Option Investor
Newsletter

Daily Newsletter, Monday, 12/27/2010

Table of Contents

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

Market Wrap

What China Rate Hike?

by Todd Shriber

Click here to email Todd Shriber
Bears expecting news of China's Christmas present, er, interest rate hike to cast a negative cloud over the market were probably disappointed today as it seemed having a couple of days to digest the news was enough to keep substantial loses at bay. Maybe the news was already ''priced in'' as so many pundits are fond of saying. The Dow Jones Industrial Average endured a minor loss on the day while the Nasdaq and S&P 500 both eked out small gains. The Russell 2000 was easily the most impressive of the bunch.

Stats Table

Give the Nasdaq some credit for even mustering a positive close because there were a few obstacles in its way on what was otherwise a pretty slow post-holiday Monday. First, there is the case of Tesla Motors (TSLA), the unprofitable electric carmaker. Tesla had been one of the 2010's high-flying initial public offerings, especially when considering that it is not a Chinese company and, as I just mentioned, the company makes no money.

Tesla made its debut as a public company in late June and hovered in the low 20s for much of September through November before starting a nice little climb that took the stock over $35. That was before Thursday when Capstone Investments came out with a ''sell'' rating on the stock and a $22 price target. That knocked more than $2 off the stock, but the real fun started today.

Tesla's lock-up period officially ended on Christmas, but since today was the first day the company's early investors could start selling their shares, the stock was hammered to the tune $4.54, or almost 15.1%, to close at $25.55. I am not sure if Tesla insiders were behind the bulk of the selling today, but the stock traded more than 10 times its average daily volume and Capstone's $22 price seems pretty realistic now.

The research firm actually makes a pretty valid point for selling the stock. Maybe it is two points. Capstone does not expect Tesla to be profitable or show a positive EBITDA until 2013. In this world of instant gratification, that is not going to be enough to keep investors excited.

Why is it going to take so long for Tesla to become profitable? As a car lover, my best educated guess is simple economics. Head on over to Teslamotors.com and you'll see the Roadster, the one Tesla model currently available, STARTS at $101,500. So the potential audience is already quite small for this car, but beyond that Tesla is banking on finding car enthusiasts that are also willing to make environmental responsibility a big part of their purchasing plans and that is a tough combination to find.

The truly big issue Tesla faces on its road to profitability is what else a car lover can get for roughly $100,000. A 2010 BMW M5 costs about $85,000, according to Motor Trend. Any number of Porsches can be had for less than $100,000. Spend a tad over $120,000 and you can have an Aston Martin V8. All these brands hold much more cache than Tesla and that is a big fundamental problem for the company.

Tesla Chart

Speaking of Nasdaq constituents with dubious business models, there is Netflix (NFLX). Had one bought shares of the movie rental firm in late July for around $95 and not sold them at them at the November peak of $209.24, no big deal. While a tad greedy, the trade would still be almost a double, but the chart may be saying ''get out NOW.''

Netflix slipped $4.57, or almost 2.5%, today to close just above $180. In fact, the stock briefly traded below its 50-day moving average, which now looks like support. How strong it is I am not so sure. The stock was done in today by a piece in the most recent issue of Barron's entitled ''Time to Hit the Eject Button?''

Barron's notes that while the stock has more than tripled this year, Netflix is facing soaring content acquisition costs and those costs could jump 120% in 2011. The option for Netflix to stem those costs? Buy fewer big hits, but as Barron's correctly points out, that would stifle subscriber growth.

Netflix bears have been pointing out recently that the company faces rising competition from other Nasdaq darlings such as Amazon (AMZN) and Apple (APPL) and that is true. I would also argue that Netflix faces plenty of competition from the local cable company. I have Time Warner Cable (TWC) where I live and the company has been running a series of ads for months now touting the virtues of its On Demand movie feature. Time Warner is not shy in these ads about saying they get the movies right away while Netflix has to wait 28 days. Plus, you do not have to mail anything back to cable company.

