Option Investor
Newsletter

Daily Newsletter, Monday, 1/10/2011

Table of Contents

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

Market Wrap

Rally Falls Short Again

by Todd Shriber

Click here to email Todd Shriber
It may not be a pattern yet, but it is starting to look like one as stocks once again started the day off in ugly fashion only to tantalize traders with a the prospect of higher close, but the rally ran out of steam again, sending the Dow Jones Industrial to its third consecutive loss. The damage was not all that bad for the Dow, but the S&P 500 also closed while the Nasdaq managed to settle barely higher for the day. On a percentage basis, the Russell 2000 was easily the best performer among the the U.S. indexes.

Stats Table

One of the favorite outlets for blame for the market's recent down days has been a stronger dollar, though I use that term loosely. Believe it or not, the U.S. Dollar Index was home to some profit taking today and this should have been a day where the dollar bulls partied hard. After all, one of the primary reasons stocks traded lower today was because of those pesky lingering concerns about Europe's sovereign debt woes.

Yes, it is 2011 and we still have to hear about this issue, but that is the problem with contagions: They do not end quickly. There was some speculation floating about this morning that Portugal would have to seek a bailout and there were rumors reported by various European press agencies that the EU puppet masters in Berlin and Paris were pushing Portugal to accept outside aide.

As the New York Times reports, Portugal is raising taxes and cutting government employees’ wages as it tries to persuade investors that it can reduce its budget deficit, but the country is looking to sell about $26 billion in bonds this year and it is safe to say every one of those auctions will be heavily scrutinized. Neighbor Spain is planning a $3.9 billion bond auction for Wednesday, but that amount is lower than previously estimated, perhaps because appetite is weak for Portuguese and Spanish debt. The Dollar Index did not respond today, but I would keep an eye on it for the rest of the week.

Dollar Index Chart

There might be some silver lining in Europe's dark clouds and it comes from Italy. Yes, Italy. Bloomberg ran an interesting piece today quoting one money manager as saying Italian bonds have been ''unfairly punished.'' Remember, this is the same Italy that has the EU's second-worst debt burden and the yield on Italian 10-year bonds has jumped 1% in the past month, but Italy's household debt situation is vastly superior to that of Portugal or Spain, Bloomberg reported.

Give Italy this much credit: The country did not need to engage in bank bailouts during the financial crisis, something plenty of other nations wish they could say. Comparatively speaking, the growth outlook for Italy is not all that bad and it seems unlikely that the country will need a bailout. The iShares MSCI Italy Index Fund (EWI) took a small haircut today, but the volume was weak and a move above $16.50 could make this a compelling short-term trade.

Italy ETF

Back here in the states, it is understandable to see why the bulls would be frustrated with the market's lethargic ways today. This was a perfect ''Merger Monday'' with $20 billion in deals announced before the bell. Dow component DuPont (DD), one of the better performers in the index last year, announced it will acquire Denmark-based Danisco for $5.8 billion, valuing the maker of enzymes for biofuels and foods at 25% above where it closed last Friday.

Danisco is one of the largest biofuels companies in the world and the company already works with DuPont on an array of partnerships and projects, so DuPont certainly knows what it is buying here. The Danish firm was reportedly coveted by several suitors and after recently lifting a cap on shareholder voting rights, DuPont moved in for the kill, Bloomberg reported.

Danisco is the world’s largest food- ingredients maker, producing sweeteners and cultures used in ice cream and cheese and the two companies operate an ethanol joint venture, according to Bloomberg. DuPont shares lost almost 1.5% on the news, but in a testament to how strong the stock has been recently, Monday's performance is the stock's worst in a month.

DuPont Chart

It is rarely a surprise to see the shares of the company doing the buying decline, as they did in DuPont's case, but it is not typical to see the shares of the acquired firm fall, but that is exactly what happened with Progress Energy (PGN) after Duke Energy (DUK) said it will buy its rival for $13.7 billion in stock, creating the largest U.S. utility.

