Option Investor
Play Updates

Friday's Weakness Provided Entry Points

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Play Editor's Note: The morning weakness on Friday was perfect. A few of our bullish candidates were triggered and then bounced higher into the afternoon. Our Chinese plays held up in spite of weakness back home. Meanwhile our strangle plays only have five trading days left.


CALL Play Updates

Apple Inc - AAPL - close: 98.27 change: +3.27 stop: 92.40*new*

Our patience with AAPL has paid off. The stock gapped open lower at $92.80 on Friday morning and rebounded sharply from the $92.50 level. Our suggested entry point to buy calls was at $94.00 so we were triggered at the open with a better entry point than expected. AAPL marched higher the rest of the day to close up 3.4% and near its highs. Friday's session has produced a bullish engulfing candlestick pattern. It also looks like AAPL has produced a bull-flag pattern over the last week.

More conservative traders may want to take some money off the table right now given the big bounce from our entry. We are going to stick to our previously listed targets. Please note that we're moving the stop loss up to $92.40. Our first target is $99.85. Our second target is $107.50.

Suggested Options:
If you missed Friday's entry point consider buying calls on a dip near $96 or a breakout over $100. We're suggesting the January calls.

Annotated Chart:
AAPL

Picked on December 12 at $ 92.80 *gap down entry 
Change since picked:      + 5.47
Earnings Date           01/22/09 (unconfirmed)
Average Daily Volume =      52.8 million  


Amazon.com - AMZN - close: 51.25 change: +3.00 stop: 47.49*new*

AMZN also gapped open lower on Friday morning but investors were very quick to jump on the dip. The stock soared higher and showed impressive relative strength, albeit on below average volume. The move produced a bullish engulfing candlestick and another breakout over its 50-dma and the $50.00 mark.

We had been waiting for a dip to $46.00 or lower. The intraday low on Friday was $47.52. Given AMZN's strength we're going to alter our strategy. I am now suggesting readers buy Friday's bounce with a stop loss under Friday's low. This makes it a much more aggressive play but shares have developed a bullish trend of higher lows and higher highs. If we don't see a new higher high soon we'll consider an early exit.

Our first target is $54.95. Our second target is $59.50. More aggressive traders may want to aim for the 100-dma. FYI: The P&F chart is bullish with a $73 target.

Suggested Options:
We are suggesting the January calls.

BUY CALL JAN 50.00 ZQN-AJ open interest=12127 current ask $6.10
BUY CALL JAN 55.00 ZQN-AK open interest= 6358 current ask $3.70

Annotated Chart:
AMZN

Picked on December 13 at $ 51.25
Change since picked:      + 0.00
Earnings Date           01/28/09 (unconfirmed)
Average Daily Volume =      12.9 million  


China Mobile Ltd. - CHL - close: 51.65 change: -0.18 stop: 49.75*new*

Both the Chinese Hang Seng index and the Shanghai index plunged sharply lower on Friday. Yet shares of CHL managed to recover from its morning weakness. Traders bought the dip at round-number support near the $50.00 mark. The bounce from its lows is encouraging but we're not suggesting new bullish positions at this time. We are upping the stop loss to $49.75.

CHL has already hit our first target at $51.75. We're currently aiming for the $57.00 level.

Note: I was unable to find an earnings date for CHL, which does raise our risk since we prefer to avoid holding over an earnings report.

Suggested Options:
We are not suggesting new positions in CHL at this time.

Annotated Chart:
CHL

Picked on December 03 at $ 47.11 /gap down entry
Change since picked:      + 4.54 /originally listed at $47.85
Earnings Date           00/00/08 (unconfirmed)
Average Daily Volume =       3.9 million  


Express Scripts - ESRX - close: 57.48 change: -0.24 stop: 55.95

ESRX showed some relative weakness on Friday but the stock failed to break short-term support near $56.00. The last four days look like a consolidation pattern similar to a bull flag. While I am willing to stay bullish on ESRX I'm very cautious here. More conservative traders may want to cut their losses and exit right now. If we don't see a bounce on Monday I will drop ESRX. Wait for a move over $59.00 or $60.00 before considering new bullish positions. Our target is $64.00.