Noted value investor Whitney Tilson is one of the big names that has made public his short position in Netflix, arguing that the stock is overpriced and any bump in the road could result in a nasty sell-off and that the company's business model is going the way of the dodo bird, meaning the cost to streaming content could be too rich for Netflix to absorb and keep delivering the numbers investors have become accustomed to.

Obviously, every noted investor from Warren Buffett to George Soros is wrong from time to time and Tilson is no exception. Only time will tell if he is right about Netflix, but the guy is pretty smart. After all, he was snatching up shares of BP (BP) in June and that trade has worked out pretty well.

Netflix Chart

Yes, there was some good news on Monday and it came from what formerly would have been viewed as an unlikely place: American International Group (AIG). Booted from the Dow, posterboy for too big to fail and frequent object of my own attempts at humor in this space, AIG has been getting its act together and has been doing so for a while now.

On Monday the company announced it has obtained $4.3 billion in credit facilities and that it will be able to use those facilities once it is done paying its tab to Uncle Sam. The news sent AIG shares up $5.05, or 9.3%, $59.38 on volume that was better than triple the daily average. The stock touched a new 52-week high of $60.96.

AIG, whose tab from the Federal Reserve and the Treasury Department once amounted to $182 billion, said in a statement that it is close to seeing the finish line in its recapitalization plan. The loans to AIG were provided by more than 30 banks, according to Bloomberg News.

AIG Chart

Looking at the charts, the S&P 500 did not move much from Thursday's close, but if resistance is viewed as anything over Thursday's close of 1256, then here we are. It is not officially a short week as U.S. markets will be open on New Years Eve, but saying volume will be light for much of this week is stating the obvious. Support for the S&P 500 is 1240, but I think we head into 2011 at 1250 or higher.

S&P 500 Chart

It was not the most exciting of days for the Dow, save for two add-on acquisitions in the agriculture space announced by DuPont (DD). The AIG news was enough to lift Bank of America (BAC) and JPMorgan Chase (JPM) to gains of 1.6% and 1.4%, respectively. While buyers of Dow stocks have been apprehensive and the index has been mired in a tight trading range over the past few weeks, if financials keep partying like its 2006, then resistance at 11,575 could be done away with by the end of this week, if not sooner.

Dow Chart

Since the Nasdaq did not do much today, if it was overextended last week, it remains so, at least for now. The index is a long way from any marquee support, notably 2600 for starters and 2710 remains the next critical resistance hurdle to be cleared.

In addition to Netflix, another Nasdaq darling that might be worth keeping an eye on in the near-term is Priceline (PCLN). Expedia (EXPE) and Orbitz (OWW) are having quite the tiff with American Airlines (AMR) and on the sly, Delta (DAL) has pulled their fares from several lesser-known reservations Web sites. I am not saying Priceline is a short, but this is an issue worth keeping an eye on as it pertains to the company.

Nasdaq Chart

While the Russell 2000 did not set the world on fire on Monday, it was another solid day for the small-cap index that looks poised to reclaim its 2007 high at 856. Support looks firm at 760 though the index is a fair bit removed from that area.

Russell 2000 Chart

I am not expecting much in the way of excitement this week, but they say a picture is worth a thousand words, so I leave you with an interesting chart that illustrates the behavior of the S&P 500 in the days leading up to and immediately following Christmas. Happy New Year. S&P 500 Holidays Performance

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New Option Plays

158 Orders A Second

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Amazon.com Inc. - AMZN - close: 182.14 change: -0.45

Stop Loss: 176.45
Target(s): 189.50, 199.00
Current Option Gain/Loss: + 0.0%
Time Frame: 4 to 6 weeks
New Positions: Yes

Company Description

Why We Like It:
On a side note AMZN just announced that its third-generation Kindle e-reader is the company's bestselling product ever! Overall company sales should be impressive. At the peak of the holiday shopping season AMZN said customers were ordering a 158 items every second. The stock's rise off its August lows would certainly suggest strong sales and stronger consumer have already been priced into this stock. However, I still think there are new highs ahead. Broken resistance near $180 should be support so this dip to $180.45 today looks like a new entry point.

