Option Investor
Newsletter

Daily Newsletter, Tuesday, 8/24/2010

Table of Contents

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

Market Wrap

Existing Home Sales Fall -27%

by Jim Brown

Click here to email Jim Brown

That is not the kind of headline the stock market wants to see and the knee jerk reaction was a drop below Dow 10,000.

Market Stats Table

Existing Home Sales fell -27.2% in July according to data from the National Association of Realtors report this morning. Sales fell to an annualized rate of 3.83 million homes from the June rate of 5.37 million. Analysts had expected a decline but only to 4.83 million. The drop of a million home sales more than expected was a serious shock to the market. Months of supply soared to 12.5 and a new record high. The pace of home fell to a level not seen since 1995.

The homebuyer tax credit produced the first spike in October and then sales declined after that credit ended. The credit was eventually reinstated with even better metrics that included additional buyers but the resulting sales spike was lower. Once the second credit period expired the pace of sales fell off a cliff. This is a clear example of how stimulus programs pull sales forward leaving a void of activity in future periods.

All four census regions showed month over month sales declines of 20% to 30% so the lack of activity was nationwide and not region specific. The number of single-family homes for sale fell to an 11.9-month supply and the lowest level since 1985. Homes for sale increased in July while sales declined. Record low interest rates have been unable to draw buyers back into the market. The unavailability of credit and the strict requirements for home loans is hurting the market. The homebuyer tax credit was an addictive drug for homebuyers and the removal of the tax credit has put the housing sector into withdrawal.

The downside risks to the economy are huge. Home sales should continue to decline until spring. This will hurt new home sales as well and cause another round of layoffs in the construction sector. Home prices will fall again and foreclosures will increase. This is a major problem for the U.S. economy.

Home Sales Chart with Tax Credit Spikes

Homebuilders imploded at the open but many rebounded to close in positive territory after several brokers reiterated buy ratings. Citigroup said the "Risk-reward profile is more favorably skewed." JP Morgan said homebuilders offer a "Compelling risk/reward" and Barclays "We remain positive on the builders." Obviously those brokers must have a considerably longer time horizon than most readers.

Toll Brothers (TOL) will report earnings n Wednesday and it will be interesting to hear how they are dealing with the downturn and more importantly hear their guidance for the next six months. I do believe that the current cutback in housing starts will eventually lead to a shortage of homes and a rapid spike in prices and profitability. The only question is when that will happen. 2011 or 2012?

While Citigroup was reiterating its buy on the homebuilders it was cutting its outlook on building supply companies like CRH and MLM. I am guessing it is a case of different analysts with different views. One firm, CRH Plc (CRH), warned today that earnings would decline sharply due to a faltering U.S. economic recovery. CRH is based in Ireland but 50% of its sales are to U.S. clients. The company said conditions in the U.S. had declined significantly since mid July.

Earnings fell -20% and they guided sharply lower for the next six months. Citigroup cut CRH to a hold and share prices declined by -16%. Other suppliers including CX, EXP, VMC and MLM all declined sharply as well.

The other major economic report today was the Richmond Fed Manufacturing Survey. The headline number fell from 16.0 to 11.0 but remained in positive territory unlike the Philly Fed report last week. The components declined at a slower rate than those in the Philly Fed. The two that stood out to me were the unfilled orders at zero from 16.0 just three months ago and the capital expenditure plans that were cut in half from last month. The shipments component (not shown) dropped from 22 to 11 after peaking at 32 in May.

Richmond Fed Components

Reports due out on Wednesday include Mortgage Applications, Durable Goods, Home Price Index and New Home Sales. The new home sales numbers should not be quite as bad as existing home sales but I seriously doubt it will be good news.

We knew the home sales numbers were going to be bad but nobody expected the severity of the actual decline. After the drop in the Philly Fed last week and the monster drop in the home sales this week you can bet the sentiment numbers over the next month are going to be very ugly. Friday's sentiment report cutoff 10 days ago so it won't reflect the bad news. The next one will be the really ugly number.

The GDP revision on Friday is now expected to decline from 2.4% to 1.2% and many analysts are expecting it to fall under 1% on the next revision. Analyst David Rosenberg from Gluskin Sheff said on Tuesday the economy is not in a double dip recession but already in a 1930s style depression.

