Option Investor

Daily Newsletter, Monday, 06/23/2008

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Table of Contents

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

Market Wrap

Energy Shares Jump After Jeddah Meeting

U.S. stocks traded mixed-to-lower on Monday, mirroring their overseas counterparts, with energy shares clearly benefiting from this weekend's news out of Saudi Arabia and Nigeria.

While both the NYSE and NASDAQ's 5-day NH/NL ratio's suggest some "stability" trying to form, their 10-day NH/NL ratio's continue to fall to respective cycle lows of 23.1% and 21.5% and would make it difficult to assess any sign of more aggressive buying of strength (new highs) and weakness (new lows).

The Oil Service Holdrs (OIH) $224.21 4.82%, CBOE Oil Index (OIX.X) 963.03 3.09% and AMEX Natural Gas Index (XNG.X) 761.11 4.01% found buyers after this weekend's meeting of oil producing and consuming nations in the Saudi city of Jeddah.

Saudi Arabia said it would add an addition 200,000 barrels per day of production in July to the 300,000 barrel per day production increase it first announced in May, raising the kingdom's total daily output to 9.7 million barrels per day.

While Saudi Arabia's modest increase in production was seen as an attempt to appease the United States and other consuming nations that argue oil production has not kept up with increasing demand, especially from China, India and the Middle East, Saudi Arabia and other OPEC countries maintained their stance that there is no shortage of oil and instead blamed financial speculation and the falling U.S. dollar for higher oil prices.

Helping bolster today's gains in the energy complex was concerns about Nigerian production as terrorist attacks on several of the nations production facilities, combined with reports of a strike against Chevron (NYSE:CVX) $99.06 2.52% had Nymex Crude Oil futures (cl08q) settling higher by $1.38, or 1.02% at $1.38.

Industry analysts say a Nigerian-worker strike against Chevron is likely to lead to 350,000 barrels-per-day of shut in production.

Continued tensions between Israel and Tehran also kept traders uneasy in regards to supply concerns after the European Union states agreed to impose new sanctions on Iran, including an asset freeze on its biggest bank, over its refusal to meet demands to curb its nuclear program.

Oil futures at the Nymex did finish off their best levels of the session ($138.14) after a panel of energy experts said oil prices could fall to half their current levels if Congress puts strict limits on financial investment in energy commodity futures, saying a drop in price of retail gasoline, currently over $4 on average in the U.S., would drop proportionately.

Nymex August Unleaded (rb08q) responded with a 1.89-cent gain, up 0.55% to settle at $3.4656.

August Nat. Gas futures (ng08q) jumped $0.209, or 1.59% to settle at $13.322 as traders braced for a heat wave in the lower-half of the U.S.

August Heating Oil futures (ho08q) settled up $0.0239, or 0.63% at 3.8266.

Late this afternoon the U.S. Energy Department said that it was looking to use $3 million in appropriated funds to purchase heating oil for the Northeast Home Heating Oil Reserve. The DOE said offers are due no later than July 1, and the fuel oil is expected to be delivered during the week of July 7.

In 2007, a 35,000-barrel sale was conducted to raise money to award new long-term storage contracts to fill the reserve to its authorized capacity of 2 million barrels of home heating oil.

Major Global Markets, Currencies, Oil and Gold - Mon-Mon Closes

Asian markets were lower on Monday with Japan's Nikke-225 ($NIKK) sliding 84 points, or -0.61% despite weakness in the yen, which can have their manufactured products or services. Financials and real estate developers paced declines early, but a late spat of buying had the Nikke-225 finishing nearly 200-points off its intra-day low of 13,668.

The yen was weaker against the dollar with the Yen CurrencyShares (FXY) sliding 0.55% to 92.53.

In Hong Kong, the Hang Seng ($HSI) finished fractionally lower as gains in energy shares helped offset weakness non-ferrous metals. Aluminum Corp. China (NYSE:ACH) $31.04 -2.54% closed at its lowest level in over a year after it warned that its first-half net profit would slide by at least 50%.