We do want to keep our position size small. AMZN can be a volatile stock. I'm going to try and limit our risk with a relatively tight stop loss at $176.45. Under support at $180 should be another level of support at $177.00. Our upside targets are $189.50 and $199.00.

Open Small Position Now!

- Suggested Positions -

Buy the 2011 January $190 calls (AMZN1122A190) current ask $2.33

- or -

Buy the 2011 February $200 calls (AMZN1119B200) current ask $3.85

Annotated Chart:

Entry on December 28th at $xxx.xx
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume = 5.0 million
Listed on December 27th, 2010


In Play Updates and Reviews

Banks Rise Again

by James Brown

Click here to email James Brown

Editor's Note:

Leadership in the banking sector helped stave off a morning decline thanks to the Chinese interest rate hike news. Overall it was a pretty uneventful day. We did see our put play, EXPE, underperform.

-James

Current Portfolio:


CALL Play Updates

Boeing Co. - BA - close: 64.75 change: -0.31

Stop Loss: 62.75
Target(s): 69.00, 72.25
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see trigger

Comments:
12/27 update: Monday was a quiet session for BA. Shares consolidated under the $65.00 level. There is no change from my weekend comments. I want to see a little bit more confirmation since there is short-term resistance near $65.00. I'm suggesting a trigger to buy calls at $65.50. We'll use a stop loss under this past week's low at $62.75. There is additional resistance at the 200-dma near the $67 level. We should consider this a higher-risk aggressive trade. Keep your position size small. Our first target is $69.00. Our second target is $72.25.

Trigger @ 65.50

- Suggested Positions -

Buy the 2011 January 67.50 calls (BA1122a67.5) current ask $0.64

Buy the 2011 February $70.00 calls (BA1119B70) current ask $0.77

Entry on December xxth at $ xx.xx
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume = 5.3 million
Listed on December 25th, 2010


Baxter Intl. Inc. - BAX - close: 50.95 change: -0.14

Stop Loss: 49.90
Target(s): 55.50, 57.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/27 update: Shares of BAX were also drifting sideways on Monday. We are waiting for a breakout over resistance near $52.50. I am suggesting a trigger to buy calls at $52.55. If triggered our first target is $55.75. Our second target is $57.50. I would consider this a higher-risk trade. If you look at the weekly chart of BAX you can draw a trendline across the long-term highs and the trend is lower. BAX could see additional resistance near $55.00. Keep your position size small.

Trigger @ 52.55

- Suggested Positions -

Buy the 2011 February $55 calls (BAX1119B55)

Entry on December xxth at $ xx.xx
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume = 3.3 million
Listed on December 25th, 2010


Cummins Inc. - CMI - close: 109.82 change: -1.09

Stop Loss: 108.75
Target(s): 112.75 114.75
Current Option Gain/Loss: -10.7% and -11.2%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/27 update: Over the weekend we decided to take a more aggressive approach and buy calls in CMI now. The stock opened at $110.18 but fell toward its rising 10-dma before paring its losses. This remains an aggressive entry point and I'm only suggesting small positions. The low today was $108.88. We have a stop loss at $108.75.

(small positions only to limit our risk)

- Suggested Positions -
Buy the 2011 January $115 calls (CMI1122A115) Entry @ $1.12

- or -

Buy the 2011 March $115 calls (CMI1119C115) Entry @ $4.73

12/27: CMI opens at $110.18
12/25: Buy calls now at current levels (small positions)
12/21: New entry point @ $110.25, New stop @ 108.75, New option strikes.

