Option Investor
Newsletter

Daily Newsletter, Monday, 1/3/2011

Table of Contents

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

Market Wrap

Happy 2011, Mr. Market

by Todd Shriber

Click here to email Todd Shriber
Sure stocks were looking a tad rich heading into the new year. A 6.5% jump for the S&P 500 during December certainly underscores that fact, but all those experts and pundits that were calling for a January swoon are going to have wait another day for it start because most stocks had no intention of doing anything today but moving higher. By the end of the day, the Dow had retreated a fair bit from its session highs, but a gain of 0.8% is still a fine way to start the new year. The S&P 500 added 1.1% and the Nasdaq surged almost 1.5%. Once again, the Russell 2000 was the juggernaut of the U.S. indexes, adding almost 2% on the day.

Stats Table

It seems like only a few months ago that equities were held hostage to every economic data point, but it appears that trend is reversing and today would be a fine example as stocks got a boost from some positive manufacturing data. The Institute for Supply Management's manufacturing index popped to 57 in December from 56.6 in November. While that missed the estimate of 57.2, a reading above 50 is still bullish and the number matched the median forecast of 63 economists surveyed by Bloomberg News.

''The manufacturing sector continued its growth trend as indicated by this month’s report. We saw significant recovery for much of the U.S. manufacturing sector in 2010. The recovery centered on strength in autos, metals, food, machinery, computers and electronics, while those industries tied primarily to housing continue to struggle,'' ISM's Norbert Ore said.

Cullen Roche over at Pragmatic Capitalism notes that a deeper examination of today's report shows the data was actually quite strong and notes that current ISM levels are consistent with real GDP growth of just under 4%.

ISM Chart

While the ISM report was cautious to say the least on housing, a report from the Commerce Department today showed construction spending rose in November for a third straight month. The 0.4% increase exceeded the median forecast of economists surveyed by Bloomberg News and followed a 0.7% gain the previous month, Bloomberg reported.

In stock-specific news, I will start out with bad news so I can today's wrap on a positive note. Indeed, there was some bad news for select names, but the broader market was able to work past these glum headlines. Offender Number One is Clorox (CLX). The consumer products giant that makes its namesake bleach, Pine Sol and Hidden Valley Ranch salad dressing did not get off to bang in 2011.

Rather, it was a whimper after the California-based company cut the top end of its sales forecast and said sales will grow by 1% at best or perhaps show no change at all for the fiscal year ending June 30. Sales probably fell 3%-4% last quarter as the top line was pressured by more spending on promotions and Venezuela's currency devaluation. For that quarter, Clorox probably earned 57 cents to 63 cents a share, excluding a charge, but analysts polled by Bloomberg were expecting 73 cents a share.

On a day when the Consumer Staples Select Sector SPDR (XLP) notched a small gain, Clorox tumbled $1.71, or 2.7%, to $61.57 on volume that was six times the daily average.

Clorox Chart

Over on the Nasdaq, online travel reservations firm Expedia (EXPE) lost 30 cents, or 1.2%, to close at $24.79, which is not that bad of a day all things considered. Over the weekend, Expedia announced that it is removing American Airlines (AMR) fares and schedules from its site, calling the carrier's pricing proposals ''anti-consumer.''

To say the rift between airlines and companies like Expedia is growing is an understatement. Last month, American pulled its fares from Expedia rival Orbitz (OWW) and perhaps in a sign of solidarity, Expedia proceeded to move American's fares lower in its search. Sales of American tickets account for just 2% of Expedia's revenue, but not offering access to one of the largest airlines in the world could be bad news for Expedia going forward.

Making matters worse, Soleil Securities downgraded Expedia to ''hold'' and cut its price target on the stock to $28 from $35, citing competition concerns posed to Expedia's TripAdvisor from Google's (GOOG) Place. The icing on the cake is American telling customers to head to other travel sites, namely Priceline (PCLN), over Expedia.

