NEW DIRECTIONAL CALL PLAYS

Diamond Offshore - DO - close: 93.66 change: -0.83 stop: 87.75

Why We Like It:
The oil service stocks tend to be more volatile than the rest of the oil sector. That also means they offer a lot of opportunity. DO looks like a candidate for calls. Shares have been showing relative strength. The stock broke out to new 2009 highs on Friday morning, which has produced a major bullish buy signal on its Point & Figure chart. Meanwhile the OSX oil services index is nearing resistance at its June highs. The OIH oil service holds still has a bit further to go before reaching its June highs.

Is DO leading the sector higher ahead of an industry breakout? Or will the sector indices roll over and drag DO down with them? We can't know and that's why I'm suggesting small positions at least 1/2 to 1/4 your normal trade. I'm also listing two different entry points.

If DO breaks higher from here we want to buy calls at $96.00. If DO dips then we want to buy calls at $90.25. I'm listing our stop loss under the longer-term trendline of higher lows. We will take some money off the table at $99.90 (1st target). Our second target is $104.50. More aggressive traders can aim for $110. The P&F chart is forecasting a $114 target.

Suggested Options:
Our time frame is four or five weeks. I'm suggesting the October calls. My preference would be the $95s or $100s depending on our entry point.

BUY CALL OCT 90.00 DO-JA open interest=725  current ask $6.40
BUY CALL OCT 95.00 DO-JB open interest=474  current ask $3.60
BUY CALL OCT 100.0 DO-JC open interest=454  current ask $1.80

Annotated Chart:

Picked on September xx at $ xx.xx <-- TRIGGER @ 96.00 or $90.25
Change since picked:       + 0.00
Earnings Date            10/22/09 (unconfirmed)
Average Daily Volume =        1.8 million  
Listed on September 12, 2009         


SPX Corp. - SPW - close: 63.52 change: +2.07 stop: 57.25

Why We Like It:
SPW is a multi-industry company that has exploded higher after a four-week consolidation phase. The breakout higher looks significant and the P&F chart points to a $70 target. I am suggesting traders buy calls on a dip at $60.50. If triggered our first target is $64.00. Our second target is $67.50.

Suggested Options:
Our time frame is about four weeks. I'm suggesting the October calls. My preference would be the 60s or 65s.

BUY CALL OCT 60.00 SPW-JL open interest=425  current ask $5.10
BUY CALL OCT 65.00 SPW-JM open interest=464  current ask $2.10

Annotated Chart:

Picked on September xx at $ xx.xx <-- TRIGGER @ 60.50
Change since picked:       + 0.00
Earnings Date            10/28/09 (unconfirmed)
Average Daily Volume =        570 thousand 
Listed on September 12, 2009         


Waters Corp. - WAT - close: 54.61 change: +0.15 stop: 49.30

Why We Like It:
WAT is a technical instrument maker that his hitting new 2009 highs after breaking out from a six-week consolidation. The rally looks like it might be stalling near resistance around $55.00. The top of the prior trading range near $53.00 should offer some support. I'm suggesting readers buy calls at $53.10. We'll use a stop loss under the bottom of the trading range. If triggered our first target is $59.50.

Suggested Options:
I'm suggesting the October calls. Our time frame is about four weeks. My preference is the $55 strike.

BUY CALL OCT 55.00 WAT-JK open interest=130  current ask $1.75
BUY CALL OCT 60.00 WAT-JL open interest= 41  current ask $0.35

Annotated Chart:

Picked on September xx at $ xx.xx <-- TRIGGER 53.10
Change since picked:       + 0.00
Earnings Date            10/20/09 (unconfirmed)
Average Daily Volume =        809 thousand 
Listed on September 12, 2009