The combined company will serve 7.1 million electric customers with a mix of coal, natural gas, oil and renewable resources in South Carolina, North Carolina, Florida, Indiana, Kentucky and Ohio, according to the Wall Street Journal. The expected per share earnings growth for the combined company is 4%-6% per year (remember, these are utilities, not tech companies). North Carolina-based Duke's offer values Progress at $46, but apparently that was not a rich enough premium to get investors excited because Progress shares lost 1.6% to close at $43.99.

Duke, which is also inheriting $12.2 billion in Progress debt, will gain a foothold in Florida and said the deal will add to earnings next year. The two companies did not comment on cost savings, but combing their Carolinas operations could deliver savings of $600 million to $800 million, the Journal reported. The transaction is slated to close at the end of 2011.

Progress Energy Chart

Fourth-quarter earnings season kicks off this week and Dow component Alcoa (AA) got the ball rolling today after the close. Per my usual comments, I would not put too much emphasis on Alcoa one way or the other in terms of its impact on the Dow because it is the lowest-priced stock in a price-weighted index, but it should be noted the report was pretty solid.

The largest U.S. aluminum producer earned $258 million, or 24 cents a share, compared with a loss of $277 million, or 28 cents, a year earlier. Sales jumped 4% to $5.65 billion from $5.43 billion, but that missed the Street estimate of $5.75 billion. Analysts were looking for a profit of 21 cents a share and while a beat is a beat, it is doubtful Alcoa's numbers will set the Dow on fire tomorrow despite the fact that this is the company's most profitable quarter in more than two years.

Last week, Pennsylvania-based Alcoa said it will restart production at three idled U.S. plants, boosting aluminum output by 137,000 tons this year, but some analysts are still forecasting aluminum production in 2011 will outweigh demand. The company did say it expects consumption to rise 12% this year and the wild card in that equation may be the debut of ETFs backed by physical aluminum.

Some pundits think Alcoa could see the low-20s this year and others have tossed the name around as a takeover target for a company like Rio Tinto (RIO). I am not so sure about the latter theory, but a move to $21 from where the shares currently trade would be a strong move, even if it took all of 2011.

Alcoa Chart

Looking at the charts, the S&P 500 finished the day just below 1270, right in the middle of the important 1258-1280 range. The index has come close to breaking through 1280 a couple of times recently and this is a significant level as it has not been seen since late 2008. A move above 1280 could induce enough short covering to carry the index another 10 points beyond there. A move to 1260 or lower would test the spirit of the buy-the-dips crowd.

S&P 500 Chart

Like the S&P 500, the Dow is having some issues with resistance from 2008, that being in the 11,700-11,750 area. With financials hammered on by the Massachusetts court ruling news on Friday, that was a fine opportunity for the bears to do some damage on the Dow, but stocks rallied into the close, turning a bad day into just a small loss. Alcoa will not do much for the Dow's fortunes on Tuesday, but Intel (INTC) and JPMorgan Chase (JPM) deliver their fourth-quarter reports later this week and that could spark the index. Support looks decent at 11,600.

Dow Chart

The Nasdaq was able to catapult itself above 2700 today ahead of the Verizon (VZ)/iPhone news on Tuesday. Apple shares were up 2% today and the official announcement tomorrow may be another boost to Apple and the Nasdaq, but count me among the skeptics regarding how big of a deal this really is.

First, the iPhone going to Verizon should have been priced into Apple and Verizon shares long ago. Second, Verizon is already the dominant carrier of phones that run on Google's (GOOG) Android software, so if Apple starts picking off Android customers, and there's no guarantee of that, then Google would suffer and Apple would benefit, but how big will the benefit be to the Nasdaq?

Nasdaq Chart

The 800 area has been problematic for the Russell 2000 and while I am personally bullish on small-caps in 2011, a couple of weeks of consolidation following the index's torrid close to 2010 should come as no surprise. The concern would be a move to support at 760.

Russell 2000 Chart

In a normal environment, this should be a week where the market analyzes and digests the looming earnings reports and responds accordingly, but with Europe's fiscal fiasco still looming large, it would be a positive catalyst if someone, anyone displayed a desire for Portuguese and Spanish debt. That would help ignite the risk appetite the market needs.