Expedia Chart

If it is price target changes that you are after, here is a whopper and it pertains to one of the market's highest fliers: Molycorp (MCP). One of the few U.S.-based companies that is actually trying to mine for rare earths in this country surged 15.2% today after Dahlman Rose reiterated its ''buy'' rating on the stock and raised its price target to $85 from $49, citing China's reduced rare earths export quotas and Molycorp's ability to create value through joint ventures.

Molycorp is no joke, at least the stock is not. The shares have surged 16% in the past week and more than doubled in the past month, so it may seem that the run is tired. On the other hand, if the Dahlman Rose price target proves accurate, today's close of $57.50 will end up looking like a steal.

Molycorp Chart

Speaking of materials names, one that is considerably less sexy than Molycorp enjoyed a fine day as well and that is Dow component Alcoa (AA). The aluminum giant gained 41 cents, or almost 2.7%, on volume that was roughly 75% better than the daily average to close at $15.80. Alcoa's jump was good for the third-best performance among the 30 Dow constituents.

Deutsche Bank upgraded the stock to ''buy'' from ''hold'' and boosted its price target on Alcoa to $22 from $14, implying substantial upside from where the stock closed today. ''Alcoa's laggard status has piqued investor interest in the name as a possible come-back play for 2011 and given signs of operational stability, we don't disagree,'' Deutsche said in a client note.

Remember that there has been significant scuttlebutt that an ETF or two backed physical aluminum could be introduced this year and that would likely prop up aluminum prices, making Alcoa an indirect beneficiary of the new aluminum ETF.

Alcoa Chart

Looking at the charts, the run of 20 straight days with the Dow not trading in a 100-point range was snapped today as the index's range was about 135 points from bottom to top. Even with all that commotion, the high of the day was 11,711, so a legitimate run to resistance at 11,750 was not made today. The good news for the Dow on Monday was strength in the financials. Bank of America (BAC) led the charge with a ''who cares about WikiLeaks'' gain of 6.4% and JPMorgan Chase chipped in with a gain of 2.7%. Dow bulls should be pleased to see two of 2010's worst performers, AA and BAC, start 2011 off in a big way. More on another Dow 2010 laggard, Microsoft, in a minute.

Dow Chart

The S&P 500's solid day was enough to carry the index past resistance at 1260 and the close just below 1272 means 1280 could be dealt with in the coming days. Support is still 1225-1230. The year-end higher forecasts have already started to trickle in as Citigroup raised its 2011 target for the S&P 500 to 1400 from 1300 today.

S&P 500 Chart

To end 2010, the Nasdaq was showing some signs of a looming breakdown, but that will have to wait for another day as the index did what it could to move above 2700 today, falling just short at the close. That said, 2700 is more round number resistance than anything else and real resistance in the 2825-2850 area is still a long way off while support still looks firm at 2600.

Nasdaq Chart

The Russell 2000 continued its torrid pace today and now rests just below 800 and that is after a 25% gain in 2010, almost double what the S&P 500 delivered. Profits are surging at smaller companies compared to their large-cap counterparts. The average company in the Russell 2000 posted a 165% gain in income last year, the most since 2003, as S&P 500 profits rose 29%, according to data compiled by Bloomberg and analysts are forecasting an 80% rise in the profits of Russell 2000 constituents this year. If that proves accurate, 850 on the Russell 2000 may not last for long.

Russel 2000 Chart

I am not bold enough to say that all of 2011 will be a picnic for the bulls and I am not convinced that the market will not retreat a bit somewhat during the first quarter, but overall, it is hard to not be constructive on stocks for the year. Using history as a guide going back to 1928, the third year of a presidential term sees the S&P 500 add just over 14% on average and that number climbs over 17% when a Democrat is in the White House. Go back seven decades and the average gain for the Dow is 24% in a president's third year.

