Option Investor
Newsletter

Daily Newsletter, Monday, 12/13/2010

Table of Contents

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

Market Wrap

What Could Have Been

by Todd Shriber

Click here to email Todd Shriber
Everything was going along quite well for the S&P 500 and the Dow Jones Industrial Average until a late day sell-off struck, sending the indexes careening into the close. Headlines that the Senate was preparing to vote on the Obama/Republican tax-cut agreements were probably the culprit that sent the Dow down 40 points in the last hour of trading. Both the Dow and S&P 500 eked out small gains while the Nasdaq was in the red by the time the closing bell rang. Breadth was lousy as four stocks fell for every three that advanced.

Stats Table

While Monday's action was not much to cheer about, the outlook for U.S. stocks is still rosy, at least according to some the major U.S. banks. Citing rising profits and impressive cash hoards, strategists think the S&P 500 has another 11% left to run, according to Bloomberg News. Goldman Sachs sees the index rising by 17% next year and Barclays sees the S&P 500 reaching 1420 by the end of 2011. Goldman says U.S. companies are sitting on $1 trillion in cash and look ready to deploy some of that capital, especially in the form of mergers and acquisitions and share repurchases, Bloomberg reported.

Share buybacks and M&A activity are well and fine and certainly better than no positive catalysts at all, but I cannot help but think that higher dividends (which I think will be seen) would be nice as well, but increased hiring would be a real game-changer in 2011.

While it is disappointing that U.S. indexes did not hold the gains made earlier in today's session the argument could be made that the bulls should be grateful there was not a nasty sell-off to deal with today on the back of China's inflation data, which was released over the weekend.

Chinese inflation jumped to a 28-month high of 5.1% in November, but the Peoples Bank of China took a pass on raising interest rates to deal with the issue. At least for now and that was enough to send the Shanghai Composite up by almost 3%, its best one-day performance since October. While Chinese policymakers are showing restraint with regards to interest rates, they are not shy about requiring banks to hold more capital. The PBOC raised the minimum amount Chinese lenders must keep in reserve for the third time in a month.

Chinese interest rate swaps gave up nine basis points on Monday, but there is no getting around the fact that an interest rate hike out of Beijing is still a very real possibility. China's real interest rates have been negative since February and with a small amount of trading days left in 2010, it is not a stretch to say the PBOC will not raise rates this year, but the move is probably coming. It is a matter of when, not if.

Speaking of assets are intimately tied to China, oil gained half a percent on the day, but like stocks, black gold had difficulty holding early session gains. NYMEX-traded crude for January delivery flirted with $90 earlier today despite news that OPEC members are not obliging by their own production quotas and are producing more oil in anticipation of the return of $100 per barrel prices next year.

Some of the headlines used the term ''cheating'' with regards ramped up production, but when one looks at OPEC's roster, it would almost be more surprising if this motley crew was not engaged in some chicanery for its own benefit. OPEC's production quota is 24.85 million barrels per day for 11 of its members (Iraq is not subject to the quota), but real production is in the area of 29 million barrels, the Wall Street Journal reported.

I find it hard to trust countries like Venezuela when the Venezuelan oil minister is out saying $100 oil is fair to producers and consumers (try telling that to the consumers), but OPEC is what it is and the news of $100 oil, which options traders are betting on in a big way, isn't all bad. Four of the new 52-week highs on the New York Stock Exchange today were Exxon Mobil (XOM), Chevron (CVX), ConocoPhillips (COP) and Occidental Petroleuem (OXY), the four largest U.S. companies.

Oil Chart

Moving over to tech, a bunch of bullish analyst chatter was helpful to the individual names to which that chatter pertained, but it was not enough to lift the sector at large nor the Nasdaq. Goldman Sachs was full of praise for Apple (AAPL) today, calling the iPad maker's platform-centric business model its ''secret sauce'' while saying Apple could ship 37.2 million iPads next year.

