#1 PowerShares DB Agriculture Fund (DBA) Calls
By Chris Johnson and Jon Lewis
Thanksgiving's origins can be traced back to festivals meant to celebrate the harvest, which makes our bullish pick a natural play on the holiday. The PowerShares DB Agriculture Fund (DBA) provides investors with a single-share alternative to investing in agricultural commodities. This was one of the hottest commodity-based ETFs in 2007 and 2008, as the "crowd" became increasingly interested in trading commodities as food prices skyrocketed. Lately, DBA has seen less activity as rising food prices have fallen off consumers' and investors' radar screens. However, in our view, that means it's the perfect time for a bullish play.
Inflation fears have been in the news lately as interest rates remain extremely low. At the same time, news that current grain harvests have been affected by the wet conditions in the Midwest are likely to start boosting grain and other agricultural commodity prices. Given this, we believe investors who buy call options on DBA will harvest#2 Darden Restaurants (DRI) Puts
By Chris Johnson and Jon Lewis
Thanksgiving is a time when friends and family gather at home for a feast, but the restaurant industry is hoping that a good number of folks dine out amid their holiday shopping activities. Given the tentative economic recovery and double-digit unemployment rate, it's doubtful that they'll get their wish. That's why our bearish pick is Darden Restaurants (DRI) -- the operator of Red Lobster, Olive Garden, The Capital Grille and LongHorn Steakhouse, to name a few.
The stock itself is under some pressure, having gone nowhere for the past eight months. In fact, the shares are staring up at some formidable technical resistance that has kept them in check for nearly two months. What's more, we're seeing a lot of optimism toward DRI that, quite frankly, is not deserved. The put/call ratio is low, indicating a lot of hopeful call activity. And nearly 60% of covering analysts rate the shares a "buy" without one "sell" rating in the entire bunch, which doesn't leave much room for upgrades.
Optimism among investors on stocks with shaky fundamentals and weak technicals is a bearish recipe, so consider buying put options on DRI.
#3 Costco (COST) Calls
By Andrew Houghton and Nick Atkeson
The day after Thanksgiving is the official kick-off to the holiday shopping season, and this year the focus will be on bargains. According to our ChangeWave Research surveys, most consumers will be doing their shopping at discount stores and online.
Discount retailer Costco (COST) does one-third of its overall business in southern California and Nevada, where the unemployment rate is higher than the national average. Because a disproportionate amount of Costco's warehouse and distribution facilities are located in southern California and the supply chain is relatively more efficient, this geographic region has historically had the highest margins. Over the past year, though, this region suffered the worst of the economic downturn and has been a big drag on Costco's profits. But what goes down often comes back up, and analysts expect COST to post better comparable store sales into early next year. If the southland business revives for Costco, we should see rising profit margins (by as much as 10%) on rising sales. And this should equate to strong earnings leverage.
Between now and the end of the year, COST should lay out a feast of positive news that should take the stock even higher into next year. We're betting COST call options will give you something to be very thankful for.
#4 Barnes & Noble (BKS) Puts
By Andrew Houghton and Nick Atkeson
Barnes and Nobles (BKS) is in the direct path of one of the largest, highest momentum and most successful retailers in history: Amazon.com (AMZN). Whether it's price, convenience or almost any other metric, Amazon is crushing its competition and aggressively taking market share. The consumer today is very price sensitive and Amazon is one of the largest discount retailers on earth with an incredible assortment of offerings. Barnes & Noble is neither a price or category leader. And to make this already difficult situation for BKS worse, Amazon's Kindle is continually being upgraded and becoming steadily more popular.
In addition, short interest as a percent of float on BKS is almost 35%. This is an important level, because when stocks are this heavily shorted, the shorts are almost never wrong. To obtain a stock loan on something that is heavily shorted is expensive, and to be fundamentally wrong and have a huge short squeeze go against you can cause your investment business to fail.
BKS just rallied from $16 to $22. Trading at about 18 times earnings, it is ripe for a fall, so look at BKS put options.
#5 Retail HOLDRs (RTH) Calls
By Michael Shulman
Retailers are going to struggle this holiday season -- and the Street simply does not care. While retail sales figures for October exceeded expectations, by historical standards, they were awful, and economists don't expect a robust holiday shopping season. But the market seems to be anticipating a holiday surprise, as retail ETFs are all up.
The retail sector is fundamentally unsound, yet technically flying, so take advantage of Wall Street's misplaced optimism with the Retail HOLDRs (RTH). Go long RTH with short-term calls, and take quick profits and run when there is even a whiff of a change in sentiment on the Street regarding retail stocks.
#6 SPDR S&P Homebuilders Puts
By Michael Shulman
The biggest bunch of turkeys out there is the homebuilders (actually, a group of turkeys is known as a rafter or gang).
President Obama just signed the Worker, Homeownership and Business Assistance Act of 2009 into law, which renewed the first-time homebuyer tax credit until next April. This bill also gives tax breaks to big companies to offset losses in the past two years, and the homebuilders will be among the biggest beneficiaries. Looks like Congress found another great way to spend our tax dollars!
But other than this, there are no visible upside catalysts for this industry except And there is little hope for a real housing rebound until 2012. So keep an eye on the SPDR S&P Homebuilders (XHB).
Don't go short today, but consider buying put options on this ETF when Wall Street comes to its senses and the dismal reality of this sector sets in. And once you get in, be sure to use stop-losses. I think this play will eventually yield some nice profits for the patient trader, and if I'm wrong, I will eat Thanksgiving crow. (Did you know a group of crows is called a murder? Seems appropriate.)
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