Option Investor
Newsletter

Daily Newsletter, Thursday, 12/16/2010

Table of Contents

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

Market Wrap

Market Winding Down Ahead of Holidays

by Jim Brown

Click here to email Jim Brown
With five trading days left before Christmas the market is already winding down and excitement over the potential year-end rally is fading.

Market Statistics

If it were not for the positive economics this morning we would have had no market action at all. The volume is fading even with option expiration tomorrow. Once the bell rings on Friday the market will be unofficially closed for the year. Fund managers have shuffled their portfolios and over and over and finally have their final year-end configuration. While there will be someone manning the trading desks until year end it will only be a skeleton crew. As volume declines further the volatility may increase but the big moves should be over.

The economics this morning spurred a few traders into action with the Philly Fed Survey leading the list of surprises. The headline number on the Philly Fed Manufacturing Survey for December rose to 24.3 from 22.5 in November. That may not sound like a big gain but the consensus estimates were for a decline to 15.0. Compared to an expected drop it was a great number. It was also the highest level for the index since 2005.

New orders and backorders both rose slightly but the big gains came from lesser-noticed components. Prices received jumped from -2.1 to +10.7 and the average workweek rose to 19.3 from 10.9. The jump in hours suggests the employment component should rise in future months. That would be good since it fell from 13.3 to 5.1 in December. The prices paid component rose sharply to 51.2 from 34.0 and suggests inflation is rising on raw materials. This was the highest level since July 2008. Capital expenditure plans rose from 20.2 to 30.1 for a big boost and also suggest employment could begin to improve soon.

The Philly Fed gains suggest the recovery is accelerating, price inflation is beginning improve and deflation risks are declining.

Philly Fed Survey Chart

Jobless claims fell slightly to 420,000, a decline if 3,000. This was not as much as some had expected and could be nearing the short-term bottom. Once the holidays are behind us hundreds of thousands of workers who took part time or temporary jobs for the holidays will be looking for work again. The weekly jobless claims should rise again in January.

New Residential Construction rose to 555,000 units in November from 519,000 units in October. Single-family permits rose by +3%. Housing completions totaled 513,000, which is a 14% decline from October and a new record low. Single-family completions declined -10% and multifamily declined -23%.

It appears builders are ramping up construction in preparation for what they believe will be a decent selling season next spring. We are still far off the pace of building during normal cycles but any improvement is appreciated. Analysts believe the pace of building won't ramp up significantly until 2012 when annualized units should again move over the one million mark. The large amount of distressed homes still on the market is weighing on the new home market.

The blast of winter weather caused a sharp draw from natural gas in storage. The weekly gas report showed a withdrawal of 164.0 bcf from storage. That number was roughly inline with estimates and we could see an even bigger draw next week with continued cold weather across most of the nation. Despite the big draw on supplies the price of gas continued its weeklong plunge to end just above $4. Inventories are still at near record levels.

Natural Gas Chart

There are no economic reports on Friday with the ability to move the market. State income, risk of recession, regional employment and CB Leading Indicators are mostly ignored.

MasterCard and Visa were crushed today after the government outlined new fee restrictions for debit cards. Shares of Visa lost -12.7% and MasterCard -10.3%. The new fee proposal would limit transaction fees to 12-cents compared to the average interchange fee today of 44-cents. Card issuers may also be required to offer services over multiple networks, which would increase competition and narrow profits even further. This is more of a problem for MasterCard and Visa than the banks that actually issue the cards. The fee changes won't hurt large card issuing banks like Citigroup and Bank America. This is a direct attack on the transaction costs that drive up expenses for everyone in the payment chain. The changes are required by the Dodd-Frank financial industry reforms signed into law last July. The Fed is required by law to put out a final ruling on the fees by April 21st and enact the changes in July.

Visa Chart

Research in Motion (RIMM) posted earnings of $1.74 that easily beat estimates of $1.65. Revenue was up +19% from Q2 and +40% over the year ago quarter at $5.49 billion. RIMM also raised guidance to $1.80 from $1.74 or the current quarter and analysts were expecting $1.61. Gross margin also rose to 43.6% from 42%. Net subscriber additions were 5.1 million new BlackBerry users and sales of new BlackBerry phones rose 14.2 million. That represents a lot of current subscribers upgrading to the new models. These earnings and sales numbers and the guidance up grade should dissuade those who believe the iPhone and Android have killed the BlackBerry. The first real smartphone is alive and well. RIMM shares were up a couple dollars in after hours trading.