Suggested Options:
We are not suggesting new bullish positions at this time.

Annotated Chart:
ESRX

Picked on December 06 at $ 59.36 /gap higher entry 
Change since picked:      - 1.88 /originally listed at $58.58
Earnings Date           02/19/09 (unconfirmed)
Average Daily Volume =       3.1 million  


FTSE/Xinhau China Index - FXI - close: 29.99 chg: -0.13 stop: 28.65*new*

The FXI China ETF gapped lower after both the Chinese markets fell sharply on Friday. Yet the FXI managed to bounce from its morning lows and significantly pare its losses. This is a bullish show of strength but we're not suggesting new positions. Instead we're inching up our stop loss to $28.65, about 15 cents under Friday's low.

Early last week we told readers to take profits at $30.00 or higher and adjusted our secondary target to $34.00. Now with the simple 100-dma reaching the $33 level we are adjusting our secondary target to $32.50.

Suggested Options:
We are not suggesting new positions in FXI.

Annotated Chart:
FXI

Picked on December 03 at $ 26.27 /gap down entry point
Change since picked:      + 3.72 /originally listed at $27.25
Earnings Date           00/00/00
Average Daily Volume =      51.2 million  


Jacobs Engineering - JEC - close: 46.80 change: -0.92 stop: 42.45

Engineering and construction stocks were hit hard on Friday morning after a Goldman Sachs analyst issued some bearish comments on the sector. Shares of JEC gapped open lower at $44.60, dipped to $42.60 and then rebounded throughout the remainder of the day. Our plan was to buy calls on a dip to $46.00 or lower so the gap down gave us a much better entry point. We're going to leave our stop loss unchanged at $42.45. We have two targets. Our first target will be $51.00. Our second target will be $54.90.

Suggested Options:
Our plan suggested buying January calls. If you missed Friday's entry point consider looking for another bounce from the $45 region.

Annotated Chart:
JEC

Picked on December 12 at $ 44.60 *gap down entry
Change since picked:      + 2.20
Earnings Date           01/21/09 (unconfirmed)
Average Daily Volume =       3.0 million  


Priceline.com - PCLN - close: 64.69 change: +3.73 stop: 59.75

Our bullish play on PCLN almost died on Friday morning. Market weakness pushed PCLN toward round-number support at $60.00 but thankfully the level of support held firm. The stock quickly shot higher and eventually closed up 6.1%. If you're willing to play with a wide $5.00 stop loss then this is a new bullish entry point. PCLN does have some resistance near $65.00 but I am expecting a breakout next week and a rise toward our secondary target at $69.90. FYI: The Point & Figure chart is bullish with a $102 target.

Suggested Options:
We remain bullish on PCLN and this bounce looks like another entry. I'm suggesting the January calls.

Annotated Chart:
PCLN

Picked on December 06 at $ 61.60 /gap open higher
Change since picked:      + 3.09 /originally listed at $60.46
Earnings Date           02/12/09 (unconfirmed)
Average Daily Volume =       1.8 million  


Wynn Resorts - WYNN - close: 42.08 change: +1.38 stop: 39.40*new*

If you missed the entry point on Thursday we got another opportunity on Friday. WYNN slipped to $39.49 and spent a good deal of time bouncing around the $40.00 level before finally rebounding higher. This remains an aggressive play. The economy is sliding deeper into recession and the casino stocks are going to struggle but right now WYNN has developed a bullish pattern of higher highs and higher lows. We're adjusting our stop loss to $39.40. We have two targets. Our first target is $44.75. Our second target is $49.00. I would strongly suggest taking some money off the table at our first target since the 50-dma (currently near $46) could be stiff resistance. FYI: the P&F chart is bullish with a $62 target.

