NEW DIRECTIONAL PUT PLAYS

S&P 100 Index - OEX - close: 582.50 change: -6.06

Stop Loss: 592.55
Target(s): 578.00, 565.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see Trigger

Company Description
The S&P 100 index is a capitalization-weighted index that represents 100 of the largest stocks traded in the U.S. markets.

Why We Like It:
The OI newsletter is heavily weighted toward bullish trades at the moment. In an attempt to even things out I'm adding a put play tonight. Big picture I am surprised that the market sell-off wasn't worse on Monday following the headlines about the S&P putting the U.S. long-term debt on creditwatch negative. I suspect that stocks will see a bounce tomorrow. Yet reaction to earnings news has not been very positive and the path of least resistance might be moving from up to down. It looks like the S&P 500 and the OEX are forming a bearish double top pattern.

I am suggesting we buy puts on the OEX when the index hits 587.50. As an alternative readers could wait for another failed rally near 590 instead. If triggered at 587.50 we'll use a stop loss at 592.55. More conservative traders could use a stop closer to 591 or 590.50ish. Our targets are $578 and $565. I would keep our position size small. Trading OEX options can be volatile.

FYI: As an alternative, you could trade puts on the SPY (S&P 500 ETF) for a lot less money.

Trigger @ 587.50

- Suggested Positions -

Buy the May $570 PUT (OEX1121Q570) current ask $7.20

Annotated Chart:

Entry on April xxth at $ xx.xx
Earnings Date --/--/--
Average Daily Volume =
Listed on April 18th, 2011