9 Option Trades for Labor Day

by OptionsZone Experts | September 3, 2010 5:17 pm

Get to Work With These Trades

Labor Day is the celebration of the working man, but with a bleak employment picture, it’s safe to say that the working man hasn’t had much to celebrate lately. However, the latest jobs report showed some signs of life with better-than-expected numbers. And we’d like to give you a few more reasons to celebrate, so we’re bringing you nine options trades from our hardworking experts that should make you some easy profits. Enjoy the holiday weekend, and be sure to cash in on these trades when you get back to work.

[1] [1] Double-Digit Profits No Matter What the Market Does[2][1]

#1 Coca-Cola Company (KO)

Recommended by: Sam Collins, Editor, Daily Trader’s Alert[3]. The Coca-Cola Company’s (NYSE: KO[4]) products will surely be on everyone’s stock of beverages this weekend. But Labor Day is just the beginning of the strongest part of the season for the world’s largest soft drink company. KO is expected to increase sales by about 4% this year, according to S&P, and operating profits should rise at a greater rate. The stock is supported by its 200-day moving average[5] at under $55, making it a good buy for a move over $60. S&P ranks KO as a “five-star strong buy” with a 12-month target of $65. Buy KO Oct 55 Calls.

Double-Digit Profits No Matter What the Market Does

#2 Bed Bath and Beyond (BBBY)

Recommended by: Michael Shulman, Editor, Short-Side Trader[6]. Labor Day is typically the exclamation point on the back-to-school shopping season, but this year it is a question mark. All in all, it was a bust with most consumers buying just the bare essentials. And I wouldn’t expect the holiday shopping season to be much better. A look at the charts shows that Bed Bath & Beyond Inc. (NASDAQ: BBBY[7]) could be a good candidate for put option buyers. BBBY is a well-managed company (I love their stores) with no real head-to-head competition. Then again, they no longer have an economy providing top-line revenue growth. Look at BBBY puts past the holiday shopping season.

[1] [1] Double-Digit Profits No Matter What the Market Does[2]  [8]  [8]

#3 Advance Auto Parts (AAP)

Recommended by: John Lansing, Editor, Parabolic Options[9]. Advance Auto Parts’ (NYSE: AAP[10]) chart is showing a bearish rising wedge, which consists of two converging trendlines. Unlike a triangle pattern[11] where the apex is pointed to the right, the apex of this pattern is slanted upwards at an angle. This is because prices edge steadily higher in a converging pattern, i.e., there are higher highs and higher lows. A bearish signal occurs when prices break below the lower trendline. AAP is also showing massive bearish divergence between the indictors and oscillators, which simply put, means they are in a decline while price has been on the rise. The target is the gap area in the mid-$40s. Buying slightly out-of-the-money AAP October puts should pay off very well.

Double-Digit Profits No Matter What the Market Does[2]

#4 Ford Motor (F)

Recommended by: Chris Johnson and Jon Lewis, Editors, The Winning Edge[12]. Hard-working folks love their trucks, and no truck has dominated the landscape more than Ford Motor Company’s (NYSE: F[13]) F-150. But the company has done pretty well in the car business as well, turning out a lineup that has garnered praise for features and quality. August was a rough month for automakers. GM’s sales were down 25%, Nissan’s fell 27%, and Toyota suffered a 34% decline. Ford fell too, but only by 11%. The company expects a slight decrease in the fourth quarter in an attempt to match supply with demand. Ford’s stock price is showing some life, coming off the $11 level to sit atop its 200-day moving average[5]. The shares are up more than 16% this year, well ahead of the broader market, which is down around 5%. Although the economy is wobbly, Ford appears to be surviving better than most. The fourth quarter looks to be solid, albeit unspectacular. In this economy, though, that puts Ford way ahead of the pack. Buy the F Dec 12 Calls.