Rosenberg wrote in a note to clients that even in the Great Depression there were high points with a series of positive GDP reports and stock market gains. Then as now those signs of recovery were unsustainable and only provided a false sense of stability. The 1929-33 recession saw six quarterly bounces in GDP with an average gain of +8% and causing the stock market to rally +50%. This time around there have been four quarterly GDP advances and the average is only +3%. Rosenberg pointed out that the current economic decline has come after two years of a Fed interest rate at record lows and after an increase in the Fed balance sheet of more than $2 trillion plus the largest stimulus program in history. He said, "This is not your garden variety double dip recession." He also believes we could see another 4-5 million lost jobs. He pointed out that historically the home construction sector employed three workers for every housing start. Today that number is closer to 10 and continued weakness in housing will force a return to historical norms. This is also true with all the industries that supply goods and services to the housing sector.

Gluskin Sheff Chart

Quite a few analysts disagree with Rosenberg but those that agree are growing in numbers. This kind of talk from a highly respected analyst is very detrimental to market sentiment.

Chicago Federal Reserve President Charles Evans said in a speech on Tuesday that the risk of a double dip recession has escalated. "I am increasingly uncomfortable with the lack of noticeable improvement in the labor market." Despite the current problems he believes the economy will escape a double dip and he believes the current Fed policy is the correct one. However, he said today's numbers would force him to lower his estimates for the recovery and he would probably support move Fed stimulus. He is worried that foreclosures could reach three million in 2010 with one million homes owned by lenders. That is drastically over the existing estimates by analysts.

The housing data and the comments by Evans are focusing the spotlight even more on the Ben Bernanke speech at 10:ET on Friday. This speech at Jackson Hole is not normally a revelation of policy but more of an informal luncheon talk. With the recent downturn of economics there is a growing hope that Bernanke will say something substantive to calm economic fears. While on the subject of the Fed there is a growing belief that the Fed is going to announce another stimulus move of some kind over the next 3-5 days.

Dollar Index Chart

Ten-Year Note Yield Chart

In a remarkable burst of speed two people were charged with insider trading on the announcement of the BHP bid for Potash. The head of a research arm at Banco Santander was one of the two people charged. Banco Santander is one of the banks advising BHP on the bid. The SEC said two of the bankers traded on inside information they obtained about the deal. The idiots bought $61,000 of out of the money call options and sold them for $1.1 million after the deal was announced. Let's see, professional bankers buying large quantities of OTM call options in a U.S. trading account just before the deal was announced and they did not expect anyone to notice? After the sale they immediately tried to move the money offshore.

Potash has more suitors than customers today. Rio Tinto said it may join with a Chinese partner like China National Offshore Oil Company (CEO) to breakup the BHP bid. Rio Tinto is probably the 4th or 5th company to express a desire to make a competing bid. The price on POT could go to the moon if this bidding war continues to heat up. Since China has a national imperative to corner the market on fertilizer I would bet that the eventual winner will have Chinese backing.

McAfee and Intel were sued by an irate shareholder claiming Intel paid too little for McAfee. You may remember Intel is paying a 60% premium at $48 for the software company and the stock was headed lower before the offer. McAfee has not been close to $48 since March of 1999. I would bet that suit is a colossal waste of money.

The banking sector may be the only sector with worse charts than homebuilders. The financial sector is losing ground fast and there appears to be no relief in sight. Fears of a double dip are weighing on the major banks because nobody wants to be caught owning the next Lehman or Bear Stearns if the double dip turns out worse than the initial dip. The flurry of eight bank closures last Friday is also weighing on banking sentiment. Among banks hitting new 52-week lows today were BAC, BK and USB.

Banking Index Chart

The markets had been down for the prior three days and that did not prevent them from stretching that string to four. Oversold can always become more oversold and we are seeing that in action. The Dow dropped -183 points at the open and recovered somewhat to trade down only -100 early in the afternoon but the "sell on close" strategy is alive and well. There are no bulls after 2:PM. Fear of darkness has become a powerful motivator again. Triple digit declines at the open convince traders they do not want to be long at the close.

Internals were severely negative with new 52-week lows hitting 467 and the highest level in nearly a year. That is even higher than the levels seen on the early July dip to 9,614 on the Dow. Sentiment is declining very rapidly.

The S&P declined -15 points and hit a low of 1046. This is very close to the 1040-1044 support dating back to February but I seriously doubt it will hold. I am sure there is a rebound rally in our future but I think the trend will remain lower at least until after Labor Day. Resistance is now 1060 and 1075.