Still, Apple shares only gained 0.35% even after all the Goldman gushing. In fact, it was a really disappointing day for Apple bulls (they can handle it, trust me). The stock traded between $321-$325, a new high, but managed to close at $321.67. Remember, this is after Goldman added the stock to its conviction buy list with a $430 price target. Assuming Goldman is right, Apple shares still have some decent upside left in them.

Apple Chart

Goldman's magic did a little bit to help EMC (EMC), the largest provider of data storage services, which gained almost 1.1% after the bank resumed coverage of EMC with a ''buy'' rating and a $27 price target. In a note to clients, Goldman cited ''secular tail-winds and expanding margins'' as potential catalysts for EMC shares. NetApp (NTAP), seemingly a perpetual acquisition target in the data storage space was raised to ''overweight'' from ''equal weight'' by Barclays. The bank also raised its price target on NetApp to $67 from $56, helping the stock gain 2.6% on the day.

Dell has enjoyed a solid run over the past three months, gaining 12%, but the shares plunged almost 4% today on volume that was roughly a third higher than the daily average on news of the company's $883 million offer for Compellent Technologies (CML), another name that is frequently the subject of takeover chatter.

It is not unusual to see the acquirer decline on M&A news, but it is rare for the target to decline. Yet, that is what happened with Compellent today. The shares shed 2.6% on volume that was eight times the daily average because Dell is only offering $27.75 for Compellent, which is below where the stock closed on Friday and today.

Poor Dell. The company that cannot seem to get out of its own way has been trying to make deals this year only to be outdone by rivals like Hewlett Packard (HPQ), but by offering less for Compellent than where the stock currently trades, it is obvious Dell has not learned any lessons. What Compellent shareholder is going to feel compelled (pun intended) to sell his shares to Dell for less than he get on the open market?

Dell Chart

Looking at the charts, the S&P 500 built on Friday's two-year closing high in the most meager of ways today, but still trading around 1240, the index looks poised to start fresh move to the upside. For those worried about support, that is 1200 and on the move upward. The 1250 could be a brief stumbling block simply because so many analysts have pegged that as their year-end target, but once that level is cleared, 1270 looks to be the next serious resistance point.

S&P 500

Add up the Dow's 18-point gain on Monday, 40 points on Friday and eight points for the previous days and we get a whopping 66-point move for the industrials over the past seven trading days. Not to sound too alarmist here, but what is it going to take to move the Dow? GE (GE) raised its dividend last Friday. Chevron announced it would spend more on exploration. Pfizer (PFE) raised its dividend today. Support at 11,335 is being honored, but it will be interesting to see if how the Dow acts at 10,450.

Dow Chart

The Nasdaq was finally able to find its way above resistance at 2625 on Friday and that is where the index settled today, ending an eight-day winning streak. Support is 2620 and after a move over 2650 would result in some clear sailing to 2800, perhaps a bit higher. Nasdaq Chart

The Russell 2000 took a step back from its exciting advance today, support at 767 was not threatened and the index still looks to be in fine shape for a positive run through the end of the year. With another 70-80 points to go before resistance is seen again, I am not betting on the Russell getting to those areas this week, but the small-cap space is getting harder and harder to ignore. I have personally been adding to positions in the PowerShares small-cap sector ETFs in recent weeks, which are basically the small-cap cousins to the SPDR funds.

Russell 2000 Chart

Obviously, I am bullish, but more so on small-caps, metals and energy than other market segments at this juncture. I am off to referee some high school basketball, holiday time equals tournament time, but I will be with you again on Wednesday.

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New Option Plays

More Materials

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Vulcan Materials Co. - VMC - close: 44.78 change: +1.50

Stop Loss: 39.95
Target(s): 47.75
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
Commodity and material stocks were showing relative strength on Monday thanks in part to weakness in the U.S. dollar. Shares of VMC surged past technical resistance at the 200-dma to close at new four-month highs. The stock market's afternoon swoon could be the start of a multi-day correction. While VMC was showing relative strength it will probably still pull back if we see a market-wide decline. We want to use a dip to buy calls. I'm suggesting a trigger at $43.00. We'll start the play with a stop loss at $39.95 but cautious traders might be able to get away with a stop loss a lot closer to $41.00.