Research in Motion Chart

Oracle (ORCL) posted profits of 51-cents topping analyst estimates of 46-cents. Revenue jumped +47% to $8.58 billion. The spike was influenced by the addition of Sun Microsystems to Oracle's books. Oracle did not yet own Sun in Q3 of 2009. Revenue for new software licenses rose 21% to $2 billion compared to prior forecasts of +16%. Oracle predicted gains of 10-20% in Q4. Oracle also raised Q4 guidance to a median of 49-cents compares to analyst estimates of 46-cents.

Oracle Chart

FedEx reported earnings before the bell and missed estimates by a mile. The earnings of $1.16 were well below the estimates for $1.31. Operating margins were 6.3%. The two biggest expenses was a reinstatement of employee compensation programs that had been put on hold during the recession and the sharp increase in fuel costs. They are also incurring extra costs as they restructure the freight segment.

The stock was hammered at the open for about a $4 loss to $89 but immediately rallied back to close up +1.83 after the conference call. FedEx raised guidance saying volume growth was stronger and expenses were going to be lower. Global volume in Q4 is exploding and their cost cutting measures over the last two years are going to reap large gains. They raised full year guidance to $5.00 to $5.30 from $4.80 to $5.25.

From what FedEx said about volume trends it appears not only is the U.S. economy accelerating but the global economy as well. Of course they pointed out that China was the biggest volume increase.

Federal Express Chart

The market was also confused by the mixed signals coming out of Washington on the tax compromise bill. Various factions in the house were trying to stall the bill or modify it in some way to make it appear they were not simply caving in to the President and the republicans. However, slowly but surely it is winding its way through the House process and could be voted on as early as tonight or first thing Friday morning. Most analysts believe it will eventually pass in its original form. This should remove one more reason for worry from the market with a tax freeze for the next two years and some additional benefits for businesses. This would be a nice way to end the year and I think the market would move higher once the bill is signed.

We are seeing some profit taking in some of the momentum issues of the last quarter. Gold fell $15, oil is trending lower, silver and copper are also lower. Some highflying tech stocks have been sold over the last week as traders take profits to offset losses in other areas. This is probably what we are going to see the rest of the year. The broader market is likely to rise but individual issues with big gains could see some selling. After a year of some extreme volatility we could end the year with a whimper.

The S&P finally posted a decent gain after several days of struggling to stay afloat. The SPX closed at 1243 and just a decent day away from 1250 and the level most analysts were predicting for year-end back in January. You don't think they will try to pin the index to that number next week just to say, "We told you so." We would be fools not to think they would not at least try.

Initial support is 1235 followed by 1228 and I really wish we would not have to see a print at those levels again this year. However, I would be happy with any close higher than we are today. Resistance is 1250 and again at 1270.

S&P-500 Chart

The Dow pulled back to use the November resistance highs at 11,445 as support and managed to return to 11,500 but no higher. There appears to be a lack of conviction, which is probably more of a lack of involvement with traders shutting down for the year. If the tax bill is approved it should give us one more small sentiment push that could give us that breakout spike.

However, closing the year at the highs for the year is a good recipe for a January decline. We need to be thinking about that possibility as we accumulate positions going into year-end. Support on the Dow is 11,445 and resistance just over the close at 11,510.

Dow Chart

The Nasdaq continues to look weak to me. The breakdown in several big cap techs could continue into year-end as traders take profits. However, we could also see funds prop up these big caps until year-end to make their portfolios look better in the year-end statements.

This makes me neutral on the tech sector. There is resistance at 2640 and 2650. Support is well below at 2600. I believe the tech sector is going to be a stock pickers market for the next couple weeks but I would love to be proven wrong.

Nasdaq Chart

The Russell chart looks identical to the Nasdaq. The strong bullish conviction of the last month has faded now that fund managers have finished loading their portfolios for year-end statements. I could easily see the Russell treading water between 765-780 until year-end unless we get some news event to break the monotony.

Russell Chart

The Dow Transports rallied for 1.34% today thanks to the FedEx earnings and the Philly Fed Survey but that only took it back to strong resistance at 5100. The transports have also lost their bullish conviction. A move over 5100 should pull the broader markets higher but a failure there would be a warning sign the year-end rally is over.

Dow Transports Chart

In summary the anticipation of a tax deal provided a market boost for a couple weeks but that is already priced into the market today. If a deal is done we could see a return of the trend higher but I don't see a big spike on short covering. It is already old news.

