Profit from the Downside

11/17/2008 11:46 am EST

Focus: OPTIONS

Michael Shulman

Editor, Short-Side Trader

Michael Shulman, editor of ChangeWave Shorts, sees opportunity as the market continues to slide.

The market has been moving. We’ve recently seen the steepest two-day declines since 1987, and, as a result, it’s time to re-adjust Buy Under prices. While the possibility of a bounce is always with us, the latest unemployment number and retail numbers, means GDP in Q3 really went down about 2%-3%—and we still have a lot more carnage to go. So the market, which ultimately must be driven by fundamentals, is headed down—hard. Let's get ready to profit:

NEW BUY UNDERS: CONSUMER SPENDING

Nordstrom Jan 15 Puts (JWNMC): Raise Buy Under to $3.10. Yesterday's news was much worse than other analysts expected, but our most recent ChangeWave Alliance survey data that came in yesterday said the disaster in retail sales is far from over.

Cheesecake Factory April 10 Puts (CFQPB): Raise Buy Under to $3. Restaurant spending is declining faster than campaign expenditures. There's more bad news from CAKE on the horizon.

NEW BUY UNDERS: FINANCIALS

Citigroup Jan 12.50 Puts (CMZ): Raise Buy Under to $2.80. The stock is worth $6 thanks to Uncle Sam, and maybe not worth a penny without Uncle Sam. This is a good play right now.

Capital One Financial March 22.50 Puts (COFOX): Raise Buy Under to $3.90. The credit card crisis is in its early stages, though Wall Street thinks we're in the late stages. Bully for us.

NEW BUY UNDERS: HOMEBUILDERS

Pulte Homes Jan 7.50 Puts (PHMMS): Lower Buy Under to $1.10. A recent pop based on overly optimistic comments and short-covering hit this position hard. It's time to get in.

Hovnanian May 2.50 Puts (HOVQZ): Raise Buy Under to $1.05. Hovnanian has a very weak balance sheet in a terrible market.

NEW BUY UNDERS: TECH AND BIOTECH

Pfizer Jan (2010) 12.50 Puts (WPEMV): Raise Buy Under to $2. The slide begins anew. This is a great play right here.

Lexmark April 25 Puts (LXKPE): Raise Buy Under to $2.95. Santa is not delivering printers this year—actually, he's not delivering anything.

As always, any time I update Buy Under prices, you can take it as a sign of my positive outlook for the position. Put your Fresh Money to work today, but be sure to use limit orders to avoid over-paying.

Subscribe to ChangeWave Shorts here…

Related Articles on OPTIONS