Buy Biotech Elan Calls and QLogic Puts

Advertisement

Market Outlook
Indicators for options trading investors are giving neutral readings, a downgrade from last week’s bullish to neutral. This is not a surprise, as our internal indicators have been trending toward bearish for the past few weeks. Primarily, the 200-day Moving Averages Index remains below its own 50-day and 200-day moving averages, and Cumulative Volume Index remains below its 50-day moving average.

The major change this week is that the major stock indexes have also fallen below their 50-day moving averages. To reverse this the Dow Industrials must move back above 12,420, and the S&P 500 back above 1328. A failure to do so could result in a slide toward the lows made in March following the Japanese earthquake and tsunami.

Recommended Fast Options Trade: Elan Corp (NYSE: ELN)

ELN broke above resistance at $8.75 and should continue moving higher if stocks can mount a rally heading into the first week of a new month. Here is the best way to play more strength in Elan Corp. …

Buy the ELN Jul 9 Call up to 80 cents ($80 per contract).

After taking the position, enter a good-til-cancelled contingent order to sell this option if the stock hits its target price of $10.10. That should give you an option price of about $1.40, for a 75% profit.

Close this position and cut losses if the stock closes below $8.60, when the option price should be about 50 cents. The stock is currently trading at $9.14. The computer-simulated probability of this option hitting its target price is 30%.

Find more option analysis and trading ideas at Options Trading Strategies.

Recommended Fast Options Trade: QLogic Corp (NASDAQ: QLGC)

QLGC broke below long-term support at $16.70 and should continue heading lower if stocks fall into a more severe downtrend. Here is the best way to play more weakness in QLogic Corp. …

Buy the QLGC Jul 15 Put up to 50 cents ($50 per contract).

After taking the position, enter a good-til-cancelled contingent order to sell this option if the stock hits its target price of $14.50. That should give you an option price of about 90 cents, for an 80% profit.

Close this position and cut losses if the stock closes above $16.20, when the option price should be about 20 cents. The stock is currently trading at $15.64. The computer-simulated probability of this option hitting its target price is 18%.

** All of our short-term recommendations can be taken for up to three days after they are recommended. Make sure the stock and option prices are close to where they were when we made the recommendation. If after three days you still have not gotten the position filled, cancel the order and wait for our new recommendations, as the profit probabilities may no longer be valid.

Action to Take on Current Position: Zebra Technologies (NASDAQ: ZBRA)

Continue to hold the ZBRA Aug 45 Call. The position reached its three-week maximum holding period Thursday but it still has almost three months until expiration and is showing a small gain. Raise the stop price to $41.60.

Action to Take on Current Position: Cabela’s (NYSE: CAB)

Continue to hold the CAB Sep 20 Put. The position reached its maximum three-week holding period Thursday but it has almost four months until expiration and the current option price is close to our recommended price. Lower the stop price to $24.10.

Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.


Article printed from InvestorPlace Media, https://investorplace.com/2011/05/buy-biotech-elan-calls-and-qlogic-puts-qlgc-eln-cab-zbra/.

©2024 InvestorPlace Media, LLC