Option Investor
New Plays

Biotech, Internet, Industrials, Oil and more

HAVING TROUBLE PRINTING?
Printer friendly version


NEW DIRECTIONAL CALL PLAYS

iShares Biotech - IBB - close: 65.00 change: +1.09 stop: 59.45

Why We Like It:
A number of the major biotech stocks were crushed from February to March. Last week, given the market's rally and the M&A in the biotech and drug sector, the group bounced hard. I think the bounce has more room to run but we want to see a dip first.

I'm suggesting readers buy a dip in the $62.50-62.00 zone. We'll use a stop loss at $59.45. Our first target is $67.40. Our secondary target is $69.85.

FYI: The IBB tracks the NASDAQ biotech index.

Suggested Options:
If triggered at $62.50 we want to use the April calls. It is up to the individual trader to decide which month and which strike price best suits your trading style and risk profile.

BUY CALL APR 60.00 IBB-DL open interest= 253 current ask $6.30
BUY CALL APR 65.00 IBB-DM open interest=2001 current ask $2.85
BUY CALL APR 70.00 IBB-DN open interest=4784 current ask $0.90

Annotated Chart:
IBB

Picked on    March xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =       1.9 million  
Listed on March 14, 2009         


SOHU.com - SOHU - close: 48.43 change: +0.35 stop: 47.45

Why We Like It:
Chinese Internet stocks have been pretty strong lately. SOHU hasn't performed as well as BIDU but looks like a tempting bullish candidate. SOHU has bounced back toward resistance at $50.00. This is a level that has held for about three months so a breakout should produce a pretty good rally.

The late February high was $51.00. I'm suggesting readers buy calls at $51.50. If triggered our first target is $56.50. Our second target is $59.85. FYI: The P&F chart is bullish with a $65 target.

Suggested Options:
If triggered at $51.50 we would use the April calls.

BUY CALL APR 50.00 UZK-DJ open interest= 966 current ask $3.60
BUY CALL APR 55.00 UZK-DK open interest= 375 current ask $1.70

Annotated Chart:
SOHU

Picked on    March xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           04/28/09 (unconfirmed)
Average Daily Volume =       1.4 million  
Listed on March 14, 2009         


Valmont Ind. - VMI - close: 50.20 change: +0.60 stop: 43.99

Why We Like It:
VMI is an industrial goods maker that saw its stock breakout over multiple levels of resistance last week. We don't want to buy it here. Broken resistance near $46.00 should now be support. I'm suggesting that readers buy calls on a dip into the $46.50-46.00 zone. We'll use a stop loss at $43.99. More conservative traders might want to use a stop close to $45.00.

If we are triggered at $46.50 we'll have two targets. Our first target is $51.00. Our second target is $54.75. FYI: The Point & Figure chart is bullish with a $62.00 target.

Suggested Options:
We are suggesting the April calls.

BUY CALL APR 45.00 VMZ-DI open interest= 82  current ask $7.40
BUY CALL APR 50.00 VMZ-DJ open interest=270  current ask $4.40

Annotated Chart:
VMI

Picked on    March xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           04/13/09 (unconfirmed)
Average Daily Volume =       465 thousand 
Listed on March 14, 2009         


NEW DIRECTIONAL PUT PLAYS

Schnitzer Steel - SCHN - close: 25.40 change: -0.92 stop: 26.70

Why We Like It:
Steel and metal stocks were showing relative weakness late last week. If these stocks are going down in an up market how are they going to perform when the market hits some profit taking. Probably not very good is the answer. SCHN has a bearish trend of lower highs inside its sideways consolidation. The stock has been testing support near $25.00 for days.

I am suggesting a trigger to buy puts at $24.50, which would be a new three-month low. If triggered our first target is $20.15. We may want to consider a secondary target since the Point & Figure chart is so bearish it is forecasting at $2.00 (two-dollar) price target.

Suggested Options:
I'm suggesting the April puts.

BUY PUT APR 25.00 SQQ-PC open interest=145  current ask $3.30
BUY PUT APR 22.50 SQI-PX open interest= 10  current ask $2.15
BUY PUT APR 20.00 SQI-PD open interest=  0  current ask $1.35

Annotated Chart:
SCHN

Picked on    March xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           04/02/09 (unconfirmed)
Average Daily Volume =       671 thousand 
Listed on March 14, 2009         


XTO Energy - XTO - close: 29.70 change: -1.45 stop: 32.01

Why We Like It:
XTO has been under performing the S&P 500 and its peers in the oil sector. The current consolidation has a bearish pattern of lower highs and XTO looks poised to begin a new leg lower.

I'm suggesting readers buy puts now with a target at $25.25. The P&F chart is bearish with a $24.00 target.

Suggested Options:
I'm suggesting the April puts.

BUY PUT APR 30.00 XTO-PF open interest=1698 current ask $2.65
BUY PUT APR 25.00 XTO-PE open interest=3676 current ask $0.80

Annotated Chart:
XTO

Picked on    March 14 at $ 29.70
Change since picked:      + 0.00
Earnings Date           04/23/09 (unconfirmed)
Average Daily Volume =        11 million  
Listed on March 14, 2009         


NEW MARKET NEUTRAL STRANGLE PLAYS

Goldman Sachs - GS - close: 98.80 change: +1.55 stop: n/a

Why We Like It:
Initially I was looking at GS as a potential bullish candidate on a dip back toward $90.00. Then I saw that the company was due to report earnings this Tuesday morning (March 17th). This sounds like a great opportunity to speculate on a cheap strangle. March options expire in five days so they're cheap. There's so much anticipation, fear, and confusion over the financials and how GS is going to make money that the post-earnings move on Tuesday could be big.

We have one day (Monday) to initiate positions. If for some reason that GS gaps open in a big way on Monday morning we'll have to adjust our strangle strikes accordingly. (if GS opens at $105 then we'll move our strikes up $5.00, etc.) If you really want to throw the dice on GS' earnings report then consider just buying an out of the money put. The stock is up 25% in the last few days so earnings would be a good excuse for investors to sell.

If we don't get a big move out of GS on Tuesday then our options are going to decay extremely fast and chances of us losing money are pretty good.

Suggested Options:
This is a very aggressive strangle play. March options expire in five sessions. You could try using April options but it would cost you $11.00 instead of $2.00.

The options we're suggesting are the March $110 calls (GS-CB) and the March $90 puts (GS-OR). Our estimated cost is $1.96. We want to sell if either option hits $4.00 or more.

BUY CALL MAR 110.00 GS-CB open interest= 8858 current ask $0.63
-and-
BUY PUT MAR 90.00 GS-OR open interest=11576 current ask $1.33

Annotated Chart:
GS

Picked on    March 14 at $ 98.80
Change since picked:      + 0.00
Earnings Date           03/17/09 (confirmed)
Average Daily Volume =        29 million  
Listed on March 14, 2009         


New Play Archives