NEW DIRECTIONAL CALL PLAYS

Schnitzer Steel Industries - SCHN - close: 64.88 change: +1.85

Stop Loss: 61.45
Target(s): 68.75
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see Trigger

Company Description

Why We Like It:
Basic material stocks continue to show relative strength. Shares of SCHN were performing very well on Thursday with a breakout past technical resistance at its 50-dma. Two weeks ago the stock was testing and holding near support at the $60 level. I don't want to chase today's big gain but we can be ready to buy a dip since the $65-66 level might offer some short-term resistance.

I am suggesting we buy calls on a dip at $63.75. We'll start with a stop at $61.45. Our first target is $68.75, just under the January highs. We will consider adding a secondary target down the road.

FYI: Readers will be interested to note that SCHN most recent data listed short interest at 5% of the very small 18.3 million-share float. Now I don't think this data is up to date but the stock's very small float might contribute to any potential short squeeze.

Trigger @ 63.75

- Suggested Positions -

Buy the March $65 calls (SCHN1119C65) current ask $2.25

- or -

Buy the May $65 calls (SCHN1121E65) current ask $4.50

Daily Chart:

Weekly Chart:

Entry on February xxth at $ xx.xx
Earnings Date 04/07/11 (unconfirmed)
Average Daily Volume = 250 thousand
Listed on February 17th, 2010