Option Investor
Newsletter

Daily Newsletter, Tuesday, 2/15/2011

Table of Contents

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

Market Wrap

Market Pauses To Reload

by Jim Brown

Click here to email Jim Brown
The markets rested ahead of the FOMC minutes on Wednesday after weaker economic reports suggested the recovery was not yet self-sustaining.

Market Statistics

Today was a busy day for economics in both the U.S. and the world. In the U.S. the market opened sharply lower after the retail sales report for January showed a lower than expected rise. Sales came in at +0.3% and half of the +0.6% in December. Estimates were for a rise of +0.5%.

Building supply stores saw sales decline -2.9% followed by a drop in sporting goods of -1.3%. Both of those sectors were more than likely hit by the impact of the snowstorms. Sales were supported by the rise in gasoline prices. That is not exactly where you want to see a rise in sales.

Year over year growth was very strong with a +8% gain. Core sales have risen to levels not seen since 2006.

This was a headline event where traders reacted to the headline and not the bullish internals of the report.

The weekly chain store sales snapshot showed sales decline -1.4% last week and that was the fifth weekly loss in six weeks. Again weather was a primary factor in those declines. As sprig weather arrives we should see a period of pent up buying that will be strong.

Another downer for the market was the NAHB Housing Market Index, which came in at 16 for the fourth consecutive month. Any number under 50 shows contraction. Analysts had hoped the homebuilders would see sentiment improving as we head into spring. Personally I don't know how sentiment could have risen given the blizzards. You can't build if you can't get to the worksite and shopper traffic had to slow with two feet of snow on the ground. I think the reaction to this number was overdone and we are very close to a sharp move higher.

The qualification to that outlook is still the massive number of foreclosures in the pipeline and the stricter qualifications required by mortgage companies.

NAHB Chart

On the positive side the NY Empire Manufacturing Survey was stronger than expected at 15.4 and the highest level since June. Internals were not as strong as in prior months but still decent. New orders declined to 11.8 from 12.4 and inventories increased to 9.6 from 4.2 and the fastest pace of accumulation since April. Backorders improved for the third consecutive month but remained in contraction territory at -4.8. That was at a low of -24.7 in November. The payroll components were flat. Overall the report was mildly bullish.

Wednesday has a flurry of reports with the FOMC minutes the most critical to the market. I suspect today's decline has more to do with option expiration and the approach of the FOMC minutes than worries over retail sales and profit warnings from FedEx.

Economic Calendar

Another drag on the market at the open was FedEx. They cut their Q1 guidance due to higher fuel costs and severe weather that disrupted deliveries. The new forecast was for profits of 70-90 cents and down from an earlier prediction of 95-cents. Analysts were expecting an average of $1.06. FedEx said fuel prices were up +13% since their earlier forecast. For a company with 81,000 vehicles including nearly 1,000 aircraft the price of fuel is a major concern. It is only going to get worse in the years ahead.

Despite the guidance cut and its impact on the market the stock of FDX rallied +2%. The gain came after FedEx CEO Alan Graf said the company continues "to see strength in our base business across all transportation segments and geographies."

FDX Chart

JDS Uniphase (JDSU) has been charging ahead since earnings back in early February. It appeared to have reached the limit of its rope today. JDSU received multiple downgrades on Tuesday with Bernstein cutting its rating to hold from outperform. JDSU shares had risen +93% since early January. Most comments were based on over valuation concerns given the big gains. JDSU shares declined -10%.

JDSU Chart

The NYSE Euronext - Deutsche Boerse merger was formally announced after several days of rumors. Traders sold the news on both sides of the ocean. The combination of the two exchanges would create the largest global exchange. The NYSE is already a leader in derivatives, the largest capital market and a major provider of technology services.

If the merger is concluded the current DB shareholders would own 60% of the merged company and NYSE shareholders 40%. However, there will be some reservations by regulators. Some analysts believe lawmakers will not want to have a foreign company in charge of our markets. There are multiple jurisdictions in Europe that will also have to approve the deal. This deal is far from done.