Entry on December 27th at $110.18
Earnings Date 02/02/11 (unconfirmed)
Average Daily Volume = 1.8 million
Listed on December 11th, 2010


CSX Corp. - CSX - close: 64.21 change: +0.53

Stop Loss: 61.75
Target(s): 67.00, 69.50
Current Option Gain/Loss: -23.4% and -12.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/27 update: Railroad stocks were showing some strength today after recovering from the market-wide dip this morning. Shares of CSX rose +0.8% and look poised to breakout higher. More aggressive traders could buy calls now. Or you could wait for CSX to hit a new relative high (over 64.80) before initiating positions. If you do open new positions I would buy the February (or longer) calls.

- 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

12/25: new stop loss @ 61.75
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: 46.40 change: +0.12

Stop Loss: 43.75
Target(s): 44.90, 48.00
Current Option Gain/Loss: +725.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/27 update: Nothing new to report on with CTL. Shares managed a bounce. More conservative traders may want to take profits now. I am not suggesting new positions at this time. The stock appears to have short-term support about every $1.00 ($46, 45, 44, etc).

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

12/21: Adjusted final target to $48.00
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 $42.55
Earnings Date 02/22/11
Average Daily Volume = 3.0 million
Listed on November 27th, 2010


Cognizant Technology Solutions - CTSH - close: 73.09 change: +0.26

Stop Loss: 68.49
Target(s): 74.50, 79.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/27 update: Traders bought the dip near $72 this morning. Aggressive traders may want to consider buying calls on this bounce. We've been waiting for a dip to $71.50. I am moving that trigger lower to $71.00. Our first target is $74.50. Our longer-term target is $79.00.
FYI: The Point & Figure chart for CTSH is forecasting a $93 price target.

Trigger to buy calls on the dip @ $71.00 <-- new trigger

- Suggested Positions -

Buy the 2011 January $75.00 calls (CTSH1122A75)

- or -

Buy the 2011 April $75.00 calls (CTSH1116D75)

Entry on December xxth at $ xx.xx
Earnings Date 02/09/11 (unconfirmed)
Average Daily Volume = 2.3 million
Listed on December 18th, 2010


Express Scripts - ESRX - close: 53.99 change: -0.27

Stop Loss: 51.49
Target(s): 53.95, 58.50
Current Option Gain/Loss: + 5.7% and -31.9%
Time Frame: 5 to 6 weeks
New Positions: see below

Comments:
12/27 update: ESRX is still drifting lower. I am concerned with the recent relative weakness. I would probably wait for a bounce above $54.50 before considering new bullish positions. More conservative traders might want to raise their stop loss. If you do open new positions here you may want to consider a tighter stop loss (maybe closer to $53 or $54). Our final exit target is $58.50.

FYI: The point & figure chart for ESRX is forecasting a very bullish, long-term target of $80.

We currently only have half a position open.

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

- or -

Second Position (small position):

Long the 2011 February $55.00 calls (ESRX1119B55) current ask $2.22

12/25: new stop loss @ 51.49
12/20: Suggested new positions with Feb. 55 calls.
12/18: Adjusted final exit target to $58.50
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: 59.73 change: +0.26

Stop Loss: 53.75
Target(s): 59.95, 62.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/27 update: The market-wide dip this morning pushed FAST to $58.50. Shares quickly bounced back to close just under resistance at $60.00. We want to buy calls on a dip at $56.75.

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 @ 56.75

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

- or -

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

12/21: Adjusted entry point trigger from 56.00 to 56.75

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: 93.03 change: +0.02

Stop Loss: 90.90
Target(s): 96.75, 99.75
Current Option Gain/Loss: -63.7% and -19.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/27 update: It's hard to say how the huge winter storms in the north-eastern U.S. will affect FDX's business. By the action in the stock today Wall Street is clearly not worried. The stock traded in a very narrow range. There is no change from my prior comments. Readers may want to wait for a new relative high (maybe over 94.50 or over 95.00) before initiating new positions. Our first target to take profits is $96.75. Our second target is $99.75.