An unrelated fun fact is Goldman Sachs and a Russian investor have poured a combined $500 million into Facebook on top of previous investments, valuing the social networking site at $50 billion. That would be a larger market cap than three Dow stocks: Alcoa, DuPont (DD) and Travelers (TRV). That also makes Dow component Microsoft look pretty darn smart for investing in Facebook way back in 2007.

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New Option Plays

Tools & Accessories

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Stanley Black & Decker, Inc. - SWK - close: 68.07 change: +1.20

Stop Loss: 65.75
Target(s): 69.90, 72.45
Current Option Gain/Loss: + 0.0%
Time Frame: 4 to 6 weeks
New Positions: Yes

Company Description

Why We Like It:
SWK has spent the last several days consolidating sideways. Today's move (+1.7) pushed SWK to a new all-time high. While I would prefer to buy calls on a dip near $65.00 that may not happen. I'm suggesting bullish positions now and we'll use a stop loss at $65.75. Keep your position size small to limit your risk. Just because these call options look cheap do not go overboard. Repeat - small positions only. FYI: The Point & Figure chart for SWK is bullish with a $77 target.

Open Positions Now!

- Suggested Positions -

Buy the 2011 January $70 calls (SWK1122A70) current ask $0.70

- or -

Buy the 2011 February $70 calls (SWK1119B70) current ask $1.60

Annotated Chart:

Entry on January 4th at $ xx.xx
Earnings Date 01/27/11 (confirmed)
Average Daily Volume = 1.6 million
Listed on January xxth, 2010



In Play Updates and Reviews

Strong Start to 2011

by James Brown

Click here to email James Brown

Editor's Note:

Stocks were up almost across the board on Monday. Banks were big winners again. Our GS play has broken out. I have updated stop loss on GS, MICC, and our put play on EXPE. BA and SLB hit our triggers to buy calls. Plus, we're launching new positions in FAST. Our aggressive NFLX play has been stopped out.

-James

Current Portfolio:


CALL Play Updates

Amazon.com Inc. - AMZN - close: 184.22 change: +4.22

Stop Loss: 176.45
Target(s): 189.50, 199.00
Current Option Gain/Loss: - 9.7%, and - 2.5%
Time Frame: 4 to 6 weeks
New Positions: See below

Comments:
01/03 update: A strong day for the NASDAQ helped AMZN surged +2.3% back toward its 2010 highs near $185. The high today was actually $186.00. I would still consider new positions here but you could probably wait for another dip near $182.50 to initiate call positions.

We want to keep our position size small. AMZN can be a volatile stock. Our upside targets are $189.50 and $199.00.

- Suggested (SMALL) positions -

Long the 2011 January $190 calls (AMZN1122A190) Entry @ $2.35

- or -

Long the 2011 February $200 calls (AMZN1119B200) Entry @ $3.85

Entry on December 28th at $182.10
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume = 5.0 million
Listed on December 27th, 2010


Boeing Co. - BA - close: 66.40 change: +1.14

Stop Loss: 62.75
Target(s): 69.00, 72.25
Current Option Gain/Loss: +29.3%, and +23.2%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
01/03 update: Shares of BA gapped open higher at $66.15 this morning. Our trigger to buy calls was $65.50 so the play is now opened. If you missed the morning entry point there is a good chance BA could fill the gap so look for a dip near $65.50 as an alternative to buying calls here at current levels. We wanted to keep our position size small to limit our risk. There is additional resistance at the 200-dma near the $67 level. We should consider this a higher-risk aggressive trade. Our first target is $69.00. Our second target is $72.25.

- Suggested Positions - (small positions only!)

Long the 2011 January 67.50 calls (BA1122a67.5) Entry @ $0.58

Long the 2011 February $70.00 calls (BA1119B70) Entry @ $0.73

Chart:

Entry on January 3rd at $66.15
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume = 5.3 million
Listed on December 25th, 2010


Baxter Intl. Inc. - BAX - close: 50.55 change: -0.07

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:
01/03 update: Sadly BAX did not participate in the market-wide rally this Monday. That's a warning sign in my book! Nothing else has changed.