The European debt problems have moved from Ireland to Spain and analysts are starting to discuss how a Spanish bailout would be handled. Spain is significantly bigger than the other failing countries and the current bail out loan guarantees in place could not handle a bailout of Spain. We are still weeks away from this becoming a problem but the sharks are circling. If it happens it will be much worse than Ireland. The markets are going to be watching this development mature.

Friday is option expiration but our volatility for this period is already behind us. I would expect the markets to be calm unless driven by an external news event. Friday before Christmas is usually a vacation day for traders as they hit the malls. This means volume should dry up rather quickly and volatility along with it.

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Don't fight the Fed!

Jim Brown

Send Jim an email


New Option Plays

Playing Defense

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Lockheed Martin Corp. - LMT - close: 70.37 change: +0.65

Stop Loss: 67.95
Target(s): 73.25
Current Option Gain/Loss: + 0.0%
Time Frame: 6 to 8 weeks
New Positions: Yes

Company Description

Why We Like It:
The defense stocks have not been a real hot spot in the market lately but that could change. Both the DFI and FDX indices look ready to breakout higher following a two-week consolidation. Meanwhile LMT is breaking out through the top of its five-week consolidation in the $68-70 range. I am suggesting new bullish positions now. We'll use a stop loss at $67.95. More conservative traders might be able to get away with a stop closer to $69.00. Our exit target is $73.25. Readers may want to keep their position size small to limit their risk.

Open Positions @ Current Levels

- Suggested Position -

Buy the 2011 January $70.00 calls (LMT1122A70) current ask $1.85

- or -

Buy the 2011 March $75.00 calls (LMT1119C75) current ask $1.05

Annotated Chart:

Entry on December 17th at $ xx.xx
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume = 1.7 million
Listed on December 16th, 2010


In Play Updates and Reviews

New Entry Points

by James Brown

Click here to email James Brown

Editor's Note:

The stock market refuses to correct. We're starting to see some new entry points in our current portfolio. I'm suggesting new yet small positions in FDX, GS, and JNPR. Plus we can launch new positions in RIG and UNP.

-James

Current Portfolio:


CALL Play Updates

Cummins Inc. - CMI - close: 108.51 change: -0.11

Stop Loss: 98.40
Target(s): 108.25 114.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/16 update: CMI is consolidating sideways in the $107-110 zone. Currently our plan is to buy calls on a dip at $102.50 but we might need to adjust that trigger higher into the $104-105 area. For now we'll keep our trigger at $102.50.

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 we want to have some cash on the sidelines to double down near the 50-dma.

Trigger @ $102.50

- 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: 63.95 change: +0.87

Stop Loss: 59.75
Target(s): 67.00, 69.50
Current Option Gain/Loss: - 9.1% and - 4.4%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/16 update: Railroad stocks appear to have produced what looks like a bullish reversal today but we probably need to see some follow through to confirm it. Shares of CSX rallied from short-term support near $63.00 again. While I would prefer to launch new positions on a dip near $62 we could use today's bounce as a new entry point. You may want to start with a smaller position size to limit your risk.

- 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: 45.44 change: -0.35

Stop Loss: 43.75
Target(s): 44.90, 47.25
Current Option Gain/Loss: +425.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/16 update: CTL is acting normal here with shares pulling back after its strong mid-December rally. The stock found some support near $45 midday. I am still expecting a correction toward what should be stronger support near $44.00. I am not suggesting new positions at this time. Our final target to exit 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

12/14: New stop loss @ 43.75
12/13: First Target Hit @ $44.90, option @ $0.85 (+325%)
12/01: Adjusted secondary target to $49.00

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: 54.61 change: +0.38

Stop Loss: 51.25
Target(s): 53.95, 57.25
Current Option Gain/Loss: +38.0%
Time Frame: 5 to 6 weeks
New Positions: Yes, see below

Comments:
12/16 update: ESRX managed a bounce but shares are stuck in the $54-55 trading range. Given the market's strength we may want to consider launching new positions on a breakout past $55.00 instead of waiting for a dip toward $52.00. The stock's 50-dma has risen to $51.44. I am raising our stop loss to $51.25.

We currently only have half a position open.

