Option Investor
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New Bearish play and Two new Strangles

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Play Editor's Note:

The trend in the market is obviously down. I continue to think we're heading lower but every day we get more oversold and it's raising the risk we'll see a sharp oversold rally. Traders have to be ready for that rally. I wouldn't try too hard to catch it but don't let any oversold rally turn a profitable bearish play into a loss. There is a possibility that the S&P 500 will bounce from the 700 level but it's just speculation. I think the market could head either direction in a big way so I'm listing some strangles.


NEW DIRECTIONAL PUT PLAYS

Newmont Mining - NEM - close: 37.88 change: -3.75 stop: 42.45

Why We Like It:
I think that gold futures are still in a bullish trend but this gold miner has turned bearish. The stock has produced a bearish double top near $45.00 and now it has broken several layers of support with today's sell-off. The intraday bounce failed at the $40.00 level. I'm suggesting bearish positions now with a wide stop loss just in case the market bounces. More conservative traders might want to consider using a stop loss closer to $40.00 instead. Our first target is $35.05. Our second target is $31.00

Suggested Options:
I am suggesting the April puts.

BUY PUT APR 40.00 NEM-PH open interest= 503 current ask $5.00
BUY PUT APR 37.50 NEM-PU open interest= 324 current ask $3.60
BUY PUT APR 35.00 NEM-PG open interest=1064 current ask $2.48

Annotated Chart:
NEM

Picked on    March xx at $ xx.xx
Change since picked:      + 0.00
Earnings Date           04/23/09 (unconfirmed)
Average Daily Volume =      10.8 million  


NEW MARKET NEUTRAL STRANGLE PLAYS

AvalonBay - AVB - close: 40.11 change: -2.31 stop: n/a

Why We Like It:
The trend in AVB is down. I actually expect AVB To break support at $40.00. However, you have to ask yourself. Why did it not break support today? While my bias is bearish yet there is a chance that AVB could see a sharp oversold rally. That's why I'm suggesting a strangle. We're suggesting March options, which expire in less than three weeks making this an aggressive play.

Suggested Options:
A strangle is a neutral strategy that involves buying both an out of the money call and an out of the money put. The plan is for the stock to move enough in one direction to push one side of the position into a profit.

We are suggesting the March $45 call and $35 put. Our estimated cost is $2.80. We want to sell if either option hits $4.00 or more.

BUY CALL MAR 45.00 AVB-CI open interest=248  current ask $1.50
-and-
BUY PUT MAR 35.00 AVB-OG open interest= 591 current ask $1.30

Annotated Chart:
AVB

Picked on    March 02 at $ 40.11
Change since picked:      + 0.00
Earnings Date           04/30/09 (unconfirmed)
Average Daily Volume =       3.4 million  


iShares REIT - IYR - close: 23.38 change: -1.76 stop: n/a

Why We Like It:
The IYR is the ETF for the REIT sector. AVB is also a REIT so you probably want to choose which play sounds the best for you instead of playing both. The IYR broke down to new closing lows today but it's so oversold it could see a rebound any day now. This can be a volatile group so I'm expecting double-digit percentage moves. We're using March options, which expire in three weeks so consider this an aggressive trade.

Suggested Options:
A strangle is a neutral strategy that involves buying both an out of the money call and an out of the money put. The plan is for the stock to move enough in one direction to push one side of the position into a profit.

We are suggesting the March $26 call and $20 put. Our estimated cost is $1.40. We want to sell if either option hits $2.10 or more.

BUY CALL MAR 26.00 BJN-CZ open interest=1953 current ask $0.70
-and-
BUY PUT MAR 20.00 BJN-OT open interest=5003 current ask $0.70

Annotated Chart:
IYR

Picked on    March 02 at $ 23.38
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =        44 million  


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