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 - (small positions only!)

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: 111.75 change: +1.74

Stop Loss: 108.75
Target(s): 114.50 117.50
Current Option Gain/Loss: +20.5% and + 5.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/03 update: CMI surged at the open and then consolidated sideways near $112 the rest of the day. The stock managed to hit a new high at $112.07. If you were waiting to buy calls on a close over $111 you got it. This remains an aggressive entry point and I'm only suggesting small positions.

(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

01/01: Adjusted targets to $114.50, 117.50
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: 65.64 change: +1.03

Stop Loss: 61.75
Target(s): 67.00, 69.50
Current Option Gain/Loss: +10.2% and +16.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/03 update: CSX broke out to new two-year highs over resistance at the $65 level. The stock spiked to $66.28 this morning. I am tempted to raise our stop loss closer to the $63.00 level. I you were waiting to buy calls on a breakout you got that chance today.

- 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: 46.58 change: +0.41

Stop Loss: 43.75
Target(s): 44.90, 48.00
Current Option Gain/Loss: +750.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/03 update: Good news. Today's +0.88% gain in CTL has broken the two-week downtrend of lower highs. This stock could easily hit our target at $48.00 before the week is out. More aggressive traders may want to aim near the $50.00 level. Just remember we have less than three weeks left. I am not suggesting new positions at this time.

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: 75.36 change: +2.07

Stop Loss: 71.75
Target(s): 74.70, 79.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
01/03 update: Uh-oh! CTSH is starting to run away with out us. The stock rallied +2.8% top new all-time highs. I still hesitate to chase it but more aggressive traders might want to consider small positions here. The newsletter will raise our trigger to buy calls to $72.60 (from 72.25). Keep your position size pretty small to limit your risk.

Trigger to buy calls on the dip @ $72.60 <-- new trigger

- Suggested Positions - (small positions only)

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


Deere & Co - DE - close: 83.59 change: +0.54

Stop Loss: 78.95
Target(s): 84.50, 89.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
01/03 update: Gains in DE today were pretty mild compared to its peers. Shares rallied this morning but rolled over under their December highs and resistance near $85.00. I am still expecting a pull back toward support near $80. I'm suggesting a trigger to buy calls at $80.50. If triggered we'll use a stop loss at $78.95, just under the 50-dma.
FYI: The Point & Figure chart for DE is pretty bullish with a $100 target.

Buy-the-Dip Trigger @ 80.50

- Suggested Positions -

Buy the 2011 February $80 calls (DE1119B80)

- or -

Buy the 2011 February $85 calls (DE1119B85)

Entry on December xxth at $ xx.xx
Earnings Date 02/16/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on December 30th, 2010


Express Scripts - ESRX - close: 56.30 change: +2.25

Stop Loss: 51.49
Target(s): 53.95, 58.50
Current Option Gain/Loss: +90.4% and +22.0%
Time Frame: 5 to 6 weeks
New Positions: see below

Comments:
01/03 update: Wow! It was a big day for ESRX. After over a week of relative weakness shares of ESRX exploded higher with a +4.1% gain to new all-time highs. Volume was slightly above average on the move. I'd probably wait to see a bounce near the $55 level before considering new bullish positions. Our final exit target is $58.50 but if you're holding the February calls you might want to consider aiming for $60. FYI: Our January calls have almost doubled.

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: 60.85 change: +0.94

Stop Loss: 59.40
Target(s): 64.00, 68.50
Current Option Gain/Loss: + 0.0%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
01/03 update: Attention! I'm adjusting our strategy. We've been talking about buying a breakout over $60.00. I'm suggesting we go ahead and do that with today's close over resistance at $60.00. Keep your position size very small since this is an aggressive entry point. We'll move our stop loss up to $59.40. I'm suggesting new positions at current levels but you might get lucky if you want for a dip closer to $60.00. I am moving our targets to $64.00 and $68.50. Keep in mind that we may not hold this trade very long.

