Option Investor
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Defense, Financials, Medical Devices

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Play Editor's Note:

FYI: I considered adding a strangle on Amazon.com (AMZN). The stock's rally has just been amazing but shares are now testing what should be major resistance near $80.00. The $80.00 level is round-number resistance plus there are two different trendlines offering additional resistance for the stock to move higher. Unfortunately April options expire in five days and May options look a little too expensive. If you want to really roll the dice you could buy the April $85 calls and the April $75 puts for less than $1.40 (probably even less on Monday). If AMZN moves more than $6.00 this week you could have a winner.


L-3 Comm. - LLL - close: 71.58 change: +0.52 stop: 69.39

Why We Like It:
The defense stocks have made an very impressive rebound off their March lows. There has been very little weakness as investors continue to buy the dips. This past week saw LLL breakout over resistance near $70.00 and its 50 and 100-dma. The stock is clearly overbought and due for a correction but until this rally slows down LLL can just keep climbing. I'm suggesting a stop loss at $69.39. More conservative traders may want to consider a stop even closer to $70.00 but you risk getting stopped on an intraday swoon.

Our first target is $74.90. Our second target is $77.25. This is a short-term play as we plan to exit ahead of the April 23rd earnings report.

Suggested Options:
I am suggesting the May calls.

BUY CALL MAY 70.00 LLL-EN open interest= 613 current ask $4.40
BUY CALL MAY 75.00 LLL-EO open interest= 645 current ask $1.95

Annotated Chart:

Picked on    April 11 at $ 71.58
Change since picked:      + 0.00
Earnings Date           04/23/09 (unconfirmed)
Average Daily Volume =       1.1 million  
Listed on April 11, 2009         

Regional Bank Holders - RKH - cls: 61.28 chg: +10.97 stop: 54.49

Why We Like It:
RKH had been an active put play on the OptionInvestor play list but we knew the financials were going to be volatile especially once earnings season began. We had published an alternative strategy that if the sector suddenly reversed higher we wanted to buy calls when the RKH hit $57.25.

That trigger to buy calls was "hit" on Thursday when the RKH gapped open higher at $57.49. The Wells Fargo (WFC) news inspired another huge wave or short covering and possibly real buying in the banking sector. I'm listing this as a new play but it was actually opened on Thursday. I would not chase the RKH right here. Look for a dip back into the $57.50-55.00 zone. Broken resistance near $55.00 should now become new support.

Our first target is still $62.25. Our second target is $66.00. We might want to consider a third target closer to $70.00. In this case I would sell half the position at $62.25. Another half (or one quarter the initial position) at $66.00 and then the rest around $69.75.

Suggested Options:
I am not suggesting new positions at this time but if the RKH provides a new entry point I would use the May calls.

Annotated Chart:

Picked on    April 09 at $ 57.49 *gap higher entry
Change since picked:      + 3.79
Earnings Date           00/00/00
Average Daily Volume =       5.6 million  
Listed on April 09, 2009         


Bard C.R. - BCR - close: 77.12 change: -0.87 stop: 80.05

Why We Like It:
BCR, a medical devices company, is not participating in the market's rally. The stock bounced from $70 to $80 in March but has since run into trouble. Investors are have started selling the rallies. The MACD is rolling over. The P&F chart is bearish and points to a $51 target. Even Thursday's move has produced a bearish engulfing candlestick pattern.

I am suggesting put positions now. Our target is the $72.00-70.00 zone. This will be a short-term play as we do not want to hold over the April 22nd earnings report. I'm listing a stop loss at $80.05 but more conservative traders can probably get away with a stop near Thursday's high of $79.35.

Suggested Options:
I am suggesting the May puts.

BUY PUT MAY 75.00 BCR-QO open interest= 154 current ask $2.70
BUY PUT MAY 70.00 BCR-QN open interest= 358 current ask $1.25

Annotated Chart:

Picked on    April 11 at $ 77.12
Change since picked:      + 0.00
Earnings Date           04/22/09 (unconfirmed)
Average Daily Volume =       949 thousand 
Listed on April 11, 2009         

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