Mainland China's Shanghai Stock Exchange ($SSEC) continued lower and has now given up nearly all of its gains from 2007, falling 2.52% to 2,760 on Monday as investors remained hesitant that reforms announced late last week may have been too late in coming to bolster a turnaround anytime soon.


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In Europe, the major bourses posted modest gains.

Energy stocks helped lift London's FTSE-100 ($FTSE) to a 46-point, or 0.83% gain to 5,667. The pound was weaker against the dollar with the British Pound CurrencyShares (FXB) 197.09 -0.58% down just more than one (1) point, but closing well off their intra-day lows of 196.45.

Economic news out of Germany had the German Info Business Climate Index sliding to 101.3, which was weaker than economists' forecast of 102.5.

Still, the DAX managed to eek out a gain of 11 points, or 0.17% to close at 6,589, while France's CAC-40 ($CAC) was relatively unchanged, rising 2 points, or 0.05% to 4,511.

The euro was weak as economists said they thought there was no room for rate hikes with the German Info Business Climate Index falling to its lowest level since Jan'06. The Euro CurrecyShares (FXE) $155.60 -0.63% fell just less than one (1) point, with buyers holding their ground above 155.00.

U.S. Market Watch - 06/23/08 Close

The Financial SPDRs (XLF) $21.48 -3.15% closed at a new multi-year low and were among today's most actively traded ETF's.

Buyers continued their boycott after a Goldman Sachs' strategists admitted it was wrong when they upgraded the U.S. financial and consumer sector seven (7) weeks ago. Moving back to an "underweight" rating, Goldman's David Kostin said, "We boosted our consumer discretionary and financials weights in May on the belief the sectors would benefit from bank recapitalization and fiscal stimulus." Mr. Kostin added that he thought "our thesis was clearly wrong in hindsight."

Shares of Citigroup (NYSE:C) $18.55 -3.88% remained weak and were today's most actively traded name at the bid board (88.3 million shares) on reports that it is about half-way through cutting 10% of the 65,000 employees in its investment banking unit.

Meanwhile, Bank of America (NYSE:BAC) $25.88 -4.50% fell to another multi-year low.

Merrill Lynch (NYSE:MER) $34.54 -3.92% also closed at a multi-year low after a Banc of America Securities analyst projected a wider loss for the securities firm.

UAL Corp. (NASDAQ:UAUA) $6.08 -15.08% paced today's weakness in the AMEX Airline Index (XAL.X) 16.79 -7.03%. The stock did edge fractionally higher to $6.17 in this evening's extended session after the nation's second-largest carrier by traffic confirmed plans to lay off 950, or 17% of its 5,600 pilots.

Earlier this month, United said it would cut its 460-aircraft mainline fleet by another 70 jetliners by the end of the year as it deals with surging fuel prices.

Economic data released today was regional with the Chicago Fed's National Activity Index improving to a still contracting -0.96 reading in May compared with a -1.23 reading in April. All four (4) of the broad categories of data: production and income; employment, unemployment, and hours worked; personal consumption and housing; and sales, orders and inventories all had negative contributions to May's reading.

Merger and acquisition news had shares of Allied Waste (NYSE:AW) $13.29 -1.99% falling $0.27 per share after the company confirmed it has agreed to be acquired by Republic Services (NYSE:RSG) $30.98 -0.67% in an all-stock deal valued at $6.07 billion, or $14.04/share based on Republic's Friday closing stock price of $31.19.

On June 14, both companies said they were in merger talks with the deal then valuing Allied at about $15.23 per share, or $6.59 billion.

Additional M&A news has two of America's oldest agricultural companies looking to sweeten their agribusiness synergies in a deal valued at $4.4 billion.

Bunge Limited (NYSE:BG) $110.86 -9.26% said it was buying Corn Products Intl. (NYSE:CPO) $50.53 17.78% for roughly $42.90 a share. The deal calls for the exchange of one share of Corn Products for $56 in Bunge stock.

