NEW DIRECTIONAL PUT PLAYS

Lockheed Martin Corp. - LMT - close: 79.22 change: -0.10

Stop Loss: 80.25
Target(s): 76.25
Current Option Gain/Loss: +0.0%
Time Frame: 3 DAYS
New Positions: Yes

Company Description

Why We Like It:
The recent action in LMT looks like a short squeeze once shares broke out past resistance near $75.00 and its simple 200-dma even though LMT doesn't seem to have a lot of short interest. The rally on the 18th was sparked by an analyst upgrade. This looks like a case of a stock going too far too fast. Now LMT's rally looks like it could be losing steam at resistance near $80.00. The company is due to report earnings on January 27th before the opening bell. I doubt investors will continue to bid the stock higher ahead of the report.

Normally picking tops in a stock is a dangerous business but I'm suggesting we buy put options right now. The high on Friday was $80.16 so we can limit our risk with a tight stop (80.25). We'll aim for a pull back to $76.50. Open positions Monday morning and exit on Wednesday at the closing bell (if LMT doesn't hit our target before then).

FYI: Don't go overboard on your positions just because the puts are cheap!

- Suggested Positions -

Buy the 2011 February $75.00 PUT (LMT1119N75) current ask $0.70

Annotated Chart:

Entry on January 24th at $ xx.xx
Earnings Date 01/27/11 (confirmed)
Average Daily Volume = 907 thousand
Listed on January 22nd, 2010


Lubrizol Corp. - LZ - close: 102.78 change: -0.85

Stop Loss: 107.25
Target(s): 98.00, 91.00
Current Option Gain/Loss: + 0.0%
Time Frame: 2 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Shares of this specialty chemical maker are rolling over. The stock has been underperforming the market for weeks. Now the trend has turned into one of lower highs and the P&F chart has turned bearish. There is short-term resistance near $106.50 and its 50-dma directly overhead. I do see potential support at $100.00 and the 200-dma at 97.75. Don't be surprised to see a little oversold bounce at either level.

I'm suggesting put positions now. We'll plan on taking profits at $98.00 and at $91.00. Earnings are early February. We do not want to hold over the announcement.


The Point & Figure chart for LZ is bearish with a $92 target.

Open positions now. - Suggested Positions -

Buy the 2011 February $100 PUT (LZ1119N100) current ask $2.50

Annotated Chart:

Entry on January 24th at $ xx.xx
Earnings Date 02/02/11 (confirmed)
Average Daily Volume = 514 thousand
Listed on January 22nd, 2010


Panera Bread Co. - PNRA - close: 99.57 change: -0.58

Stop Loss: 103.05
Target(s): 95.50, 91.00
Current Option Gain/Loss: + 0.0%
Time Frame: 3 weeks
New Positions: Yes

Company Description

Why We Like It:
PNRA is another example of a high-flying stock that has lost its momentum. Shares have been underperforming the market for a few weeks now. On Friday PNRA just broke down from its $103-100 trading range. I would expect the correction to continue and the next level of support is the $95 area. We can launch put positions now but I would keep your position size small to limit our risk. We'll use a stop at $103.05. Our first target is the $95.50 mark. Expect an oversold bounce near $95.00. We do not want to hold over the February earnings report. Traders should be aware that PNRA has higher-than average short interest (about 8% of the float) and a move over $103 could spark some short covering!

- Suggested Positions - (small positions)

Buy the 2011 February $95 PUTS (PNRA1119N95) current ask $2.40

Annotated Chart:

Entry on January 24th at $ xx.xx
Earnings Date 02/10/11 (unconfirmed)
Average Daily Volume = 364 thousand
Listed on January 22nd, 2010