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What would Admiral Farragut say?

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Play Editor's Note:

The stock market continues to rally on bad news. Logically after the best four-week rally in decades and a +20% rally off its lows you'd think stocks would be ready to correct. No one ever blamed the stock market for being logical. Stock prices move due to fear and greed of human traders. Their emotions can push an overbought market more overbought (or down like we've seen over the last several months). Therefore if stocks are going to rally with a "damn the torpedoes, full speed ahead!*" attitude then I'm going to start adding more bullish trades. Bear in mind that we are indeed overbought and due for a serious correction. In the mean time, here's to the next dip!

* quote from Admiral Farragut at the Battle of Mobile Bay.

FYI: I have a HUGE watch list after last week's rally. Two stocks on the top of my list are ICE and the IYT transport ETF. A dip near $80 in ICE looks like an entry point. A dip near $50 for the IYT.


NEW DIRECTIONAL CALL PLAYS

CME Group - CME - close: 255.89 change: +10.53 stop: 237.50

Why We Like It:
This trade is for the super, gung-ho trader who is willing to jump in "full speed ahead". The stock just spent two weeks consolidating CME's big rally from $200 to $260. Now shares are breaking higher again and look poised to rally toward resistance near $300. Shares do face potential technical resistance at the 200-dma near $272 and the MACD on the daily chart is extremely close to a new sell signal. The P&F chart is bullish with a $300 target but this could grow higher.

If you can handle the volatility (and CME is extremely volatile) then Friday's bounce is your entry point. Otherwise look for a dip in the $250-245 zone. I'm suggesting a "tight" stop loss under Friday's low. Our first target is $298.50. We do not want to hold over the late April earnings. Option on this stock are pretty pricey. I repeat my caution that this is an aggressive, higher-risk trade.

Suggested Options:
I am suggesting the May calls. It is always up to the individual trader to decide which month and which strike price best suits your trading style and risk profile.

BUY CALL MAY 280 CME-EO open interest= 264 current ask $12.00
BUY CALL MAY 290 CME-EU open interest= 115 current ask $ 9.10
BUY CALL MAY 300 CME-EC open interest= 624 current ask $ 6.70

Annotated Chart:
CME

Picked on    April 04 at $258.89
Change since picked:      + 0.00
Earnings Date           04/23/09 (unconfirmed)
Average Daily Volume =       1.8 million  
Listed on April 04, 2009         


Flowserve - FLS - close: 63.86 change: +2.41 stop: 57.40

Why We Like It:
This past week saw FLS break out over serious resistance at the $60.00 mark. The stock had spent the previous two weeks consolidation between $54.50 and $60.00. The recent strength has produced a bullish signal on the P&F chart with an $83 target.

Broken resistance near $60 should now be support. I am suggesting readers buy calls on a dip in the $60.25-57.50 zone. Our first target is $64.85. Our second target is $68.50. We do not want to hold over the late April earnings report.

Suggested Options:
I am suggesting the May calls. Entry point at $60.25 so these calls should be a lot cheaper.

BUY CALL MAY 60.00 FGV-EL open interest= 195 current ask $8.30
BUY CALL MAY 65.00 FGV-EM open interest= 277 current ask $5.50

Annotated Chart:
FLS

Picked on    April 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 April 04, 2009         


Intl. Bus. Mach. - IBM - close: 102.22 change: +1.40 stop: 94.90

Why We Like It:
IBM's bounce from $92 to $102 last week was a big reason why the DJIA managed to close over 8,000 by Friday's close. The DJIA is a price-weighted average so IBM has a big influence on it. Currently that influence is a very bullish one. The stock is has broken through significant resistance at $100 and its 200-dma in addition to a trendline dating back to summer 2008.

I see the temptation to buy Friday's breakout but I would much rather wait for a little dip. I am suggesting that readers buy calls on a dip in the $98.00-95.00 zone. We'll use a stop loss at $94.90. Our first target is $104.85. Our second target is $109.00. We do not want to hold over the late April earnings report.

Suggested Options:
I am suggesting the May calls.

BUY CALL MAY 100 IBM-ET open interest=2597 current ask $6.80
BUY CALL MAY 105 IBM-EA open interest=6189 current ask $4.20

Annotated Chart:
IBM

Picked on    April xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           04/20/09 (unconfirmed)
Average Daily Volume =      12.7 million  
Listed on April 04, 2009         


NEW DIRECTIONAL PUT PLAYS

Research In Motion - RIMM - close: 59.29 change: +10.20 stop: 61.01

Why We Like It:
The earnings news from RIMM on Thursday night was very good and much better than expected. The stock reacted with a massive 20% pop on Friday. It looks like RIMM has put in a significant double-bottom with the December and March lows and the earnings news could power the stock higher for a while. However, short-term the stock has just moved too far too fast. Let's capture any future profit taking with some short-term puts.

It's very common for stocks to fill any big gaps. While I'm not expecting a dip all the way back to $50.00 RIMM could still see a big percentage decline. Buy put options now with a stop loss at $61.01. Our first target to take profits is $55.50.

Suggested Options:
This should be a very short-term play. I'm suggesting the April puts. Keep in mind that April options expire in two weeks.

BUY PUT APR 60.00 RFY-PL open interest=1074 current ask $3.25
BUY PUT APR 55.00 RFY-PK open interest=1712 current ask $1.19

Annotated Chart:
RIMM

Picked on    April 04 at $ 59.29
Change since picked:      + 0.00
Earnings Date           04/03/09 (confirmed)
Average Daily Volume =        20 million  
Listed on April 04, 2009         


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