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Daily Newsletter, Monday, 02/11/2008

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Table of Contents

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

Market Wrap

AIG Plunges; Dow Industrials To Get New Look

Shares of Dow component and insurance giant American Intl. Group (NYSE:AIG) $44.74 -11.72% plunged to a new multi-year low Monday after the company's auditor PricewaterhouseCoopers LLC said AIG had a material weakness in its internal control over financial reporting and oversight related to the valuation of a derivatives portfolio owned by AIG Financial Products Corp., a unit of AIG.

While AIG disagreed with its auditor's assessment of oversight, the company acknowledged that its credit derivatives portfolio lost $4.88 billion in gross market value in October and November, more than four times the $1.15 billion executives had estimated in December.

The problems are centered on collateralized debt obligations (CDOs), complex securities that are partly backed by mortgage securities. As house prices have fallen and delinquencies and foreclosures risen, the market value on these securities have dropped sharply in recent months.

The news rocked AIG shareholders' confidence and had Fitch Ratings saying it may cut AIG's AA ratings in light of the disclosure.

AIG's sharp decline had the S&P Insurance Index (IUX.X) 303.95 -5.32% breaking below its January 22nd relative low of 311.43; also closing at a new multi-year low today.

Today's gains for the majors, especially the Dow Industrials, S&P 100, S&P 500 and even the Russell 2000 (RUT.X) which all have enough "financial" weighting is rather impressive considering today's news out of AIG.

The NASDAQ-100 (NDX.X) 1,793.09 +1.09% and its tracker QQQQ $44.07 +1.07% where neither have a bank or any financial exposure lead today's major market averages, but face some near-term resistance that traders and investors will want to monitor closely.

I will discuss these technicals when compared to the DIA, SPY and iShares Russell 2000 (IWM) $69.70 +0.04% which tracks the Russell 2000 Index (RUT.X) 699.75 +0.12%.

The Dow Industrials (INDU) darted lower at the open, but it wasn't all due to today's revelations out of AIG.

Dow Jones said it was going to "shake up" the Dow components for the first time in four years and would add Bank of America (NYSE:BAC) $42.14 -0.04% and Chevron (NYSE:CVX) $80.43 +1.47% on February 19. Dow Jones said Altria (NYSE:MO) $72.42 -0.91% and Honeywell (NYSE:HON) $57.64 -0.32% will be removed.

Dow Industrials Components - Price Weighted Index

Chevron's (CVX) addition will certainly give much greater "energy" weighting to the Dow Industrials, which up to this point had representation only from Exxon Mobil (XOM) $82.22 +1.84%.

Altria's (MO) being removed may not be a total shock as there remains speculation that the company will spinoff several units this year to try and unlock shareholder value. As such, it might make sense for that the company be taken out of the Dow Industrials.

Some questioned the addition of Bank of America (BAC) as AIG, JPM and C already had three "financial" related components.

Honeywell (HON) may indeed have had some overlap with fellow conglomerates United Tech (NYSE:UTX) $71.57 +0.30% and General Electric (NYSE:GE) $34.01 +0.50%.

One point that would be more specific to shorter-term traders after Feb 19 in my opinion is that on any given day, the strength, or weakness in the energy sector will likely see greater impact on the INDU/DIA and Dow futures than has been seen in the past as XOM and CVX will represent the #2 and #4 most-heavily weighted components in the PRICE-weighted index.

Closing U.S. Market Watch - 02/11/08 Close

Energy prices continued their torrid rebound from Thursday's close, driven in large part I think after Thursday evenings news that Exxon Mobil (NYSE:XOM) secured a court order to freeze more than $12 billion in worldwide assets of Venezuela's state-owned oil company, as XOM prepares to dispute the nationalization of a multi-billion dollar oil project in Venezuela.

Oil prices found buyers on that news and strength holds as traders fear that Hugo Chavez may cut off production supply to the U.S.