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.

Buy calls now!

- Suggested Positions- (SMALL POSITIONS ONLY!)

Buy the 2011 January $64.58 calls (FAST1122A64.58) Current ask $0.50

- or -

Buy the 2011 February $64.58 calls (FAST1119B64.58) Current ask $0.85

01/03: New targets @ 64.00 and 68.50
01/03: New stop loss @ 59.40
01/03: New Entry Point at current levels (closed @ 60.85)
12/21: Adjusted entry point trigger from 56.00 to 56.75

Chart:

Entry on January 4th at $ xx.xx
Earnings Date 01/19/11 (unconfirmed)
Average Daily Volume = 880 thousand
Listed on December 8th, 2010


FedEx Corp. - FDX - close: 93.19 change: +0.18

Stop Loss: 90.90
Target(s): 96.75, 99.75
Current Option Gain/Loss: -78.7% and -22.6%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/03 update: The action in FDX today was pretty disappointing. The stock did move higher but gave back almost all of its gains by the closing bell. The high today was $94.29. Readers may want to wait for FDX to trade over this level before initiating new bullish positions. I am almost tempted to raise our stop loss closer to $92.00. We have less than three weeks left on our January calls.

- 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: 173.05 change: +4.89

Stop Loss: 162.95
Target(s): 171.00, 179.50
Current Option Gain/Loss: +109.0% and +59.3%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/03 update: It was a big day for Goldman with the stock surging past resistance in the $171 area. These are new eight-month highs and GS has very little resistance between here and the $180 level. OUr final target to exit is $179.50 but more aggressive traders may be tempted to aim higher. I am raising our stop loss to $165.75.

In the news today there were multiple articles about GS investing nearly $500 million in Facebook in a deal that values Facebook at $50 billion.

- 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

01/03: New stop loss @ 165.75
12/28: 1st Target Hit @ 171.00, Jan. call @ $4.75 (+72.7%), April call @ $7.35 (+39.4%)
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: 147.48 change: +0.72

Stop Loss: 142.99
Target(s): 152.50, 159.50
Current Option Gain/Loss: + 8.1%, and + 2.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/03 update: IBM rallied to new multi-year highs but pared its gains to close under resistance near the $147.50 mark. While this close is disappointing I would still consider new bullish positions at current levels. Please note that I am adjusting our targets to $152.50 and $159.50. FYI: The Point & Figure chart on IBM is forecasting a long-term target of $196.

- Suggested Positions -

Long the 2011 January $150 calls (IBM1122A150) Entry @ $1.35

- or -

Long the 2011 April $155 calls (IBM1116D155) Entry @ $2.25

01/03: New targets @ $152.50, and $159.50

Entry on December 29th at $146.75
Earnings Date 01/18/11 (unconfirmed)
Average Daily Volume = 4.7 million
Listed on December 14th, 2010


Juniper Networks - JNPR - close: 37.24 change: +0.32

Stop Loss: 34.90
Target(s): 39.75
Current Option Gain/Loss: -23.0% and - 2.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/03 update: I'm a little bit worried about JNPR. The stock posted +0.8% gain on Monday but shares were rolling over into the afternoon. I'm not suggesting new positions at this time. There is still a chance JNPR will retest support near $36-35. 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: 69.87 change: -0.04

Stop Loss: 67.95
Target(s): 73.25, 74.90(or 200-dma)
Current Option Gain/Loss: -45.7% and -45.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/03 update: I remain worried about LMT. The stock underperformed today but that might be due to the stock getting downgraded this morning. It looks like the rally failed near LMT's 100-dma. The high today was $70.38. Wait for a move over $70.50 before considering new bullish positions.