Industry watchers say the deal is a sign that surging global demand for food is driving big agriculture to look for increased economies of scale and that record grain prices will give Bunge, a dominant playing in South America, a stronger position in North America as it supplies some of the largest U.S. food and beverage companies such as Coca-Cola (NYSE:KO) $53.26 -0.74% and Kellogg (NYSE: K) $50.85 -0.29%.

By revenue, Bunge (BG) is the number three (3) player in global agribusiness. Cargill and Archer Daniels Midland (NYSE:ADM) $33.50 2.54%

Tonight I'm going to have us look at the major U.S. equity indices starting with the narrowest (30 stocks) Dow Industrials ($INDU), then the narrower NASDAQ-100 ($NDX), S&P 100 Index ($OEX), then broader S&P 500 Index ($SPX).

For those "new" to point and figure charts, all we're doing here is observing, monitoring the laws of supply (O) and demand (X) on a continual (not daily) basis, just as Charles Dow did as he hand charted his vast holdings of various securities.

Dow Industrials ($INDU) - 50-point box chart

On Wednesday, 06/18/08 the Dow Industrials ($INDU) and its tracker the Dow Diamonds (DIA) $118.33 0.07% on the day closed below a level (INDU= 12,075 : DIA= $120.75) that I thought would hold buyers.

Since generating a reversing lower double bottom "sell signal" at 12,750 on May 9th, the Dow Industrials ($INDU) has generated five (5) additional sell signals (12,700; 12,400; 12,300; 12,150 and 12,050) and it would currently take a reversing higher trade at 12,350 to get this widely quoted index back on a "buy signal."

While the INDU's bearish vertical count to 11,750 may be a bearish trader's near-term target, I'd have to view 11,750 as somewhat tentative support.

Near-term resistance is back at 12,100 and more formidable resistance just below 12,350.

At tonight's close, Dorsey/Wright and Associates' Dow Industrials Bullish % (BPDJIA) remains in "bull correction" status at 33.33% for a seventh-straight session. That is, of the 30 Dow components, ten (10) of the components still show a PnF "buy signal" still intact on their charts, while twenty (20) show a PnF "sell signal" intact. Current measures are still at a trough low having reached a more "overbought" 70% no May 7th and 8th.

StockCharts.com's Dow Industrial Bullish % symbol is $BPINDU, which is also at 33.33%.

Dow Components (Sorted by Price) -

Unlike the other major indices covered, the INDU/DIA is a PRICE weighted index. There's been little for bulls to write home about the last three (3) weeks.

To the right of each company's name, I quickly looked at the 30 components and marked those in green "BS" as charts that still had a "buy signal" intact, and in red "SS" as those with a "sell signal" intact.

NASDAQ-100 Index ($NDX) - 20-point box

The higher beta names that comprise the narrow NASDAQ-100 Index ($NDX) have started to exhibit some technical weakness after giving a reversing lower PnF "sell signal" at 1,960 on June 9th. This is a progression in my opinion that suggests bulls are stepping up their profit taking from this spring's lows.

Having reached 60% bullish on May 19th, Dorsey/Wright and Associates' NASDAQ-100 Bullish % (BPNDX) has fallen further to 43% bullish and remain in "bull correction status.

StockCharts.com's NASDAQ-100 Bullish % is ($BPNDX).

Near-term support would be viewed just above 1,900, with 1,900 as more intermediate-term support, while 1,860 and the current bullish support trend (blue ) would be deemed longer-term support.

Near-term resistance is just below 2,000, while resistance looks formidable below 2,060.

I would be assessing downside to 1,860 as the other major market indices have failed to hold their bullish support trends.