Trigger @ $43.00

Suggested Position: Buy the 2011 January $45 calls (VMC1122A45)

- or -

Buy the 2011 February $45 calls (VMC1119B45)

Annotated Chart:

Entry on December xxth at $ xx.xx
Earnings Date 02/07/11 (unconfirmed)
Average Daily Volume = 1.5 million
Listed on December 13th, 2010


In Play Updates and Reviews

Targets, Not Triggers, Hit Today

by James Brown

Click here to email James Brown

Editor's Note:

The stock market pared back its intraday gains but we still had two candidates hit our profit targets today. CTL and NKE were the two candidates that hit our exit targets to take some money off the table. Plus, we are seeing some favorable action in EXPE.

-James

Current Portfolio:


CALL Play Updates

CH Robinson Worldwide Inc. - CHRW - close: 78.07 change: -0.05

Stop Loss: 72.90
Target(s): 74.90, 79.00
Current Option Gain/Loss: +204.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/13 update: CHRW spent the session drifting sideways near the $78 level. The market looks like it could be setting up for a little pull back this week. CHRW is short-term overbought so it's due for some profit taking and could easily drop toward the $76-75 zone. If you don't want to endure any short-term pain then I strongly suggest you take profits now. I am not suggesting new positions at this time. Our final target is $79.00.

Current Position:
Long the January $75.00 calls (CHRW1122A75) Entry @ $1.15

12/11: New stop loss @ 72.90
12/01: New Stop loss @ 71.90
12/01: First target hit @ $74.90 Exit all December calls: $0.95 (+111.1%)
12/01: First target hit, take profits on January calls: $ $2.00 (+73.9%)
11/27: New stop @ 70.75, new first target at $74.90

Entry on November 22nd at $72.44
Earnings Date 02/03/11
Average Daily Volume = 1.1 million
Listed on November 18th, 2010


Cummins Inc. - CMI - close: 106.69 change: +1.66

Stop Loss: 94.45
Target(s): 107.00, 114.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/13 update: We were really hoping to see a little pull back in CMI this week. Thus far it's not cooperating. Shares displayed relative strength with a +1.5% gain on slightly above average volume. There is no change from my weekend comments on CMI.

I am suggesting we use a dip to $100.50 as our entry point to buy calls. We want to start with small positions! Consider only buying half your normal position size. Just in case the correction pulls CMI toward the 50-dma near $95.00 we want to have some cash on the sidelines to double down near the 50-dma. FYI: Currently the Point & Figure chart is forecasting a $115 target.

Trigger @ $100.50

- Suggested Position -
Buy the 2011 January $105 calls (CMI1122A105)

- or -

Buy the 2011 March $110 calls (CMI1119C110)

Entry on December xxth at $ xx.xx
Earnings Date 02/02/11 (unconfirmed)
Average Daily Volume = 1.8 million
Listed on December 11th, 2010


CSX Corp. - CSX - close: 63.78 change: -0.32

Stop Loss: 59.75
Target(s): 67.00, 69.50
Current Option Gain/Loss: -13.7% and - 8.0%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/13 update: Railroad stocks continued to drift sideways on Monday. CSX spiked open this morning, setting our entry point at $64.39. Unfortunately, the gains didn't last. CSX spent the rest of the day in a narrow range. If the market sees a pullback we can look for CSX to find support in the $62-60 zone. I would use that sort of dip as another entry point to build up positions.

- Current Positions - (We only have a small position open)

Buy the 2011 January $65 calls (CSX1122A65) Entry @ $1.75

- or -

Buy the 2011 February $65 calls (CSX1119B65) Entry @ $2.49

12/13: CSX opened at $64.39
12/11: New Entry Point Strategy. Buy half now.
12/11: New targets: 67.00, 69.50
12/02: New trigger @ 62.50.
12/01: New trigger @ 62.25, New stop @ 59.90, New targets.

Entry on December 13th at $64.39
Earnings Date 01/18/11 (unconfirmed)
Average Daily Volume = 5.9 million
Listed on November 23rd, 2010


CenturyLink, Inc. - CTL - close: 45.22 change: +0.59

Stop Loss: 42.75
Target(s): 44.90, 47.25
Current Option Gain/Loss: +350.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/13 update: Target achieved. The relative strength in CTL continues. Shares broke out to new two-year highs (again). Our first target to take profits was hit at $44.90. Please note that I'm raising our stop loss to $42.75 since broken resistance near $43.00 should offer some support. I'm not suggesting new positions at this time. Our final target is $47.25.

FYI: Investors should know that CTL is currently involved with a $10.6 billion stock-swap merger with Qwest Communications (Q). The merger isn't supposed to be completed until the first half of 2011. The trend for both stocks is up and naturally looks very similar following the M&A announcement.

Current Position:
Long the 2011 January $45.00 calls (CTL1122A45) Entry @ 0.20

12/13: First Target Hit @ $44.90, option @ $0.85 (+325%)
12/01: Adjusted secondary target to $49.00

Chart:

Entry on November 29th at $42x55
Earnings Date 02/22/11
Average Daily Volume = 3.0 million
Listed on November 27th, 2010


Express Scripts - ESRX - close: 54.32 change: -0.44

Stop Loss: 49.65
Target(s): 53.95, 57.25
Current Option Gain/Loss: +34.7%
Time Frame: 5 to 6 weeks
New Positions: Yes, see below

Comments:
12/13 update: Aside from a little volatility this morning it turned out to be a quiet day for ESRX. Shares remain stuck in the $54-55 range. I don't see any changes from my weekend comments. I'm still warning readers to be ready for a correction back towards $52.00. If you're looking for a new entry point I would prefer to initiate positions on a dip or a bounce near $53-52.

We currently only have half a position open.

Current Position:
Long the 2011 January $52.50 calls (ESRX1122A52.5) Entry @ $2.10

12/07: Exit the December calls. option @ $2.01 (+64.7%)
12/01: First Target Hit @ $53.95. Dec's @ $2.20 (+80.3%). Jan's @ $3.10 (+47.6%)

Entry on November 18th at $51.81
Earnings Date 02/24/11
Average Daily Volume = 4.3 million
Listed on November 17th, 2010


Fastenal Co. - FAST - close: 58.88 change: -0.29

Stop Loss: 53.75
Target(s): 59.75, 62.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/13 update: FAST spent Monday consolidating sideways. We are still waiting for a little correction to buy the dip. We want to launch bullish positions on a dip at $56.00. Conservative traders could wait for a dip closer to $55 or $54 before launching positions. If triggered our first target is $59.75.

FYI: FAST announced a special, one-time cash dividend of 42-cents on November 18th and all of the option strikes have been adjusted for this 42-cent dividend.

Trigger @ 56.00

Suggested Positions:
Buy the 2011 January $54.58 calls (FAST1122A54.58)

- or -

Buy the 2011 February $59.58 calls (FAST1119B59.58)

Entry on December xxth at $ xx.xx
Earnings Date 01/19/11 (unconfirmed)
Average Daily Volume = 880 thousand
Listed on December 8th, 2010


FedEx Corp. - FDX - close: 94.31 change: +0.33

Stop Loss: 87.75
Target(s): 94.75, 99.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/13 update: The Dow Jones Transportation index lost -0.8% yet FDX gained +0.3%. I could not find any specific headline to account for the relative strength. However, there were lots of articles in the news about today being FDX's busiest day in history. The company will handle nearly 16 million parcels globally, which is a +13% increase over last year's "busiest day". Between Thanksgiving and Christmas FDX expects to handle over 223 million shipments.

We are still waiting for a dip to $91.00 to launch bullish positions. Remember, earnings are coming out on Thursday morning. Readers may want to avoid initiating new positions even if FDX does hit our trigger in the next two days just so you can wait and see how the market will react to FDX's earnings report. Naturally, if you think FDX will surprise and the market moves higher on the news then you'll want to buy positions ahead of the report.

