NEW DIRECTIONAL PUT PLAYS

Mechel OAO - MTL - close 23.14 change -0.24 stop 24.47

Target(s): 22.30, 21.25, 20.25
Key Support/Resistance Areas: 24.25, 24.00, 23.60
Current Gain/Loss: Unopened
Time Frame: 1 to 3 weeks
New Positions: Yes, see trigger

Company Description:
Mechel OAO is an integrated steel, mining, ferroalloys and power company. The Company operates in four segments: mining, steel, ferroalloys and power. Its steel segment produces and sells semi-finished steel products, carbon and specialty long products, carbon and stainless flat products and value-added downstream metal products, including wire products, stampings and forgings. Its mining segment produces coking and steam coal, as well as iron ore and iron ore concentrate. The mining segment consists of coal and iron ore mines in Russia and the United States. Its ferroalloys segment produces and sells low-ferrous ferronickel, ferrochrome and ferrosilicon. Its power segment produces and sells electricity to internal and external customers. (source: company press release or website)

Why We Like It:
The steel sector has come under pressure as earnings and guidance have failed to impress investors. MTL finds itself in a bear flag and is consolidating under its 200-day SMA, while its 50-day and 20-day SMA's are just overhead. Conservative traders will want to see the stock break below $22.25 before launching bearish positions. However, considering the overbought broader market conditions initiating positions on a bounce sets up a very good risk reward trade. There is solid resistance in the $23.60 to $24.20 area so I suggest launching bearish positions at $23.55. Our stop will be above the 20-day SMA at $24.47 (which is rolling over and declining). If triggered our first two targets are -5% and -9% lower.

Trigger: $23.55

Suggested Position: BUY the December $23.00 PUT, current ask $1.50, estimated ask at entry $1.30

Annotated chart:

Entry on October XX
Earnings Date: More than two months (unconfirmed)
Average Daily Volume: 2.1 million
Listed on October 27, 2010