Editor's Note:

Earnings season should hit full swing this week. We are going to take advantage of some of the temporary volatility with trades on GS and IBM.

- James


NEW DIRECTIONAL CALL PLAYS

SPX Corp. - SPW - close: 52.96 change: +1.36

Stop Loss: 49.90
Target(s): 57.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
SPW has produced a huge reversal from its October lows. After the August-September sell-off the stock was extremely oversold. Now after the big bounce you could argue that SPW is short-term overbought (you'd be right) but the trend is not showing any signs of fatigue.

This is an aggressive trade so we want to keep our position size small. I am suggesting we buy calls on Monday but only if SPW and the S&P500 index both open positive. If triggered our target is $57.75. FYI: The Point & Figure chart for SPW is bullish with a $78 target.

*See Entry Details Above* (Small Positions)

- Suggested Positions -

buy the NOV $55 call (SPW1119K55) current ask $2.35

Annotated Chart:

Entry on October xx at $ xx.xx
Earnings Date 11/02/11 (unconfirmed)
Average Daily Volume = 701 thousand
Listed on October 15, 2011


NEW DIRECTIONAL PUT PLAYS

Goldman Sachs - GS - close: 96.73 change: +0.58

Stop Loss: n/a
Target(s): TBD
Current Option Gain/Loss: Unopened
Time Frame: less than 5 days
New Positions: Yes, see below

Company Description

Why We Like It:
Goldman Sachs is the investment bank that everyone loves to hate. The stock has been in a bearish trend almost the entire year. Normally GS tends to blow away the earnings estimates with a huge beat. This time there is a lot more caution and concern over what GS might say in its earnings report. The company is supposed to report earnings on Tuesday morning (Oct. 18th) before the opening bell. Wall Street is expecting a loss of 16 cents a share.

I am suggesting we buy puts on GS at the closing bell on Monday. We'll use October puts to maximize any gains. I'm not listing a stop loss. GS will most likely gap open up or down several points on Tuesday. If we're right, we win big. If we're wrong the option is going to gap down significantly anyway.

Cautious traders will want to buy their put at the close on Monday and sell at the open on Tuesday. I am not setting an exit target just yet.

*Buy Puts at the CLOSE on Monday*

- Suggested Positions -

buy the OCT $95 PUT (GS1122V95) current ask $2.61

- or -

buy the OCT $90 PUT (GS1122V90) current as $1.20

Annotated Chart:

Entry on October 16 at $ xx.xx
Earnings Date 10/18/11 (confirmed)
Average Daily Volume = 7.9 million
Listed on October 15, 2011


Intl. Business Machines - IBM - close: 190.53 change: +3.71

Stop Loss: n/a
Target(s): TBD
Current Option Gain/Loss: Unopened
Time Frame: less than 5 days
New Positions: Yes, see below

Company Description

Why We Like It:
IBM is due to report earnings after the closing bell on Monday (Oct. 17th). They tend to manage their earnings with share buy backs so I'm not expecting any big EPS beats. However, they could still offer positive comments on the business environment. I suspect the stock might see a spike toward the $200 level. That's where I would expect the rally to run out of air. IBM is already up $20 in two weeks and up $30 from its September low. The temptation to sell IBM near $200 could be a strong one.

We are suggesting a trigger to buy puts at $199.50. I'm not listing a stop loss. We'll use the October $190 puts. You may want to consider November puts instead since Octobers expire at the end of this week.

Trigger @ 199.50

- Suggested Positions -

buy the OCT $190 put (IBM1122V190)

Annotated Chart:

Entry on October xx at $ xx.xx
Earnings Date 10/17/11 (confirmed)
Average Daily Volume = 6.6 million
Listed on October 15, 2011