Suggested Position: TRIGGER @ $91.00

Buy the 2011 January $90.00 call (FDX1122A90) current ask $4.85

- or

Buy the 2011 April $95 call (FDX1116D95) current ask $5.00

Entry on December xxth at $ xx.xx
Earnings Date 12/16/10 (confirmed)
Average Daily Volume = 2.1 million
Listed on November 29th, 2010


Goldman Sachs - GS - close: 169.48 change: +1.01

Stop Loss: 157.45
Target(s): 169.75, 177.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/13 update: GS is still showing strength and rallied toward resistance near $170 this afternoon. Actually shares almost hit $171. Over the weekend I cautioned readers that the $170-171 zone could be resistance. We're still waiting for a correction with a trigger to buy calls at $163.00.

Trigger @ 163.00

Suggested Positions:
Buy the 2011 January $170 calls (GS1122A170)

- or -

Buy the 2011 April $175 calls (GS1116D175)

Entry on December xxth at $ xx.xx
Earnings Date 01/18/11 (unconfirmed)
Average Daily Volume = 7.2 million
Listed on December 2nd, 2010


W.W. Grainger Inc. - GWW - close: 133.77 change: +0.10

Stop Loss: 124.75
Target(s): 129.90, 138.50
Current Option Gain/Loss: +124.0%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/13 update: GWW managed to tag new relative highs on Monday following a press release this morning that November 2010 sales were +14% higher than a year ago. I don't see any changes from my weekend comments on GWW. If the market sees any sort of pull back then GWW should correct toward the $130-128 zone. I'd prefer to launch new positions on a dip near $128. Our final target remains $138.50.

FYI: The stock could see a little short squeeze since the most recent data listed short interest at more than 5% of the 58.5 million share float (which isn't very big as far as floats go). FYI: The Point & Figure chart is bullish with a $140 target.

Current Position:
Long the 2011 January $130 calls (GWW1122A130) Entry @ $2.50

12/02: First target hit @ 129.90, option @ $4.10 (+64%)
12/02: New stop loss @ 124.75, New final target at $138.50

Entry on November 24th at $126.75
Earnings Date 01/25/11 (unconfirmed)
Average Daily Volume = 567 thousand
Listed on November 22nd, 2010


Humana Inc. - HUM - close: 56.54 change: +0.03

Stop Loss: 54.40
Target(s): 59.75, 64.00
Current Option Gain/Loss: -25.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/13 update: News that a Virginia judge declared part of President Obama's healthcare reform laws to be unconstitutional briefly sent healthcare stocks higher on Monday. There are already cries for the case to go to the Supreme Court. Unfortunately for stock market bulls the gains in healthcare quickly faded. I remain cautious on shares of HUM. A close over Friday's high (57.11) could change my mind on buying calls again. A close under $56.00 would be bearish even though $55.00 should also offer some support. More conservative traders may want to consider a tighter stop loss.

Current Position:
Long the 2011 January $55 calls (HUM1122A55) Entry @ $3.80

12/08/10 New stop @ 54.40
11/22/10 New stop @ 53.75
11/22/10 New (2nd) target at $64.00

Entry on November 18th at $55.05
Earnings Date 11/01/10 (confirmed)
Average Daily Volume = 2.1 million
Listed on October 16th, 2010


Juniper Networks - JNPR - close: 36.16 change: +0.28

Stop Loss: 33.75
Target(s): 37.40, 39.85
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/13 update: JNPR spiked to a new three-year high on Monday but shares gave back most of their gains. The move looks like a short-term top and failed rally pattern. JNPR should find some support near $35.00. I am suggesting a trigger to buy calls on JNPR when the stock dips to $35.20. We'll use a stop loss at $33.75. Our first target is $37.40. Our second, longer-term target is $39.85. FYI:

Trigger to buy the dip @ $35.20

- Suggested Position -
Buy the 2011 January $35.00 calls (JNPR1122A35)

- or -

Buy the 2011 April $37.00 calls (JNPR1116D37)

Entry on December xxth at $ xx.xx
Earnings Date 01/25/11 (unconfirmed)
Average Daily Volume = 5.5 million
Listed on December 11th, 2010


