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Daily Newsletter, Monday, 12/12/2005

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Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Opex Opiate

December's option expiration week kicked off true to form, complete with extended drifts, trendline violations, whipsaws, failed chart patterns and reversals... all within stunningly slow, narrow range. Volume was light, and the clearest theme was neither bullish nor bearish, but sideways.

Volume breadth spent some time in negative territory, but the opening readings were very strong and persisted past the first hour. As usual, the downside readings as the market retreated weren't nearly as strong as were the upside readings. Advancing volume outnumbered declining volume 1.35:1 on the NYSE and 1.22:1 on the Nasdaq at the close.

Daily Dow Chart

The Dow closed 10.81 points from where it started and while the range looks wide, the action was slow. Old resistance to 10700 has become support, not yet tested, with today's 10735 low confirming initial support to 10725. So far, this daily cycle downphase has been less steep than the upphase that preceded it, and failing a break below 10700, the pattern off the year high could prove to be a bull flag.

Daily S&P 500 Chart

A doji star for the SPX in its recent range, adding 1.06 to close at 1260.43 after bouncing from a 1255.52 low. The range has been flat enough this month to suggest that op-ex week started 2 weeks early, and unfortunately for bears, this has been during the first third of a daily cycle downphase. If this pattern is a neutral pennant, the doctrine holds that these tend to be continuation patterns, which would imply an upside resolution. Today's high came at trendline resistance of 1263.86.

Daily Nasdaq Chart

The Nasdaq's print looks more bullish than it felt, because the initial gains were made overnight on no volume. The market gapped up, traded sideways, broke down to test Friday's highs, then bounced slowly, sideways-up back to where it started, all of which on low volume. The move was the first step toward stalling the daily cycle downphase, but then, this is op-ex week and an FOMC week to boot. Bulls need a break back above 2270-75, while the bears need a violation of 2225 and 2240 support, either of which could be neckline support on a possible head and shoulders top if today's 2266 high holds. For the day, the Nasdaq gained 4.22 to close at 2260.95.

Daily TNX Chart

At 1PM, the Treasury announced results of the $34 billion 13-week and 26-week bill auction, which refunded $31.76 billion in maturing paper and raised $2.24 billion of new cash. However, that minor drain to the market was more than offset by a big $10 billion paydown in 4-week bills announced this morning- the Treasury will auction $14 billion in 4-week bills tomorrow against $24 billion maturing.

The $34 billion in 13-week and 26-week bills auctioned today were taken up by foreign central banks to the extent of $9.53 billion. The 13-week bills sold for a high-rate of 3.82% and a median rate 3.79%, yielding 3.911%. The bid-to-cover ratio was 2.32. The high rate on the 26 week bills was 4.18%, yielding 4.33%, with a bid-to-cover ratio of 2.11.

The Fed did its part, with the open market desk refunding Friday's expiring $5.5 billion weekend repo with a $10.5 billion overnight repo. That resulted in a $5 billion net add for the day, but interestingly, demand for the money rose to new highs for the year. The repo was awarded at the highest rate submitted, 4.27%. If the Fed raises its overnight rate by 25 bps as expected tomorrow, then today's repo activity sees today's demand rising 2 bps above it. The 13-week bill rate held the low 3.8% range today, and so the overnight rate remains higher than the 13-week bill rate and very close to today's closing 4.547% yield for ten year Treasury notes.

At 2PM, the Treasury reported its November budget, which came in at a deficit of $83.1 billion, exceeding expectations for a deficit of $80 billion. This was a record November deficit, up from last November's $57.9 billion deficit. Receipts rose 3.2% to $138.8 billion for the month, while expenditures rose 15.3% to $138.8 billion. The administration expects the budget deficit to rise from $318.5 billion to $390 billion in 2005.

Ten year note yields (TNX) had opened in negative territory but had reversed by mid-morning, breaking Friday's highs as they rose following the 1PM auction announcement to close +1 bp at 4.547%. The daily cycle upphase continues, not yet overbought, and bond bears/yield bulls will want to see TNX hold above rising trendline support in the 4.47%-4.48% area.

