Option Investor
New Plays

China, the S&P, and an Investment-manager

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NEW DIRECTIONAL CALL PLAYS

ProShares UltraShort China - FXP - cls: 42.23 change: +1.55 stop: 39.69

Why We Like It:
The Chinese is market is breaking down and one way to play that is going long some calls on an ultra-short (2x) Chinese ETF. The FXP has broken out from its recent trading range and should be setting up for a rally toward the $50.00 region. The P&F chart is bullish with a $52.00 target.

I'm suggesting call positions now and we'll use a relatively tight stop loss at $39.69. More aggressive traders may want to use a stop loss under $38.00 or $37.00. Our first target is $47.00. Our second target is $49.90.

NOTE: As an ETF based on a Chinese index we can expect this security to gap open higher or lower every day. Expect it.

FYI: The FXP is a double-short ETF that tries to mimic twice the inverse of the daily performance of the FTSE/Xinhua China 25 index.

Suggested Options:
I am suggesting the March or April calls.

BUY CALL MAR 40.00 FAT-CN open interest= 607 current ask $5.70
BUY CALL MAR 43.00 FAT-CQ open interest= 170 current ask $4.40
BUY CALL MAR 47.00 FAT-CU open interest=  74 current ask $3.10


BUY CALL APR 40.00 FAT-DN open interest= 47  current ask $7.90
BUY CALL APR 45.00 FAT-DS open interest= 44  current ask $6.10
BUY CALL APR 50.00 FAT-DX open interest= 97  current ask $4.80

Annotated Chart:
FXP

Picked on February 28 at $ 42.23
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =       2.2 million  


ProShares Short S&P 500 - SH - close: 85.95 chg: +1.74 stop: 83.40

Why We Like It:
The S&P 500 index is breaking down to new multi-year lows and there isn't much support below it to arrest the slide. One way to play the decline is buying bullish positions on a short ETF like the SH. The SH just broke out from what looks like a mini-bull flag pattern. The easy criticism here is that it feels like we're late to the game on a new bearish trade. I don't disagree that the SH is arguably a little overbought but the market can always get more overbought or more oversold. I do consider this a more aggressive play but we'll try and limit our risk with a relatively tight stop loss at $83.40. I would consider new positions now or on a dip back toward $84.00. Our first target is $89.95. Our second target is $94.00. The Point & Figure chart is forecasting a price target of $108.

Suggested Options:
I'm suggesting the March calls but April calls would also work well. March options expire in three weeks. Strikes are available at $1.00 increments.

BUY CALL MAR 85.00 SH-CG open interest= 396 current ask $4.30
BUY CALL MAR 90.00 SH-CL open interest= 434 current ask $2.30

Annotated Chart:
SH

Picked on February 28 at $ 85.95
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =       1.8 million  


NEW DIRECTIONAL PUT PLAYS

Blackrock Inc. - BLK - close: 96.81 change: -3.93 stop: 102.80

Why We Like It:
BLK is a high-dollar investment management firm that appears to be on the verge of collapsing under support. The stock has fallen from the $230s to the $90s in the last six months. In that time BLK has produced what could be considered a bearish head-and-shoulders pattern that is projecting a $50.00 price target. Please note that this has been a very volatile stock in the past and it will probably stay that way for the foreseeable future.

I consider this an aggressive, high-risk/high-reward trade. We're suggesting a trigger to buy puts at $94.50 but if we get the chance nimble traders may want to jump in on a failed rally under $105. We are starting with a stop loss at $102.80. Our first target is $81.00. Our secondary target is $66.00.

Suggested Options:
The spreads on these options are wide and one of the reasons I consider this an aggressive play. I'm suggesting the March or the April puts. It is up to the individual trader to decide which month and which strike price best suits your trading style and risk profile.

BUY PUT MAR 95.00 BLK-OY open interest= 213 current ask $6.80
BUY PUT MAR 85.00 BLK-OW open interest= 210 current ask $3.10

BUY PUT APR 90.00 BLK-PX open interest= 47  current ask $8.20
BUY PUT APR 80.00 BLK-PV open interest= 29  current ask $4.70
BUY PUT APR 70.00 BLK-PE open interest= 54  current ask $2.60

Annotated Chart:
BLK

Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           04/16/09 (unconfirmed)
Average Daily Volume =       726 thousand 


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