Nike Inc. - NKE - close: 89.23 change: +1.43

Stop Loss: 83.90
Target(s): 89.50, 94.50
Current Option Gain/Loss: +90.6%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/13 update: Target achieved. It was a strong day for NKE. Shares gapped open higher and hit $90.52 intraday thanks to an analyst upgrade from "neutral" to "buy". Shares gave back most of their gains but still closed up +1.6%. Broken resistance near $88 should now offer some short-term support. I am inching our stop loss up to $83.90. More conservative traders may want to consider an early exit now. Officially the newsletter's final exit is the $94.50 mark. I am not suggesting new bullish positions at this time.

We had plans to sell half of our January position sat $89.50. Since NKE opened at $89.64 we got a little boost in our option price. The option opened at $5.51 (+98.2%).

(Second position) Current Position:
Long the January $85.00 CALLS (symbol:NKE1122A85) Entry @ $2.78

12/13/10 Target Hit @ $89.64 (gap higher), option @ $5.51 (+98.2%)
12/13/10 New stop loss $83.90
12/11/10 New stop loss $83.49
12/07/10 Exit the December calls, option @ $2.25 (+95.6%)
12/01/10 New stop loss @ 82.45
11/30/10 Readers may want to exit December options early for a gain
11/30/10 Entry on January calls @ $2.78
11/29/10 Buy the bounce from $84.00
11/24/10 Target hit @ 86.75, Dec. option @ $2.60 (+126%)

Chart:

Entry on November 11th at $83.00
Earnings Date 12/21/10
Average Daily Volume = 2.3 million
Listed on November 6th, 2010


Oceaneering International - OII - close: 72.80 change: +1.09

Stop Loss: 67.75
Target(s): 74.80, 79.75
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/13 update: A weaker dollar was boosting commodities and that helped fuel strength in the oil and oil service sectors. OII gained +1.5%. There is no change from my weekend comments. Use a trigger at $70.25. If shares hit our trigger to buy calls at $70.25 readers may want to start with small positions and then slowly build up to a normal position size.

Trigger to buy @ $70.25

Suggested Position: Buy the 2011 January $75 calls (OII1122A75)

- or -

Suggested Position: Buy the 2011 April $75 calls (OII1116D75)

Entry on December xxth at $ xx.xx
Earnings Date 02/17/11 (unconfirmed)
Average Daily Volume = 584 thousand
Listed on December 4th, 2010


Transocean Ltd. - RIG - close: 72.47 change: +0.24

Stop Loss: 66.25
Target(s): 72.50, 78.25
Current Option Gain/Loss: +49.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/13 update: RIG displayed relative strength and hit $73.93 intraday. More conservative traders may want to consider raising their stop loss. I am not suggesting new positions at current levels. Our final target is $78.25.

- Current Position -
Long the 2011 January $70.00 calls (RIG1122A70) Entry @ $2.95

12/11/10 New target 78.25, new stop loss $66.25
12/03/10 Target hit @ $72.50, option @ $4.95 (+67.7%)

Entry on November 30th at $68.18
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume = 6.3 million
Listed on November 29th, 2010


Sherwin-Williams Co. - SHW - close: 78.18 change: +0.42

Stop Loss: 73.75
Target(s): 79.90
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/13 update: SHW posted another gain but the rally reversed midday. This could be a short-term top - at least I hope so. We want to see a correction. I am suggesting we wait for a dip to $76.10 and buy calls on the pull back. If triggered we'll use a stop loss at $73.75. Our first target is $79.90.

Trigger @ $76.10

Suggested Positions:

Buy the 2011 January $75.00 calls (SHW1122A75)

- or -

Buy the 2011 March $80.00 calls (SHW1119C80)

Entry on December xxth at $ xx.xx
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume = 675 thousand
Listed on December 9th, 2010


Union Pacific - UNP - close: 92.18 change: -0.46

Stop Loss: 87.90
Target(s): 96.25, 99.75
Current Option Gain/Loss: + 5.9%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/13 update: The early morning rebound attempt in UNP failed. Shares look poised to breakdown under $92.00 and retest support near the $90.00 area. I am suggesting readers wait for the dip near $90.00 (or wait from a bounce from $90) before launching new call positions. If you do initiate positions I would buy the February calls. More conservative traders might want to consider a tighter stop loss.