Daily Chart of Crude oil

Crude oil rose last night, and the headlines cited an OPEC decision to leave its 28 million bpd production quota unchanged. Kuwaiti Oil Minister Sheikh Ahmad Fahd al-Sabah and Saudi Arabia's Ali Naimi said that the cartel is considering reducing output at next month's January 31 meeting if demand weakens. Suprisingly little mention was devoted to this weekend's explosion and fire in Hemel-Hempstead, England. Europe's largest post-WWWII oil explosion received little space. Fortunately, only 2 people were reported seriously injured and only 43 were hurt, but the huge toxic cloud and risk of groundwater pollution from efforts to contain the blaze remained. Terrorism was immediately ruled out in the reports I saw this weekend.

Later in the day, the Energy Department increased its long-term forecast for global crude oil prices by $21 to $57 per barrel. By "long-term," the DOE is referring to 2025 and 2030, with oil prices expected at $54 per barrel in 2025 and $57 per barrel in 2030, (valued in 2005 dollars). A reader sent the following reaction after I posted the DOE's headline in the Market Monitor:

"Im not sure I follow those headlines. Just exactly how does the Energy Dept know what oil will be trading for in 2030? Im not sure we will even have any by then. ...If my math is correct thats 24 years into the future. In 1981 how many people could have envisioned the world we live in today and could have accurately forecast what we would be paying for goods and services? I dare say not many. The DOEs forecast and 7 Bucks might buy you a latte at Starbucks."

On the daily chart, crude oil has re-started the stalling daily cycle upphase, but holds within what could be a bearish rising wedge above 61.00 support. For the day, crude oil rose 1.925 to close at its session high, 61.325, a 3.24% gain. Session low was 59.30. Natural gas gained .525 or 3.67% to close at 14.825, off its 14.93 high.

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In other news, the Organization for Economic Co-operation and Development (OECD) reported that China surpassed the US in laptop, mobile phone and other info-communications technology exports in 2004. China exported $180 billion of these "ICT" goods in 2004, while the US sold $149 billion. In 2003, the US led with $137 billion to China's $123 billion worth of ICT exports. The OECD expects China to maintain or grow this lead in 2005, but expects the data to take months to collect.

Gold rose further this morning to 25 year highs, with wire services citing demand in Japan. While various media have discussed stepped-up jewellery demand and portfolio diversification, the Bank of Japan's near-zero percent overnight rate in place since 2001 could have something to do with it as well, with currency fears contributing to the move. Foreign central banks growing their monetary bases/devaluing their currencies are arguably the principal contributors to the rallies in "hard" assets, and I believe it to be a mistake to view the rally in gold as somehow isolated from the rallies in energy, or other metals, or real estate.

February gold futures printed a high of 544.20 before dropping steeply at 12:30PM EST. Unlike silver, which got clotheslined for a deep decline, gold held positive above 530, but only fractionally so. The break to new highs with a sharp intraday reversal would have been a gravestone doji had gold closed negative, but it was still a close call.

In corporate news, Burlington Resources (BR) took a rocket ride on news that it is in talks be acquired by the nation's third-largest oil company, ConocoPhillips (COP) for more than $30 billion. Reuters reported that both companies declined to comment on the story. COP closed lower by 2.89% at 61.25, while BR gained 8.42% to close at 82.50.

Canadian Pacific Railway (CP) lowered its 2006 EPS projection from CAD $3.70-$3.85 to CAD $3.60-$3.85. The revision was based on Fording Coal's (FDG) Dec. 7 outlook for a reduction in coal output as well as other factors. CP lost 1.78% to close at 41.35.

MRK took a hit this morning and a subsequent downgrade by Hillyard Lyons on news that federal judge declared Fallon a mistrial in a Vioxx case. The mistrial a motion by Plaintiff's counsel based on publication in the New England Journal of Medecine of a report that questioned the legitimacy of MRK's testing methods and protocols for Vioxx. MRK faces over 7000 Vioxx-related lawsuits. MRK lost 2.47% to close at 28.41.

This is scheduled to be a heavy week for economic reports. Tomorrow, we'll get Retail Sales, Business Inventories and the FOMC announcement at 2:15PM. On Wednesday, it's Export Prices ex-ag., Import Prices ex-oil, the Trade Balance, and the weekly Crude Inventories and Mortgage Bankers data. On Thursday, we get the Empire State Index, the CPI, Net Foreign Purchases, Industrial Production and Capacity Utilization, the Philly Fed, and the weekly Initial Claims data. On opex Friday, we'll get the Q3 Current Account.