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New Option Plays

Diversified Machinery

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

SPX Corp. - SPW - close: 73.31 change: +1.08

Stop Loss: 69.90
Target(s): 77.40, 79.90
Current Option Gain/Loss: +0.0%
Time Frame: 4 to 6 weeks
New Positions: Yes

Company Description

Why We Like It:
We're going to try again with a bullish play on SPW. This time shares have finally broken out past resistance in the $72.00-72.50 zone after weeks of consolidating sideways. I do consider this an aggressive trade so we want to keep our position size pretty small. I'm suggesting a stop loss at $69.90. More conservative traders may want to use a stop closer to $71.00 instead. Our upside targets are $77.40 and $79.90.
The Point & Figure chart for SPW is bullish with a $92 target.

Open small bullish positions now.

- Suggested Positions -

Buy the 2011 February 75.00 calls (SPW1119B75) current ask $1.95

Annotated Chart:

Entry on January 11th at $ xx.xx
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume = 396 thousand
Listed on January 10th, 2010


In Play Updates and Reviews

Railroads Running

by James Brown

Click here to email James Brown

Editor's Note:

The railroad stocks continue to show relative strength. UNP hit one of our bullish profit targets this morning. Overall the market's sideways trading is terrible for our January calls.

Please note that in the updates below I am still suggesting potential entry points where I see them based on the market we have in front of us. However, I want to remind readers that both Jim and I are expecting a market correction soon. It could start this week or it could start later in the month. When it does start it will probably last two to four weeks. Knowing there is a strong possibility of a market pullback in front of us, readers will want to consider not opening new bullish positions and exiting currently ones early.

-James

Current Portfolio:


CALL Play Updates

Amazon.com Inc. - AMZN - close: 184.68 change: -0.81

Stop Loss: 176.45
Target(s): 189.90, 199.00
Current Option Gain/Loss: -34.0%, and -11.6%
Time Frame: 4 to 6 weeks
New Positions: See below

Comments:
01/10 update: AMZN recovered from its morning lows but shares still closed in negative territory. The stock hit $182.51 at its worst levels. Over the weekend I suggested readers look for a dip into the $182.50-180.00 zone as our next bullish entry point and I'm repeating that suggestion today (February or later calls). More conservative traders might want to raise their stops closer to $180.

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: 69.09 change: -0.29

Stop Loss: 64.90
Target(s): 69.00, 72.25
Current Option Gain/Loss: +134.5%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/10 update: There are no surprises here. BA looked short-term overbought at Friday's close. BA is beginning to pull back. Look for support near the 200-dma or the $66 level. I am not suggesting new bullish positions at this time. Our second target is $72.25.

- Suggested Positions - (small positions only!)

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

01/08: Exit the rest of our January calls @ $2.35 (+305%)
01/06: 1st Target Hit @ 69.00. Jan call @ $2.15 (+270%). Feb. call @ $1.80 (+146%)
01/06: New stop loss @ 64.90

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


Caterpillar - CAT - close: 93.39 change: -0.34

Stop Loss: 92.25
Target(s): 99.80
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see trigger

Comments:
01/10 update: CAT faded lower toward the bottom of its trading range (near 92.50) before paring its losses. Currently our plan it to buy calls on a breakout higher with a trigger at $95.15. We might want to reconsider and buy calls on a dip near $90.00 instead. If triggered our exit target is $99.80. More aggressive traders could try the January calls instead.
The Point & Figure chart for CAT is bullish with a $118 target.

Trigger @ 95.15

- Suggested Positions -

Buy the 2011 February $100 calls (CAT1119B100) current ask $1.31

Entry on January xxth at $ xx.xx
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume = 4.2 million
Listed on January 5th, 2010


Cummins Inc. - CMI - close: 111.04 change: +1.26

Stop Loss: 108.75
Target(s): 114.85 117.50
Current Option Gain/Loss: -41.9% and - 6.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/10 update: CMI gave us another fright this morning. The stock opened lower at $109.01 and dipped to $108.87 before bouncing. CMI settled with a +1.1% gain, outperforming the major indices. I would hesitate to open new bullish 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

01/04: New entry point on afternoon bounce.
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: 67.98 change: +0.19

Stop Loss: 64.45
Target(s): 69.25
Current Option Gain/Loss: +82.8% and +72.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/10 update: Railroad stocks rallied again although gains in CSX were minor. Shares of CSX edged past the $68.00 level and then just hovered there. Broken resistance near $65.00 should be new support. I am not suggesting new positions at this time.