NYSE Chart

After the bell Dell reported earnings of 53-cents compared to estimates of 37-cents. This is a major beat by Dell although revenues were fractionally light at $15.69 billion. Q4 operating margins were good at 7.3%, up from 3.4% a year ago. Michael Dell predicted a 5% to 9% rise in revenue in the current year. On the call the CFO reiterated Dell was going to remain a public company. This is an effort to squash the rumor Michael Dell was thinking about taking it private once again.

This was a good report by Dell and suggests the turnaround, which has been in progress for a couple of years now is proceeding nicely. Dell said the lower cost of components and rising corporate sales were the biggest profit drivers. Sales to small and medium businesses rose +12%. Unfortunately sales of PCs to retail buyers declined -8%.

Shares of Dell rose +5% in after hours.

Dell Chart

Building supply stores may have had an ugly January but Home Depot (HD) still plans on hiring 60,000 seasonal workers for the spring shopping season. HD said that was comparable to hiring in 2010. Consumers have held off on making needed repairs to their homes during the recession and retailers like HD expect a burst of pent up buying this spring.

Home Depot Chart

U.S. WTI crude oil declined again to an intraday low of $83.85 before rebounding slightly at the close. The talking heads on TV assigned a variety of causes to the decline but I suspect it was mostly due to expiration pressures since the contract expires next Tuesday. There is very little available storage left at Cushing so speculators can't store the oil until it is sold. This forces prices lower and that is what we are seeing now.

In the API inventory report tonight crude levels dropped by 354,000 barrels. Analysts were expecting a gain of 2.4 million.

Brent crude declined slightly but remains at $102.

WTI Crude Futures

Brent Crude Futures

The biggest news today was probably the market decline. The Dow was down -75 points at its lows and commentators were using terms like two and a half week lows. It has been so long since we had a decent decline without an external event like Egypt that they did not know how to act. There was another parade of bulls calling for highs on the S&P at 1550 or higher based on a PE of 15 and earnings of $96 on the S&P. There was also a parade of analysts warning not to commit new money now because of the impending correction.

Regardless of your market bias there was somebody singing your tune on TV today. The S&P declined at the open to 1325, rebounded intraday to 1330 and then tested 1325 again prior to the close at 1328. If you picked up anything from that last sentence it should have been the very low range of roughly six points after the gap at the open and the immediate rebound from 1325 on both tests. The bulls did not vanish. They just stepped back ahead of Dell's earnings and the FOMC minutes on Wednesday.

You may remember last week when the S&P tried for four days to move over resistance at 1320. Now that we are well over that level we have had three tests of new support at 1324 and all have held. The first was noon on Friday and then twice today five hours apart. From my viewpoint nothing has changed. I believe the bulls are still in buy the dip mode but for that to work you have to have dips. With the worry over the FOMC minutes it was understandable they didn't rush in on high volume today. Let the market cool off and hopefully get a chance to buy at a lower level.

S&P-500 Chart - Daily

S&P-500 Chart - 15 Min

The Dow may have been down -75 points at its lows but there was rock solid support at that 12,200 level. This should by our line in the sand for the Dow. As long as the index remains over that level the trend has not changed. Actually it could move below 12,200 without breaking the trend but it would damage sentiment. We could dip all the way to 11,750 and still be in an uptrend but I don't want to be holding during that drop.

The longer-term uptrend should be measured by the 21-day average at 12,040 today. A break of that level would cancel the dip buy strategy until the index moves back over the 21-day again.

Dow Chart

Dow Chart - Daily

The Nasdaq gave up -13 points but new psychological support at 2800 held on two tests. This is far from a major support level but it is comforting to see it appear so quickly after the break through last week. Real support is 2780 and 2765. The Nasdaq had a decent bout of profit taking back in late January and then a decent period of consolidating once the rebound began. Unless there is some new event to crush sentiment in our near future the weakness from today should pass.

