NEW DIRECTIONAL PUT PLAYS

Apple Inc. - AAPL - close: 97.67 change: +1.41

Stop Loss: n/a
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 54 million
Entry on October -- at $---.--
Listed on October 18, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Apple is probably the highest profile big cap stock for investors around the world. The company has a market cap of $585 billion. Google's value is around $345 billion. Microsoft is near $359 billion. Exxon Mobil is about $389 billion. As a consumers goods electronic equipment maker AAPL is subject to the whims of the consumer. There are plenty of AAPL fanboys and girls out there but there is a risk that expectations for AAPL are too high.

The companies recent launch of the iPhone 6 has been a huge success. Yet this success has failed to really power the stock higher. AAPL's stock struggled to get past its prior all-time high near $100-101 from late 2012 (pre-split that was about $700 a share). The new all-time high is $103.74 set on September 2nd this year. Since that peak AAPL has been consolidating sideways with a bearish trend of lower highs. The action this past week looks like a bearish breakdown.

Everything will depend on earnings results and AAPL's guidance. The company is scheduled to report earnings on Monday, October 20th, after the closing bell. Analysts are expecting a profit of $1.30 a share.

The company could beat estimates and still see their stock sell-off if their guidance is too soft. Everyone expects super strong iPhone 6 sales but AAPL's iPad sales have been struggling.

A recent Forbes article noted that over 80% of analysts they polled expected AAPL's iPad sales to fall again. That would be the third quarter in a row they have fallen. AAPL is hoping to reverse this trend and just announced a new iPad Air 2 and an iPad mini 3. We'll have to see if these can sell against a much bigger screen on the iPhone 6. AAPL could be cannibalizing their own sales.

Technically the daily chart on AAPL does look fragile. The Point & Figure chart is already bearish and suggesting an $88 target. I'll say it again - everything depends on Monday night's earnings report and management's guidance.

We suspect that AAPL will disappoint and likely see some profit taking. That is why we are suggesting some short-term puts. I would consider this a higher-risk trade. You could treat it like a binary trade. If we're right, then we could win big. If we're wrong then this option could evaporate in a heartbeat. You win or you lose.

Tonight we are suggesting traders buy the AAPL $96 put that expires after October 31st. These are the weekly puts that expire in two weeks. If you choose this trade you need to buy the puts before AAPL's earnings report on Monday. We're expecting a gap down on Tuesday morning.

Buy the WEEKLY AAPL puts (that expire after Oct. 31st)

- Suggested Positions -

Buy the AAPL Oct 31st $96 PUT (AAPL141031P96) current ask $1.78

Option Format: symbol-year-month-day-call-strike

Daily Chart:


PowerShares QQQ (NASDQ-100 ETF) - QQQ - close: 93.00 chg: +1.21

Stop Loss: n/a
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 36.6 million
Entry on October -- at $---.--
Listed on October 18, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The QQQ is the ETF that mimics the performance of the NASDAQ-100 index. Some of its biggest components report earnings this week.

AAPL is the biggest component in the QQQ at 13.8% of the ETF. MSFT is the second biggest at 8.5%. AMZN is 3.38%. CELG is 1.67%. All four of this big cap names report earnings this week. All of them could see some serious profit taking. We want to speculate on further weakness with the weekly puts on the QQQ.

The options we are choosing expire in two weeks, after October 31st. AAPL reports earnings on Monday night (October 20th) therefore we are suggesting an immediate entry. Microsoft, Celgene, and Amazon.com all report on October 23rd.

Buy puts on Monday, Oct. 20th

- Suggested Positions -

Buy the QQQ Oct.31st $92 PUT (QQQ141031P92) current ask $1.34

Option Format: symbol-year-month-day-call-strike

Daily Chart:


Sohu.com Inc. - SOHU - close: 43.51 change: -1.46

Stop Loss: 45.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 393 thousand
Entry on October -- at $---.--
Listed on October 18, 2014
Time Frame: 2 to 3 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
This is a simple momentum trade on a struggling Chinese Internet name.

Sohu.com is an online media, Internet search, and video gaming company. Unfortunately gaming revenues are becoming a smaller chunk of the overall pie for SOHU. At the same time, while they have seen significant growth in ad revenues from streaming TV shows and movies, the company is facing pressures on this front. The cost of content is rising while the Chinese government is becoming more strict about what shows, especially which American shows, they will allow to be aired (or streamed over the Internet). This is pressuring SOHU's margins.

Bulls can argue that SOHU has already corrected and is now oversold. That's possible. SOHU is down eight weeks in a row. It seems to be slicing through support. The 2014 low didn't hold it. Support near $50.00 didn't hold it. The $45 level has failed. The next stop could be $40.00. SOHU's recent bounce just failed at short-term resistance at the 10-dma.

I do consider this a more aggressive, higher-risk trade because SOHU is so oversold. We'll try and limit our risk with a stop above Friday's high.

Trigger @ $43.25 *Smaller positions to limit risk*

- Suggested Positions -

Buy the NOV $40 PUT (SOHU141122P40) current ask $1.20

Option Format: symbol-year-month-day-call-strike

Daily Chart: