NEW DIRECTIONAL PUT PLAYS

ITT Educational Services - ESI - close: 50.37 change: -1.67

Stop Loss: 52.60
Target(s): 45.25
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Shares of ESI are on the verge of hitting new multi-year lows. The stock has fallen toward support near $50.00. Shares bounced at this level back in 2010. A breakdown here could produce another sprint lower.

I am suggesting small bearish put positions if ESI hits $49.75. Why small positions? Because the most recent data listed short interest at 55% of the very small 17.9 million-share float. If ESI were to suddenly bounce the stock could shoot higher on a short squeeze.

If triggered at $49.75 we'll aim for $45.25. The Point & Figure chart for ESI is bearish with a $44 target.

NOTE: More conservative traders may want to use a tighter stop loss. My worry here is that ESI sees an intraday dip under $50.00, hits our trigger, and then surges higher (a.k.a. a bear trap).

Trigger @ 49.75 (small positions)

- Suggested Positions -

buy the 2012Jan $47.50 PUT (ESI1221M47.5) ask $2.52

Annotated Chart:

Entry on December xx at $ xx.xx
Earnings Date 01/19/12 (unconfirmed)
Average Daily Volume = 363 thousand
Listed on December 19, 2011


WellPoint Inc. - WLP - close: 63.64 change: -1.31

Stop Loss: 65.75
Target(s): 58.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The oversold bounce in shares of WLP is already failing. The stock looks poised to breakdown under support in the $63.50 area. I am suggesting a trigger to buy puts at $63.25 with a stop loss at $65.75 (just above Friday's high). More conservative traders could aim for a drop to $60.00. We are setting our target at $58.00. FYI: The Point & Figure chart for WLP is bearish with a $56 target.

Trigger @ 63.25

- Suggested Positions -

buy the 2012Jan $60 PUT (WLP1221M60) ask $1.02

Annotated Chart:

Entry on December xx at $ xx.xx
Earnings Date 01/25/12 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on December 19, 2011