- 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: 96.72 change: +1.12

Stop Loss: 91.75
Target(s): 99.90
Current Option Gain/Loss: +28.2% and +33.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/03 update: MICC gapped open higher and rallied to $98.29 intraday. I am raising our exit target from $99.50 to $99.90. I'm raising our stop loss to $91.75. No new positions at this time. 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

01/03: New stop loss @ 91.75, New target at $99.90

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


Oceaneering International - OII - close: 74.24 change: +0.61

Stop Loss: 69.95
Target(s): 78.00, 79.95
Current Option Gain/Loss: -35.0%, -52.9%, and -19.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/03 update: Gains in OII were pretty mild. I remain cautious on this stock. I would rather see a move or a close over $75.00 before we consider new bullish positions. 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


Transocean Ltd. - RIG - close: 69.44 change: -0.07

Stop Loss: 66.25
Target(s): 72.50, 78.25
Current Option Gain/Loss: -45.7% and -34.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/03 update: Oil service stocks were some of the worst performers on Monday and was one of the only sectors to close in negative territory. RIG failed to breakout over the $70.00 level. I find today's action very worrisome. Today's high was $70.36. Readers may want to wait for RIG to trade above this level before considering new positions. 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


Schlumberger Limited - SLB - close: 83.65 change: +0.15

Stop Loss: 81.65
Target(s): 89.00
Current Option Gain/Loss: -14.7%, and -12.8%
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
01/03 update: SLB posted a gain on Monday. Shares actually hit a new relative high but the action today looks bearish. The stock rallied to $84.55 and rolled over. The oil service index was one of the only sector indices to close in negative territory. This relative weakness in the sector is worrisome. SLB did hit our trigger to buy calls at $84.25 so the play is open. I would wait for another bounce near $83.00 or a new move over $84.55 before considering new positions. January calls expire on the 21st. I will list both January and February calls but normally we want to avoid holding over an earnings report.
FYI: The Point & Figure chart for SLB is very bullish with a $123 target.

- Suggested Positions -

Long the 2011 January $85 calls (SLB1122A85) Entry @ $1.90

- or -

Long the 2011 February $90 calls (SLB1119B90) Entry @ $1.25

Chart:

Entry on January 3rd at $84.25
Earnings Date 01/21/11 (confirmed)
Average Daily Volume = 5.6 million
Listed on January 1st, 2010


SPX Corp. - SPW - close: 71.73 change: +0.24

Stop Loss: 69.95
Target(s): 76.50, 79.75
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
01/03 update: SPW rallied to $72.38 and failed. We are still waiting for a breakout over resistance at $72.50. I am suggesting a trigger to buy calls at $72.60. If triggered our first target is $76.50. Our longer-term target is $79.75.
FYI: The Point & Figure chart for SPW is very bullish with an $89 target.

NOTE: Just because the January calls are cheap, don't go overboard. We only have three weeks left before January options expire.

Trigger @ $72.60

- Suggested Positions -

Buy the 2011 January $75 calls (SPW1122A75) current ask $0.60

- or -

Buy the 2011 February $75 calls (SPW1119B75) current ask $1.45

Entry on January xxth at $ xx.xx
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume = 346 thousand
Listed on January 1st, 2010


Stericycle Inc. - SRCL - close: 81.65 chane: +0.73

Stop Loss: 79.40
Target(s): 84.75, 89.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
01/03 update: SRCL gapped open higher and managed to tag another new high at $82.21 before paring its gains. More aggressive traders may want to buy calls now. I am suggesting a trigger at $80.75. If triggered we'll use a stop loss at $79.40. Our targets are $84.75 and $89.00.

Trigger @ 80.75

- Suggested Position -

Buy the 2011 February $85 calls (SRCL1119B85) current ask $1.25

Entry on December xxth at $ xx.xx
Earnings Date 02/03/11 (unconfirmed)
Average Daily Volume = 543 thousand
Listed on December 29th, 2010


Union Pacific - UNP - close: 93.69 change: +1.03

Stop Loss: 89.75
Target(s): 96.25, 99.75
Current Option Gain/Loss: -17.1% and + 8.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/03 update: Railroad stocks joined the party on Monday and UNP added +1.1% to hit new three-week highs. I'm not suggesting new positions at this time.