S&P 100 Index ($OEX) - 5-point box

One of the more bearish observations I could have made late last week was the OEX closing below the 610 level on Wednesday, where there was some heavy put open interest at that level. Thursday's close, if not Friday's close below the 610 put open interest would have to be viewed as a signal from option traders, and especially institutional PUT SELLERS that they were not overly interested in taking possession of many OEX components that make up this market-cap weighted index.

While there was no change in Dorsey/Wright's S&P 100 Bullish % (BPOEX) today, this market remains in "bear confirmed" status at 35% (from 05/22/08) having reached an 60% high on 05/16/08.

StockChart.com's S&P 100 Bullish % is ($BPOEX).

S&P 500 Index ($BPSPX) - 10-point box

In May, when I changed my economic call from "modest recession in 2008" to "modest economic growth for 2008" I was really looking for the SPX to find much firmer support on a pullback test of 1,350.

At tonight's close, the SPX's bar chart may be at a very critical level of support, but only if I were to "drag lower" my 0% retracement from the 01/23/08 low I have been using, to the 03/17/08 "Bear Stearns Failure" low.

S&P 500 Index ($SPX.X) - Daily Intervals

The only "support," or "explanation" I can find for the SPX.X to hold near 1,318 would be a 19.1% conventional retracement from the 10/11/08 all-time high and the eventual "Bear Stearns Failure" low from 03/17/08.

When I first began showing the major indices with conventional retracement, I wanted to stick with the first set of lows from 01/23/08.

With the SPX below its June MONTHLY S2 of 1,337.42 and still above its April-June QUARTERLY S1 of 1,229.40, the PINK dashed conventional 19.1% is the only technical explanation I can find to support some type of buying.

According to Dorsey/Wright and Associates, their broader S&P 500 Bullish % (BPSPX) remains "bear confirmed" at 36.87%.

StockCharts.com's S&P 500 Bullish % symbol is ($BPSPX).

After the Bell

United Parcel Service (NYSE:UPS) $66.26 -0.16% saw its shares fall to $63.91 late this evening after air/ground shipper cut its Q2 forecast. Blaming an "unprecedented increase" in fuel costs for lower-than-expected U.S. package volume and describing the U.S. economy as "anemic," UPS said it now expects Q2 earnings to be between $0.83 and $0.88 per share, down from the $0.97 to $1.04 a share predicted in April.

The Contrarian

The CBOE Equity Put/Call Ratio

Since the Put/Call ratio places Puts in the Numerator (on top) a higher number indicates an increase in the ratio of put trading versus call trading. Peaks in put trading represent an overwhelming majority of option traders and portfolio managers establishing speculative short plays or portfolio protection, respectively. If the majority of investors are positioning for continued downside after the market has already declined, then who else is left to sell? That is the contrarian question. The smart money views this peak in negative sentiment as a buying opportunity.

The Signal: As the chart shows the 10 day Moving Average (DMA) had broken above 0.80 on Fridays close. Last week I wrote you should be prepared for this signal to move to Neutral within the next few days. At that point, the notice will be to shift ones portfolio from a more bearish stance to a delta neutral portfolio. The historical range of the signal is to move between 0.60 (Bearish Signal) and 0.80 (Bullish signal). Since we broke above the upper level to 0.806, the signal is being moved into the Neutral camp. In addition, the 10 DMAs tick down today to 0.792 confirms of the peak in investor sentiment as measured by put and call buyers. At the point in which the 10 day average of put buyers contracts below the 20 day moving average the Put/Call Ratio signal will be changed to position the portfolio with a more Positive Bias. With the signal at Neutral one should lean ones portfolio from a more bearish stance to a delta neutral portfolio by reducing short calls and/or add short puts. SIGNAL: NEUTRAL BIAS

The CBOE Volatility Index ($VIX)

The market finally broke to the downside thus confirming the continued Negative bias of the three contrarian indicators. The $SPX and the DOW JONES Industrials have been the weakest broad market indices. The NASDAQ and the RUSSELL 2000 have traded down but have stayed within their YTD range. As the chart above shows the 10 day moving average has slowed its up trend slope and has actually declined a little. A low well below the 20 day moving average may provide better timing to negatively bias ones portfolio.