Nasdaq Chart - 15 Min

Nasdaq Chart - Daily

The Russell was the biggest percentage lower for the day at .7% but given the rally over the last two weeks it was a drop in the bucket. The index punched through uptrend resistance on Friday and followed through on Monday to confirm. Today's pause at 820 was nothing to worry about. I would begin worrying on a dip below 805.

Russell Chart - Daily

In summary I don't believe the buy-the-dip trade is dead. Until the indexes break support at the levels I indicated above the declines are just dips. It is funny how some market commentators see every routine decline as the beginning of the big crash. Eventually they will be right but being right once out of 365 predictions has got to be painful.

We did not really have any material volatility last week as the markets consolidated in a range. This means the normal option expiration action was transferred over to this week and I believe today's decline was due to those positions being closed.

Volume across all the exchanges has been very low this week with 6.5 billion shares on Monday and 6.9 billion today. There is ZERO conviction by the sellers and no fear among the bulls.

Tomorrow's big event is the FOMC minutes and debate over what the phraseology really means. I don't expect anything negative since shocking the market now would contrary to the main QE2 objective of building it up. This is the minute of the Jan 25th meeting so the discussions would have been over December and early January economics.

Trade the trend until the trend changes.

Jim Brown

Send Jim an email

Register for my OilSlick.com newsletter and receive free daily updates and commentary on the energy sector. Register here


New Option Plays

Business Software

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate, check out FFIV and MMM.

FFIV has made a very successful oversold bounce right back to resistance. On a purely technical basis the stock just failed at resistance near $130.00 with resistance at its 50-dma, and on top of that it produced a bearish engulfing candlestick pattern today. Very aggressive and nimble traders might want to speculate on a short-term move lower here.

MMM has been showing strength. On a short-term basis MMM looks overbought but a dip or bounce near the $90 area might be a new entry point. The stock could make a run at the $97.00-100.00 zone.

- James


NEW DIRECTIONAL CALL PLAYS

Cognizant Technology - CTSH - close: 76.50 change: +0.12

Stop Loss: 74.45
Target(s): 84.50, 89.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see Trigger

Company Description

Why We Like It:
CTSH has spent the last several weeks trying to breakout higher past resistance in the $76-77 zone. It's getting closer to a successful breakout. Given its long-term up trend a move past $77 could start another leg higher. I am suggesting a trigger to buy calls at $77.55. If triggered our targets are $84.50 and $89.00. The Point & Figure chart for CTSH is bullish with a $105 target.

Trigger to buy calls @ 77.55

- Suggested Positions -

Buy the March $80 call (CTSH1119C80) current ask $0.85

- or -

Buy the April $80 call (CTSH1116D80) current ask $1.60

Annotated Chart:

Entry on February xxth at $ xx.xx
Earnings Date 05/04/11 (unconfirmed)
Average Daily Volume = 2.4 million
Listed on February 15th, 2010


In Play Updates and Reviews

DCI Rallies Into Earnings

by James Brown

Click here to email James Brown

Editor's Note:

Our DCI play showed some relative strength ahead of earnings. Meanwhile the rest of the market was drifting lower after new multi-year highs yesterday. Our NKE buy-calls-on-the-dip trade has been opened.

-James

Current Portfolio:


CALL Play Updates

Ashland Inc. - ASH - close: 58.96 change: -0.21

Stop Loss: 54.95
Target(s): 63.00
Current Option Gain/Loss: + 3.5%, and -13.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/15 update: The market's mild decline produced a similar move in ASH. I would still consider new positions here or on a dip near $58.00. We'll use a stop loss at $54.95 but more conservative traders could probably get away with a tighter stop loss. Our first target is the $63.00 level.

The Point & Figure chart for ASH is bullish with a $83 target.