S&P Chart

The Dow broke below 10,000 at the open and quickly rebounded to just over 10,100 but it was a short trip. The Dow was handicapped by huge losses in BA, CAT, IBM, UTX and CHV. Boeing lost -2.37 or nearly -4% on news the FAA was going to step up inspections of 737s.

The Dow is going to be under pressure as long as the economics continue to worsen. The double whammy is the large tech stocks added over the last few years that are also providing a major drag. A major market cycle analyst, Charles Nenner, has predicted quite a few of the major Dow moves in the past and he has been right on more often than not. In 2006 he predicted the initial housing crisis, the recession and now he is predicting a return to Dow 5,000 as the country falls into a depression. He was showcased on CNBC today and regardless of whether you believe him or not the existence of the high profile prediction is strongly bearish.

The support on the Dow is now 10,000 but it is more psychological than technical. The Dow has already declined -700 points since the August highs on August 9th. The 10K level may slow that already oversold decline but I don't think it will be the low for August. I believe we will retest the 9800 closing low from June. Resistance is now 10,100.

Dow Chart

I have nothing positive to say about the Nasdaq. The big cap techs are being sold hard on worries consumer PC sales as well as the corporate upgrade cycle has broken. Chip stocks have been warning on guidance and analysts are cutting their PC sales estimates. There are no positives for techs.

The decline below strong support on Tuesday clearly targets the 50% retracement level at 2063. I would be very surprised and suspicious of any tech rebound. Prior support at 2140 is now resistance.

Nasdaq Chart

The Russell tested critical support at 590 today and the initial test was a success. However, I think we will see that level tested again. If it fails we could see a stutter step at 580 but 550 becomes the next target. We need to focus on small caps over the next month to see when fund managers start buying stocks again. Until the Russell shows some strength the market will remain under pressure.

Russell Chart

In summary I believe the market will continue lower until after Labor Day but we could see oversold rebounds thanks to short covering at any time. The economics are simply too negative and worsening. Fear of a double dip is growing and this is not the climate for fund managers to suddenly start buying stocks. We also have the decline in the financial sector. The markets are not going to rally as long as the outlook for financials is worsening.

Over the weekend we experienced a hardware failure on one of our servers. This caused the newsletter emails to be delayed until Sunday night. When the process was restarted thousands of aborted emails from the failed process were sent to readers. We apologize for the extra emails and the delayed newsletter. Thank you for your continued support of Option Investor.

Jim Brown


New Option Plays

Retail Looks Weak

by Scott Hawes

Click here to email Scott Hawes


NEW DIRECTIONAL PUT PLAYS

Abercrombie & Fitch - ANF - close 26.58 change -1.49 stop 29.11

Company Description:
Abercrombie & Fitch Co. (A&F) through its subsidiaries, is a specialty retailer that operates stores and direct-to-consumer operations selling casual sportswear apparel and accessories for men, women and kids under the Abercrombie & Fitch, abercrombie kids, and Hollister brands.

Target(s): 33.00, 31.50
Key Support/Resistance Areas: 38.20, 37.25, 32.75, 34.00, 30.50
Time Frame: Several weeks

Comments:
We are back with a consumer name in the retail space. Retailers are weak and ANF looks ready for a drop if the broader market cooperates. This company is one of the more bloated retail names out there and trades at high PE ratio of 26. Technically the stock has broken out of a bear flag that formed in July and August off of the decline from its April highs. ANF is also consolidating below its broken trend line from the 11/08 lows (see dashed line) and volume is picking up which indicates sellers are overwhelming buyers. I suggest we initiate short positions now or on any strength in the stock. We'll use stop of $38.40. Our targets are $33.00 and $31.50.

Suggested Position: Buy October $34.00 PUT, current ask $2.17

Annotated chart:

Entry on August xx
Earnings: 11/11/10 (unconfirmed)
Average Daily Volume: 3.5 million
Listed on August 24, 2010


In Play Updates and Reviews

Take Profits On IBM

by Scott Hawes

Click here to email Scott Hawes

Editor's Note:
I am suggesting we take profits on our IBM puts at the open tomorrow. We currently have a gain of +74% with options that expire in September. Let's take advantage of the recent declines and not let time decay hurt us. Please email me with any questions.