The signal: On Friday the 10 DMA closed down a little at 22.37 from 22.44 while the 20 day moving average closed at 21.05. The 10 day moving average continued down today to 22.33 to confirm the NEUTRAL bias. Until Fridays close the 10 day MA has been outpacing the 20 day MA over the last couple of days. The 20 day moving average is slowing its accent. As I mentioned last week Until the $VIXs 10 day moving average declines or it reaches resistance at about 25 the signal remains Negatively biased. We are now on a Neutral (flat/zero Delta) signal. SIGNAL: NEUTRAL BIAS

New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays

New Calls

None today.

New Puts

None today.

New Strangles

None today.

Play Updates

In Play Updates and Reviews

Call Updates

Bucyrus - BUCY - close: 77.70 change: 3.87 stop: 72.45 *new*

Coal stocks were on fire again today and because BUCY sells a lot of equipment for coal mining shares of BUCY rallied as well. BUCY surged 5.2% and looks poised to re-challenge the $80.00 level soon. We are raising the stop loss to $72.45. We have two targets. Our first target is $79.85. Our second target is $83.50. The Point & Figure chart is bullish with a $92 target.

Picked on June 15 at $ 75.41
Change since picked: 2.29
Earnings Date 07/31/08 (unconfirmed)
Average Daily Volume = 2.4 million


Cephalon - CEPH - close: 70.92 change: -0.22 stop: 67.95

CEPH gave back half of Friday's gains. Overall the stock spent Monday churning sideways in a relatively tight range. Potentially contributing to any relative strength were some positive analyst comments this morning and a new price target at $86.00. We are looking for a dip. We're suggesting readers buy a dip into the $69.50-69.00 zone. If triggered our target is the $74.00-75.00 range. We do not want to hold over the late July earnings report. FYI: The P&F chart is bullish with an $83 target. The most recent data listed short interest at 18.6% of the 66.2 million-share float. That is a relatively high amount of short interest and raises the risk of a short squeeze, which would obviously be good for the bulls.

Picked on June xx at $ xx.xx <-- see TRIGGER
Change since picked: 0.00
Earnings Date 07/29/08 (unconfirmed)
Average Daily Volume = 1.4 million


DIAMONDS - DIA - close: 118.33 chg: 0.09 stop: 116.99

The markets were generally weaker today but the DJIA managed to slide sideways without any real movement. That could change tomorrow. After the bell tonight UPS issued an earnings warning due to higher fuel costs. This should depress investor sentiment so we're expecting another market decline on Tuesday. We are suggesting that readers buy calls on a dip in the DIA in the $117.75-117.45 zone with a stop loss at $116.99. More conservative traders, instead of buying the dip, may want to wait for the bounce to begin first. If triggered our target is the $121.50-122.00 zone.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: 0.00
Earnings Date 00/00/00
Average Daily Volume: 13.1 million


SPDRs - SPY - close: 131.45 chg: -0.13 stop: 129.19

We are still waiting for a dip. There is no change from our weekend comments on SPY. We're looking for a dip toward the $130 level early this week at which point the S&P should see an oversold bounce. Our suggested entry point is the $130.50-130.00 zone. We'll use a stop loss at $129.19. More conservative traders may want to use a tighter stop closer to $130.00. If triggered our target is the $134.00-134.50 zone.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: 0.000
Earnings Date 00/00/00
Average Daily Volume: 200 million