- Suggested Positions -

Long the March $60 calls (ASH1119C60) Entry @ $1.40

- or -

Long the April $60 calls (ASH1116D60) Entry @ $2.55

Entry on February 14th at $58.30
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on February 12th, 2010


Caterpillar Inc. - CAT - close: 103.00 change: -0.26

Stop Loss: 97.90
Target(s): 104.75, 107.50
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see trigger

Comments:
02/15 update: CAT is still hanging tough and not seeing a lot of profit taking. Currently our plan is to buy calls on a dip at $101.00 with a stop loss at $97.90.

Trigger @ 101.00

Buy the March $105 calls (CAT1119C105) current ask $2.92

02/12 Adjusted our trigger, targets, stop loss and strike price.

Entry on February xxth at $ xx.xx
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 6.2 million
Listed on February 5th, 2010


Clean Harbors, Inc. - CLH - close: 92.83 change: -0.16

Stop Loss: 87.95
Target(s): 94.95, 99.00
Current Option Gain/Loss: +13.8%
Time Frame: 12 days
New Positions: see below

Comments:
02/15 update: CLH garnered some bullish analyst comments and a new $100 price target. This news was enough to life shares briefly over the $94.00 level but the high was only $94.36. I don't see any changes from my prior comments. I would not be surprised to see another dip into the $92-90 zone, which we could use as a new bullish entry point. More conservative traders might want to consider a stop loss closer to the $90.00 level.

Investors should note that the most recent data lists short interest at 11.3% of the very small 23.1 million-share float. That is a good recipe for a short squeeze higher. Please note that we'll plan on exiting ahead of the earnings on Feb. 23rd (still an unconfirmed date).

- Suggested Positions -

Long the March $95.00 call (CLH1119C95) Entry @ $1.80

Entry on February 11th at $92.25
Earnings Date 02/23/11 (unconfirmed)
Average Daily Volume = 181 thousand
Listed on February 10th, 2010


Coach Inc. - COH - close: 57.37 change: -0.60

Stop Loss: 54.40
Target(s): 58.25, 62.00
Current Option Gain/Loss: +42.8%, and + 82.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
02/15 update: COH's rally is losing steam under the $58.00 level. Shares look poised to retreat back toward the $56-55 zone. There is no change from my prior comments. Conservative traders may want to take profits now. Our first exit target is $58.25. Our final exit target is $62.00. No new positions at this time. Keep in mind that the $60.00 level could end up being round-number, psychological resistance.

- Suggested Positions -

Long the 2011 March $55.00 calls (COH1119C55) Entry @ $2.10

- or -

Long the 2011 March $57.50 calls (COH1119C57.5) Entry @ $0.85

02/12: Adjusted 1st target to $58.25
02/12: New stop loss @ 54.40
02/08: New stop loss @ 53.49

Entry on February 7th at $55.35
Earnings Date 04/20/11 (unconfirmed)
Average Daily Volume = 4.1 million
Listed on January 31st, 2011


Costco Wholesale Corp. - COST - close: 74.33 change: -0.33

Stop Loss: 72.95
Target(s): 79.75
Current Option Gain/Loss: Unopened
Time Frame: 3+ weeks
New Positions: Yes, see Trigger

Comments:
02/15 update: COST is slipping toward short-term support near $74.00 and the stock should have additional support near $73.00. I would be tempted to buy calls on a dip or bounce near $73.00 with a relatively tight stop. However, for now our official trigger to launch positions remains at $75.50. If triggered our target is $79.75. We will plan to exit ahead of COST's early March earnings report. That gives us three or four weeks.

The Point & Figure chart for COST is bullish with an $88 target.

Trigger @ 75.50

- Suggested Positions -

Buy the March $75 calls (COST1119C75) current ask $1.71

Entry on February xxth at $ xx.xx
Earnings Date 03/02/11 (confirmed)
Average Daily Volume = 5.8 million
Listed on February 7th, 2010


Eastman Chemical Co. - EMN - close: 91.66 change: -2.02

Stop Loss: 90.75
Target(s): 99.75, 104.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see Trigger

Comments:
02/15 update: Ouch! EMN was a big underperformers on Tuesday with a -2.1% drop. Yet shares remain inside the sideways consolidation. I am suggesting we buy calls at $94.60. If triggered our targets are $99.75 and $104.00. Expect the $100.00 level to initially act as overhead resistance. The Point & Figure chart for EMN is bullish with a $133 target.

