Option Investor
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Exposure to the Upside

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Play Editor's Note:

I still think that stocks are overbought and due for a bigger correction than what we have seen thus far. However, the market can do whatever it wants and if that means it wants to get more overbought then so be it. We need to keep an open mind and play what the market provides. I am adding some bullish candidates but I consider them all more aggressive, higher-risk trades due to the extended condition of the major market indices.


NEW DIRECTIONAL CALL PLAYS

Amgen - AMGN - close: 50.91 change: +2.29 stop: 48.39

Why We Like It:
I don't feel quite so bad buying calls on AMGN because the stock actually had a correction in its oversold bounce. Today's rally back above $50.00 looks like a bullish entry point to buy some calls. This should be a short-term play as AMZN will probably have resistance in the $55.00 region. Our target is $54.50.

Suggested Options:
I am suggesting the April calls. My time frame is less than two weeks.

BUY CALL APR 50.00 AMQ-DJ open interest=11606 current ask $2.61
BUY CALL APR 52.50 AMQ-DZ open interest= 8969 current ask $1.33
BUY CALL APR 55.00 YAA-DK open interest=18922 current ask $0.58

Annotated Chart:
AMGN

Picked on    March 23 at $ 50.91
Change since picked:      + 0.00
Earnings Date           04/23/09 (unconfirmed)
Average Daily Volume =      11.2 million  
Listed on March 23, 2009         


General Dynamics - GD - close: 39.64 change: +1.99 stop: 38.25

Why We Like It:
A number of the defense stocks were just crushed in the February sell-off. GD looks like it's found a bottom for now. I'm tempted to buy calls here but shares are still under round-number resistance at $40.00.

I am suggesting readers use a trigger at $40.40 to buy calls. We'll use a stop at $38.25, which is just under last Friday's low. Our first target is $44.00. Our second target is $47.25.

Suggested Options:
I am suggesting the April calls. My time frame for the first target is less than two weeks.

BUY CALL APR 40.00 GD-DH open interest=2041 current ask $1.50
BUY CALL APR 45.00 GD-DI open interest=1952 current ask $0.20

Annotated Chart:
GD

Picked on    March xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           04/29/09 (unconfirmed)
Average Daily Volume =       4.8 million  
Listed on March 23, 2009         


Nordstrom - JWN - close: 15.83 change: +1.45 stop: 14.75

Why We Like It:
I am worried that the retailers could end up reversing sharply lower as this economic slowdown still has months to go. Odds are very high that the retailers will be posting ugly earnings numbers for the rest of 2009. With that said the current bounce in the group is impressive. I think most of it is short covering as this is a heavily shorted group. JWN is one such stock as the most recent data listed short interest at almost 20% of the 164 million-share float.

You know I think the market is overbought and overdue for a correction. Yet if the rally continues we want some exposure to the upside. I'm suggesting readers use a trigger at $16.25 to buy calls on JWN as a breakout to a new high could spark another short squeeze. We have two targets. Our first target is $18.25. Our second target is $19.75.

FYI: I would also watch for any dip back towards $14.00 as a possible entry point. Meanwhile the Point & Figure chart is bullish with a $24.00 target.

Suggested Options:
I am suggesting the April calls. Our trigger is $16.25. My time frame is less than four weeks.

BUY CALL APR 15.00 JWN-DC open interest=5732 current ask $1.80
BUY CALL APR 17.50 JWN-DW open interest=4325 current ask $0.65
BUY CALL APR 20.00 JWN-DD open interest=1633 current ask $0.15

Annotated Chart:
JWN

Picked on    March xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           05/14/09 (unconfirmed)
Average Daily Volume =       6.8 million  
Listed on March 23, 2009         


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