Play MDR Calls

A Nice November Play, Plus ISIS Gains!

By Bryan Bottarelli
Wednesday, October 03, 2007 12:32 PM EDT
Wed, 3 Oct 2007 16:32:00 GMT

Dear Bottarelli Research Member,

As the markets continue to fight over their next major market move, I’d like us all to continue keeping a close eye on Cummins (CMI – NYSE). I still think the stock has the $140.00 level in its sights, so you could very well see another upside play opportunity on any forthcoming market upside.

CMI

As you can see from today’s action, the CMI October 140 Calls (CDM JH) move rather quickly. If you’re still holding this play, maintain your sell orders. We could very well see a second exit opportunity by the day’s end. And next go-round, I’ll look to play November contracts to give us a little more time.

In the meantime, I’ve discovered a cheap & powerful upside play on McDermott International (MDR – NYSE). The Houston-based firm is a global energy services and construction company — serving offshore oil and gas, government operations, and power generation systems. As you can see from the chart, the stock is bucking the broad-based market weakness today by setting a new 52-week high. This points to further upside momentum going into November, especially with oil prices leveling off at $80.00 per barrel.

MDR

When I looked at the MDR options string, I immediately saw some tremendous upside potential in the MDR November 60 calls (MDR KL). Currently trading between $1.90 and $2.00 per contract, these calls are $3.31 out of the money (meaning that the entire cost of the option is time premium). But here’s the thing: For every $1.00 that MDR stock moves up, these calls will increase by around $0.35. Therefore, quick math tells you that a move up to MDR $60.00 could push these calls up to $3.10 per contract, good for a 63% gainer. With just under 2 months before November expiration, I think this play represents a strong risk versus reward scenario, so let’s go ahead and enter the position now.

PLAY: Buy the MDR November 60 calls (MDR KL) at or under $2.10, good for the day. Place a protective stop limit at $0.90.

*SPECIAL REPORT UPDATE: On December 11th of 2006, I posted a special report titled “Profiting off Pfizer’s Debacle.” In this report, I issued a longer-term call play on ISIS Pharmaceuticals (ISIS — NASDAQ). Specifically, I recommended the ISIS January ‘08 10 Calls (QIS AB) for $4.60 per contract. As I write today, ISIS has set a new 52-week high at $15.90 and these calls have traded for $6.40. That’s a 39% gain from our original entry price. Although ISIS is still a stock I’d like to hold in my Bottarelli Research Small Cap service, let’s take these options profits off the table now!

ISIS

SPECIAL REPORT PLAY: Sell your ISIS January ‘08 10 Calls (QIS AB) at or above $6.20, good for the day.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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