While there was some speculation that Chavez may not make such a bold move as to cut off exports to the U.S., in tonight's extended session I noted that Standard & Poors said the recent freezing of Venezuelan assets had the ratings firm saying its ratings of the state-owned oil company PDVSA and Venezuela were unaffected by the US Court ruling.

This inaction by S&P could have Chavez gaining some confidence to indeed cut off supplies to the U.S. and have oil prices firm-to-higher.

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March Crude Oil (cl08h) settled up $1.82, or 1.98% at $93.59 after Friday's 4.15% gain. March Unleaded (rb08h) settled higher by $0.390, or 1.65% at $2.3962 after Friday's 3.94% advance.

Last week's 200 Bcf draw and robust winter demand finds March Nat.Gas (ng08h) up $0.23, or +2.77%. Nat. Gas now sports a six session winning streak and settled at its highest level since 11/01/07 $8.804. It is also the first settlement above a still trending lower 200-day SMA ($8.363) since this commodity closed below this longer-term SMA on 6/21/2007.

There were no major US economic announcement scheduled for today, but a stronger-than-expected January PPI out of Great Britain had the pound firming (+0.26% at 1.9509) while precious metals found gains. Great Britain's PPI m/m rose 2.6%, which was much higher than the 1.0% forecast and showed acceleration from December's m/m gain of +1.4%.

January's PPI gave pause to some currency trader's that the Bank of England would cut rates rapidly.

London's FTSE ($FTSE) - 50-point box

Not unlike some of the major U.S. equity indexes, the FTSE-100 staged a nice bounce after plunging from the 6,250 level, but unlike the major U.S. equity indices, the FTSE slid 1.13% today and a trade at 5,650 would be a break of near-term support.

PnF chartists have noted many stocks and indexes that gave a reversing higher PnF buy signal, but in the downward trend, it isn't unusual to see. What's important to monitor is a quick reversal and NO support (break at 5,650). If the break comes we must question a "bottom" and immediately assess downside risk to the recent lows.

Global Equity Benchmarks; Currencies; Oil and Gold

It has been awhile since I showed my major global equity index table with Monday-to-Monday closes as well as the U.S. Dollar Index (DXY) which is most heavily weighted with the euro, the Japanese yen and British pound.

While recent economic data does suggest slowing of the U.S. economy, Asian and European bourses have been hardest hit. China's economic data still shows more robust growth, but the uncertainty surrounding the U.S. economy certainly has taken its toll.

European bourses are going to be closely monitored here as Germany's DAX ($DAX) taps 6,700 support for a fourth time and now probes its longer-term bullish support trend.

Germany's DAX ($DAX) - 50-point box

Buyers continue to stand their ground above 6,650 and this is deemed VERY important support. It's like the Karate Kid smashing
his hand on a cinder block repeatedly. Either buyers give in and the DAX crumbles further lower, or the Karate Kid breaks his hand and gives up.

It would have to be my opinion that U.S. equity market participants don't want to see these support levels violated to the downside, otherwise we could see U.S. equity market participants canceling some bids at key support levels.

You can view other FREE PnF chart, or bar charts if you like of Japan's Nikkei-225 ($NIKK), Hong Kong's Hang Seng ($HSI), Shanghai's ($SSEC), and France's CAC-40 ($CAC) at StockCharts.com.

S&P 500 Index (SPX.X) - 20-point box

After giving to consecutive double top buy signals at 1,370 and another at 1,390, Friday's trade at 1,330 generated a reversing lower "sell signal" at 1,330.

While PnF chartists do NOT utilize Professor Davis' pattern and probabilities study for the "bullish signal reversed," pattern like the SPX gave with the trade at 1,330, this supply (O) and demand (X) dynamic must be understood.

What this pattern depicts by the series of higher highs and higher lows and then the "sell signal" is representative of buying once again being exhausted or very tentative at best.

S&P Depository Receipts (SPY) - Daily Intervals

While the PnF chart of the SPX suggests weakness coming, the bar chart shown in last Monday's wrap had the SPY slipping back under its 38.2% conventional retracement. Tuesday's action saw a gap below the MONTHLY Pivot of $136.79 and the decline to 19.1% conventional at $132.02 and Quarterly S2 (support level 2) of $131.27 still holds buyers. A break much below there would have to be viewed further bearish.