Current Portfolio:


CALL Play Updates

Cameron International - CAM - close 36.64 change -0.24 stop 35.45

Target(s): 37.95, 38.40, 39.10, 39.50
Key Support/Resistance Areas: 45.00, 42.50, 41.00, 38.75, 36.00
Current Gain/Loss: -57%
Time Frame: Several weeks
New Positions: Yes

Comments:
8/24: CAM hug tough today but closed below its upward trend line and the 50-day SMA. It did close above the key resistance level of $36.00 so it is do or die time for bounce. I'm looking for a bounce back up to its 20 and 100-SMA's. But I'm concerned about time decay negatively affecting our option premium so I suggest readers begin to exit positions on any strength or by using our adjusted targets above.

8/23: CAM is maintaining its upward trend line from the 7/1 lows and closed above its 50-day SMA. The stock has support at this level and should bounce if the broader market cooperates. However, I'm concerned about time decay negatively affecting our option premium. I've adjusted our targets and I suggest readers begin to exit positions on any strength in CAM, or tighten stops to protect capital.

Current Position: Long September $40.00 CALL, entry was $0.95

Entry on August 16, 2010
Earnings Date 11/3/2010 (unconfirmed)
Average Daily Volume: 4.6 million
Listed on August 14, 2010


FMC Technologies, Inc - FTI - close 62.00 change +0.03 stop 58.25

Target(s): 65.25 (hit), 67.00, 68.75
Key Support/Resistance Areas: 69.00, 65.50, 62.40, 59.00
Current Gain/Loss: -18%
Time Frame: Several weeks
New Positions: No

Comments:
8/24: After gapping lower FTI was bought the entire day and managed to post a gain while the broader market was very weak. The bullish trend in the stock remains in tact as described below. Traders may want to consider exiting FTI on a move up towards its 20-day SMA near $63.00 as it will be tough for the stock to buck the broader market trend too long.

8/23: FTI is maintaining its upward trend line from its 6/8 lows and is above its 100-day, 200-day and 50-day SMA's. The stock's trend is up but we still need the broader market behind us if FTI is going to reach our targets. Our $65.25 target was hit on 8/17 and still remains valid.

Current Position: Long October $70.00 CALL, entry was at $1.10

Entry on August 16, 2010
Earnings 10/27/2010 (unconfirmed)
Average Daily Volume: 1.5 million
Listed on August 14, 2010


Monsanto Co. - MON - close 55.93 change -1.39 stop 55.75

Target(s): 61.25, 63.75, 65.90,
Key Support/Resistance Areas: 66.00, 62.30, 58.50, 56.00
Current Gain/Loss: -50%
Time Frame: 1 to 3 weeks
New Positions: No

Comments:
8/24: MON is nearing our stop and it appears headed for the 50-day SMA. We will most likely be stopped out of this position tomorrow if the broader market is weak. If the stock opens near or below our stop tomorrow I suggest waiting for the opening 15 or 30 minute range to settle in before doing anything. Then place a new stop underneath that opening range to see if MON reverses from there. This is designed to keep us in the position longer and looking for a better exit.

8/23: MON is consolidating between its 50-day and 100-day SMA's. I remain bullish on the agriculture sector but broader market strength would do wonders for our position. I've added $61.25 as an immediate target which is a good area to take profits or tighten stops to protect them.

Current Position: Long October $62.50 CALL, entry was at $1.65

Entry on August 19, 2010
Earnings Date 10/6/2010 (unconfirmed)
Average Daily Volume: 7.2 million
Listed on August 18, 2010


SPDR Gold Trust - GLD - close 120.36 change +0.58 stop 115.95

Target(s): 121.25, 123.00, 125.00
Key Support/Resistance Areas: 123.00, 119.10, 116.50, 113.50
Current Gain/Loss: +22%
Time Frame: Several weeks
New Positions: No

Comments:
8/24: GLD gapped lower and was bought the entire day. My comments from last have not changed. 8/23: I suggest readers begin to look for an exit in GLD to prevent time decay from eating away at our option premium. I've adjusted the targets above and suggest readers use these levels to take profits or tighten stops to protect them.

Current Position: Long September $120.00 CALL, entry was at $1.80

Entry on August 12, 2010
Earnings Date N/A (unconfirmed)
Average Daily Volume: 12.4 million
Listed on August 10, 2010


UnitedHealth Group Inc - UNH - close 31.50 change -0.11 stop 30.35

Target(s): 31.50, 31.90, 32.75, 33.15
Key Support/Resistance Areas: 35.00, 34.40, 33.50, 31.50
Current Gain/Loss: -60%
Time Frame: 1 to 2 weeks
New Positions: No

Comments:
8/24: UNH closed below critical support at $31.50 and readers should consider exiting positions to preserve capital. The stock closed above its 100 and 50-day SMA but below its 200 and 20-day SMA. I suggest using $31.50 or $31.95 as possible targets. We have September options and need to begin to protect the time value remaining in them. I've adjusted the targets above. 8/23: UNH closed at the critical support level of $31.50 so it is do or die time for a bounce. Readers should consider exiting positions, especially if UNH begins to bounce.