The markets aren't easy to forecast or even to follow, and option expiration week, affectionately known by some as "scam week," is notorious for its false moves, roundtrips, whipsaws and extended ranges. FOMC announcements are known for miniscule volume followed by wide, unpredictable spikes and reversals. Tomorrow is lined up to be a fine day to take with a large grain of salt, and I will be very hesitant to draw conclusions from the intraday action. Protect your capital and your peace of mind as you follow the action, as there will certainly be easier and clearer sessions ahead. Join us in the Market and Futures Monitors, where we'll be sparing no effort to make sense of it tick-by-tick.
 


New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays
None None None

New Calls

None today.
 

New Puts

None today.
 

New Strangles

None today.
 


Play Updates

In Play Updates and Reviews

Call Updates

Alcon - ACL - close: 145.00 change: +0.40 stop: 139.90

The markets were quiet ahead of tomorrow's FOMC meeting and shares of ACL traded in a narrow $1.50 range. The overall bullish pattern remains intact. We see no changes from our weekend update. More conservative traders may want to wait for a move over 145.50 before considering new long positions. We'll try and limit our risk with a stop loss under short-term support at $140. More aggressive traders may want to put their stops under proven support at the 50-dma. We plan to ride ACL up to its early February earnings report. Our target is the $154-155 range.

Picked on December 11 at $144.60
Change since picked: + 0.40
Earnings Date 02/08/06 (unconfirmed)
Average Daily Volume = 524 thousand


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Apache - APA - close: 71.13 change: +1.33 stop: 65.95

Oil stocks were strong on Monday. News out of Monday's OPEC meeting that the cartel would leave their quotas unchanged was highly expected. Crude oil prices continued to climb and remain above $60 a barrel. Really adding strength today was news that ConocoPhillips (COP) was close to a deal to buy Burlington Resources (BR). It's long been rumored that we'll see more consolidation in the energy sector and this M&A news could just be the start of a new round of deals, which will drive more bullish speculation in the sector. Our end of January target is the $76.00-77.00 range. The Point & Figure chart points to an $83 target.

Picked on December 08 at $ 70.98
Change since picked: + 0.15
Earnings Date 01/26/06 (unconfirmed)
Average Daily Volume = 3.6 million

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Constellation Energy - CEG - cls: 55.41 chg: -0.19 stop: 53.39

CEG started Monday strong with a continuation of Friday's rally. The stock hit a high at $56.22 just under the 100-dma. Unfortunately, CEG couldn't hold those early gains and the stock experienced some very mild profit taking, which really isn't much of a surprise. The $55.00 level should act as short-term support. If that breaks then CEG has additional support near $54.00-54.50. We'll target a run into the $60-62 range.

Picked on December 11 at $ 55.60
Change since picked: - 0.19
Earnings Date 01/27/06 (unconfirmed)
Average Daily Volume = 947 thousand

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Dominion Res. - D - close: 78.95 chg: -0.11 stop: 74.75

D didn't move much ahead of tomorrow's FOMC meeting. We don't see any changes from our weekend update. Our target is the $84.50-85.00 range compared to the P&F chart, which points to a $92 target.

Picked on November 27 at $ 78.24
Change since picked: + 0.71
Earnings Date 02/02/06 (unconfirmed)
Average Daily Volume = 1.8 million

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FMC Corp. - FMC - close: 53.80 chg: -0.25 stop: 51.95

Fundamentally rising oil prices is bad news for FMC, a chemical maker. On that basis alone more conservative traders may want to exit. Technically speaking FMC's big-picture looks bullish considering the November breakout from its four-month descending channel. Depending on your trading style you can look for a new bullish entry point on a move over $54.50, which would be a minor breakout over its one-week consolidation; a move over the 200-dma, or a move over its 100-dma and the December high ($55.41). The Point & Figure chart points to a $62 target. We are targeting a run into the $59.85-60.00 range.

Picked on December 01 at $ 55.04
Change since picked: - 1.24
Earnings Date 02/02/06 (unconfirmed)
Average Daily Volume = 270 thousand

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Femsa Fomento - FMX - close: 68.73 chg: +1.19 stop: 67.75

FMX rebounded today with a 1.76% gain pushing the stock back into its previous month-long trading range. We remain on the sidelines. Our strategy suggests going long calls if FMX trades at or above our trigger at $70.65. If we are triggered we'll target a run into the $74.75-75.00 range. The P&F chart points to an $81 target.