I would also make a quick note that both the DIA and RUT.X/IWM reside above their conventional 19.1% retracement. This is SIMILARITY to the SPY.

However, the QQQQ gives us the "divergence" we look for and want to monitor. The Qs tried their darndest to recapture their conventional 19.1% and for now, this is the "tail" of the snake, or the "tail" of the inchworm. If it can gain strength and "dig in" above $44.20, that shouldn't hurt the INDU/DIA, SPX/SPY, RUT.X/IWM.

NASDAQ-100 Trust (QQQQ) - Daily Intervals

Whether its the Quarterly Pivot levels, the MONTHLY Pivot levels, or conventional use of retracement, the QQQQ lead weakness. The QQQQ is often seen as an index that mounts gains when buyers get more aggressive with their buying, and when weakness comes, it tends to be a drag on bullish enthusiasm.

Heavyweight Apple Computer (NASDAQ:AAPL) $129.45 +3.16% did reclaim its 1/23/08 and 1/28/08 lows of $126.14 today. That would be equivalent to the QQQQ's 0% retracement of $41.61 above.

Citigroup's Richard Gardner added the stock to his "Top Picks Live" list saying the 37% decline since the beginning of the year through Friday now fully reflects reductions in Q1 build plans for the iPod and the iPhone.

Just after the close, Research in Motion (NASDAQ:RIMM) $94.47 +5.30% shed $1.00 to $93.37 in the extended session after saying its US Blackberry users experienced "critical outages," which cut of wireless e-mail for everyone.

AT&T (NYSE:T) $36.87 +1.37% said the problems were not network related, but RIMM specific.

Shares of RIMM did close above their conventional 19.1% retracement of $91.07.

Additional news out of NASDAQ-100 heavyweights had Microsoft (NASDAQ:MSFT) $28.21 -1.22% saying it felt its recent bid for Yahoo! Inc. (NASDAQ:YHOO) $29.87 +2.29% "fair." Over the weekend, Yahoo said MSFT's unsolicited bid of $41.6 billion was too low.
 


New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays
MON AVB None
MOS    
POT    

New Calls

Monsanto - MON - cls: 114.03 change: +4.11 stop: 107.85

Company Description:
Monsanto Company is a leading global provider of technology-based solutions and agricultural products that improve farm productivity and food quality. (source: company press release or website)

Why We Like It:
The agriculture/fertilizer stocks are back on the momentum list. The group is bouncing sharply and poised to breakout. MON is nearing resistance in the $116 region. We want to catch the bullish breakout so we are suggesting readers buy calls at $117.05. If triggered we have two targets. Our first target is the $127.00 level. Our second target is the $137.00-140.00 range. A move over $118 would produce a new triple-top breakout buy signal on the Point & Figure chart. These have been very volatile stocks so readers should consider them aggressive, higher-risk plays. FYI: MON is presenting at the Goldman Sachs 2008 AgForum on February 12th at 12:40 p.m. Plus, MON is presenting at the Morgan Stanley Basic Materials Conference 2008 on February 21st.

Note: We are adding multiple plays in the same industry. Don't try to play them all. Find the one you like best.

Suggested Options:
Our suggested entry point is $117.05. We're suggesting the March calls.

