by Ken Trester | October 23, 2012 6:30 am
Though the market overall is looking up, tech is taking a beating. I’m seeing plenty of opportunities for inexpensive put options[1] in this sector downtrend. But in this bullish market, prices overall are trending up, meaning calls are a safer bet.
In the large-cap computer area, bellwether IBM (NYSE:IBM[2]) showed the overall bearish trend for the sector[3] when it reported last week. With yet another revenue miss and an unchanged EPS estimate, this giant is showing weakness, as are its peers.
Oracle (NASDAQ:ORCL[4]) was in an upward trend but is currently pulling back. Similarly, Honeywell (NYSE:HON[5]) was also trending up, but now it’s fairly quiet, staying in the $61 to $62 range for the past two weeks. Not much opportunity there for playing options.
Even Apple (NASDAQ:AAPL[6]) is a problem stock[7] right now. It’s in a downward trend, and my Power Options system shows that it may accelerate. I have Google (NASDAQ:GOOG[8]) on my “sell watch” as well — it has started going down, and although it may have potential as a long-term trade, it’s certainly feeling the pinch[9] right now. Its recent earnings report snafu[10] didn’t help.
With tech giants stumbling technically, I’m looking to pockets of strength in smaller names. One such company is Take-Two Interactive Software (NASDAQ:TTWO[11]), a company that develops, markets and publishes video games, including the popular Grand Theft Auto series. My system rates it as a reestablished buy after it was in a lukewarm upward trend. This kind of bounceback is one of the most reliable buy signals.
Options Recommendation: Buy TTWO Dec 12 Call options at 75 cents or lower, when the stock price should be about $11.40. After entry, take profits if the stock price hits $12.80. Options should rise to about $1.50. Exit if the stock price closes below $10.70, or the option price drops to 50 cents.
Ken Trester[12] is editor of the popular Maximum Options[13] 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.
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