Editor's Note:

The huge bounce in the market today garnered a lot of its fuel from short covering. If there isn't any follow through higher tomorrow then August calls will see their premiums shrink pretty fast. Our new call trades tonight should be considered aggressive positions. We want to keep our position sizes small to limit our risk.

- James


NEW DIRECTIONAL CALL PLAYS

Abercrombie & Fitch Co - ANF - close: 65.94 change: +4.89

Stop Loss: n/a
Target(s): 69.75, 73.50
Current Option Gain/Loss: Unopened
Time Frame: 1 to 3 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
In spite of all the selling pressure across the markets ANF did not close under support near $60.00 or the 200-dma. There was an intraday violation but the stock rebounded. Now shares are bouncing with the market's oversold move higher. Bigger picture technicians can argue that ANF has produced a bearish double top pattern with the peaks in May and July. That does not mean ANF can't see a strong bounce back into the $70-75 range.

I consider this an aggressive trade. We only want to buy calls if both ANF and the S&P500 index open in positive territory tomorrow. My biggest concern is that ANF might gap open. If it gaps open too high you may want to abort this trade.

ANF is due to report earnings on August 17th. We do not want to hold over the report. I am listing both Aug. and Sept. calls. Keep in mind August calls expire in less than two weeks.

We are not listing a stop loss on this trade but if you buy September calls you may want to reconsider and add a stop loss.

buy calls if ANF and the S&P500 index open positive tomorrow

- Suggested (SMALL) Positions -

buy the AUG $70 call (ANF1120H70) current ask $1.81

- or -

buy the SEP $70 call (ANF1117I70) current ask $3.35

Annotated Chart:

Entry on August xx at $ xx.xx
Earnings Date 08/17/11 (confirmed)
Average Daily Volume = 2.8 million
Listed on August 9, 2011


Deckers Outdoor - DECK - close: 85.52 change: +5.00

Stop Loss: n/a
Target(s): 93.50, 97.00
Current Option Gain/Loss: Unopened
Time Frame: 1 to 3 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
DECK has a similar story to ANF. In spite of the massive selling in the market this stock did not breakdown to new lows. Shares found support near $80 and its March and June lows. DECK could see a very sharp bounce back toward its recent highs.

I do consider this an aggressive trade. DECK can be a volatile normally and in this market the moves get a little crazy. We definitely want to keep our position size small. I am listing August and September calls but keep in mind that August options expire in less than two weeks. I am not listing a stop loss on this trade. NOTE: If the market (and DECK) do not see any follow through on this bounce the August calls are going to evaporate pretty quickly.

only buy calls if DECK and the S&P500 index open positive tomorrow morning.

- Suggested (SMALL) Positions -

buy the AUG $90 call (DECK1120H90) current ask $2.00

- or -

buy the SEP $90 call (DECK1117I90) current ask $4.60

Annotated Chart:

Entry on August xx at $ xx.xx
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 1.3 million
Listed on August 9, 2011


NEW MARKET NEUTRAL OPTION PLAYS

Cisco Systems - CSCO - close: 14.06 change: +0.12

Stop Loss: n/a
Target(s): ----
Current Option Gain/Loss: + 0.0%
Time Frame: less than two weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Technology giant CSCO has been in a bearish trend of lower highs and lower lows since its peak in April 2010. You can see big gaps in the chart when the company reports earnings and disappoints investors. Now earnings could move the stock again. CSCO reports earnings on August 10th, after the closing bell. Wall Street analysts are expecting a profit of 38 cents a share.

Will CSCO see another massive gap down? The recent sell-off has pushed CSCO to its multi-year lows set in early 2009. There is a chance all the bad news is priced in and CSCO could rally. That's why we're suggesting neutral strategies. If you're going to play you have to open these positions before the closing bell tomorrow since CSCO reports after the bell.

We are listing August options but traders need to be aware that August options expire in less than two weeks. Investors might want to consider using September options instead. Our tentative target would be a 100% gain. You may want to exit earlier or hold on for more. We'll reassess our target once we see the action on Thursday following the earnings report.

NOTE: The strangle is pretty aggressive. CSCO may not move that much.

Option Straddle (buy both a call and a put at the same strike)

buy the AUG $14 call (CSCO1120H14) current ask $0.76
- and -
buy the AUG $14 put (CSCO1120T14) current ask $0.70

- or -

Option Strangle (buy an OTM call and OTM put)

buy the AUG $16 call (CSCO1120H16) current ask $0.15
- and -
buy the AUG $12 put (CSCO1120T12) current ask $0.15

Annotated Chart:

Entry on August 10 at $ xx.xx
Earnings Date 08/10/11 (confirmed)
Average Daily Volume = 68.7 million
Listed on August 9, 2011