BUY CALL MAR 115 MFP-CC open interest=1862 current ask $8.00
BUY CALL MAR 120 MFP-CD open interest=1763 current ask $5.60
BUY CALL MAR 125 MFP-CE open interest=5015 current ask $3.90

Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/03/08 (unconfirmed)
Average Daily Volume = 7.1 million

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Mosaic - MOS - close: 99.53 change: +3.31 stop: 89.45

Company Description:
The Mosaic Company is one of the world's leading producers and marketers of concentrated phosphate and potash crop nutrients. For the global agriculture industry, Mosaic is a single source of phosphates, potash, nitrogen fertilizers and feed ingredients. (source: company press release or website)

Why We Like It:
MOS is another fertilizer stock that is seeing a lot of momentum. The stock has rallied back to resistance near $100 and looks poised to breakout. The early February high was $100.90. We are suggesting a trigger to buy calls at $101.00. If triggered we're listing two targets. The first target is $109.75, just under the January highs. Our second, more aggressive target is the $118.00-120 zone. These are very volatile stocks with a lot of intraday spikes so we're playing with a very wide stop loss. More conservative traders may want to use a tighter stop in the $94-95-96 zone. We would consider this a more aggressive, higher-risk play. FYI: MOS is presenting at the Goldman Sachs AgForum on February 12th at 9:40 a.m. ET.

Note: We are adding multiple plays in the same industry. Don't try to play them all. Find the one you like best.

Suggested Options:
Our suggested entry point is $101.00. We're suggesting the March calls. Normally a March $110 call would end in -CB but the CBOE is listing MOS' $110 call as -CY. Check with your broker.

BUY CALL MAR 100 MOS-CT open interest=3582 current ask $8.30
BUY CALL MAR 105 MOS-CA open interest=1755 current ask $6.30
BUY CALL MAR 110 MOS-CY open interest=1941 current ask $4.50

Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/09/08 (unconfirmed)
Average Daily Volume = 5.8 million

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Potash - POT - close: 144.08 change: +6.58 stop: 136.99

Company Description:
Potash Corporation of Saskatchewan Inc. is the world's largest fertilizer enterprise producing the three primary plant nutrients and a leading supplier to three distinct market categories: agriculture, with the largest capacity in the world in potash, second largest in nitrogen and third largest in phosphate; animal nutrition, with the world's largest capacity in phosphate feed ingredients; and industrial chemicals, as the largest global producer of industrial nitrogen products and the world's largest capacity for production of purified industrial phosphoric acid. (source: company press release or website)

Why We Like It:
POT is the third but certainly not the least of our new bullish plays in the fertilizer industry. The stock is very volatile and can see some big intraday moves. On the plus side shares are setting up for another bullish breakout higher. More aggressive traders might want to jump in now or above $145. We are suggesting a trigger to buy calls at $147.50, which is above the early February high. There is relatively clear resistance near $152 but we are betting that POT is actually on the verge of an entire leg higher so we're listing a target at $158.00-160.00. More aggressive traders may want to aim significantly higher. The Point & Figure chart is forecasting a $222 target. Again, this is a very volatile stock. Readers should consider it an aggressive, higher-risk trade. Aggressive traders could put their stop under the 50-dma. We're going to try and get away with a stop loss under today's low.

Note: We are adding multiple plays in the same industry. Don't try to play them all. Find the one you like best.

Suggested Options:
Our suggested entry point is at $147.50. We're suggesting the March calls.

BUY CALL MAR 145 PYP-CI open interest=2466 current ask $10.30
BUY CALL MAR 150 PYP-CJ open interest=3687 current ask $ 8.10
BUY CALL MAR 155 PYP-CK open interest=1086 current ask $ 6.10
BUY CALL MAR 160 PYP-CL open interest=8097 current ask $ 4.70

Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 5.9 million
 

New Puts

Avalonbay - AVB - close: 89.06 change: -1.48 stop: 95.05

Company Description:
As of December 31, 2007, the Company owned or held a direct or indirect ownership interest in 184 apartment communities. AvalonBay is in the business of developing, redeveloping, acquiring, and managing apartment communities in high barrier-to-entry markets of the United States. (source: company press release or website)

Why We Like It:
We have been bearish on the REIT stocks for days now so we're adding another one to our put candidates list. AVB just broke down under support near $90.00 today and the MACD indicator has just produced a new sell signal. The P&F chart is bearish with an $80 target. AVB found support near $80 in January so we're going to target a decline into the $81.50-80.00 zone. We are playing with a slightly wider stop loss at $95.05. More conservative traders could try a stop in the $93-94 zone but remember these have been very volatile stocks with a lot of intraday spikes. Another risk with AVB is the above average short interest. The most recent data puts short interest at 12% of the 70 million-share float. Depending on which figure you use for "average" volume this equates to about 6.5 to 9.0 days of short interest and raises the risk of a short squeeze.

