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Drugs, Oil, and Insurance

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NEW DIRECTIONAL PUT PLAYS

Chattem Inc. - CHTT - close: 56.05 change: -1.90 stop: 58.55

Why We Like It:
CHTT is part of the drug sector, a group that has been struggling for months. CHTT's sell-off is starting to pick up speed again after a two-week bounce. Shares failed under broken support and new resistance at $60.00. Now the Point & Figure chart points to a $49 target.

I am suggesting put positions now and it's going to be a very short-term play. CHTT is due to report earnings on Tuesday, April 7th. That gives us four day. We'll plan to exit on Monday, April 6th if the stock hasn't hit our target by then. I'm using a pretty tight stop loss at $58.55.

My first target is $52.10. My second target is $50.25.

Suggested Options:
We have a very short time frame on this play so I'm suggesting the April puts. We do not want to hold over the earnings report.

BUY PUT APR 55.00 HQT-PK open interest= 963 current ask $1.95
BUY PUT APR 50.00 HQT-PJ open interest=  62 current ask $0.55

Annotated Chart:
CHTT

Picked on    March 31 at $ 56.05
Change since picked:      + 0.00
Earnings Date           04/07/09 (confirmed)
Average Daily Volume =       422 thousand 
Listed on March 31, 2009         


Chevron Corp. - CVX - close: 67.24 change: +0.44 stop: 70.05

Why We Like It:
Oil stocks under performed the market today and CVX only gained 44 cents while producing a failed rally at its 10-dma. The stock also reversed after it filled the gap down from Monday morning. This looks like a great entry point to catch the next move lower. Tomorrow the market will get the latest weekly inventory report and it should show another build, which is bearish for oil and the oil stocks.

I am suggesting put positions now with a target at $61.00. More aggressive traders may want to aim lower. However, keep in mind that CVX will announce its interim earnings report on April 9th and we do not want to hold over the report.

Suggested Options:
This is a very short-term play. I'm suggesting the April puts.

BUY PUT APR 70.00 CVX-PN open interest=11507 current ask $4.20
BUY PUT APR 65.00 CVX-PM open interest= 6992 current ask $1.70

Annotated Chart:
CVX

Picked on    March 31 at $ 67.24
Change since picked:      + 0.00
Earnings Date           04/09/09 (unconfirmed)
Average Daily Volume =        17 million  
Listed on March 31, 2009         


China Life Co. - LFC - close: 49.24 change: +0.92 stop: 51.25

Why We Like It:
The real plan is to buy calls in LFC on a dip near $45.00. That is where the stock should find support at its broken trendline of resistance (see chart below). Instead of just waiting for the drop toward $45.00, why don't we trade the drop to $45.00 with some short-term put positions.

The current bounce is losing steam and LFC has broken its three-week up trend. Part of our challenge with this play is the stock's volatility. LFC gaps open up or down every morning as shares react to trading activity back home in China.

We will start the play with a stop loss at $51.25 but honestly it might be a little tight. Our target to exit is $45.25. At that time we'll consider switching to calls for the bounce.

Suggested Options:
I expect this sell-off to occur in the next three weeks so I'm suggesting the April puts.

BUY PUT APR 50.00 LFC-PJ open interest=2553 current ask $2.65
BUY PUT APR 47.50 LFC-PW open interest=2296 current ask $1.60
BUY PUT APR 45.00 LFC-PI open interest=7238 current ask $0.90

Annotated Chart:
LFC

Picked on    March 31 at $ 49.24
Change since picked:      + 0.00
Earnings Date           03/26/09 (confirmed)
Average Daily Volume =       2.3 million  
Listed on March 31, 2009         


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