Picked on December xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/23/06 (unconfirmed)
Average Daily Volume = 308 thousand

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Hydril - HYDL - close: 70.33 change: +0.73 stop: 65.95

The play is now open. HYDL displayed some strength intraday with a sharp spike higher to $71.45 on surge in volume. Our trigger to buy calls was at $71.01. It is unfortunate that HYDL was unable to maintain those midday gains but the overall trend looks bullish. A move over $71.00 is a move over the neckline (resistance) to an inverted or bullish head-and-shoulders pattern. More conservative traders may want to wait for another move over $71.00 or 71.50 before initiating positions. Our target is the $78.00-80.00 range before HYDL's January earnings report, which we do not want to hold over.

Picked on December 12 at $ 71.01
Change since picked: - 0.68
Earnings Date 01/23/06 (unconfirmed)
Average Daily Volume = 263 thousand

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Kerr Mcgee - KMG - close: 93.73 chg: +1.85 stop: 87.99

KMG added another two percent as part of the widespread strength in the oil patch today. The stock looks poised to breakout over short-term resistance at the $94.00 mark. Our mid January target is the $98.50-100 range.

Picked on December 02 at $ 90.26
Change since picked: + 3.47
Earnings Date 01/25/06 (unconfirmed)
Average Daily Volume = 1.8 million

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Kinder Morgan - KMI - close: 92.73 chg: -0.44 stop: 87.45

KMI continues to consolidate even though natural gas futures closed higher again. The stock is dipping toward the $92 level and it touched the 100-dma this afternoon. We would wait for a bounce before considering new positions. The P&F chart for KMI points to a $104 target. Our target is the $98.50-100 range. We do not want to hold over the mid January earnings report.

Picked on December 02 at $ 92.75
Change since picked: - 0.02
Earnings Date 01/18/06 (unconfirmed)
Average Daily Volume = 749 thousand

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Polaris Ind. - PII - close: 50.01 change: -0.09 stop: 48.49

There was virtually no change in shares of PII today and the stock traded sideways in a narrow 47-cent range near the $50 level today. We see no changes from our weekend update. We are not suggesting new plays at this time although a move over 50.75 could be used as a potential entry point. More conservative traders may just want to exit early right here or raise their stops toward $49.00. We're going to keep our target in the $54.00-55.00 range. We do expect some resistance near $53 at the top of the gap down.

Picked on November 21 at $ 48.47
Change since picked: + 1.54
Earnings Date 01/12/06 (unconfirmed)
Average Daily Volume = 467 thousand

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Rockwell Autom. - ROK - cls: 59.94 chg: +0.56 stop: 55.75

ROK displayed some relative strength today too. The stock tried to breakout over the $60 level this morning and was climbing higher again after the midday dip. We are not suggesting new positions at this time. Our target is the $61-62 range but more conservative traders may want to exit near $60. FYI: the P&F chart points to a $69 target.

Picked on November 03 at $ 55.90
Change since picked: + 4.04
Earnings Date 11/03/05 (confirmed)
Average Daily Volume = 804 thousand

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Sunoco Inc. - SUN - close: 83.45 chg: +1.86 stop: 76.45

SUN benefited from another strong day for the oil stocks. Shares of SUN added 2.27%. We don't see any change from our weekend update. The P&F chart for SUN points to a $93 target. Our target is the $89.90-90.00 range.

Picked on December 02 at $ 81.75
Change since picked: + 1.70
Earnings Date 02/02/06 (unconfirmed)
Average Daily Volume = 2.8 million

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Total S.A. - TOT - close: 128.45 change: +0.80 stop: 126.49

French oil giant TOT did not react much today to the rise in crude or the M&A news with COP and BR. The stock traded in a narrow 77-cent range the entire session. Our strategy is to use a trigger at $130.25 to buy calls. If triggered we'll target a rise into the $136-137 range before its February earnings report. The P&F chart for TOT points to a $152 target.

Picked on December xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/15/06 (unconfirmed)
Average Daily Volume = 936 thousand

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Tractor Supply - TSCO - cls: 53.71 chg: -0.56 stop: 51.95

The profit taking in TSCO continues. Today's one percent decline is also a breakdown below the simple 10-dma and it produced a new MACD sell signal. More conservative traders may want to bail out now. We expect TSCO to dip back to the $52.50 region before trying to rebound. What is concerning is that TSCO under performed the retail sector today after WMT reaffirmed its same-store sales guidance.

