NEW DIRECTIONAL CALL PLAYS

Volatility Index - VIX - close 22.27 change: +1.58 stop: 19.49

Why We Like It:
The market looks like it's forming a little top here. If the stock market corrects the volatility index could see a big spike higher. I'm going to use a wide stop loss at 19.49 because the VIX itself can be volatile.

We want to use the December calls. These are European style options and are settled for cash. The December options expire on Wednesday, December 16th, 2009.

Our first target to take profits is at $27.25. Our second target is $29.25. I consider this an aggressive trade and suggest readers use small positions.

Suggested Options:
I'm suggesting the December calls. My preference is the Dec. 25 strike. Strikes are available at 1.00 increments.

BUY CALL DEC 25.00 VIX-LE open interest=13626 current ask $2.65

Annotated Chart:

Picked on   October 24 at $ 22.27
Change since picked:       + 0.00
Earnings Date            --/--/--
Average Daily Volume =         -- million  
Listed on   October 24, 2009         


NEW DIRECTIONAL PUT PLAYS

DST Systems - DST - close: 43.73 change: -0.58 stop: 45.25

Why We Like It:
DST is a tech company that provides information processing and software services. The oversold bounce from its October low has failed at resistance near $45.00. I think shares will correct toward support near $40.00. Now there is technical support at its 100-dma and exponential 200-dma near $42.50 so don't be surprised to see an initial bounce from this level. Our target to exit is $40.25.

Suggested Options:
I am suggesting the November puts. My preference is the $40 strike. Do not give into temptation to buy too many puts just because they seem cheap.

BUY PUT NOV 40.00 DST-WH open interest= 143 current ask $0.35

Annotated Chart:

Picked on   October 24 at $ 43.73
Change since picked:       + 0.00
Earnings Date            10/21/09 (confirmed)
Average Daily Volume =        462 thousand 
Listed on   October 24, 2009         


iShares Transports - IYT - close: 68.29 chg: -2.47 stop: 73.20

Why We Like It:
The IYT is an ETF that mimics the Dow Jones Transportation average. Transports have formed a bearish double top. The bearish reversal at resistance combined with a drop under $70.00 and its 50-dma looks like a new entry point to buy puts.

I am suggesting readers open half a position now. We'll use a bounce back to $70.50 to open the second half. I'm going to use a wide stop loss above the recent highs. Our first target to take profits is $65.25 as the 100-dma could be technical support. Our second and final target is $62.00.

Suggested Options:
I am suggesting the December puts. My preference is the $67.00 strike. Strikes are available at $1.00 increments.

BUY PUT DEC 67.00 IHB-XO open interest=6589 current ask $2.60

Annotated Chart:

Picked on   October 24 at $ 68.29
Change since picked:       + 0.00
Earnings Date            --/--/--
Average Daily Volume =        664 thousand 
Listed on   October 24, 2009         


Psychiatric Solutions - PSYS - close: 24.97 change: -1.14 stop: 28.05

Why We Like It:
PSYS has produced a bearish head-and-shoulders pattern that is forecasting a drop toward the $20 level. Friday's sell-off broke support at its 100-dma and its exponential 200-dma. I am suggesting put positions but readers should consider this an aggressive, higher-risk trade. Use small positions about 1/2 to 1/4 your normal size.

Normally we want to avoid holding over earnings. This time we will hold over PSYS's earnings report, due out on Tuesday, October 27th after the market's closing bell. Wall Street is looking for a profit of 56 cents a share. However, traders should note that PSYS already warned for the third quarter back on September 30th so there is a chance that the company could beat these lowered estimates.

The most recent data lists short interest at more than 11% of the 55.4 million-share float. That's above average short interest and does raise the risk of a short squeeze, which is another reason we want to keep our positions small.

Our first target to take profits is at $22.55. Our second target is $20.25.

Suggested Options:
I'm suggesting the November puts. My preference is the $22.50 strike.

BUY PUT NOV 22.50 BYU-WX open interest= 253 current ask $0.55

Annotated Chart:

Picked on   October 24 at $ 24.97
Change since picked:       + 0.00
Earnings Date            10/27/09 (confirmed)
Average Daily Volume =        662 thousand 
Listed on   October 24, 2009