NEW DIRECTIONAL PUT PLAYS

Illinois Tool Works - ITW - close 46.15 change -0.79 stop 47.83

Company Description:
Illinois Tool Works Inc. (ITW) is a multinational manufacturer of a diversified range of industrial products and equipment. The Company has approximately 840 operations in 57 countries, which are aggregated and organized into eight segments: Transportation, Industrial Packaging, Food Equipment, Power Systems and Electronics, Construction Products, Polymers and Fluids, Decorative Surfaces and All Other.

Target(s): 44.85, 44.15, 43.50
Key Support/Resistance Areas: 47.75, 46.10, 44.60, 44.00, 43.00
Time Frame: 2 to 3 weeks

Why We Like It:
Shareholders were unimpressed with ITW's earnings report on 10/19. The company narrowed guidance to the lower end of its range and the stock appears to be changing trends. Considering the overbought broader market conditions and the weakness being exhibited in ITW, I suggest readers initiate short positions in the stock on any bounces, or a break down below the stock's 200-day SMA and support near $46.00. Let's use a trigger of $46.40 on a bounce or $45.92 on a break down. Our initial stop will be $47.83 but it will be adjusted after the position is opened. Depending on our trigger, we are targeting more than a -$1 move lower, which will produce a nice gain if the set-up unfolds as expected.

Trigger: $46.40 or $45.92 Suggested Position: Buy December $45.00 PUT, current ask $1.20

Annotated chart:

Entry on October xx
Earnings: More than two months (unconfirmed)
Average Daily Volume: 4.5 million
Listed on October 26, 2010