Picked on November 30 at $ 52.75
Change since picked: + 0.96
Earnings Date 01/18/06 (unconfirmed)
Average Daily Volume = 428 thousand

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Valero Energy - VLO - close: 108.45 chg: +2.99 stop: 99.49

VLO was one of the better performers in the oil sector with today's 2.8% gain. The stock has clearly broken its two-month consolidation pattern and looks poised to breakout over the $110 level next. Our target is the September highs at $117.00. Please note that VLO is due to split 2-for-1 on December 16th. That means your option positions will double in number while halving in value. Our post-split target will be $58.50. Our post-split stop loss will be $49.74. FYI: VLO is also a current strangle play in the strangle section.

Picked on December 08 at $106.56
Change since picked: + 1.89
Earnings Date 01/30/06 (unconfirmed)
Average Daily Volume = 9.8 million

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Zimmer Holdings - ZMH - close: 69.25 chg: +0.63 stop: 65.75

ZMH is off to a decent start. Volume on today's gain could have been stronger but we didn't expect much from the markets ahead of tomorrow's FOMC meeting. We don't see any changes from our weekend update. Our target is the $74.00-75.00 range under its simple 200-dma.

Picked on December 11 at $ 68.62
Change since picked: + 0.63
Earnings Date 01/25/06 (unconfirmed)
Average Daily Volume = 2.6 million
 

Put Updates

Magna Int. - MGA - close: 67.67 chg: +0.22 stop: 70.31

MGA's oversold bounce may be stalling already. The stock spent most of the day trading sideways. We don't see any changes from our weekend update. Technically the stock is in a four-month bearish trend with a P&F chart that points to a $61 target. Fundamentally the restructuring programs from GM and Ford are likely to include a smaller production schedule, which means less business for MGA. A failed rally under the 50-dma near $69 could be used as a new bearish entry point. Our target is the $63-62 range.

Picked on December 04 at $ 68.14
Change since picked: - 0.47
Earnings Date 02/07/06 (unconfirmed)
Average Daily Volume = 318 thousand

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Netflix - NFLX - close: 25.10 chg: -0.64 stop: 28.15

Heads up! Traders need to be on their toes here. NFLX continues to display relative weakness and closed with a 2.48% decline on above average volume. Yet that's not the whole story. NFLX dipped toward the $24.00 level early this morning and bounced. The initial bounce failed and NFLX dipped toward $24.00 again but couldn't break it. The afternoon bounce pushed the stock back above the $25.00 mark and its 100-dma. We told readers on Friday that any oversold bounce will likely be exaggerated because NFLX is heavily shorted. We don't think this bounce is over and expect the stock to rally back toward the $26 or $27 level before running out of steam again. Be prepared and monitor your stops!
Our target is the $22.50 level. We do not want to hold over the mid January earnings report.

Picked on December 09 at $ 25.99
Change since picked: - 0.89
Earnings Date 01/18/06 (unconfirmed)
Average Daily Volume = 1.4 million
 

Strangle Updates

(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.)

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AmerisourceBergen - ABC - cls: 81.43 chg: -0.00 stop: n/a

There was no change in shares of ABC today and we don't see any change from our weekend update. We have four days left before December options expire. We are not suggesting new positions. Our estimated cost for our strangle is $2.80. For the last couple of months we have been targeting a rise to $5.00 for the strangle but traders may want to adjust their target to something lower. We're going to adjust our target to $4.25. Currently the December $80 calls (ABC-LP) are trading at $1.65bid/$1.80ask.

Picked on October 16 at $ 74.81
Change since picked: + 6.62
Earnings Date 11/03/05 (confirmed)
Average Daily Volume = 900 thousand

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Amer. Eagle Out. - AEOS - cls: 21.27 chg: +0.17 stop: n/a

Positive comments from Wal-Mart (WMT) about the shopping season lifted the retail sector. Shares of AEOS added 0.8% and broke out over its simple 10-dma. We're not suggesting new plays. The current strangle has an estimated cost of $2.35 with the January $27.50 calls (AQU-AY) and the January $22.50 puts (AQU-MX). We are targeting a rise to $4.70. FYI: currently the January $22.50 puts are trading at $1.90bid/$2.05ask.