- Suggested Positions (only small positions so far) -

Buy the 2011 January $100 call (FDX1122A100) Entry @ $0.80

- or

Buy the 2011 April $100 call (FDX1116D100) Entry @ $2.96

12/17: FDX opens at $94.23 - our entry point.
12/16: Adjusted Entry - initiate small positions now (@ Friday's open)

Entry on December 17th at $94.23
Earnings Date 12/16/10 (confirmed)
Average Daily Volume = 2.1 million
Listed on November 29th, 2010


Goldman Sachs - GS - close: 169.83 change: +2.23

Stop Loss: 162.95
Target(s): 171.00, 179.50
Current Option Gain/Loss: +58.1% and +32.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/27 update: Financial stocks were relative strength leaders today. Shares of GS quickly recovered from its morning lows and rallied toward the $170 level for a +1.3% gain. Our first target to take profits is at $171.00.
FYI: The Point & Figure chart for GS is forecasting a very bullish $224 long-term target.

- Suggested Positions (only small positions so far) -

Buy the 2011 January $170 calls (GS1122A170) Entry @ $2.75

- or -

Buy the 2011 April $175 calls (GS1116D175) Entry @ $5.27

12/22: New stop loss @ 162.95
12/17: GS opened at $163.92
12/16: Adjusted Entry - initiate small positions now (@ Friday's open)

Entry on December 17th at $163.92
Earnings Date 01/18/11 (unconfirmed)
Average Daily Volume = 7.2 million
Listed on December 2nd, 2010


International Business Machines - IBM - close: 145.34 change: -0.55

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:
12/27 update: I could not find any reason for IBM's underperformance on Monday. The stock traded lower toward its trend of higher lows. Bigger picture, nothing has changed. Wait for a breakout. 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: 37.08 change: +0.07

Stop Loss: 34.90
Target(s): 39.75
Current Option Gain/Loss: -14.1% and - 4.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/27 update: JNPR managed a meager bounce from its rising 10-dma on Monday. After last Thursday's drop I would still expect a bigger decline. I would consider new bullish positions on a dip near the $36-35 area. Our first target is $39.75.

- Suggested Positions (only small positions so far) -

Buy the 2011 January $38.00 calls (JNPR1122A38) Entry @ $0.78

- or -

Buy the 2011 April $40.00 calls (JNPR1116D40) Entry @ $1.50
12/17: JNPR opens at $36.91
12/16: Adjusted Entry - initiate small positions now (@ Friday's open)

Entry on December 17th at $36.91
Earnings Date 01/25/11 (unconfirmed)
Average Daily Volume = 5.5 million
Listed on December 11th, 2010


Lockheed Martin Corp. - LMT - close: 69.31 change: +0.06

Stop Loss: 67.95
Target(s): 73.25
Current Option Gain/Loss: -54.2% and -50.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/27 update: LMT briefly traded under very short-term support at $69.00. The stock rebounded pretty fast but gains were minimal. There is no change from my prior comments. I remain very cautious on this stock. I am not suggesting new bullish positions at this time.

- Suggested Positions -

Buy the 2011 January $70.00 calls (LMT1122A70) Entry @ $1.75

- or -

Buy the 2011 March $75.00 calls (LMT1119C75) Entry @ $1.00

Entry on December 17th at $70.28
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume = 1.7 million
Listed on December 16th, 2010


Millicom Intl. Cellular - MICC - close: 94.10 change: -0.24

Stop Loss: 89.75
Target(s): 99.50
Current Option Gain/Loss: -15.2% and + 3.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/27 update: The action in MICC today looks like a new bullish entry point. The market's morning weakness pushed MICC toward its 50-dma. The stock quickly rebounded. I would buy calls on this bounce. Or you could wait for MICC to clear potential resistance near the $95.00 level. Our exit target is $99.50. Aggressive traders could aim for the 2010 highs near $102.50.

