6 Option Trades for 2Q11

One poet said April is the cruelest month. Meanwhile, market statisticians claim that April has been the best month for the Dow Jones Industrial Average over the past 20 years, gaining an average return of 2.7%. So who’s right about April? As options trading investors we will go with the stats guys anytime.

The market seems to have gotten over some of its major challenges recently, from international disasters, gas prices through the roof and a still-floundering housing market. We asked several of our options experts to suggest strong trades for April and for the second quarter. We offer here half a dozen trades including investor’s favorite Apple (NASDAQ: AAPL), the very hot iShares MSCI Emerging Markets Index Fund (NYSE: EEM), commodity leader Potash (NYSE: POT) and three more.

So, if you favor the poet, this may be a time to linger over the growing foliage. But if you count yourself a trader, take a few moments and check out these 2Q11 options ideas.

Amazon (NASDAQ: AMZN)

By Michael Shulman, Short-Side Trader

Forget charts, start looking at fundamentals — and one great trade is something I have written about before — Amazon (NASDAQ: AMZN). It has great execution and its growth is many multiples of earth-bound retail growth and several multiples of online retail growth. The Street keeps waiting for something bad to happen yet the company is in the drivers seat as consumers have cut back on driving and are increasingly frugal. At the risk of getting personal I get my books there — and dog food and ear plugs and paper towels and Cole Haans and replacement dishes for my everyday China — all tax and shipping charge free. Look at AMZN Calls around 195, an expiration at least one more quarter out.

Apple (NASDAQ: AAPL)

By Michael Shulman, Short-Side Trader

Another misunderstood stock is Apple (NASDAQ: AAPL). How do you misunderstand and trade down a company that doubled in size during the Great Recession, is still outgrowing again every brand name in the world and whose iPad 2 is outdistancing brand new competition. (By the way I am writing this on an iPad, the first version). Oh did I mention the stock is trading at less than half its historic multiple? And Japan helped — they have long term contracts for flash memory and they got there first so their competitors are going to get squeezed with rising spot prices. Yes, the market cap is getting in the way but for how much longer? I like a summer strike for AAPL, look at an expiration during the hot months around $375.

Potash (NYSE: POT)

By Chris Johnson and Jon Lewis, The Winning Edge

The ag trade is once again a hot commodity thanks to increasing global demand. And this is not a trend that is likely to end anytime soon. Keeping up with this demand means that fertilizer producers such as Potash (NYSE: POT) will have plenty of business.

POT has been on a nice run of late, gaining more than 20% off its March low. The shares are now poised to take out their 2011 high (also a multi-year high) just under the 64 level. But there’s still plenty of room to run before the stock hits its all-time high just north of 80 that was reached in 2008.

Sentiment toward POT is showing enough pessimism to continue the rally should it begin to unwind. The put/call ratio is coming off its highest peak since November, a sign of renewed call interest in the shares. And eight of 25 analysts have yet to recommend POT as a “buy,” leaving room for upgrades.

Given that we like POT as an intermediate-term play, we recommend the POT May 60 Call for around four bucks. That gives you plenty of time to let the rally continue.

Coca-Cola (NYSE: KO)

By Chris Johnson and Jon Lewis, The Winning Edge

If it’s good enough for Warren Buffett (in fact, Coca-Cola [NYSE: KO] is his largest holding), it’s certainly good enough for us. The company continues to expand within developing countries and, despite its strong presence in the U.S., derives most of its sales from foreign markets.

Despite a strong three-week rally that has covered around 10% and pulled the stock to its highest point in more than 11 years, the shares are still 30% below their all-time high. What’s more, the stock lags the broader market going back to the March 2009 low. So we’re not buying into the talk of KO being overheated and ripe for a pullback. In fact, we like to hear such talk, as it just adds to the “wall of worry” that rallying stocks need to keep the momentum intact.

The recent KO rally hasn’t translated into higher option premiums, meaning that KO options are attractively priced. We suggest going with the near-the-money KO May 67.50 Call for less than two bucks. That option should let you profit from a continued stock rally and a potential increase in the option’s volatility.

IShares Brazil Index ETF (NYSE: EWZ)

Sam Collins, Chief Technical Analyst, InvestorPlace

While the U.S. markets have done well in the past week, the emerging markets have exploded. The big emerging countries of India, Brazil, and China have led the way and below is a selected option on the Brazil iShares, but investors who embrace the added safety of diversification may wish to pursue ETF calls that represent a basket of countries like the iShares Emerging Markets Index Fund. Here are two options for consideration:

The iShares MSCI Brazil Index ETF (NYSE: EWZ) tracks the performance of the MSCI Brazil Index and normally invests 95% of its assets in the securities of the index.  This year the index is up 8.2% in March as a result of the recent breakout which occurred on March 30 at $76. The stock has been trading in a correction with a double bottom low at around $71 to $72 before bouncing from the conjunction of its 50- and 200-day moving averages at $74. The target for the breakout is the high at $82 with the possibility of a major break above the high. Traders should try to buy the EWZ May 21 Call 80 Strike for $2.15 or less with a trading target of $4.00.

IShares Emerging Markets Fund (NYSE: EEM)

Sam Collins, Chief Technical Analyst, InvestorPlace

The iShares MSCI Emerging Markets Index Fund (NYSE: EEM) seeks to mirror the performance of the MSCI Emerging Markets Index and generally invests 90% of assets in the securities of the index. It has stock holdings in companies in Taiwan, Brazil, China, and other developing nations. On March 30 the stock broke through a resistance line at $48 that connected the highs of November, January, and March. The target for the breakout is $52. Traders should try to buy the EEM May 21 Call 50 Strike for $1.30 or less with a trading target of $3.50.