NEW DIRECTIONAL PUT PLAYS

ITT Educational Services - ESI - close: 58.10 change: -1.94

Stop Loss: 61.35
Target(s): 51.50
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
It was a rough day for ESI with shares breaking support near $60.00 and falling to new four-month lows with a -3.2% drop today. Helping fuel the decline was news that ESI disclosed in an 8-K filing it was being investigated by the U.S. government for potential fraud related to student loans.

The next level of support looks like the $50 area although shares might see a bounce near $55.00. I am suggesting new bearish put positions now with a stop loss at $61.35, just above today's high. More nimble traders could wait and see if ESI bounces tomorrow and enter put positions on a bounce into the $59.00-60.00 zone as your entry point. We will set our exit target at $51.50. (FYI: Readers could buy July puts but the spreads are wider.)

- Suggested Positions -

BUY the Jun $55 PUT (ESI1216R55) current ask $2.50

Annotated Chart:

Entry on May 23 at $ xx.xx
Earnings Date 07/19/12 (unconfirmed)
Average Daily Volume = 410 thousand
Listed on May 22, 2012


Reliance Steel - RS - close: 48.48 change: -0.70

Stop Loss: 50.55
Target(s): 42.50
Current Option Gain/Loss: + 0.0%
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
RS is an American steel maker. The stock spent about three and a half months consolidating sideways in the $52-58 zone before finally breaking down in recent days. The stock oversold bounce today failed under round-number resistance near $50.00. This looks like a new entry point for bearish positions.

I am suggesting new put positions at the open tomorrow with a stop loss at $50.55, just above the simple 10-dma. Our exit target is $42.50. FYI: The Point & Figure chart for RS is bearish with a $38 target.

- Suggested Positions -

buy the JUN $48 PUT (RS1216R48) current ask $1.95

Annotated Chart:

Entry on May xx at $ xx.xx
Earnings Date 07/26/12 (unconfirmed)
Average Daily Volume = 534 thousand
Listed on May 22, 2012