NEW DIRECTIONAL CALL PLAYS

Norfolk Southern - NSC - close: 51.40 change: +0.48 stop: 49.75

Why We Like It:
Railroads got a lot of attention in early November thanks to Warren Buffett's bid to buy BNI. The rally has run out of steam for a lot of the railroad stocks but NSC is probably the most bullish of the bunch. Bears could argue that the stock produced a bearish reversal on November 12th but I would argue there hasn't been any follow through on that reversal lower. Shares should have support near $50.00.

I'm suggesting small bullish positions right here. I feel this is somewhat aggressive given the market's recent weakness. More conservative traders could wait for a little more upward momentum and look for a rise over $52.00 or even $53.00 before initiating positions. We'll use a relatively tight stop at $49.75.

Our first target to take profits is at $54.90. Our second target is $58.50. Our time frame is several weeks. FYI: The Point & Figure chart is bullish with a $65 target.

Suggested Options:
I'm suggesting the 2010 January call. My preference is the $55 strike.

BUY CALL JAN 55.00 JBC-AK open interest=6032 current ask $1.20

Annotated Chart:

Picked on  November 21 at $ 51.40 (small positions)
Change since picked:       + 0.00
Earnings Date            01/27/10 (unconfirmed)
Average Daily Volume =        5.4 million  
Listed on  November 21, 2009         


NEW DIRECTIONAL PUT PLAYS

Goldman Sachs - GS - close: 170.01 change: -2.82 stop: 176.05

Why We Like It:
Shares of GS have been under performing the market. The oversold bounce from its 100-dma back in early November has failed near $180. Now shares are back to testing support at the 100-dma. Bulls could make a case for buying the dip at support but I'd only do so with a very tight stop loss. I strongly suspect that GS will breakdown from here but shares can be volatile so I'm labeling this an aggressive, high-risk trade.

We'll use a trigger to buy puts at $168.75. If triggered first target is $155.50. More aggressive traders could aim for the $150 area or the 200-dma.

I want to remind readers that the big brokerage stocks used to rally sharply ahead of their earnings reports and then sell-off on the announcement. GS' earnings report is about three weeks away.

If you don't want to make a directional bet on GS then check out the strangle play I'm listing in tonight's newsletter.

Suggested Options:
I'm suggesting the December puts. My preference is the $165s.

BUY PUT DEC 165 GPY-XM open interest=5330 current ask $3.95

Annotated Chart:

Picked on  November xx at $ xx.xx <-- TRIGGER @ 168.75
Change since picked:       + 0.00
Earnings Date            12/15/09 (unconfirmed)
Average Daily Volume =        9.5 million  
Listed on  November 21, 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.)

Goldman Sachs - GS - close: 170.01 change: -2.82 stop: n/a

Why We Like It:
GS has pulled back toward significant support near $170.00 and its rising 100-dma. It's also an old trendline dating back to late 2008. This is a pivotal turning point for GS and the stock was nice enough to close near a strike price like $170.00.

Personally I suspect GS will breakdown (see tonight's new put play) but shares could move either direction and when they do move I'm expecting a pretty good surge. That's why I'm suggesting GS as a strangle candidate. We don't care what direction the stock goes as long as it moves big. Now it is worth noting that GS is due to report earnings in about three weeks. Traditionally the big brokerage stocks used to rally hard into their earnings report and then sell-off on the news.

Suggested Options:
I'm suggesting the December options. I would use the December $180 calls (GPY-LP) and the December $160 puts (GPY-XL). Our estimated cost is about $4.61. We want to sell if either option hits $9.00 or higher.

BUY CALL DEC 180 GPY-LP open interest=6786 current ask $2.19
-and-
BUY PUT DEC 160 GPY-XL open interest=5428 current ask $2.42

Annotated Chart:

Picked on  November 21 at $170.01
Change since picked:       + 0.00
Earnings Date            12/15/09 (unconfirmed)
Average Daily Volume =        9.5 million  
Listed on  November 21, 2009         


United Parcel Service - UPS - close: 57.51 change: +0.35 stop: n/a

Why We Like It:
UPS has been churning sideways for a week. Looking at a bigger picture the stock's consolidation has been narrowing. A breakout one direction or the other should be imminent. There is short-term support at $55.00 and short-term resistance at $60.00. The stock was kind enough to close right in the middle allowing for a great strangle set up. We don't care what direction UPS moves as long as it sees a decent run one way or the other.

Suggested Options:
I am suggesting the December options. I would use the December $60 calls (UPS-LL) and the December $55 puts (UPS-XK). Our estimated cost is $1.05. We want to sell if either option hits $3.00 or more.

BUY CALL DEC 60.00 UPS-LL open interest=14728 current ask $0.46
-and-
BUY PUT DEC 55.00 UPS-XK open interest=3330 current ask $0.59

Annotated Chart:

Picked on  November 21 at $ 57.51
Change since picked:       + 0.00
Earnings Date            02/02/10 (unconfirmed)
Average Daily Volume =        4.7 million  
Listed on  November 21, 2009