- 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

01/08: New stop loss @ 64.49
01/05: Adjusted targets to just one at $69.25.
01/04: New stop loss @ 62.75
01/04: New entry point on afternoon bounce near $65
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: 44.96 change: +0.15

Stop Loss: 43.75
Target(s): 44.90, 48.00
Current Option Gain/Loss: +175.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/10 update: CTL produced a minor oversold bounce after the sell-off late last week. Our position looks a lot more dangerous given the breakdown last week. Readers may want to exit early. I am not suggesting new bullish positions.

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


Deere & Co - DE - close: 84.58 change: +0.24

Stop Loss: 78.95
Target(s): 84.50, 89.75
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
01/10 update: DE was showing some relative strength midday with another rally toward last week's highs. Yet DE ran out of steam at $85.30. We currently have two separate entry points to launch positions. Keep your position size small no matter which entry point is hit.

If DE hits our trigger at $80.50 we want to use a tight stop loss at $78.95.

If DE hits our new breakout trigger at $85.55 then we want to use a stop loss at $81.49.


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)

- OR - BREAKOUT TRIGGER @ 85.55

Buy the 2011 February $90 calls (DE1119B90)

Entry on January 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: 56.33 change: +0.08

Stop Loss: 53.75
Target(s): 53.95, 58.50
Current Option Gain/Loss: + 88.0% and +19.3%
Time Frame: 5 to 6 weeks
New Positions: see below

Comments:
01/10 update: ESRX experienced a meager gain on low volume. I don't see any changes from my weekend comments. There is very short-term support near $55.50 and then the next level of support is $54.00. I would hesitate to launch new bullish positions at this time. If you're holding January calls you will want to seriously consider exiting now to lock in a gain. Currently our final target is $58.50. More aggressive traders may want to aim for $60.00.

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

01/06: New stop loss @ 53.75
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


FedEx Corp. - FDX - close: 94.06 change: +0.91

Stop Loss: 90.90
Target(s): 96.75, 99.75
Current Option Gain/Loss: -80.0% and -13.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/10 update: What's going on here? Has FDX finally awakened from its stupor? Shares displayed some strength this morning and managed to close above the $94 level this afternoon. Is FDX finally ready to run again after a six-week consolidation sideways? The high today was $94.98. I would be tempted to buy calls on a breakout past $95.00 even though FDX has some resistance at $96.00. Keep your position size small if you do. Readers may want to raise their stops toward lat week's low of $91.80.

The January $100 calls hit a high of 23 cents. Over the weekend I suggested we exit if the option can hit 40 cents, just to recoup some of our capital.

- 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

01/08: New exit strategy for January calls. Try to exit at 40 cents or more.
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: 169.76 change: -0.93

Stop Loss: 165.75
Target(s): 171.00, 179.50
Current Option Gain/Loss: + 25.4% and +31.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/10 update: Financial stocks were drifting lower today. GS closed under the $170.00 mark. That suggests we could see this stock correct down toward the $166-165 area soon. At the moment our stop loss is at $165.75. If we see a bounce from $166 I would consider it another entry point (bear in mind it could be a short-term trade since our bias for the second half January is bearish).

- 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


Illumina Inc. - ILMN - close: 65.95 change: +0.29

Stop Loss: 63.40
Target(s): 69.50
Current Option Gain/Loss: -11.6%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/10 update: It was a quiet day for ILMN. The stock opened at $65.75 and spent the day consolidating sideways. There is no change from my weekend comments. I would still consider small bullish positions here. Keep in mind that ILMN is due to report earnings in early February and we normally do not want to hold over the earnings report.

