NEW DIRECTIONAL CALL PLAYS

Green Mountain Coffee Roasters - GMCR - close: 40.99 change: +2.06

Stop Loss: 39.20
Target(s): 47.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
GMCR, known for its k-cup coffee machines, has seen its stock make a huge rebound in just the last few weeks. A lot of that was fueled by short covering thanks to a much better than expected earnings report and news that GMCR was raising its earnings guidance. The stock stalled right where it should have near prior support and new resistance in the $40 area. Since then GMCR has been consolidating sideways and digesting its gains. Now that the broader market is in rally mode it could spark another short squeeze in GMCR.

The most recent data listed short interest at 43% of GMCR's 120 million share float. That definitely raises the risk of a short squeeze. I am suggesting a trigger to buy calls at $41.35. The $45.00 could be round-number resistance but we will target a move to $47.50.

GMCR can be a very volatile stock. I do consider this a more aggressive, higher-risk trade. Let's keep our position size small to limit our risk.

Trigger @ $41.35 (small positions)

- Suggested Positions -

buy the 2013 Jan $45 call (GMCR1319a45) current ask $1.08

Annotated Chart:

Entry on December xx at $ xx.xx
Average Daily Volume = 8.3 million
Listed on December 18, 2012


Watson Pharma. - WPI - close: 89.81 change: +1.82

Stop Loss: 88.20
Target(s): 94.85
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Generic drug maker WPI has recovered from the failed rally at resistance on December 12th. The stock shot higher today, outperforming the major indices. Once again WPI looks poised to breakout past resistance near $90.00 and hit new all-time highs.

The December 12th high was $90.39. I am suggesting a trigger to buy calls at $90.50. If triggered our short-term target is $94.85. More aggressive traders could aim for the $98-100 zone instead.

Trigger @ 90.50

- Suggested Positions -

buy the 2013 Jan $90 call (WPI1319a90) current ask $1.70

Annotated Chart:

Entry on December xx at $ xx.xx
Average Daily Volume = 730 thousand
Listed on December 18, 2012