Picked on November 13 at $ 25.47
Change since picked: - 4.20
Earnings Date 11/15/05 (confirmed)
Average Daily Volume = 3.6 million

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Abercrombie&Fitch - ANF - close: 62.70 chg: -0.99 stop: n/a

Early strength in ANF failed at resistance near the $65.00 level. If you're feeling pessimistic this could be a potential double top but it's too early to tell. We have six weeks to go before January options expire. We are not suggesting new strangle positions at this time. The options in our strangle are the January $65 calls (ANF-AM) and the January $55 puts (ANF-MK). Our estimated cost was $5.15. We're looking for a rise to $8.50. Right now our target may be out of reach. It really depends on how ANF performs during any Santa Claus rally should one appear.

Picked on November 13 at $ 59.67
Change since picked: + 3.03
Earnings Date 11/15/05 (confirmed)
Average Daily Volume = 2.7 million

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Blue Coat Sys. - BCSI - cls: 44.82 chg: -0.16 stop: n/a

The stock continues to trade inside its $44-46 range. We're suggesting that readers consider launching new strangles in the $44.50-45.50 entry window. We're suggesting the January $50 call and the January $40 put. Our estimated cost is $3.25. We're aiming for a rise to $5.50. Remember we have six weeks left before January options expire.

Picked on December 04 at $ 45.43
Change since picked: - 0.61
Earnings Date 02/14/06 (unconfirmed)
Average Daily Volume = 416 thousand

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Chicago Merc. Exchg. - CME - cls: 367.40 chg: +7.45 stop: n/a

CME out performed the broader market today with a 2% oversold bounce back above the $360 level and its 50-dma. The MACD indicator on its daily chat is hinting at a new buy signal soon. We are not suggesting new strangle positions at this time. Our current play involves the January $400 calls (CMJ-AK) and the January $350 puts (CMJ-MA). Our estimated cost was $26.70. We're aiming for a rise to $40.00 in the strangle before January options expire. Some of our readers may want to plan an exit near the 100-dma no matter what the value of our strangle position is. Currently the CMJ-MA puts are trading at $10.30bid/$11.00ask.

Picked on November 20 at $375.90
Change since picked: - 8.50
Earnings Date 01/24/06 (unconfirmed)
Average Daily Volume = 879 thousand

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D.R.Horton - DHI - close: 36.09 chg: +0.65 stop: n/a

DHI turned in a strong session added 1.8% and out performing most of its peers. Shares are now testing short-term resistance at its two-week trend of lower highs and what looks like the top edge of its bull flag pattern. We are not suggesting new strangles in DHI at this time. Our current play involves the January $35 calls (DHI-AG) and the January $30 puts (DHI-MF). Our estimated cost was $3.15. We're aiming for a rise to $6.00.

Picked on November 13 at $ 32.56
Change since picked: + 3.53
Earnings Date 02/15/06 (unconfirmed)
Average Daily Volume = 3.2 million

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Four Seasons - FS - close: 49.33 chg: +0.21 stop: n/a

Monday proved to be an interesting session for FS. The stock tried to rally twice but both times the rally stalled near the $49.75 level. This is good news for the bears. We are not suggesting new strangles at this time. The options in our strangle were the January $60 calls (FS-AL) and the January $50 puts (FS-MJ). Our estimated cost was about $2.60. We're aiming for a rise to $5.00 or more. FYI: the FS-MJ puts are trading at $2.05bid/$2.30ask.

Picked on November 08 at $ 55.37
Change since picked: - 6.04
Earnings Date 11/10/05 (confirmed)
Average Daily Volume = 319 thousand

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Lear Corp - LEA - close: 28.38 chg: -0.07 stop: n/a

LEA didn't produce much follow through after Friday's bullish move higher. Then again we didn't expect the market to move much ahead of tomorrow's FOMC meeting. We are no longer suggesting new strangle positions. The options in our strangle are the January $35 calls (LEA-AG) and the January $25 puts (LEA-ME). Our estimated cost was $1.60. We are targeting a rise to $3.20 or more. FYI: the LEA-ME puts are trading at $0.45bid/$0.55ask.

Picked on November 06 at $ 30.24
Change since picked: - 1.86
Earnings Date 01/25/06 (confirmed)
Average Daily Volume = 1.8 million

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Loews - LTR - close: 96.30 change: -0.66 close: n/a

We only have four days left before December options expire. Our Dec. $95 calls are in the money but we need to see LTR make a run for the $100 level if we're going to be profitable. More conservative traders may want to exit early to protect/salvage their capital. We're not suggesting new plays. The options in our strategy are the December $95 calls (LTR-LS) and the December $85 puts (LTR-XQ). Our estimated cost is about $3.05. We plan to exit if our strangle rises to $5.00 or if shares of LTR hit 99.90. Currently the LTR-LS calls are trading at $1.60bid/$1.75ask.