Trigger @ 94.60

- Suggested Positions -

Buy the March $95 calls (EMN1119C95) current ask $2.20

Entry on February xxth at $ xx.xx
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 946 thousand
Listed on February 14th, 2010


Fastenal Co. - FAST - close: 62.85 change: -0.24

Stop Loss: 59.40
Target(s): 64.75, 67.25
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see Trigger

Comments:
02/15 update: We are waiting for FAST to pull back and while it looks like shares are ready to roll over it's not making any progress. We have a trigger to buy calls on the dip at $61.65, with a stop loss at $59.40. Our targets are $64.75 and $67.25. FYI: The Point & Figure chart for FAST is bullish with a $73 target. Readers may want to keep in mind that the most recent data listed short interest at 11.4% of the 132 million-share float.

Trigger @ 61.55

- Suggested Positions -

Buy the March $60 calls (FAST1119C60) current ask $3.30

- or -

Buy the March $65 calls (FAST1119C65) current ask $0.75

02/12 New trigger @ 61.55, new stop loss @ 59.40

Entry on February xxth at $ xx.xx
Earnings Date 04/12/11 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on February 8th, 2010


Fluor Corp. - FLR - close: 73.31 change: -0.90

Stop Loss: 69.25
Target(s): 77.25, 79.75
Current Option Gain/Loss: Unopened
Time Frame: 7 trading days
New Positions: Yes, see trigger

Comments:
02/15 update: The rally appears to have stalled at round-number resistance near $75.00. FLR gave up -1.2% today. I am suggesting a trigger to buy calls at $72.00.

Please note that this is a short-term trade. We only have a few days. FLR is due to report earnings on Wednesday, Feb. 23rd before the opening bell. Therefore we will plan to exit on Tuesday, Feb. 22nd at the closing bell, if FLR hasn't hit our exit target before then.

The Point & Figure chart for FLR is bullish with an $84 target.

Trigger @ $72.00

- Suggested Positions -

Buy the March $75.00 calls (FLR1119C75) current ask $2.50

Entry on February xxth at $ xx.xx
Earnings Date 02/23/11 (unconfirmed)
Average Daily Volume = 2.0 million
Listed on February 12th, 2010


Joy Global Inc. - JOYG - close: 94.07 change: -1.67

Stop Loss: 87.40
Target(s): 97.25, 99.85
Current Option Gain/Loss: - 5.1%, and -13.2%
Time Frame: 3 weeks
New Positions: see below

Comments:
02/15 update: JOYG can be a volatile stock. Shares gave up -1.7% with a dip toward short-term support near $94. Yesterday I suggested readers could buy calls on a dip near $94 but if you're patient we might see a better entry point near $92 (or even $90).

I do consider this a more aggressive, higher-risk trade because our stop loss is a little wide. You could try a tighter (more conservative) stop loss but JOYG can see sudden bouts of volatility. Our upside targets are $97.25 and $99.85.

The Point & Figure chart for JOYG is bullish with a $113 target.

- Suggested Positions -

Long the March $95 calls (JOYG1119C95) Entry @ $3.85

- or -

Long the April $100 calls (JOYG1116D100) Entry @ $3.46

Entry on February 14th at $94.44
Earnings Date 03/02/11 (unconfirmed)
Average Daily Volume = 1.4 million
Listed on February 12th, 2010


Nike Inc. - NKE - close: 85.55 change: -0.22

Stop Loss: 83.85
Target(s): 88.00, 89.90
Current Option Gain/Loss: +15.3%, and +13.8%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/15 update: Our buy-the-dip trade in NKE is now open. As expected shares did finally hit support near $85. The stock actually dipped to $84.62. Our trigger to buy calls was hit at $85.25 first thing this morning. If you missed the entry point I would still buy calls now at current levels. Our targets are $88.00 and $89.90.

