Options Across the Board

08/18/2008 12:00 am EST

Focus: FUNDS

Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

Bernie Schaeffer, editor, the Option Advisor, finds plenty of opportunities in this volatile market.

First Solar (Nasdaq: FSLR) has trekked more than 140% higher during the past year, riding support from its 32-week moving average. However, lingering pessimism still surrounds it. FSLR’s SOIR has inched higher during the past couple of months, and currently stands at 1.50, indicating that put open interest outnumbers call open interest among near-term options. This ratio, in the 96th percentile, means short-term option speculators have been more skeptical of the equity only 4% of the time during the past year. Similarly, short sellers have been revving up their bearish bets, increasing short interest by more than 17.5% during just the past month. These bearish bets now account for more than 6% of total float. Should FSLR continue to hit new highs, an unwinding of skepticism could place additional buying pressure on the shares. Buy the January 2009 360 call (HJPAL).

Alpha Natural Resources (NYSE: ANR) produces, processes, and sells steam and metallurgical coal in the US. On July 16, Cleveland-Cliffs announced that it will acquire all outstanding shares of ANR and the shares have pulled back roughly 20% (from the July 16th intraday high of $104.93), creating an attractive entry point for a bullish position. The equity currently sits atop a solid uptrend, with the stock accelerating more than 160% on a YTD basis. ANR’s 60-day relative strength indicates that it is outperforming the S&P 500 Index by more than 100%. Despite its technical prowess, short sellers are trying to call a top to performance, as more than 13.5% of ANR’s float is sold short. This could lead to a short-covering rally should any good news send the pessimists running to buy back their shorts. Buy the January 2009 100 call (ANRAT).

On July 10, Children’s Place and Retail Holdrs Trust (Nasdaq: PLCE) reported strong June same-store growth of 16% and total sales growth of 24%. That helped usher the stock higher along support at its 10-week trendline. This moving average has propelled PLCE to a gain of more than 45% since January 2008. But pessimism remains thick. Short interest is more than 24% of total float, while 5 of its 6 analysts rate it a “hold” or worse. An unwinding of this negativity could push it steadily higher. Meanwhile, the RTH has met with resistance at its 10-week trendline, which completed a bearish cross below its 20-week counterpart. Short-term resistance at the 90 level is also a concern. Buy the Children’s Place Sept. 30 call (TUYIF) and buy the Retail HOLDRS Trust Sept. 100 put (RTHUT).

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