- Suggested Positions -

Long the 2011 February $70.00 call (ILMN1119B70) Entry @ $2.15

Entry on January 10th at $65.75
Earnings Date 02/03/11 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on January 8th, 2010


International Business Machines - IBM - close: 147.64 change: -0.29

Stop Loss: 144.75
Target(s): 152.50, 159.50
Current Option Gain/Loss: - 0.0%, and - 0.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/10 update: IBM is moving sideways, which is bad news for our January calls. Thee is no change from my weekend comments. Readers may want to wait for a dip closer to $146.00 before initiating new positions. I would buy February or April calls. Keep in mind that IBM is due to report earnings on January 18th and we do not normally want to hold over an earnings announcement. 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

01/06: New stop loss @ 144.75
01/03: New targets @ $152.50, and $159.50

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


Juniper Networks - JNPR - close: 37.61 change: +0.02

Stop Loss: 35.75
Target(s): 39.90, 41.75
Current Option Gain/Loss: -30.7% and + 4.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/10 update: JNPR bounced from its morning lows near $37.00. I'd be tempted to buy calls now on the rebound but readers might want to use a tighter stop loss (maybe near $36.70ish). Don't buy January calls.

We want to sell all of our January calls and half of our April calls at $39.90.

- 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
01/06: New stop loss @ 35.75, new 1st target @ 39.90.
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: 73.59 change: -0.04

Stop Loss: 69.80
Target(s): 73.25, 74.90(or 200-dma)
Current Option Gain/Loss: +65.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/10 update: LMT is holding on to its gains from late last week. That alone is somewhat impressive. Shares remain short-term overbought here. I would expect a pull back toward the $72 area.

We want to exit our March calls at the 200-dma, currently near 74.80. I am not suggesting new positions at this time.

- Remaining Positions -

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

01/06: New stop loss @ 69.80
01/06: Sell the rest of our January $70 calls now @ $3.30 (+88%)
01/06: Target Hit @ 73.25. Jan. $70 call @ 3.35 (+91%). March $75 call @ 1.65 (+65%)

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: 96.97 change: +0.99

Stop Loss: 92.49
Target(s): 99.90
Current Option Gain/Loss: - 0.0% and +18.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/10 update: MICC saw some volatility this morning with a gap down and spike toward the $94.00 level. This could have been a reaction to weakness in overseas markets. Fortunately, traders bought the dip near support at $94.00 and shares closed higher on the session. The move looks like a new bullish entry point. If you are aiming for the 2010 highs near $102-103 then I might go ahead and buy new calls here. If you're going to exit with the newsletter at $99.90 then I probably would not buy calls here.

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

01/06: New stop loss @ 92.49
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


QUALCOMM Inc. - QCOM - close: 51.69 change: -0.04

Stop Loss: 48.75
Target(s): 54.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see trigger

Comments:
01/10 update: There is no change from my weekend comments on QCOM. We are waiting for a dip into the $50.75-50.00 zone as our bullish entry point. Officially our trigger will be $50.75 but traders could wait for a dip closer to $50.00. there is some support near $49.00 so we'll put our stop loss at $48.75. Our target is $54.75. However, earnings are less than three weeks away and we normally want to avoid holding over an earnings report.
FYI: The Point & Figure chart for QCOM is bullish with an $84 target.

Trigger @ 50.75

- Suggested Positions -

Buy the 2011 February $52.50 calls (QCOM1119B52.5) current ask $1.65

Entry on January xxth at $ xx.xx
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume = 12.1 million
Listed on January 8th, 2010


Transocean Ltd. - RIG - close: 73.78 change: -1.26

Stop Loss: 68.49
Target(s): 72.50, 78.25
Current Option Gain/Loss: +44.0% and +51.6%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/10 update: Oil service stocks were some of the worst performers on Monday and RIG lost -1.6%. I'm not suggesting new bullish positions at this time. Our final target is $78.25 but I'm considering an adjustment toward $79.75 instead.

If you are holding the January calls you will want to strongly consider an early exit now to lock in a gain!

- 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

01/08/11 New stop loss @ 68.49
01/05/11 New stop loss @ 67.85
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


Research In Motion - RIMM - close: 62.09 change: +0.41

Stop Loss: 57.49
Target(s): 64.75, 67.50
Current Option Gain/Loss: + 6.4%, and +12.7%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/10 update: RIMM gave us another entry point today with the dip near $60 this morning. The stock rebounded off its intraday lows to post a gain and outperform the major market indices. I've been suggesting readers wait for a dip near $60 and we got it. More conservative traders might want to consider a stop loss closer to $59.00. There is some short-term resistance at $64.00 but I'm setting our first target at $64.75.