- Suggested Positions - (Small Positions Only!)

Long the March $85 calls (NKE1119C85) Entry @ $2.09

- or -

Long the April $90 calls (NKE1116D90) Entry @ $0.94

chart:

Entry on February 15th at $85.25
Earnings Date 03/17/11 (unconfirmed)
Average Daily Volume = 2.2 million
Listed on February 9th, 2010


PACCAR Inc. - PCAR - close: 52.54 change: -0.10

Stop Loss: 49.45
Target(s): 53.45
Current Option Gain/Loss: +66.6%, and +57.1%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
02/15 update: Traders bought the dip at $52.00 this morning and PCAR spent the rest of the day consolidating sideways. Currently our final exit target is $53.45 but more aggressive traders could aim higher. I am not suggesting new positions at this time.

Prior Comments:
This should be a short-term trade. Aggressive traders could use February calls. I'm listing both February and March. Just remember that Februarys expire soon. Note: A lot of the option strikes are odd. PCAR must have had some sort of dividend.

Open Small Positions Now

Long the February $49.70 call (PCAR1119B49.7) Entry @ $1.50

- or -

Long the March $55 call (PCAR 1119C55) Entry @ $0.35

02/12 Adjusted our final exit target to $53.45

Entry on February 7th at $50.60
Earnings Date 04/20/11 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on February 5th, 2010


Quality Systems Inc. - QSII - close: 79.53 change: -0.70

Stop Loss: 77.95
Target(s): 84.90, 89.00
Current Option Gain/Loss: -41.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/15 update: The bounce attempt failed this morning and QSII appears headed for the bottom of its trading range near the $78.75 area. Readers may want to wait for a dip near $78.75 before considering new bullish positions.

The Point & Figure chart for QSII is bullish with a $119 target.

- Suggested Positions -

Long the March $85 calls (QSII1119C85) Entry @ $0.85

Entry on February 14th at $80.75
Earnings Date 05/31/11 (unconfirmed)
Average Daily Volume = 202 thousand
Listed on February 12th, 2010


The Toronoto-Dominion Bank - TD - close: 80.14 change: -0.05

Stop Loss: 75.90
Target(s): 84.00, 89.00
Current Option Gain/Loss: +29.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/15 update: The banking indices suffered widespread declines but profit taking in TD was pretty minor. Shares actually spiked toward $81.00 this morning and settled with a fractional loss. There is a good chance TD will retest the $79-78 zone and I would use that dip as an entry point. Our targets are $84 and $89. We will plan to exit ahead of the early March earnings report (unconfirmed date).

FYI: The Point & Figure chart for TD is bullish with a $98 target.

- Suggested Positions -

Long the March $80.00 call (TD1119C80) Entry @ $1.35

Entry on February 11th at $78.89
Earnings Date 03/03/11 (unconfirmed)
Average Daily Volume = 583 thousand
Listed on February 10th, 2010


Proshares Ultra(long) Russell 2000 - UWM - close: 46.82 change: -0.47

Stop Loss: 42.99
Target(s): 49.75, 54.00
Current Option Gain/Loss: -12.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Small Positions - UWM Position -

Long the April $48 calls (UWM1116D48) Entry @ $2.75

02/14 UWM opened at $46.90. Option opened @ $2.75

iShares Russell 2000 - IWM - close: 82.02 change: -0.47

Stop Loss: 78.65
Target(s): 84.95, 87.25
Current Option Gain/Loss: -10.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/15 update: Small caps were not exempt from the profit taking today. Readers can use this dip in the UWM and IWM as an entry point or cross your fingers and hope we get another dip tomorrow. If you're watching the IWM then look for a dip into the $81-80 zone. If you're watching the UWM then watch for a dip into the $46-45 zone.