Put Updates

Apple Inc. - AAPL - close: 173.16 chg: -2.11 stop: 182.55

One might think that AAPL should be up today following news that Google's (GOOG) smart-phone, the Android, will be delayed until late 2008 or later. This pushes back competition for AAPL's iPhone, which is already expected to see another boom with the latest 3G model and lower price tag. Yet shares of AAPL lost more than 1% and the afternoon rebound failed under the $176 level, which doesn't bode well for tomorrow. It's possible that news out regarding competition for AAPL's iTunes store could be weighing on investor sentiment. Last week AAPL announced that they just sold their 5 billionth song on iTunes. At 99 cents a pop that's pretty amazing. Amazon.com has just launched a competing service called AmazonMP3 with DRM-free music (digital rights management) that you can play anywhere on any MP3 player. Here's a link:

We remain bearish on AAPL and don't see any changes from our weekend comments. This remains a very aggressive, speculative play since we're looking for a market bounce in the second half of this week. We're aiming for $166.00. More aggressive traders could aim for the 200-dma near $162.00. If AAPL were to test $160 we'd expect a bounce and consider buying calls for a short-term rebound.

Picked on June 22 at $175.27
Change since picked: - 2.11
Earnings Date 07/27/08 (unconfirmed)
Average Daily Volume = 34.2 million


Caterpillar - CAT - close: 80.00 change: 0.92 stop: 82.75

CAT displayed some relative strength today. We warned readers over the weekend that things looked short-term bullish. We're still expecting a bounce back to the $81.00-82.00 zone. Keep an eye on the 50-dma near $81.50. Wait for a clear failed rally under its trendline of lower highs before considering new puts. Our target is the $75.25 mark. The stock "should" see some technical support at its 200-dma near $75.00.

Picked on June 11 at $ 79.45 *triggered
Change since picked: 0.55
Earnings Date 07/18/08 (unconfirmed)
Average Daily Volume = 6.2 million


Deere & Co. - DE - close: 77.48 change: 1.11 stop: 82.55

DE displayed some relative strength today with a 1.4% bounce. The trend remains bearish. Wait for another failed rally near $80.00 before considering new put positions. More conservative traders may want to tighten their stops. Our target is the $70.50 mark. The Point & Figure chart is forecasting a $72 target.

Picked on June 12 at $ 78.49 *triggered
Change since picked: - 1.01
Earnings Date 08/13/08 (unconfirmed)
Average Daily Volume = 5.4 million


Electronic Arts - ERTS - close: 46.04 chg: -0.90 stop: 48.55

ERTS under performed the market on Monday with a 1.9% drop following Friday's bearish reversal. We don't see any real changes from our prior comments. The stock looks poised to make a run at its 2008 lows. Our target is the February lows near $44.50-44.00. FYI: Don't forget that trading in ERTS is at risk for headlines regarding its attempted acquisition of TTWO. Depending on the news the stock could go either way.

Picked on June 06 at $ 47.75 *triggered
Change since picked: - 1.71
Earnings Date 07/31/08 (unconfirmed)
Average Daily Volume = 3.7 million


E*Trade - ETFC - close: 3.51 change: -0.08 stop: 3.91

ETFC lost 2.2% today, which was a little better than the sell-off in financials and the brokers. The stock is nearing the June lows so it might see another bounce soon. You could wait for another failed rally near $3.70 before considering new positions. The options we suggested were the July $4.00 and $3.00 puts. We have two targets. Our first target is $3.25. Our second target is $3.05.

Picked on June 17 at $ 3.68
Change since picked: - 0.17
Earnings Date 07/23/08 (unconfirmed)
Average Daily Volume = 20.8 million


3M Co. - MMM - close: 72.96 chg: -0.06 stop: 76.26

The DJIA, the S&P 500, and MMM all spent the day moving sideways. We don't see any changes from our weekend comments. Wait for a failed rally near $75.00 before considering new positions. We are adjusting the stop loss to $76.26. We have two targets. Our first target is the $70.25-70.00 zone. Our secondary target is the $67.00-65.00 range. The P&F chart is bearish with a $69 target.