FYI: It looks like MICC must have had a special dividend because several of the options have odd strike prices ending in .40.

- Suggested Positions -

Long the 2011 January 95.40 calls (MICC1122A95.4) Entry @ $2.30

- or -

Long the 2011 April $100.00 calls (MICC1116D100) Entry @ $3.30

Entry on December 23rd at $94.23
Earnings Date 02/09/11 (unconfirmed)
Average Daily Volume = 518 thousand
Listed on December 22nd, 2010


Monsanto Co. - MON - close: 66.71 change: +0.11

Stop Loss: 59.89
Target(s): 67.25, 69.85
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see trigger

Comments:
12/27 update: Once again MON has managed to bounce from short-term support near $66.00. The stock continues to look a little overbought. Wait for a pull back. We have a trigger to buy calls on a dip at $64.25. If triggered our first target is $67.25. Our second target is $69.85.
FYI: The Point & Figure chart for MON just broke out past descending resistance and is forecasting a $74 price target.

NOTE - Readers need to know that MON is due to report earnings on January 6th. Holding over the report would be a high-risk event.

Buy-the-dip Trigger @ 64.25

- Suggested Positions -

Buy the 2011 January $65.00 calls (MON1122A65) current ask $2.22

- or -

Buy the 2011 April $65.00 calls (MON1116D65) current ask $4.65

Entry on December xxth at $ xx.xx
Earnings Date 01/06/11 (confirmed)
Average Daily Volume = 4.9 million
Listed on December 18th, 2010


Netflix Inc. - NFLX - close: 180.01 change: -4.57

Stop Loss: 174.90
Target(s): 199.50, 219.50
Current Option Gain/Loss: -53.3% and -42.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/27 update: Monday was a rough day for NFLX thanks to a Barron's article over the weekend. The author of the article expressed concern that NFLX was facing growing competition from AAPL and AMZN and NFLX's margins could get squeezed as it pays more for content. The stock gapped open lower near $180 and hovered there most of the day. This is near the bottom of NFLX's bullish channel and technical support at its 50-dma.

Cautious traders may want to raise their stop loss. Just remember, this was a very aggressive, higher-risk play to start and we were expecting some volatility. Readers may want to wait for a new move over $185 before considering new bullish positions.

Make no mistake, this is a very aggressive, higher-risk trade. I suggest readers keep their positions pretty small to limit your risk. Our first target is $199.50. Our second target is $219.50.

- Suggested Positions (small positions only) -

Long the 2011 January $200 calls (NFLX1122A200) Entry @ $4.35

- or -

Long the 2011 February $220 calls (NFLX1119b220) Entry @ $5.75

Entry on December 22nd at $187.12
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume = 7.5 million
Listed on December 21st, 2010


Oceaneering International - OII - close: 73.55 change: -1.08

Stop Loss: 69.95
Target(s): 78.00, 79.95
Current Option Gain/Loss: -31.4%, -41.1%, and -22.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/27 update: Oil service stocks underperformed today. Shares of OII are back under the $74.00 level. I am not suggesting new positions at this time. We might see another entry point on a dip or bounce near $72-71 soon so let's wait. Our first target is $78.00.

- Suggested Positions -

Buy the 2011 January $75 calls (OII1122A75) Entry @ $2.77

- or -

Buy the 2011 January $80 calls (OII1122A80) Entry @ 0.85

- or -

Buy the 2011 April $80 calls (OII1116D80) Entry @ 3.86

Entry on December 23rd at $75.28
Earnings Date 02/17/11 (unconfirmed)
Average Daily Volume = 584 thousand
Listed on December 4th, 2010


Panera Break Co. - PNRA - close: 102.86 change: -1.24

Stop Loss: 103.90
Target(s): 109.95, 114.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/27 update: PNRA is still correcting lower and shares appear to be in the process of breaking support near $103.00-102.50. If we see a close under $102 I'll drop PNRA as a bullish candidate. For the moment we will keep our breakout trigger to buy calls at $107.15. If shares don't recover soon we'll drop it as a bullish candidate.

