Editor's Note:

Here's a thought: the markets are worried about a debt ceiling deal. If we don't get a deal then stocks should sink. If we do get a deal then stocks could rally.

Consider a market neutral trade. You could buy an option straddle or an option strangle on the major indices. A straddle is buying both a call and a put at the same strike price. A strangle would be an out of the money call and an out of the money put. That way it doesn't matter what direction the market moves, you have an opportunity (not a guarantee) to profit from it.

I'd consider the S&P 500 (SPY), Dow Industrials (DIA), Russell 2000 (IWM) ETFs. Of course you could try this on plenty of index ETFs.

- James


NEW DIRECTIONAL CALL PLAYS

Alliance Data Systems - ADS - close: 100.41 change: +1.05

Stop Loss: 96.00
Target(s): 104.50. 107.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
If you look at the last few days for ADS the stock has been up six out of the last seven sessions. That one down day, on July 21st, was a reaction to its earnings report. The company beat by a penny and then guided in-line. Traders quickly bought the dip the next day. Now the stock is breaking out past psychological resistance at the $100.00 level. It's a sign of relative strength to breakout through resistance with the market in the red.

Aggressive traders may want to go ahead and launch positions immediately. I am suggesting we buy call on ADS if both the stock and the S&P 500 open in positive territory tomorrow. The stock is currently at new all-time highs. We'll set our targets at $104.50 and $107.00. If the play is opened we'll use a stop at $96.00. FYI: The Point & Figure chart for ADS is bullish with a $113 target.

buy calls if both ADS and the S&P 500 open positive

- Suggested Positions -

buy the AUG $105 call (ADS1120H105) current ask $1.05

- or -

buy the SEP $105 call (ADS1117I105) current ask $2.05

Annotated Chart:

Entry on July xx at $ xx.xx
Earnings Date 07/21/11
Average Daily Volume = 825 thousand
Listed on July 26, 2011


NEW DIRECTIONAL PUT PLAYS

Toro Co. - TTC - close: 57.22 change: -0.38

Stop Loss: 58.55
Target(s): 55.25, 52.50
Current Option Gain/Loss: + 0.0%
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
If you own a lawn then you've probably heard of Toro. The company makes a wide selection of lawn and turf equipment. Unfortunately for shareholders after a very impressive rally from its 2009 lows the stock has peaked back in May of this year. Now TTC has a bearish trend of lower highs and lower lows and has broken the long-term trend of support. In just the last two weeks TTC has broken support near $58.00.

I am suggesting bearish positions now with a tight stop loss at $58.55. If we happen to get stopped out I would keep TTC on your list for another bearish entry point near $60 or its 50-dma. There is potential support at $55.00. I am setting our first target at $55.25. Our second, more aggressive target is $52.50. FYI: The Point & Figure chart for TTC is bearish with a $48 target.

NOTE: I'd like to buy August puts but the spreads were a little wide. Even the Sept. $55 put had pretty wide spreads.

- Suggested Positions -

Buy the SEP $55 PUT (TTC1117U55) current ask $1.70

Annotated Chart:

Entry on July xx at $ xx.xx
Earnings Date 08/18/11 (unconfirmed)
Average Daily Volume = 167 thousand
Listed on July 26, 2011