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

12/16: New stop loss @ 51.25
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: 59.18 change: +0.04

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:
12/16 update: FAST did not participate in the market's rebound on Thursday. Shares remain overbought and look ready to correct lower. I'm expecting support at $56.00. We have a trigger to buy calls 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: 94.22 change: +1.83

Stop Loss: 90.90
Target(s): 96.75, 99.75
Current Option Gain/Loss: + 0.0% d
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/16 update: We were expecting FDX to see some volatility today but shares didn't see quiet enough volatility for us. The stock opened lower and dipped to $91.28 after FDX missed the earnings estimates. Wall Street was expecting $1.31 and FDX only delivered $1.16. Revenues were a miss at $9.63 billion versus the $9.7 billion estimate. However, the company raised their 2011 guidance from the $4.80-5.25 zone to the $5.00-5.30 range. This positive outlook fueled the big bounce in shares of FDX (and UPS for that matter).

While I would still rather wait for a dip toward stronger support at $90.00 we may not see that opportunity this year. I am suggesting a more aggressive entry point to buy calls now! let's start with small positions at least half of your normal trade size. We'll move our stop loss to $90.90 (today's low was $91.28). Our first target to take profits is $96.75. Our second target is $99.75. I am updating our strike prices below.

Option small positions now.

- Suggested Position -

Buy the 2011 January $100.00 call (FDX1122A100) current ask $0.84

- or

Buy the 2011 April $100 call (FDX1116D100) current ask $3.15

12/16: Adjusted Entry - initiate small positions now (@ Friday's open)

Chart:

Entry on December 17th at $ xx.xx
Earnings Date 12/16/10 (confirmed)
Average Daily Volume = 2.1 million
Listed on November 29th, 2010


Goldman Sachs - GS - close: 164.46 change: -0.75

Stop Loss: 159.75
Target(s): 171.00, 179.50
Current Option Gain/Loss: + 0.0%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/16 update: Attention! I am adjusting our entry point strategy on GS. We have been waiting for a dip to $163.00 but the stock only fell to $163.21 intraday. We want to go ahead and buy calls now on this pull back. More conservative traders can go ahead and wait and hope for a pull back closer to $163, 162 or even the $160 levels. We will start this play with small positions (half your normal trade size or less) to limit our risk. I am moving our stop loss to $159.75. Our first target is $171.00. Our second target is $179.50.
FYI: The Point & Figure chart for GS is forecasting a very bulilsh $224 long-term target.

New Entry Point Now! Small Positions

- -Suggested Positions -

Buy the 2011 January $170 calls (GS1122A170) current ask $2.83

- or -

Buy the 2011 April $175 calls (GS1116D175) current ask $5.50

12/16: Adjusted Entry - initiate small positions now (@ Friday's open)

Chart:

Entry on December 17th at $ xx.xx
Earnings Date 01/18/11 (unconfirmed)
Average Daily Volume = 7.2 million
Listed on December 2nd, 2010


International Business Machines - IBM - close: 144.55 change: -0.17

Stop Loss: 142.99
Target(s): 149.90, 157.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/16 update: It was another mild day for IBM with shares trading in a narrow range. The lack of participation in the market's rebound is a bit odd. I don't see any changes from my prior comments. I'm suggesting a trigger to buy calls at $146.75. FYI: The Point & Figure chart on IBM is forecasting a long-term target of $196.

Breakout Trigger @ $146.75

- Suggested Positions -

Buy the 2011 January $150 calls (IBM1122A150)

- or -

Buy the 2011 April $155 calls (IBM1116D155)

Entry on December xxth at $ xx.xx
Earnings Date 01/18/11 (unconfirmed)
Average Daily Volume = 4.7 million
Listed on December 14th, 2010


Juniper Networks - JNPR - close: 36.70 change: +0.77

Stop Loss: 34.90
Target(s): 39.75
Current Option Gain/Loss: + 0.0%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/16 update: We are changing our entry point strategy on JNPR. The stock continues to show relative strength and added +2.1% today. As much as I don't like to "chase" a move shares of JNPR looks poised to rally through the rest of this year. I am suggesting we launch small positions now (only half your normal trade size) to limit our risk. We'll move the stop loss to $34.90 since $35.00 should be support. Our first target is $39.75. Please note that I have adjusted our option strikes.

Initiate small positions now!