If triggered our first, short-term target is $109.90. Our second, longer-term target is $114.00. This is an aggressive trade so we want to keep our position size small. FYI: The Point & Figure chart is very bullish with a $131 target.

Breakout Trigger @ $107.15

- Suggested Positions - (small positions) -

Buy the 2011 January $110 (PNRA1122A110)

- or -

Buy the 2011 February $115 (PNRA1119B115)

Entry on December xxth at $ xx.xx
Earnings Date 02/10/11 (unconfirmed)
Average Daily Volume = 389 thousand
Listed on December 20th, 2010


Transocean Ltd. - RIG - close: 68.45 change: -0.87

Stop Loss: 66.25
Target(s): 72.50, 78.25
Current Option Gain/Loss: -52.8% and -44.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/27 update: It was another quiet day for RIG. Shares gapped open lower and then spent the day in a 50-cent range. I am not suggesting new bullish positions at this time. 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) Entry @ $1.80

12/17/10 Entry on Feb. calls @ $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%)

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


Union Pacific - UNP - close: 92.01 change: +0.30

Stop Loss: 89.75
Target(s): 96.25, 99.75
Current Option Gain/Loss: -40.1% and -15.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/27 update: UNP recovered quickly from the market's widespread weakness Monday morning. The stock looks poised to rally higher. I would be tempted to buy calls here but readers might want to wait for a move over $92.50 first.

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

Second Position
Buy the 2011 February $95 calls (UNP1119B95) Entry @ $2.33

12/21/10: UNP provides another entry point.
12/17/10: Entry on Feb. calls @ $2.33
12/16/10: New Entry point: buy February calls
12/16/10: New stop loss @ 89.75

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: 72.81 change: +0.08

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:
12/27 update: There is no change from my previous comments on UPS. We are waiting for a pull back toward support near $70.00. Our trigger to buy calls is 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: 79.27 change: -0.23

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:
12/27 update: There is no change from my previous comments. Aggressive traders could buy calls now. I'm still a little bit hesitant to launch positions here but UTX is moving the right direction, albeit very slowly. At the moment our suggested entry point is at $77.10.
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: 44.43 change: -0.39

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:
12/27 update: This is an important test for VMC. The correction in this stock has finally hit technical support near the simple 200-dma. This should be support. Aggressive traders may want to buy calls now or on a bounce from this level. I'm a little bit more conservative here. We will keep our trigger at $43.75 for now.

Trigger @ $43.75

- Suggested Positions -

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: 89.14 change: -0.25

Stop Loss: 84.75
Target(s): 89.90, 94.25
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/27 update: Oil and oil service stocks underperformed on Monday. There is no change from my prior comments on XEC. We are waiting for a dip back toward support. Currently our plan is to buy calls on a dip at $86.50. We want to keep our position size pretty small to limit our risk.

Trigger @ 86.50

- Suggested Positions -
Buy the 2011 January $90 calls (XEC1122A90)

- or - Buy the 2011 February $90 calls (XEC1119B90)

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: 25.57 change: -0.76

Stop Loss: 27.75
Target(s): 25.10, 24.25
Current Option Gain/Loss: - 0.0%
Time Frame: 2 to 3 weeks
New Positions: No

Comments:
12/27 update: Hopefully the third time will be a charm. Shares of EXPE plunged toward the $25.50 level again. The stock lost -2.8% on above average volume today. The volume was impressive considering the extremely low volume across the market today. The path of least resistance should be down for this stock. Yet I hesitate to launch new put positions. Our put has rallied back to breakeven.

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