Current Position: Long September $32.00 CALL, entry was at $1.25

Entry on August 17, 2010
Earnings Date 10/19/2010 (unconfirmed)
Average Daily Volume: 8.5 million
Listed on August 16, 2010


PUT Play Updates

Apple, Inc - AAPL - close 239.93 change -5.87 stop 256.50 *NEW*

Target(s): 240.00 (hit), 233.00, 226.00
Key Support/Resistance Areas: 266, 258, 256, 246, 240, 231, 235
Current Gain/Loss: +15%
Time Frame: Several weeks
New Positions: Yes, preferably on strength

Comments:
8/24: We are short AAPL as our trigger to initiate positions was hit at the open. This is the lowest closing price in AAPL since 5/20. Anyone who has initiated long positions in AAPL since April is hoping and praying AAPL comes back and if the weakness continues I'm expecting stops to get hit. This should send AAPL down to test its 200-day SMA which is just below our primary target of $233. This is where I suggest taking profits or tightening stops to protect them.

8/23: AAPL lost -1.54% (or $3.84). Our comments from the weekend remain the same except I believe more aggressive traders can short AAPL on any strength. We have two official entry points to buy puts - at a bounce near $254.00 (lowered $3) or at a breakdown at $244.00. If AAPL hits $244.00 we'll adjust the stop loss down to $256.00.

Current Position: Long October $230.00 PUT, entry was at $6.90

Entry on August xx
Earnings: 10/21/10 (unconfirmed)
Average Daily Volume: 23 million
Listed on August 14, 2010


FASTENAL Co. - FAST - close: 46.27 change: -1.27 stop: 50.40

Target(s): 44.80, 43.50, 41.00
Key Support/Resistance Areas: 50.00, 48-47, 200-dma, 40.00
Current Gain/Loss: +2%
Time Frame: 3 to 4 weeks
New Positions: Yes

Comments:
8/24: Our short positions were triggered at $46.50 in FAST this morning. The stock is well below its 200-day SMA and may bounce to retest it from below. This may provide another entry point. I've added $44.80 as a near term target and is an area to consider taking profits or tightening stops to protect them.

8/23: We are waiting to be triggered but more aggressive traders should still consider new bearish positions now or on any strength in the stock. Our trigger remains the same at $46.50 but I suggest the November options to limit time decay on this position.

Current Position: Long November $45.00 PUT, entry was at $2.50

Entry on August 24, 2010
Earnings Date 10/12/10
Average Daily Volume = 839,000
Listed on August 19, 2010


Intl. Bus. Machine - IBM - close 124.90 change -1.57 stop 130.51

Target(s): 123.50, 122.00
Key Support/Resistance Areas: 130.00, 127.00, 123.00, 121.00
Current Gain/Loss: +74%
Time Frame: 2 weeks
New Positions: Yes

Comments:
8/24: IBM lost -1.57% and is headed to our $123.50 target. We currently have a gain of +74% and I think it is prudent to either tighten stops or take profits now as opposed to try to squeeze out more gains and risk a reversal, especially since our options will start to suffer from time decay if we sit and do nothing through a bounce. IBM also closed right on its upward trend line from the flash crash lows so there could be a bounce here. I suggest we take profits at the open tomorrow and book the gain.

8/23: We are long IBM puts and are expecting a move down to the $123 level. The stock drifted lower the entire day and our position has gained +24%. I've adjusted our $123 target up 50 cents and added $122 as a more aggressive target. I suggest we take profits and/or tighten stops as IBM trades down to these levels.

8/21: IBM has been bouncing around the $132-120 zone for months. On a short-term basis the stock is rolling over and shares look ready to breakdown from a the current $130-127 trading range. I'm suggesting we buy puts now, ride the stock down toward $123.00. Then we can re-evaluate since it might be a good spot to consider switching directions and buying calls.

