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Call Updates

Biosite Inc. - BSTE - close: 64.92 chg: +1.53 stop: 59.99

The market rebound helped BSTE confirm its Thursday breakout from its two-week trading range. We do not see any change from our original play description on Thursday so we're reprinting it here:

We are going to hedge our bets a little bit and add BSTE to the list as a bullish candidate. The company isn't quite a pure biotech play but the stock seemed to rally strongly with the BTK index. We also like how BSTE has been very resistance to the market's weakness over the past two weeks. While the rest of the market was falling shares of BSTE were consolidating sideways above the $60.00 level. Today's rebound from the $60.00 mark pushed through short-term resistance at the $62 level on volume about twice its daily average, which should suggest more strength ahead. We have two targets. Our first target is the $67.50 mark, where BSTE failed back in May. Our second target is the $69.50-70.00 range. The Point & Figure chart currently points to a bullish $87 target. The biggest risk here is the time frame. We want to exit ahead of the October 25th earnings report. Thus if we do not see some significant follow through on today's breakout over the next couple of sessions we're going to exit early!

Suggested Options:
We are suggesting the November calls.

BUY CALL NOV 60.00 BQS-KL OI= 70 current ask $6.70
BUY CALL NOV 65.00 BQS-KM OI=198 current ask $3.50

Picked on October 13 at $ 63.39
Change since picked: + 1.53
Earnings Date 10/25/05 (unconfirmed)
Average Daily Volume = 261 thousand

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Cardinal Health - CAH - close: 63.48 chg: +0.56 stop: 59.85

CAH's rally on Friday looks like a new bullish entry point although more conservative traders may want to wait for more confirmation with a move above the $64.00 level. Short-term technical oscillators are turning positive again and its P&F chart continues to point to a bullish $75 target. We are targeting a move into the $66-67 range before the company's earnings report on October 26th.

Suggested Options:
We are suggesting the November calls.

BUY CALL NOV 60.00 CAH-KL OI= 307 current ask $4.50
BUY CALL NOV 65.00 CAH-KM OI=2152 current ask $1.40

Picked on September 25 at $ 61.95
Change since picked: + 1.53
Earnings Date 10/26/05 (confirmed)
Average Daily Volume = 2.0 million

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Pre Paid Legal - PPD - close: 40.53 chg: +0.88 stop: 37.85

PPD enjoyed a strong rally on Friday. The stock added 2.2% to breakout over the $40.00 level and technical resistance at its simple 50-dma. If you didn't buy the bounce from the $39.00 level then this is our entry point! PPD has broken its three-month trendline of resistance and almost all of its technical indicators are pointing higher. It is true that the P&F chart is still bearish but that won't stop the stock from bouncing back toward our target in the $44.00-45.00 range. We do plan to exit ahead of the October 24th earnings report but at this time that date is unconfirmed.

Suggested Options:
We are suggesting new positions at this time. We like the November calls.

BUY CALL NOV 37.50 PPD-KU OI= 81 current ask $4.20
BUY CALL NOV 40.00 PPD-KH OI= 64 current ask $2.45
BUY CALL NOV 42.50 PPD-KV OI= 14 current ask $1.35

Picked on October 10 at $ 40.10
Change since picked: + 0.43
Earnings Date 10/24/05 (unconfirmed)
Average Daily Volume = 72 thousand
 

Put Updates

Teleflex Inc. - TFX - close: 66.36 chg: +0.42 stop: 69.01

TFX couldn't escape the market's bullishness on Friday but fortunately the stock continues to have a bearish posture. Shares appeared to top out in September-October and the recent sell-off has broken multiple levels of support. We would not be surprised to see TFX rebound higher again but traders can watch for a failed rally as a new entry point. Currently the $67.00 level is short-term overhead resistance but a move to $68 isn't out of the question. The Point & Figure chart has a relatively new sell signal that points to a $60.00 target. We do plan to exit ahead of the October 26th earnings report. Our target is the $62.50-62.00 range.

Suggested Options:
We are suggesting the November puts.

BUY PUT NOV 70.00 TFX-WN OI= 15 current ask $4.60
BUY PUT NOV 65.00 TFX-WM OI= 44 current ask $1.80

Picked on October 13 at $ 66.49
Change since picked: - 0.13
Earnings Date 10/26/05 (confirmed)
Average Daily Volume = 174 thousand

 

Strangle Updates

(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.)

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General Dynamics - GD - cls: 120.08 chg: +0.94 stop: n/a

This may be our last chance to initiate new positions in this strangle play. Shares of GD trended higher on Friday with the rest of the market but remains inside its short-term trading range between $121 and $119. Stunting GD's rally on Friday was news that Prudential initiated coverage on the stock with an under weight rating. We have a bullish bias on the stock but with this strangle play we don't care what direction the stock moves as long as the move is big enough to make our investment profitable. We do plan to hold over the company's earnings report on October 19th (this coming Wednesday).

Suggested Options:
A strangle play involves a trader buying an out-of-the-money (OTM) call and an OTM put. We have been suggesting the November $125 call and the November $115 put. When we suggested this play on October 9th the call was trading around $0.85 and the put around $1.15 so our total investment was about $2.00. Currently the cost to initiate a new strangle position has risen to $2.20. Our goal is to double our money on this play before the November expiration.