Small Positions - IWM Position -

Long the April $84 calls (IWM1116D84) Entry @ $1.92

02/14 IWM opened @ 82.11. Option opened @ 1.92

UWM Entry on February 14th at $46.90
IWM Entry on February 14th at $82.11
Listed on February 12th, 2010


CBOE Market Volatility Index - VIX - close: 16.37 change: +0.42

Stop Loss: N/A
Target(s): 24.00, 28.00
Current Option Gain/Loss: -56.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
02/15 update: The VIX posted a gain, thanks to the market's decline, but the VIX remains near multi-year lows. I don't see any changes from my prior comments.

Over the weekend I suggested (again) that more conservative traders consider an early exit. Or you could keep this trade as some sort of hedge against a sudden market decline but bear in mind that this option expires on March 16th. I am not suggesting new positions at this time.

Earlier Comments:
Just because the VIX bounced near the 15.00-15.50 level in the past doesn't mean it can go crashing through it but this would be a good area to speculate on a rebound. I will point out that between 2005 and 2006 the VIX was pretty much dead, limping along the 10.00 area for two years.

- Suggested Positions -

Long the 2011 March $22.50 calls (VIX1116C22.5) Entry @ $1.60

Entry on January 26th at $17.00
Earnings Date --/--/--
Average Daily Volume =
Listed on January 25th, 2010


PUT Play Updates

Google Inc. - GOOG - close: 624.15 change: - 4.00

Stop Loss: n/a
Target(s): n/a
Current Option Gain/Loss: see below
Time Frame: 1 month
New Positions: No

THIS IS A STRANGLE TRADE (not a simple put play)

Comments:
02/15 update: GOOG erased yesterday's gain. There is no change from my prior comments. Our strangle will likely expire worthless. No new strangle positions at this time.

STRANGLE TRADE: Buy an out of the money CALL and PUT

STRANGLE #2 (February) initial cost $15.10, currently: $0.10 (-99.3%)

2011 February $680 call (GOOG1119B680) Entry @ $6.20

- AND -

2011 February $580 put (GOOG1119N580) Entry @ $8.90

01/22: Exit the January strangle at the open.

Entry on January 20th at $626.77
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on January 19th, 2010


iShares Russell 2000 Index - IWM - close: 82.02

Stop Loss: --.--
Target(s): 75.00
Current Option Gain/Loss: -100.0%
Time Frame: 1 to 2 weeks
New Positions: see below

Comments:
02/15 update: Unless the Russell 2000 index suddenly sees a big drop lower real soon, nothing is going to save this put play.

Small Position only

Long the 2011 February $77 puts (IWM1119N77) Entry @ $1.65

02/03 Remove the stop loss
01/29 New stop loss @ 80.25

Entry on January 20th at $78.14
Earnings Date --/--/--
Average Daily Volume = 38 million
Listed on January 19th, 2010


CLOSED BULLISH PLAYS

Donaldson Company, Inc. - DCI - close: 61.78 change: +0.59

Stop Loss: 59.75
Target(s): 62.50, 64.75
Current Option Gain/Loss: +38.8%
Time Frame: just a few days
New Positions: see below

Comments:
02/15 update: The trading gods have smiled on us. Shares of DCI continued to rally higher in spite of the market's malaise on Tuesday. Shares almost hit our first target but the rally ran out of steam at $62.40.

It was our plan to exit positions today at the closing bell to avoid holding over earnings.

(Small Positions) - Suggested Positions -

2011 March $60 calls (DCI1119C60) Entry @ $1.80, exit @ $2.50 (+38.8%)

02/15 Planned Exit. Option @ $2.50 (+38.8%)
02/14 New stop loss @ 59.75, Prepare to Exit on Tuesday's close.
02/12 New stop loss @ 58.45
02/10 Time frame for this trade has changed!
02/10 Bullish Trigger hit @ 60.35
02/05 Switched from puts to calls. Trigger @ 60.35

chart:

Entry on February 10th at $60.35
Earnings Date 02/23/11 (unconfirmed)
Average Daily Volume = 208 thousand
Listed on January 31st, 2011