NEW DIRECTIONAL CALL PLAYS

Lorillard - LO - close: 69.98 change: +1.55 stop: 67.90

Why We Like It:
We've tried playing LO before. The last time shares had rallied to resistance at $70.00 we waited for a breakout that never showed up. Now the stock is back and knocking on resistance again. If it breaks out the follow through rally could be very sharp. I'm suggesting a trigger to buy calls at $70.50. This will be a brief play. LO is due to report earnings on Monday morning, July 27th. That means to avoid holding over earnings we'll exit on Friday at the close (July 24th) assuming LO doesn't hit our target before then.

The Point & Figure chart is very bullish with a $92.00 target. If we are triggered at $70.50 our first target is $74.50. Our second target is $77.00.

Suggested Options:
If triggered I'm suggesting the August calls.

BUY CALL AUG 70.00 LO-HN open interest=2480 current ask $2.75
BUY CALL AUG 75.00 LO-HO open interest= 315 current ask $1.05

Annotated Chart:

Picked on     July xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           07/27/09 (confirmed)
Average Daily Volume =       1.5 million  
Listed on  July 18, 2009         


Polaris - PII - close: 34.40 change: +2.62 stop: 31.45

Why We Like It:
PII is a stock that is probably confusing investors. The company reported earnings last week. They managed to beat the estimates by a few cents but then issued an earnings warning. Shares sold off on Thursday following the warning. Yet the very next day PII is soaring more than 8% on no news. Given their earnings warning you would think PII would be selling off. High-dollar discretionary items shouldn't do well with the economy in a slump and the consumer cutting back. Why isn't the stock in a tailspin?

Unfortunately, I can't answer that question but I suspect PII's strength may be due to its high amount of short interest. The most recent data listed short interest at 18% of the 29.7 million-share float. That's a relatively small float, which makes it easier to see a short squeeze. The stock looks poised to breakout over resistance at $35.00. I am suggesting that readers buy calls on a dip in the $33.00-32.00 zone. We'll try and limit our risk with a stop loss at $31.45, which is just under Friday's low. More aggressive traders may want to buy calls now or wait for a breakout over $35.00. If we are triggered at $33.00 our first target is $37.25. Our second target is $39.50. Currently the Point & Figure chart is bullish with a $49.00 target.

Suggested Options:
I'm suggesting the August calls.

BUY CALL AUG 30.00 PII-HF open interest= 150 current ask $4.90
BUY CALL AUG 35.00 PII-HG open interest= 473 current ask $1.75
BUY CALL AUG 40.00 PII-HH open interest=  95 current ask .40

Annotated Chart:

Picked on     July xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           07/16/09 (confirmed)
Average Daily Volume =       436 thousand 
Listed on  July 18, 2009         


NEW DIRECTIONAL PUT PLAYS

WestAmerica - WABC - close: 47.07 change: -1.03 stop: 50.05

Why We Like It:
WABC is a regional bank that does business in residential and commercial real estate loans. That's not a great place to be these days. The stock is completely ignoring any strength in the financial sector. The recent oversold bounce failed under the $50.00 level. I'm suggesting readers buy puts now with a stop loss at $50.05. Our first target is $41.50. Our second target is $38.00. The Point & Figure chart is bearish with a $37.00 target.

Suggested Options:
I am suggesting the August or October puts. Readers may want to trade Octobers because WABC doesn't move very fast.

BUY PUT AUG 45.00 WQF-TI open interest= 230 current ask $1.65

BUY PUT OCT 40.00 WQF-VH open interest= 505 current ask $1.65

Annotated Chart:

Picked on     July 18 at $ 47.07
Change since picked:      + 0.00
Earnings Date           07/14/09 (confirmed)
Average Daily Volume =       331 thousand 
Listed on  July 18, 2009         


NEW MARKET NEUTRAL STRANGLE PLAYS

(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.)

McDonald's - MCD - close: 57.84 change: +0.62 stop: n/a

Why We Like It:
It looks like MCD is breaking out higher from its sideways consolidation. The economy is in recession and the consumer is cutting back so stores like MCD with their value meals should be doing pretty well. Plus MCD is doing well overseas. My bias on MCD is bullish. Yet the company is due to report earnings on July 23rd. There's always the chance for a negative surprise. I'm suggesting a neutral strategy like a strangle to capture any post-earnings volatility. Earnings are on Thursday morning. We want to open positions in the 58.50-56.50 zone. The closer to $57.50 the better.

Suggested Options:
I am suggesting the August $60 calls and the $55 puts. Our estimated cost will be around $1.30. We want to sell if either option hits $2.75 or higher.

BUY CALL AUG 60.00 MCD-HL open interest=9024 current ask .70
-and-
BUY PUT AUG 55.00 MCD-TK open interest=2652 current ask .60

Annotated Chart:

Picked on     July 18 at $ 57.84
Change since picked:      + 0.00
Earnings Date           07/23/09 (unconfirmed)
Average Daily Volume =       7.8 million  
Listed on  July 18, 2009