, I would prefer a much better entry point on a dip back toward $50.00. Broken resistance near $50 should be new short-term support. There is potential resistance at the falling 100-dma currently around $53.80ish. However, if this market rally is for real then ENR should be able to rise past the 100-dma. Our target is $57.85.

Suggested Options:
I am suggesting traders buy the March calls. It is up to the individual trader to decide which month and which strike price best suits your trading style and risk.

BUY CALL MAR 50.00 ENR-CU open interest=  63 current ask $5.00
BUY CALL MAR 55.00 ENR-CK open interest= 144 current ask $2.45

Annotated Chart:
Energizer (ENR)

Picked on February 07 at $ 52.11
Change since picked:      + 0.00
Earnings Date           04/27/09 (unconfirmed)
Average Daily Volume =       1.2 million  


Priceline.com - PCLN - close: 74.47 change: +1.80 stop: 69.40

Why We Like It:
This is going to be a short-term play. PCLN is due to report earnings on February 18th and we do not want to hold over the report. The action in PCLN has turned bullish. The last few weeks have shown investors buying dips to the 50-dma and the 100-dma. Now PCLN has broken through resistance near $70.00. Technical indicators are flashing buy signal. You could make a case for buying PCLN or calls on it right now.

I want to wait. I'm suggesting readers buy calls on a dip into the $72.50-70.00 zone. Now we could miss the move if PCLN continues to run but I'd rather have the better entry point on a dip. If triggered at $72.50 our target is $79.50.

Suggested Options:
I am suggesting traders buy the March calls but we do not want to hold over the earnings announcement.

BUY CALL MAR 70.00 PUZ-CN open interest= 177 current ask $9.40
BUY CALL MAR 75.00 PUZ-CO open interest= 643 current ask $6.70
BUY CALL MAR 80.00 PUZ-CP open interest=1179 current ask $4.60

Annotated Chart:
Priceline.com (PCLN)

Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           02/18/09 (unconfirmed)
Average Daily Volume =       1.4 million  


New Play Archives