Editor's Note:

In addition to tonight's new candidate, consider these stocks as possible trades:

FDX - a breakout past resistance near $85 and its 200-dma could be a bullish entry point.

WRLD - A breakout past major resistance at $70.00 would definitely look like an entry point to buy calls.

KEX - Shares are on the verge of hitting new highs.

TU - this stock is building an inverse head-and-shoulders pattern.

- James


NEW DIRECTIONAL CALL PLAYS

Watsco Inc. - WSO - close: 65.09 change: +0.76

Stop Loss: 63.25
Target(s): 69.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
WSO makes various air conditioning and heating equipment. The stock has been consolidating sideways under resistance at $65.00 for weeks. Now shares look poised to breakout. I am suggesting a trigger to open bullish positions at $65.55. Our target is $69.50. FYI: The Point & Figure chart for WSO is bullish with an $80 target.

Trigger @ 65.55

- Suggested Positions -

buy the Jan $65 call (WSO1221A65) ask $2.85

- or -

buy the Jan $70 call (WSO1221A70) ask $0.95

Annotated Chart:

Entry on December xx at $ xx.xx
Earnings Date 02/14/12 (unconfirmed)
Average Daily Volume = 227 thousand
Listed on December 07, 2011


NEW MARKET NEUTRAL OPTION PLAYS

iShares Russell 2000 ETF - IWM - close: 74.68 change: -0.15

Stop Loss: n/a
Target(s): TBD
Current Option Gain/Loss: Unopened
Time Frame: up to December options expiration
New Positions: Must Be Opened on Thursday 12/08

Company Description

Why We Like It:
The EU meeting this Friday is a major event. The credit rating agency Standard & Poor's has put Europe on notice that if they don't do something soon they will all get downgraded. U.S. Treasury Secretary Tim Geithner is in Europe and talking with leaders prior to the summit to make sure it's a productive meeting.

The U.S. markets are churning sideways as investors wait for headlines from this EU summit. The decisions made on Friday could set the tone for the market's trading in December. Given the recent sideways action and the expiration of December options a week from Friday, this looks like a great opportunity to speculate with a market neutral strategy like a straddle or a strangle. We are suggesting a strangle on the IWM small cap ETF. You could also try this on the S&P 500 (SPY) or the Dow Industrials Diamonds (DIA). I like the IWM because the small caps tend to see bigger moves.

Using a strangle (buying both an out of the money call and put), we don't care what direction the market moves as long as it sees a strong move. Now the EU summit is on Friday. The newsletter will open this trade on Thursday morning. You might want to consider opening your strangle on Thursday at the close but for this trade to work it needs to be opened on Thursday.

Just a reminder, December options expire after December 16th.

- Market Neutral Strangle Trade -

buy the DEC $77 call (IWM1117L77) current bid/ask $0.84/0.88

- Also Buy the -

buy the DEC $73 put (IWM1117X73) current bid/ask $1.16/1.17

Annotated Chart:

Entry on December 08 at $ xx.xx
Earnings Date --/--/--
Average Daily Volume = 61 million
Listed on December 07, 2011