Current Position: Long September $125 PUT, entry was at $1.53

Entry on August 23, 2010
Earnings Date 10/18/10
Average Daily Volume = 5.4 million
Listed on August 21, 2010


NUCOR Corp. - NUE - close 36.68 change -1.08 stop 40.55

Target(s): 36.05, 35.25, 31.90
Key Support/Resistance Areas: 43.00, 40.30, 37.00, 35.00
Option Current Gain/Loss: +33%
Time Frame: 4 to 6 weeks
New Positions: Yes

Comments:
8/24: NUE closed at a new 52-week low today and looks vulnerable. We now have a +33% gain so protecting profits is suggested. Ultimately NUE looks headed towards our $35.25 target but taking profits on the way is a good idea. I'm going to add $36.05 as an immediate target.

8/23: We are looking for continued weakness in NUE and need to break below $36.95 which should get the stock moving towards our targets.

8/21: NUE gapped open lower at $38.29 (our entry point) and bounced from the $38.00 level intraday. I would still consider new positions at current levels or you can wait for another bounce toward $40 and its 50-dma.

8/19: After nearly a year of trading sideways in the $39-50 zone NUE has finally broken down. The oversold bounce has stalled near the $40 level and its descending 50-dma. The action today looks like another failed rally under resistance. I am suggesting we take advantage of this weakness with new put positions.

We'll start with a stop loss at $40.55. More aggressive traders may want to use a stop just over $41.00. Our first target is $35.25. Our longer-term target is $31.00 but honestly we may not be in the play that long. FYI: The Point & Figure chart is bearish and is forecasting a $26 target.

Current Position: Long October $35.00 PUT, entry was at $0.96

Entry on August 20, 2010
Earnings Date 10/21/10
Average Daily Volume = 2.9 million
Listed on August 19, 2010


Occidental Petrol. - OXY - close: 74.02 change: -1.55 stop: 81.05

Target(s): 74.00, 71.50, 67.50
Key Support/Resistance Areas: 75-74.00, 70.00, 65.00
Current Gain/Loss: N/A
Time Frame: Several Weeks
New Positions: Yes, trigger at $77.50 or $73.50

Comments:
8/23 & 8/24: We are waiting for the adjusted strategy from the weekend to trigger our entry. All of the comments below remain the same. 8/21: There is no change from Thursday's update. Oil and the oil sector continue to look weak. Odds are growing that OXY will breakdown. We have two entry points. One possible entry is at $77.50. Another is at $73.50. If triggered at $73.50 we'll change the stop loss to $78.51. Plus we'll change the targets to $70.25 and $66.00 if triggered on the breakdown.

8/19: I am adjusting the strategy on this play. Instead of waiting for a bounce toward $77.50 (which still works as an entry point) I am adding a breakdown trigger to buy puts at $73.50. The recent low was $73.90 and so far traders have continued to buy OXY near support at $74.00. If we are triggered at $73.50 we'll move the stop loss down to $78.51. I'm adjusting our targets to $70.25 and $66.00 if triggered at $73.50. We can keep the bounce trigger to buy puts at $77.50, if hit we'll use a stop loss at $81.05.

Suggested Position: Buy November $70.00 PUT, current ask $2.72

Entry on August XX
Earnings Date 10/21/10 (unconfirmed)
Average Daily Volume 4.4 million
Listed on August 7th, 2010


Procter & Gamble - PG - close: 59.66 change: -0.37 stop: 63.26

Target(s): 59.50 (hit), 59.20, 58.05, 55.25
Key Support/Resistance Areas: 59.00, 61.00
Current Gain/Loss: -11%
Time Frame: 2 to 3 weeks
New Positions: Yes, with November options

Comments:
8/24: My comments from below remain the same. I suggest readers begin exit PG to prevent time decay from accelerating. Another strategy would be to roll current positions into the November strikes and give this time to work.

8/23: PG has a lot of support at $59.00 and our options will begin to suffer from time decay. PG looks like it has further room to the downside but time is not on our side. As such, I suggest readers begin to look for an exit using the targets listed above. Another strategy would be to roll current positions into the November strikes and give this time to work.

8/19: Shares of PG have been forming a top for over eight months now. If the stock breaks down under support near $59.00 it would forecast a drop toward $54.00. Readers can choose to open positions near $61-62 but I would prefer to see a breakdown under $59.00. Please note I have adjusted our exit targets to $58.05 and $55.25. FYI: If you launch new positions I would buy the Novembers.

Current Position: Long September $57.50 PUT, entry was at $0.36

Entry on August 10, 2010
Earnings Date 10/28/10 (unconfirmed)
Average Daily Volume 2.5 million
Listed on August 7th, 2010