Picked on June 06 at $ 74.95 *triggered
Change since picked: - 1.99
Earnings Date 07/24/08 (unconfirmed)
Average Daily Volume = 4.0 million


PowerShares QQQ - QQQQ - close: 47.05 change: -0.37 stop: 49.26

The Qs broke down under their exponential 200-dma but it's also testing the June lows. This is where we should expect a bounce. Our target is $46.10. The $46.00 level and its 100-dma might be support.

Picked on June 17 at $ 48.54
Change since picked: - 1.49
Earnings Date 00/00/00
Average Daily Volume = 133 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.)


Amgen Inc. - AMGN - close: 45.89 chg: 0.72 stop: n/a

Now that June options have expired AMGN is free to move from the $45.00 region. The stock soared this morning and out performed the market. We are now down to four weeks left with the July options. We are not suggesting new positions at this time. The options in the July strangle are the July $45 calls (AMQ-GI) and the July $40 puts (AMQ-SH). Our estimated cost for the July strangle was $1.65. We want to sell if either option hits $3.50.

Picked on May 22 at $ 42.77
Change since picked: 3.12
Earnings Date 07/24/08 (unconfirmed)
Average Daily Volume = 6.7 million


Alpha Nat. Res. - ANR - close: 96.07 chg: 1.27 stop: n/a

Some of the coal stocks took off again, hitting new highs today. Shares of ANR did out perform the market but trading actually looks bearish with an intraday failed rally near $100. If you want to speculate with us we would try and open positions in the $94.50-95.50 zone. This is a higher-risk strangle play with the options so expensive. The options we suggested were the July $105 calls (ANR-GA) and the July $85 puts (ANR-SQ). Our estimated cost was $9.40. We want to sell if either option hits $14.50.

Picked on June 15 at $ 94.25
Change since picked: 1.82
Earnings Date 08/05/08 (unconfirmed)
Average Daily Volume = 3.7 million


Fording Cand. Coal - FDG - close: 93.75 chg: 5.25 stop: n/a

FDG was one of the market's best performers today with a 5.9% gain. FDG is also one of the major coal stocks that surged toward new all-time highs today. The July $90 calls rallied to $5.90 intraday. We're not suggesting new strangle positions at this time. The options we suggested were the July $90 calls (FDG-GR) and the July $75 puts (FDG-SO). Our estimated cost was $5.45. We want to sell if either option hits $ 8.00 or higher.

Picked on June 15 at $ 82.91
Change since picked: 10.84
Earnings Date 07/21/08 (unconfirmed)
Average Daily Volume = 1.7 million


Garmin Ltd. - GRMN - close: 42.62 chg: -0.87 stop: n/a

GRMN is still under performing. The stock lost 2% today. We're not suggesting new positions at this time. The options we listed were the July $50 calls (GQR-GJ) and the July $40 puts (GQR-SH). Our estimated cost was $2.55. We want to sell if either option hits $ 4.75 or higher.

Picked on June 15 at $ 44.91
Change since picked: - 2.29
Earnings Date 07/30/08 (unconfirmed)
Average Daily Volume = 4.1 million


Holly Corp. - HOC - close: 39.53 chg: -0.20 stop: n/a

HOC experienced some volatility this morning as investors reacted to oil prices. The rally quickly evaporated and HOC continues to hover around $40. We would consider new strangle positions in the $39.50-40.50 zone. The options we listed were the July $45 calls (HOC-GI) and the July $35 puts (HOC-SG). Our estimated cost was $2.00. We want to sell if either option hits $ 3.00 or higher.

Picked on June 15 at $ 41.25
Change since picked: - 1.72
Earnings Date 08/07/08 (unconfirmed)
Average Daily Volume = 1.1 million


KLA-Tencor - KLAC - close: 39.80 chg: -0.27 stop:

KLAC didn't move much today and continues to offer an entry point to open new strangle positions. We would open positions in the $40.50-39.50 zone. The closer to $40.00 the better. We listed two different strangles on KLAC.

KLAC Strangle #1) The options we listed were the July $42.50 calls (KCQ-GV) and the July $37.50 puts (KCQ-SU). Our estimated cost is $1.65 We want to sell if either option hits $3.00.