- Suggested Position -
Buy the 2011 January $38.00 calls (JNPR1122A38) current ask $0.81

- or -

Buy the 2011 April $40.00 calls (JNPR1116D40) current ask $1.45
12/16: Adjusted Entry - initiate small positions now (@ Friday's open)

Chart:

Entry on December 17th 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: +0.65

Stop Loss: 85.75
Target(s): 89.50, 94.50
Current Option Gain/Loss: +88.8%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/16 update: NKE delivered a bullish session with traders buying the dip near short-term support near the $88 area. If the market cooperates I would look for NKE to set new closing highs over $90.00 tomorrow. I am raising our stop loss to $85.75. Currently I am leaning towards an early exit ahead of NKE's earnings report next week. At the moment our final target is $94.50.

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

12/16/10 New stop loss $85.75
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%)

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: 73.80 change: +0.76

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:
12/16 update: We have to consider the possibility that the market will not correct lower between now and yearend. That has me looking for an alternative entry point on OII. Shares have resistance near $74.00. I'm not changing our entry point yet but a close over the $74.00 or $75.00 levels might change my mind on buying into strength. For now our entry point remains $70.25.

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: 69.31 change: -2.58

Stop Loss: 66.25
Target(s): 72.50, 78.25
Current Option Gain/Loss: -15.9% and + 0.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/16 update: Is today's drop in RIG a delayed reaction to the U.S. civil suit news from yesterday? I don't think so. The stock was downgraded this morning. This pull back hit $68.53 at its lows. Personally, I see this dip as a new entry point to buy calls. Granted the news yesterday about the U.S. listing RIG as a defendant in a civil suit as they take BP to court does raise the uncertainty factor on this trade.

I am suggesting we buy calls on this dip (see below). If you're feeling nervous then consider a higher stop closer to $67.00 or $68.00. Our stop remains at $66.25. Our final target is $78.25.

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

- Second Position -
Long the 2011 February $75.00 calls (RIG1119B75) current ask $1.80

12/16/10 New Entry Point (buy February calls) - buy the dip.
12/11/10 New target 78.25, new stop loss $66.25
12/03/10 Target hit @ $72.50, option @ $4.95 (+67.7%)

Chart:

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: 81.97 change: +0.97

Stop Loss: 74.85
Target(s): 79.90, 84.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/16 update: SHW continues to outperform. Currently our plan is to buy calls on a dip at $77.00. I'm adjusting our stop loss to $74.85. I did adjust our option strikes.

Trigger @ $77.00 <-- new trigger

Suggested Positions:

Buy the 2011 January $80.00 calls (SHW1122A80)

- or -

Buy the 2011 March $85.00 calls (SHW1119C85)

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: 92.29 change: +0.85

Stop Loss: 89.75
Target(s): 96.25, 99.75
Current Option Gain/Loss: + 0.0% and +0.0%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/16 update: The action in UNP today looks like a new entry point to buy calls. Shares dipped to $90.52 and bounced. I'm suggesting we initiate new positions here. Cautious traders could wait another day to see if UNP can break the very short-term trend of lower highs. Please note I am raising our stop loss to $89.75.

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

Second Position
Buy the 2011 February $95 calls (UNP1119B95) current ask $2.65

12/16/10: New Entry point: buy February calls
12/16/10: New stop loss @ 89.75

Chart:

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: 73.76 change: +1.51

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:
12/16 update: UPS soared to new relative highs following the positive earnings guidance from rival FDX. I still don't want to chase this move in UPS but we will consider raising our entry point trigger. For the moment we'll leave our trigger at $70.25 but I'm looking at raising our buy-the-dip trigger toward $72.25.

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: 79.02 change: +0.07

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:
12/16 update: Shares of UTX are consolidating in a narrow range. Aggressive traders may want to consider a breakout trigger to buy calls on a move over $79.50 or $80.00. 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


Vulcan Materials Co. - VMC - close: 47.33 change: +0.94

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

Comments:
12/16 update: VMC bounced with the rest of the market. We are still waiting for a correction. Our plan is to buy calls on a dip at $43.75 but we might want to raise that trigger above $44.00 and possible support at the simple 200-dma.

Trigger @ $43.75

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

- or -

Buy the 2011 February $45 calls (VMC1119B45)

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


Cimarex Energy Co. - XEC - close: 88.40 change: +1.10

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:
12/16 update: The strength in XEC today is encouraging. We may want to consider buying calls on a close over its current all-time high at $88.69. For the moment we'll keep our buy the dip trigger but we may see a new breakout entry point tomorrow.

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: 25.98 change: +0.29

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:
12/16 update: EXPE is still consolidating sideways in the $25.50-26.25 zone. There is no change from my prior comments. I am not suggesting new bearish positions at current levels. We have two targets. Our first target is $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