Double-Digit Profits No Matter What the Market Does[2]

#5 Yum! Brands (YUM)

Recommended by: Sam Collins, Editor, Daily Trader’s Alert[3]. Restaurant company Yum! Brands, Inc. (NYSE: YUM[14]) had been in a bull market for over 10 years. In early March, the stock broke from $36 to $44 in just six weeks, but then entered a period of consolidation with support at $39 and resistance at $42. If YUM breaks from the current descending triangle[15] above $43, it could make a new high and quickly head to $50. Credit Suisse Equity Research rates YUM an “outperform” with a target of $50. Buy YUM Oct 44 Calls.

[1] Double-Digit Profits No Matter What the Market Does[2]

#6 Hovnanian (HOV)

Recommended by: Michael Shulman, Editor, Short-Side Trader[6]. Housing is in a depression, and third-party data shows home sales and new home building at record lows. The foreclosure rate is frightening, and new home prices are falling because of the excess inventory of almost new foreclosed homes. That means the already struggling homebuilders take a margin hit per unit of sales. You can bet on the sector with puts on the SPDR S&P Homebuilders (NYSE: XHB[16]) or target one of the publicly held homebuilders. I’m partial to those catering to the high end of the market and with the weakest balance sheets, and that means Hovnanian Enterprises, Inc. (NYSE: HOV[17]). Look at longer-term HOV puts.

[1]Double-Digit Profits No Matter What the Market Does[2]

#7 Occidental Petroleum Corp. (OXY)

Recommended by: John Lansing, Editor, Parabolic Options[9].  Occidental Petroleum Corporation’s (NYSE: OXY[18]) chart shows a head-and-shoulders top[19]. This is an extremely popular pattern among investors because it’s one of the most reliable. It also appears to be easy to spot, but seasoned technical analysts will tell you that it is tough to spot the real occurrences[20]. The classic head-and-shoulders pattern looks like a human head with shoulders on either side. A perfect example of the pattern has three sharp high points, created by three successive rallies. With OXY now having a confirmed breakdown and close to new 52-week lows, selling pressure should intensify dramatically over the coming weeks. Buying some near-the-money OXY October puts should pay off nicely, especially with a further collapse in the price of oil.

Double-Digit Profits No Matter What the Market Does[2]

#8 DeVry (DV)

 

Recommended by: Chris Johnson and Jon Lewis, Editors, The Winning Edge[12]. For-profit education companies have taken a pounding over the past few months for not properly preparing graduates for jobs that pay well enough to cover the loan debts they incur. And student loans are where many of these companies derive their main revenue streams. Looking at the bigger educational stocks, DeVry Inc. (NYSE: DV[21]) is among the most vulnerable. Its post-secondary education programs are not suited for those looking to enhance their skill sets to find a job. And education funding cuts could hit the company on the top and bottom lines. On the chart, DV appears to have found a bottom after being extremely oversold. But the recovery has been weak, and overhead resistance at the $40 strike should keep the shares in check. Also of concern is that DV is the most highly rated educational company among analysts, making it particularly vulnerable to downgrades. And lately options players seem to prefer calls to puts, which adds more optimism to a stock that has plenty of headwinds. Optimism amid questionable fundamentals and technicals is a bearish combination. Play the DV Oct 40 Puts.

Double-Digit Profits No Matter What the Market Does[2]

#9 MasterCard (MA)

 

Recommended by: John Lansing, Editor, Parabolic Options[9]. MasterCard Incorporated’s (NYSE: MA[22]) chart is showing a descending continuation triangle, a bearish signal that indicates that the current downtrend may continue. This pattern features two converging trendlines. The bottom trendline is horizontal, and the top trendline slopes downward. It forms with lows occurring at a constant price level, and highs moving constantly lower. The pattern displays two highs touching the upper trendline and two lows touching the lower trendline, and is confirmed when the price breaks out of the triangle formation to close below the lower trendline. Buying MA puts to anticipate the breakdown should pay off nicely with a $50 drop looking like a high probability in the near future.   Double-Digit Profits No Matter What the Market Does — You are not at the mercy of the markets. You can start adding double-digit winners to your portfolio now if you’re ready to embrace the new rules of investing. Here’s how to make money every day in up markets AND down.[23]

Source URL: https://investorplace.com/2010/09/options-trades-for-labor-day/

---