Picked on October 23 at $ 89.94
Change since picked: + 6.36
Earnings Date 10/27/05 (confirmed)
Average Daily Volume = 602 thousand

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Verifone Holdings - PAY - cls: 23.62 chg: +0.31 stop: n/a

We don't see any change from our weekend update on PAY. We're not suggesting new positions. Our current strangle involves the January $22.50 calls (PAY-AX) and the January $17.50 puts (PAY-MW). Our estimated cost was $2.60 and we're aiming for a rise to $4.50 or more. Currently the PAY-AX calls are trading at $1.95bid/$2.35ask.

Picked on October 12 at $ 19.98
Change since picked: + 3.64
Earnings Date 12/01/05 (confirmed)
Average Daily Volume = 259 thousand

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Protein Design Labs - PDLI - cls: 27.90 chg: -0.35 stop: n/a

We do not see any change from our weekend update. We have four days left before December options expire. The options in our strangle are the December $30 calls (PQI-LF) and the December $25 puts (PQI-XE). Our estimated cost was at $1.80. We have adjusted our target to breakeven at $1.80.

Picked on October 30 at $ 27.70
Change since picked: + 0.20
Earnings Date 11/01/05 (confirmed)
Average Daily Volume = 1.8 million


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Spectrum Brands - SPC - close: 18.80 change: +0.26 stop: n/a

We don't see any change from our weekend update on SPC. We have four days left before December options expire. More conservative traders may want to plan an exit near breakeven assuming SPC provides another move lower. We're going to follow our own suggestion and adjust our target to $1.25. We are not suggesting new strangle positions at this time. Our estimated cost for this strangle was $1.25. The options in our suggested strangle are the December $22.50 calls (SPC-LX) and the December $17.50 puts (SPC-XW).

Picked on November 08 at $ 20.63
Change since picked: - 1.83
Earnings Date 11/10/05 (confirmed)
Average Daily Volume = 576 thousand

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Questar Corp. - STR - close: 79.47 chg: +1.22 stop: n/a

Both oil and natural gas marched higher today and that lent strength to shares of STR. The stock remains under round-number resistance at the $80.00 mark. There are six weeks left before January options expire. We are no longer suggesting strangle positions in the stock. Our strangle involves the January $80 calls (STR-AP) and the January $70 puts (STR-MN). Our estimated cost was $5.10 and we're aiming for a rise to $9.50 or more.

Picked on November 20 at $ 76.25
Change since picked: + 3.22
Earnings Date 01/26/05 (unconfirmed)
Average Daily Volume = 716 thousand

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Texas Ind. - TXI - close: 51.75 chg: +0.33 stop: n/a

TXI is still consolidating sideways as investors wait for the company's earnings report. We are not suggesting new strangle positions but traders looking for a new play might consider a strangle with the April options. The options in our strangle are the January $55 calls (TXI-AK) and the January $45 puts (TXI-MI). Our estimated cost is $2.70. We're looking for a rise to $5.00 or more.

Picked on November 27 at $ 49.57
Change since picked: + 2.18
Earnings Date 12/15/05 (unconfirmed)
Average Daily Volume = 354 thousand

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Valero Energy - VLO - close: 108.45 chg: +2.99 stop: n/a

Oil is creeping higher and VLO turned in a strong 2.8% gain after OPEC decided to leave their production quotas unchanged. VLO is currently under potential resistance at the $110 mark. We are not suggesting new strangle plays. Our current play involves the January $110 calls (VLO-AB) and the January $90 puts (VLO-MR). Our estimated cost was $5.85 and we're aiming for a rise to $9.50. VLO is due to split 2-for-1 on December 16th so our post-split target will be a rise to $4.75.

Picked on November 21 at $101.00
Change since picked: + 7.45
Earnings Date 01/30/06 (unconfirmed)
Average Daily Volume = 10.7 million
 

Dropped Calls

None
 

Dropped Puts

None
 

Dropped Strangles

None
 

Today's Newsletter Notes: Market Wrap by Jonathan Levinson and all other plays and content by the Option Investor staff.

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