- Current position -
Suggested Position:
Buy the 2011 January $95 calls (UNP1122A95) Entry @ $1.52

Entry on November 30th at $89.83
Earnings Date 01/20/11
Average Daily Volume = 2.9 million
Listed on November 20th, 2010


United Parcel Service - UPS - close: 72.77 change: -0.12

Stop Loss: 66.85
Target(s): 74.75, 78.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/13 update: It was a quiet day for UPS with shares trading sideways in a very narrow range near $73.00. UPS should have support near broken resistance at $70.00. Currently our plan is to buy calls on a dip at $70.25 but I might reconsider if UPS bounces near $71.00 again.

Trigger @ 70.25

Suggested Position:
Buy the 2011 January $70.00 call (UPS1122A70)

- or -

Buy the 2011 April $75.00 call (UPS1116D75)

Entry on December xxth at $ xx.xx
Earnings Date 02/01/10 (unconfirmed)
Average Daily Volume = 3.9 million
Listed on December 6th, 2010


United Technology Corp. - UTX - close: 78.15 change: -0.25

Stop Loss: 73.90
Target(s): 81.50, 84.75
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/13 update: UTX spent Monday trading in the $79-78 zone. There is no change from my previous comment. Currently our plan is to buy calls on a dip at $77.10. Cautious traders could wait for a pull back closer to $76.00 or even $75.00.
FYI: The Point & Figure chart is bullish with a $91 target for UTX.

Trigger to buy calls @ $77.10

Suggested Position: Buy the 2011 January $80 calls (UTX1122A80)

- or -

Suggested Position: Buy the 2011 February $80 calls (UTX1119B80)

Entry on December xxth at $ xx.xx
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume = 3.2 million
Listed on December 4th, 2010


Cimarex Energy Co. - XEC - close: 86.00 change: +0.26

Stop Loss: 79.85
Target(s): 87.40, 89.90
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/13 update: Dollar weakness and oil strength gave the oil sector a boost. Yet the rebound in XEC was fairly weak. We're still hoping for a little pull back. Our plan is to buy calls on a dip at $84.00. Cautious traders could wait for a dip closer to $82 instead.

Trigger @ 84.00

Suggested Position:
Buy the 2011 January $85 calls (XEC1122A85)

- or - Buy the 2011

Entry on December xxth at $ xx.xx
Earnings Date 02/17/11 (unconfirmed)
Average Daily Volume = 907 thousand
Listed on December 1st, 2010


PUT Play Updates

Expedia Inc. - EXPE - close: 27.44 change: +0.27

Stop Loss: 27.75
Target(s): 25.10, 24.25
Current Option Gain/Loss: + 8.3%
Time Frame: 2 to 3 weeks
New Positions: No

Comments:
12/13 update: Wow! EXPE performed well for us today. The stock gapped open higher but shares immediately failed at very clearly defined resistance at $27.60. The stock sank to a -4.77% decline and shares closed near their lows for the day, which is normally a bad sign for tomorrow. The catalyst for today's selling pressure could have been news that Microsoft (MSFT) was joining a group of businesses that oppose Google's (GOOG) proposed acquisition of ITA Software. ITA provides travel information to Microsoft, American Airlines and other companies (source: MarketWatch).

Prior to Monday's performance I was growing cautious on EXPE. Readers may want to reconsider new bearish positions if EXPE produces another failed rally in the $26.75-27.50 zone. Our first target to take profits is at $25.10.

Current Position: Buy the 2011 January $25 Put (EXPE1122M25) Entry @ $0.60

Entry on December 8th at $26.88
Earnings Date 02/10/11 (unconfirmed)
Average Daily Volume = 2.5 million
Listed on December 7th, 2010