BUY CALL NOV $125.00 GD-KE OI=1059 current ask $1.10
-and-
BUY PUT NOV $115.00 GD-WC OI= 906 current ask $1.10

Picked on October 09 at $119.59
Change since picked: + 0.49
Earnings Date 10/19/05 (confirmed)
Average Daily Volume = 713 thousand

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Legg Mason - LM - cls: 104.78 chg: +2.23 stop: n/a

LM out performed its peers and the market on Friday with a 2% bounce from its 100-dma and a continuation of the rebound off the $100 level, which is also the bottom of its three-month trading range. We suggested that more aggressive traders could buy calls to speculate on a bounce from the $100 level or buy puts if LM broke down under the $100 mark. We chose to launch a strangle play because of LM's conflicting signals. The stock was near support at $100 and its 100-dma and look poised to bounce but its P&F chart has recently produced a new sell signal that points to a $92 target. On Wednesday night we suggested a strangle with the November $110 call and the November $90 put. Thursday gave us a great entry point with the stock churning sideways in a narrow range. Given today's rebound we probably would not suggest new plays at this time. If LM returns back toward the $100 level before its earnings report on October 20th we might consider new strangle plays. Our goal is to exit if either option trades in the $7.00-8.00 range before November expiration.

Suggested Options:
We are not suggesting new plays at this time. The preferred entry point was Thursday. Our strangle involves the following options:

CALL NOV $110 LM-KB OI=4709
-and-
PUT NOV $90 LM-WR OI=443

Picked on October 12 at $102.59
Change since picked: + 2.19
Earnings Date 10/20/05 (unconfirmed)
Average Daily Volume = 966 thousand

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3M Co. - MMM - close: 70.72 chg: +0.65 stop: n/a

It's probably not too late to consider new strangle positions on MMM. The stock did bounce higher with the rest of the market on Friday and the three-day trend looks like a bullish reversal but the longer-term trends still look bearish, especially the Point & Figure chart with its new triple-bottom breakdown sell signal. Of course with a strangle play we don't care what direction the stock moves as long as it moves big. We're counting on MMM's earnings report on Tuesday, October 18th to provide the catalyst for a big move between now and November option expiration. We would not suggest new plays after Monday's closing bell. We are planning to exit if either option trades in the $1.60-2.00 range. More aggressive traders may want to hold out for more.

Suggested Options:
On Wednesday last week we suggested the November $75 call, which was $0.45 and the November $65 put, which was $0.35. The only change is a five-cent move in the call price. This is a strangle play so investors want to buy both an OTM call and an OTM put.

BUY CALL NOV 75.00 MMM-KO OI=11766 current ask $0.50
-and-
BUY PUT NOV 65.00 MMM-WM OI=1102 current ask $0.35

Picked on October 12 at $ 70.38
Change since picked: + 0.34
Earnings Date 10/18/05 (confirmed)
Average Daily Volume = 3.0 million

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O'Reilly Auto. - ORLY - close: 26.38 chg: +0.08 stop: n/a

We have nothing new to report on for ORLY. At this point we're in a "wait-and-see" mode. We're not suggesting new strangle positions since the stock has fallen out of its neutral consolidation pattern. We're expecting to see more movement following the October 25th earnings report.

Suggested Options:
We are not suggesting new plays at this time. Our strangle is formed with the November $30 call (OQR-KF) and the November $25 put (OQR-WE). We plan to exit if either option trades in the $2.50-2.75 range.

Picked on October 09 at $ 28.23
Change since picked: - 1.85
Earnings Date 10/25/05 (confirmed)
Average Daily Volume = million

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Verifone Holdings - PAY - cls: 19.76 chg: +0.06 stop: n/a

PAY traded in a relatively narrow 33-cent range on Friday. The stock remains near the $20.00 mark so we would still consider launching new strangle positions on the stock. A quick glance at the chart shows the big three-month rally from its May lows and then a ten-week sideways consolidation that has narrowed significantly around the $20 level. We are suggesting a strangle to capture any future breakout and as long as PAY trades in the $19.25-20.75 range we would consider new positions. We do plan on holding over the November 18 earnings report.

Suggested Options:
We are suggesting the January calls but we did list Novembers as an alternative for a shorter time frame. These options continue to have wide spreads but they are narrowing.

BUY CALL JAN 22.50 PAY-AX OI= 50 current bid 0.80 ask $1.30
-and-
BUY PUT JAN 17.50 PAY-MW OI= 0 current bid 0.90 ask $1.20

We would look for a $4.25-5.00 move in the stock.

If you choose to play Novembers:

BUY CALL NOV 22.50 PAY-KX OI=132 current bid 0.30 ask $0.60
-and-
BUY PUT NOV 17.50 PAY-WW OI= 0 current bid 0.60 ask $0.70

We would look for a $3.00 or better move in the stock.

Picked on October 12 at $ 19.98
Change since picked: - 0.22
Earnings Date 11/18/05 (unconfirmed)
Average Daily Volume = 259 thousand
 

Dropped Calls

None
 

Dropped Puts

Biotech HOLDRs - BBH - close: 186.37 chg: +2.09 stop: 185.25

It looks like the tide has turned in the biotech stocks. Wednesday the BTK biotech index broke down under support and its 100-dma. Thursday saw the sector reverse course and Friday's big gain in the BTK helped confirm the rebound. We were never triggered so we're dropping this play unopened. Technical traders will note that the BBH still has a trend of lower highs at the moment.

Picked on October xx at $xxx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 622 thousand

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Ryland Group - RYL - close: 64.65 chg: +1.20 stop: 66.75

We are still somewhat bearish on the homebuilders given all the technical damage done to their long-term trends over the past couple of months. However, the core-rate of inflation (ex-food and energy) came in low again for the fifth month in a row on Friday and that might spark a larger bounce in the homebuilders. Shares of RYL are already oversold so we'd rather exit early and watch the stock for another entry point. More aggressive traders may want to keep this bearish position open since RYL failed to rally through its exponential 200-dma on Friday. Right now we feel it's better to jump out than see this turn into a loss.

Picked on October 05 at $ 65.70
Change since picked: - 1.05
Earnings Date 10/18/05 (confirmed)
Average Daily Volume = 1.0 million
 

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