Suggested Options:
We are suggesting the March puts.

BUY PUT MAR 90.00 AVB-OR open interest= 74 current ask $6.70
BUY PUT MAR 85.00 AVB-OQ open interest= 66 current ask $4.50
BUY PUT MAR 80.00 AVB-OP open interest= 62 current ask $2.85

Picked on February 11 at $ 89.06
Change since picked: + 0.00
Earnings Date 02/06/08 (confirmed)
Average Daily Volume = 1.2 million
 

New Strangles

None today.
 


Play Updates

In Play Updates and Reviews

Call Updates

Apple Inc. - AAPL - close: 129.45 change: +3.97 stop: see details

Shares of AAPL turned in a strong day after some positive analyst comments this morning. While volume on AAPL was not that impressive the MACD indicator on the daily chart has produced a new "buy" signal. AAPL has rallied to short-term resistance at its 10-dma and it may be time for a minor retracement before continuing to rebound. We don't see any changes from our previous comments.

AAPL play #1 - directional calls

So far so good. Our short-term target is the $139.00-145 range. Expect resistance at $140 and the 200-dma near $145. We are suggesting a stop loss at 116.99 under last week's low. More conservative traders may want to use a stop closer to $120.

AAPL play #2 - Credit put spread

We don't see any changes here although if you're still looking for a new entry point following today's move you could wait for a dip and signs of a bounce again to launch a new credit put spread. The options we suggested were buying the March $110 put and selling the March $120 put.

AAPL play #3 - Sell Naked Puts

It's the same story here. We don't see any changes regarding our naked put strategy. We had suggested selling the March $150 put with plans to buy it back when AAPL hits $139.00.

Picked on February 10 at $125.48
Change since picked: + 3.97
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 44.4 million

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Apollo Group - APOL - close: 73.03 chg: -0.91 stop: 69.95

APOL struggled near $75 this morning and eventually closed down 1.2%. We would use any dip near its rising 100-dma, which is technical support, as a new bullish entry point to buy calls. Actually any dip in the $72.00-70.50 zone is probably a good spot to buy calls but if APOL is under $71 wait for signs of a bounce before jumping in. Our target is the $80.00-81.00 range.

Picked on February 10 at $ 73.94
Change since picked: - 0.91
Earnings Date 04/07/08 (unconfirmed)
Average Daily Volume = 3.1 million

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CONSOL Energy - CNX - cls: 80.96 change: +3.42 stop: 69.95

CNX is off to a strong start with a 4.4% gain today. Our one complaint would be the dismally low volume, which does not contribute to the bull's case. Most of the coal-related stocks were up today as the sector rally continues. Tonight after the closing bell Fording Canadian Coal (FDG) will report earnings, which could water or gas on this coal stock breakout depending on the news. CNX's breakout over the $80.00 level is bullish. If you don't feel like chasing it here you could wait for a dip back toward $78.50-78.00 but there is no guarantee it will show up. We have two targets for CNX. Our first target is the $84.50-85.00 range. Our second, more aggressive target is the $88.00-90.00 zone. The P&F chart has a brand new triple-top breakout buy signal with a $124 target.

Picked on February 10 at $ 77.54
Change since picked: + 3.42
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 3.3 million

---

Petroleo Brasileiro - PBR - cls: 115.10 chg: +3.53 stop: 104.95

Oil stocks were showing strength again thanks to another strong session in crude oil futures. Crude oil has broken out past its late January highs. Bears will argue that today was just a continuation of Friday's short squeeze. Whatever the case oil stocks were very strong. Shares of PBR added more than 3% and look poised to break out over $116. Currently our official suggested entry point is to buy calls at $116.00. However, we're also carefully watching the $105 region or the $100 level as an alternative entry point to buy calls. Our target is the $128.00-130.00 range. A move over $116 would produce a new Point & Figure chart buy signal. FYI: Another risk is PBR's earnings report. We can't find an earnings date and they normally report in mid February. That is a risk because we do not like to hold over an earnings report.

Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/12/08 (unconfirmed)
Average Daily Volume = 7.6 million
 

Put Updates

Ambac Fincl. - ABK - cls: 10.48 change: -0.51 stop: n/a

The AIG news today regarding their exposure to the CDO/sub-prime mess weighed heavily on financials. ABK lost another 4.6%. Currently we are suggesting the May puts and a speculative out of the money March call as a hedge to protect us if a bailout deal does get done. Many on Wall Street expect something to occur this week but it could drag out to next week. The options we suggested were the May $5 or $2.50 puts and the March $20 call.

Picked on January 27 at $ 11.54
Change since picked: - 1.06
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 10.9 million

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Bear Stearns - BSC - cls: 79.76 chg: -0.91 stop: 84.31

BSC broke down under support at the $80.00 mark today. Shares did hit our suggested entry point to buy puts at $79.49 so the play is now open. Our target is the $71.00-70.00 zone. Our biggest risk is that a bailout plan for the bond insurers does get done (and probably this coming week). If plan is announced and the street thinks it has a good chance of actually coming to pass then shares of BSC are bound to rally sharply due to its exposure to the sub-prime mess.

Picked on February 11 at $ 79.49 *triggered
Change since picked: + 0.27
Earnings Date 03/13/08 (unconfirmed)
Average Daily Volume = 7.4 million

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FedEx - FDX - close: 88.45 change: +0.45 stop: 92.05

There is no good reason for FDX to be up today with crude oil spiking higher. This looks like nothing more than an oversold bounce. A failed rally anywhere near $90.00 would be an attractive entry point to buy puts. There is potential support at $86 but our target is the $81.00-80.00 zone.

Picked on February 10 at $ 88.00
Change since picked: + 0.45
Earnings Date 03/20/08 (unconfirmed)
Average Daily Volume = 3.2 million

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W.W.Grainger - GWW - close: 76.37 chg: -0.28 stop: 80.05

Shares of GWW were downgraded before the bell this morning, which accounts for the gap down. The stock hit $74.70 and then bounced back. We would expect any rebound to roll over in the $77.50-80.00 zone so look for a failed rally as a new entry point to buy puts. Another alternative would be to wait for a breakdown under support at $75.00. Our target is the $70.75-70.00 zone.

Picked on February 10 at $ 76.65
Change since picked: - 0.28
Earnings Date 04/16/08 (unconfirmed)
Average Daily Volume = 1.0 million

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iShares DJ Financial - IYF - cls: 86.71 chg: -1.58 stop: 93.01

The AIG news regarding their known and unknown exposure to the sub-prime crisis renewed fears across the financials. The IYF lost 1.7% and broke down under short-term support near $87.50. We remain bearish here but an oversold bounce and failed rally near $90.00 would be another entry point to buy puts. We're thinking about adjusting our stop loss lower toward $91-90. FYI: The MACD on the daily chart has produced a new sell signal today. We're aiming for a test of the $80.00 region. Our official target is the $81.00-80.00 zone.

Picked on February 06 at $ 88.62
Change since picked: - 1.91
Earnings Date 00/00/00
Average Daily Volume = 1.1 million

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MBIA Inc. - MBI - close: 13.58 change: -1.02 stop: n/a

Shares of MBI were also impacted by the AIG news and renewed fears over the sub-prime issue. The stock lost close to 7%. Currently we are suggesting the May puts and a speculative out of the money March call as a hedge to protect us if a bailout deal does get done. Many on Wall Street expect something to occur this week but it could drag out to next week. The options we suggested were the May $7.50, $5.00 or $2.50 puts. We recently added a deep out of the money call, the March $22.50 call, as a hedge in case a rescue plan does get announced and the stocks react to it.