- Suggested Positions -

Long the 2011 February $62.50 calls (RIMM1119B62.5) Entry @ $2.47

- or -

Long the 2011 March $65.00 calls (RIMM1119C65) Entry @ $2.35

Entry on January 6th at $61.00
Earnings Date 03/31/11 (unconfirmed)
Average Daily Volume = 9.9 million
Listed on January 5th, 2010


Stanley Black & Decker, Inc. - SWK - close: 65.75 change: +0.25

Stop Loss: 64.75
Target(s): 69.90, 72.45
Current Option Gain/Loss: -85.7%, and -55.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/10 update: SWK almost stopped us out today. Shares dipped to $64.83 this morning before bouncing. The $65 area should be support so traders could use this dip near $65 as a new entry point but I've grown a lot more cautious on this trade. If you do, keep your positions size pretty small (don't buy January calls). Currently our stop loss is at $64.75. Keep your position size small to limit your risk.

- Suggested Positions -

Long the 2011 January $70 calls (SWK1122A70) Entry @ $0.70

- or -


01/06: New stop loss @ 64.75

Entry on January 4th at $68.15
Earnings Date 01/27/11 (confirmed)
Average Daily Volume = 1.6 million
Listed on January xxth, 2010


Union Pacific - UNP - close: 97.36 change: +2.18

Stop Loss: 92.45
Target(s): 96.25, 99.75
Current Option Gain/Loss: +113.8% and + 91.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/10 update: Target achieved. Railroad stocks continued to show relative strength on Monday and UNP added another +2.2% to close at new all-time highs. The breakout past resistance near $95 is definitely bullish. Shares opened at $95.82 and hit $98.02 at its high. Our first target to take profits was hit at $96.25. The January $95 calls were trading near $2.30 (+51%) when UNP hit our trigger. The February $95 calls were trading near $3.60 (+54%). At their best levels the calls hit $3.77 and $4.90, respectively. Right now our final target is $99.75 but more aggressive traders may want to aim higher. Bear in mind that UNP is due to report earnings on January 20th and that the $100.00 mark is normally round-number, psychological resistance. I am not suggesting new positions at this time. Please note our new stop loss at $92.45.

- 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

01/10/11: Target hit. Jan. call @ 2.30 (+51%), Feb. call @ 3.60 (+54%)
01/10/11: New stop loss @ 92.45
01/08/11: New stop loss @ 91.40
01/04/11: New entry point on afternoon bounce.
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

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: 72.14 change: -0.01

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:
01/10 update: UPS is still consolidating sideways and underperformed its rival FDX today. I still don't see any changes from my prior comments.

We might want to consider a breakout entry point on a move past resistance at $74.00. However, at the moment the plan is to wait for a dip near $70.00 with a trigger to buy calls at $70.25.

Trigger @ 70.25

Suggested Position:
Buy the 2011 February$70.00 call (UPS1119B70)

- 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


Cimarex Energy Co. - XEC - close: 91.65 change: +0.90

Stop Loss: 87.25
Target(s): 94.25, 99.50
Current Option Gain/Loss: +37.1%, and + 6.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/10 update: Over the weekend I suggested we jump in and launch small bullish positions in XEC. The stock opened at $90.49. Shares dipped to $88.97 intraday but rallied back toward its highs for a +0.99% gain on the session. I would still consider new positions now. Our targets to take profits are at $94.25 and $99.50. I want to reiterate that we want to keep our position size pretty small to limit our risk.

- Suggested Positions -

Long the 2011 February $95 calls (XEC1119B95) Entry @ $1.75

- or -

Long the 2011 March $95 calls (XEC1119C95) Entry @ $3.10

Entry on January 10th at $90.49
Earnings Date 02/17/11 (unconfirmed)
Average Daily Volume = 907 thousand
Listed on December 1st, 2010