KLAC Strangle #2) The options we listed were the July $45.00 calls (KCQ-GI) and the July $35.00 puts (KCQ-SG). Our estimated cost is $0.70. We want to sell if either option hits $1.50.

Picked on June 22 at $ 40.07
Change since picked: - 0.27
Earnings Date 07/24/08 (unconfirmed)
Average Daily Volume = 3.7 million


Tyco Intl. - TYC - close: 42.90 change: -0.28 stop: n/a

There is no change from our weekend comments on TYC. We are not suggesting new strangle positions at this time. The options we suggested were the July $47.50 calls (TYC-GW) and the July $42.50 puts (TYC-SV). Our estimated cost was $1.30. We want to sell if either option hits $1.95 (50% gain).

Picked on June 03 at $ 44.89
Change since picked: - 1.99
Earnings Date 08/05/08 (unconfirmed)
Average Daily Volume = 2.9 million


United States Oil - USO - cls: 110.92 chg: 1.78 stop: n/a

Everyone was expecting the Saudis to talk down the price of oil this past weekend. Naturally it didn't work and oil rallied again. We don't see any changes from our weekend comments. We are suggesting readers open positions in the $109.00-111.00 zone and the closer to $110.00 the better! We suggested two different strangles. The strangle with the wider strikes costs less but has higher risk.

USO Strangle #1) The options we listed were the July $115 calls (IYS-GK) and the July $105 puts (IYS-SA). Our estimated cost is $7.10 We want to sell if either option hits $9.75.

USO Strangle #2) The options we listed were the July $120 calls (QSO-GP) and the July $100 puts (IYS-SV). Our estimated cost is $4.10. We want to sell if either option hits $6.50.

Picked on June 22 at $109.14
Change since picked: 1.78
Earnings Date 00/00/00
Average Daily Volume = 12.5 million


Valero - VLO - close: 43.44 change: 0.93 stop: n/a

VLO delivered a pretty good bounce today. Watch for resistance near $45.00. We don't see any changes from our weekend comments. At this time we're not suggesting new positions. However, if you are looking for a new entry point then consider option positions in the $44.75-45.25 zone. The options we suggested were the July $50 calls (VLO-GJ) and the July $40 puts (VLO-SH). Our estimated cost is $1.89. We want to sell if either option hits $2.75 or higher.

Picked on June 15 at $ 44.84
Change since picked: - 1.40
Earnings Date 07/29/08 (unconfirmed)
Average Daily Volume = 10.8 million

Dropped Calls

Research In Motion - RIMM - cls: 143.06 chg: -1.50 stop: 137.40

Abandon ship! It was an ugly day for RIMM. The percentage move isn't that bad but the trading today looks like a clear failed rally and bearish reversal pattern. There are only two days left before RIMM reports earnings and we don't want to hold over the announcement anyway. We suggest readers exit immediately. The stock has already exceeded our early target at $144.00.

Picked on June 16 at $136.05 *1st target exceeded $144
Change since picked: 7.01
Earnings Date 06/25/08 (confirmed)
Average Daily Volume = 16.7 million

Dropped Puts

Capital One - COF - close: 39.52 change: -1.38 stop: 46.05

Target exceeded. COF followed the financials lower again on Monday. The stock slipped to $38.96 intraday. Our first target was the $40.25 mark. We do have an aggressive target at $37.75 and more aggressive traders may want to keep the play open and just let COF run as far as it can. We see today's action as a test of potential support at the bottom of its descending channel. The trend is very bearish but COF is oversold and due for a bounce. We'd rather exit now, lock in a gain, and just look for another entry point on a failed rally at the top of the channel.

Picked on June 17 at $ 43.87 *1st target exceeded
Change since picked: - 4.35
Earnings Date 07/17/08 (unconfirmed)
Average Daily Volume = 8.3 million

Dropped Strangles


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


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