Option Investor
New Plays

One bullish play, one neutral play

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NEW DIRECTIONAL CALL PLAYS

EOG Resources - EOG - close: 70.74 change: +2.33 stop: 66.95

Why We Like It:
We already have a couple of oil and energy-related stocks on the play list. If you already have exposure to the sector you may want to think twice about adding more but the energy stocks do appear to be showing relative strength. EOG has broken out from a two-week trading range in the $66-70 zone. The move is also a breakout over technical resistance at the 50-dma and technical resistance on the point & figure chart. Speaking of the P&F chart, it is bullish and forecasting an $89 target for EOG.

I am suggesting call positions now with two targets. Our first target is $75.75. Our second target is $79.75. We do need to keep a wary eye on the simple 100-dma, which might be overhead resistance around $73.50.

Suggested Options:
I am suggesting 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 70.00 EOG-CN open interest=1994 current ask $5.40
BUY CALL MAR 75.00 EOG-CO open interest= 880 current ask $3.10

Annotated Chart:
EOG

Picked on February 09 at $ 70.74
Change since picked:      + 0.00
Earnings Date           04/30/09 (unconfirmed)
Average Daily Volume =       4.2 million  


NEW MARKET NEUTRAL STRANGLE PLAYS

iShares Financials - IYF - close: 36.90 change: +0.44 stop: n/a

Why We Like It:
Treasury Secretary Tim Geitner was supposed to speak on the banking crisis and what the Obama administration was going to do about it today. His speech was postponed until Tuesday at 11:30 a.m. The whole world, well, at least the stock markets of the world, are waiting to hear this new plan. Stocks in the financial sector will probably trade sideways until the speech and the group could see some serious volatility.

I am suggesting we take advantage of any post-speech move with a strangle. This way we don't care what direction the sector moves as long as it runs. Note: we want to open positions before Geitner's speech starts at 11:30 a.m.

Suggested Options:
I am suggesting February options for this strangle. The move should be short-term and February options expire in less than two weeks. More conservative traders or those who want to play with more time for this move to occur will want to consider the March options.

A strangle play involves buying both an out of the money call option and an out of the money put option. If the underlying equity moves enough one side will appreciate to cover the entire position and produce a profit.

Our estimated cost with the February options is about $2.55. We want to sell if either option hits $3.75 or more.

BUY CALL FEB 40.00 IYI-BN open interest= 366 current ask $1.25
-and-
BUY PUT FEB 34.00 IYI-NH open interest= 186 current ask $1.30

Annotated Chart:
iShares Financials (IYF)

Picked on February 09 at $ 36.90
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =      12.6 million  


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