Suggested Options:
We are suggesting the January calls.

Annotated Chart:
WYNN

Picked on December 11 at $ 40.75
Change since picked:      + 1.33
Earnings Date           02/12/09 (unconfirmed)
Average Daily Volume =       3.2 million  


PUT Play Updates

*Currently we do not have any put play updates*


Strangle & Spread Play Updates

SPDR GOLD Trust - GLD - close: 80.81 change: +0.16 stop: n/a

After Thursday's big fall the U.S. dollar didn't move much on Friday. Gold prices also spent the day trading sideways. The GLD bounced around the 100-dma near $80.00 and the exponential 200-dma near $82.00. If the GLD can breakout over its late November highs near $82.00 it would be a bullish development. As it stands now the GLD might be building a bearish double top.

The December $75 call option closed around $6.00 on Friday. We only have five trading days left before December options expire. More conservative traders will want to seriously consider exiting early right here to protect capital.

For those traders who are willing to speculate that the GLD will continue to rally over the next five days, then I'm adjusting our exit target to $9.90.

We are not suggesting new strangle positions in the GLD.

What is a strangle?
A strangle involves buying both an out-of-the-money call and an out-of-the-money put. We don't care what direction the stock goes as long as it moves one direction. If the stock moves far enough one side of our trade will rise in value and pay for the entire trade and make a profit.

-December Strangle-

Summary:
We suggested readers buy the December $75 call (GVD-LW) and the December $70 puts (GVD-XR). Our estimated cost was $6.30. We want to sell if either option hits $9.90.

Suggested Options:
We are not suggesting new option positions.

Annotated Chart:
GLD

Picked on November 09 at $ 72.50
Change since picked:      + 8.31
Earnings Date           00/00/00
Average Daily Volume =      19.3 million  


Ultra S&P500 ProShares - SSO - close: 25.26 change: +0.26 stop: n/a

The S&P 500 index bounced from an intraday test of the 850 level. If the index can breakout over its simple 50-dma the market could see a significant rally toward the 1000 region. A bullish breakout would really produce some big moves in the SSO.

We only have five days left before December options expire. More conservative traders need to be looking for an exit either here or anywhere near breakeven.

We're not suggesting new strangles at this time.

Note: The SSO is an ultra-long ETF that typically moves twice the daily performance of the S&P 500 index.

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.

-December Strangle Details-
We suggested readers buy the December $30.00 call (SOJ-LD) and the December $20.00 put (SOJ-XT). Our estimated cost is $3.75. We want to sell if either option hits $6.00.

Suggested Options:
We are not suggesting new positions.

Annotated Chart:
SSO

Picked on November 12 at $ 24.84
Change since picked:      + 0.42
Earnings Date           00/00/00
Average Daily Volume =       126 million  


CLOSED BULLISH PLAYS

Chipotle Mexican Grill - CMG - close: 57.47 chg: +2.42 stop: 48.45

CMG continues to show relative strength, which is a great sign for the bulls. However, the rebound is looking pretty extended here after a bounce from $37. We are not going to chase it and we're not willing to short it - at least not here. The plan is to just wait and watch for an entry point. Eventually CMG will correct. Our suggested play was never opened.

Chart:
CMG

Picked on December xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           02/12/09 (unconfirmed)
Average Daily Volume =       475 thousand 


Goldman Sachs - GS - close: 67.74 change: -1.97 stop: 67.49

The early morning weakness in the U.S. markets was enough to push GS lower. The stock actually gapped open lower at $65.70 on Friday morning before bouncing up to fail near $70. Our stop loss was at $67.49 so we would have been stopped out at the opening gap. GS reports earnings next week and their results and guidance could have a huge affect on market sentiment and direction, especially for the financials.

Chart:
GS

Picked on December 10 at $ 71.00 *triggered
Change since picked:      - 3.26
Earnings Date           12/16/08 (confirmed)
Average Daily Volume =        29 million  


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