Picked on January 27 at $ 14.20
Change since picked: - 0.62
Earnings Date 01/31/08 (confirmed)
Average Daily Volume = 15.2 million

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Myriad Genetics - MYGN - cls: 38.65 chg: -1.06 stop: 43.01

Resistance at the $40.00 level held and shares of MYGN lost another 2.5%. This looks like another entry point to buy puts. Our target is the $36.00-35.00 range. More aggressive traders may want to aim lower. The Point & Figure chart is bearish with a $34 target. FYI: We always consider a biotech stocks to be a more aggressive, higher risk play because you never know when an FDA decision will be released or some clinical trial info will come out that could send the stock moving sharply either direction.

Picked on February 07 at $ 39.75 *triggered
Change since picked: - 1.10
Earnings Date 02/05/08 (confirmed)
Average Daily Volume = 801 thousand

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Sears Holding - SHLD - cls: 101.07 chg: +2.48 stop: 100.25

Aggressive traders might want to consider jumping into bearish positions on SHLD now. We mentioned an alternative entry point to buy puts on a failed rally in the $101-102 zone. The bounce hasn't failed yet but that could happen tomorrow (you will obviously need to adjust your stop loss). Currently our official entry point to buy puts is at $94.75. If triggered at $94.75 our target is the $86.00-85.00 range. We do not want to hold over the end of February (unconfirmed) earnings report.

Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/28/08 (unconfirmed)
Average Daily Volume = 3.0 million

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Simon Properties - SPG - cls: 83.60 chg: -0.26 stop: 90.61

The REIT stocks continued to look weak today but I want to remind readers that this is a very volatile bunch. A failed rally in the $85.00-87.00 zone could be used as a new entry point. Our target is the $76.00-75.00 range.

Picked on February 07 at $ 84.39 *triggered
Change since picked: - 0.79
Earnings Date 02/01/08 (confirmed)
Average Daily Volume = 2.7 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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DJIA 1/100 Index - $DJX - cls: 122.40 chg: +0.58 stop: n/a

We have four days left for the strangle on the DJX index, a 1/100th representation of the DJIA. Due to this time frame we are adjusting our suggested sell target to $4.40. Keep an eye on those puts. We are not suggesting new strangle positions at this time. The options we suggested were the February $127 calls (DJW-BW) and the February $122 puts (DJW-NR). Our estimated cost was $3.36.

Picked on January 29 at $124.80
Change since picked: - 2.40
Earnings Date 00/00/00
Average Daily Volume = million

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Google - GOOG - close: 521.16 chg: + 4.47 stop: n/a

GOOG is still bouncing and managed a 0.8% gain. However, the rebound has encountered its first level of technical resistance at its descending 10-dma. After a $30 bounce from its lows it may be time for the rebound to run out of gas. Unfortunately, we only have four days left for these GOOG options. If you just want to play defensive then start selling off your position as the put option rises to $15, then $18, then $21, etc. We are not suggesting new positions. The options we suggested were the February $600 calls (GOO-BT) and the February $500 puts (GOP-NO). Our estimated cost is $17.00. We want to sell if either option hits $24.00 or more, which is an adjustment from our original target of $27.

Picked on January 30 at $548.27
Change since picked: -27.11
Earnings Date 01/31/08 (confirmed)
Average Daily Volume = 5.6 million
 

Dropped Calls

Allegheny Tech. - ATI - cls: 80.71 chg: +4.11 stop: 69.75

Target surpassed. ATI rallied more than 5.3% today after Goldman Sachs upgraded the stock to a buy and slapped a $106 price target on it. Shares hit an intraday high of $81.62. Our target was $79.75-80.00. Currently shares are testing resistance near its 50-dma and the $80 region. We would look for a dip back into the $75-76 zone as a potential entry point for new bullish positions again.

Picked on February 04 at $ 75.11 *triggered
Change since picked: + 5.60
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 2.4 million
 

Dropped Puts

None
 

Dropped Strangles

None
 

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

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