- 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

01/01/11: UNP is giving us another entry point.
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: 72.95 change: +0.37

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:
01/03 update: UPS rallied toward resistance near $74 and rolled over. The action was pretty disappointing. We are still waiting for a dip toward $70.00. I'm suggesting a trigger to buy calls at $70.25. More aggressive traders could consider a move over $74.00 as a potential entry point. I'm considering 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: 78.99 change: +0.27

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:
01/03 update: UTX delivered a rather meager bounce and failed to breakout over resistance. Currently we're looking for a dip toward $77.00 but we may want to consider adjusting our strategy and buying a breakout over $80.00.
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: 44.46 change: +0.10

Stop Loss: 43.75
Target(s): 47.50, 49.75
Current Option Gain/Loss: -23.0%, and -11.3%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/03 update: The action in VMC on Monday was a little disappointing. The stock failed to rally past last week's highs and essentially failed at its 10-dma. I am not suggesting new positions at this time. We may need to see a new move over $45.50 before considering new positions. Our first target to take profits is at $47.50. Our second target is $49.75.

(small positions only!)- Suggested Positions -

Buy the 2011 January $45 calls (VMC1122A45) Entry @ $1.30

- or -

Buy the 2011 February $45 calls (VMC1119B45) Entry @ $2.20

Entry on December 30th at $45.02
Earnings Date 02/07/11 (unconfirmed)
Average Daily Volume = 1.5 million
Listed on December 13th, 2010


Cimarex Energy Co. - XEC - close: 90.00 change: +1.47

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:
01/03 update: I'm a little bit concerned with the relative weakness in the oil service stocks today. Shares of XEC spiked to a new high at $91.74 only to give back most if its gains. Currently we're waiting for a dip to buy calls at $86.50. More conservative traders could wait for a dip closer to $85.00. 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: 24.79 change: -0.30

Stop Loss: 26.51
Target(s): 25.10, 23.25
Current Option Gain/Loss: +50.0%
Time Frame: 2 to 3 weeks
New Positions: No

Comments:
01/03 update: EXPE continues to show relative weakness. The stock spiked down to $23.76 before bouncing back to a -1.1% loss. The drop was fueled by news that EXPE's fight with American Airlines is heating up. Over the weekend EXPE has delisted American's fares from their website. I am lowering our stop loss down to $26.05. No new positions at this time. Our first target has already been hit. We're currently aiming for $23.25.

FYI: Our put option hit a high of $1.55 this morning.

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

01/03/11 New stop loss @ $26.05
12/30/10 Target hit @ 25.10, option @ 0.80 (+25%)
12/30/10 new stop loss at $26.51

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


CLOSED BULLISH PLAYS

Netflix Inc. - NFLX - close: 175.70 change: -4.10

Stop Loss: 174.90
Target(s): 199.50, 219.50
Current Option Gain/Loss: -75.8% and -54.7%
Time Frame: 6 to 8 weeks
New Positions:

Comments:
01/03 update: Our aggressive trade in NFLX has not paid off. The stock posted a gain today (+1.5%) but shares slipped to $173.50 this morning. That was enough to hit our stop loss at $174.90. The play is closed and NFLX still has a bearish trend of lower highs and has not recovered from Friday's breakdown. Readers may want to keep NFLX on their watch list in case the stock can break this trend of lower highs.

Previous Comments:
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, Exit @ 1.05

- or -

Long the 2011 February $220 calls (NFLX1119b220) Entry @ $5.75, Exit @ 2.60

01/03: Stopped out! January call @ $1.05 (-75.8%), Feb. call @ $2.60 (-54.7%)

Chart:

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