Option Investor
Newsletter

Daily Newsletter, Monday, 2/28/2011

Table of Contents

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

Market Wrap

A Buffett Bounce Tops Middle East Concerns

by Todd Shriber

Click here to email Todd Shriber
The major U.S. indexes, two of them at least, closed February in fine fashion as stocks posted their third straight monthly gain as investors opted to focus on news that was a bit more relevant to the U.S. Some mergers and acquisitions news and positive comments from Warren Buffett helped the S&P 500 gain more than half a percent while the Dow added almost 1% while the Nasdaq eked out a small gain.

Stats Table

Before getting into the stock-specific news, I will quickly review the economic data points that played a role in today's positive market action. The Chicago Purchasing Managers Index (PMI) was one of those bullish data points as the index soared to 71.2 in February from 68.8 in January, easily topping the reading of 67.7 expected by economists. Remember, anything above 50 is considered positive. Going beyond the headline number, there is more good news. The new orders index increased to 75.9, the best reading since late 1983 and the sixth-best reading ever. The production component rose to 78.2, which is the third highest reading in that index’s history, according to Bespoke Investment Group.

The headline number is the best since July 1988 and the backlog reading of 61.8 is tops since July 1994, so overall, this was a very bullish report.

PMI Chart

In other decent economic news, the Commerce Department said personal incomes increased 1% on a seasonally adjusted basis in January, good for the biggest jump in a year and a half. Consumer spending rose 0.2%. Economists were expecting personal incomes to rise 0.9% and consumer spending to increase by 0.4%.

No surprise here. If there was going to be tough economic report to absorb it was bound to involve the housing market and that was the case today. The National Association of Realtors said pending home sales slid 2.8% in January to 88.9 from 91.5 in December.

NAR Chief Economist Lawrence Yun made comments that, while somewhat dour, should not be viewed as a surprise, saying that there is still plenty of inventory that is the result of prior real estate sins that needs to dealt with. ''...there is still an elevated level of shadow inventory of distressed homes from past lending mistakes that need to go through the system,'' Yun said. For those that love economic data reports or trading around those events, this is a busy week on that front, culminating with Friday's February jobs report. As for today's reports, I will say two out of three is not bad at all.

Pending Home Sales

At the stock level, I believe it was good to see U.S. equities get a lift despite the fact that nothing has changed in the Middle East. In fact, one could argue the situation is worse. A mad man still controls Libya, though how strong the threads he is hanging on by appear up for debate. Protests have spread to Oman. The situation in Bahrain is tense and Saudi Arabia could very well see protests of its own in the coming days.

I do not think the timing of Warren Buffett's annual letter to Berkshire Hathaway (BRK-A, BRK-B) shareholders could have been better. The letter was released along with the company's fourth-quarter earnings report on Saturday and it made for some interesting and uplifting weekend reading. Well, I suppose if one is extremely bearish on stocks this was not an uplifting piece of correspondence, but these are the breaks the bears have to deal with.

To say Buffett was overtly bullish in the letter's tone is accurate. The Oracle of Omaha encouraged investors to ignore the doom and gloom prognostications that so many politicians and pundits offer up with such frequency adding that ''Human potential is far from exhausted.''

That was one of the uplifting parts of the letter. As for the stuff that investors and traders care about, Berkshire ended 2010 $38.2 billion in cash, leading Buffett to proclaim that Berkshire's ''elephant gun has been reloaded'' and that his ''trigger finger is itchy.'' In other words, Buffett wants to make another major acquisition, which is not surprising given that Berkshire's last big deal, the acquisition of railroad Burlington Northern Santa Fe, was viewed as a primary catalyst behind the Berkshire's stellar profit report.

I do not want to get in the guessing game of what companies could make for Berkshire takeover targets, but you can read the letter (HERE) and see what types of firms appeal to Buffett. I have included the chart of Berkshire's Class ''B'' shares since they are far more obtainable to most investors than the Class ''A'' shares.

Berkshire B Chart

It was not the most active of Merger Mondays that we have seen, but there was one deal of size worth noting and it may indicate that real estate investment trusts (REITs) are continuing a rebound that started last year.

Nationwide Health Properties (NHP) surged almost 10% after rival Ventas (VTR) announced it would acquire the company for $5.7 billion in stock, a deal that values Nationwide Health at a 15.5% premium to last Friday's closing price. The transaction, which is scheduled to close in the third quarter, only adds to the dominance of Ventas in the healthcare REIT sector as the company is already the largest in that market niche.

Nationwide operates assisted living facilities and nursing homes and Ventas will have more than 1,300 properties in the U.S. and Canada when the deal is completed. Ventas is one of the more acquisitive names in the REIT space, having paid $1.5 billion for Atria Senior Living back in October.

Nationwide Health Chart

One interesting case among stocks that did not participate in the broader market's party was apparel and fragrance maker Kenneth Cole (KCP), which shed more than 7% after the company said CEO Jill Granoff is leaving. Chairman and Chief Creative Officer Kenneth Cole will take over on an interim basis. The company also reported a narrower fourth-quarter loss of $2.7 million, or 15 cents per share, compared with $52 million, or $2.88 per share, a year earlier. Revenue jumped 10% to $107.9 million as same-store sales increased 14.1%.

I say Kenneth Cole's decline today is interesting because it could have been worse if not for the fact that the stock was among the first to have short-selling in it restricted as regulators are coming with new ways to keep short-sales in one name from spreading to others.

Kenneth Cole Chart

It looks like shorts are starting to throw in the towel. Shares borrowed and sold to profit from declines dropped four straight months and represented 3.3 percent of all stock in January, Bloomberg News reported, citing data from NYSE Euronext.

Looking at the charts, the S&P 500 was able to clear some Fibonacci resistance at 1325 to close at 1327 and that could help set the index up for a run back to 1340. Barclays adjusted its S&P 500 forecast to 1450 today, up from 1420 and boosted its profit estimate to $93 from $91. More good economic news will probably lead to more bullish forecast adjustments.

S&P 500 Chart

The Dow Jones Industrial Average endured quite a week last, but failed to present some buyers with the deep dip they were hoping for so that they could do some shopping. The blue-chip index was on the mend again today, taking out some resistance at 12,187 and falling just shy of another resistance point at 12,235. Chevron (CVX) was a catalyst with a gain of 1.6% and other high price-tag constituents such as McDonald's (MCD) and 3M (MMM) also posted noteworthy gains on the day.

Dow Chart

The Nasdaq's performance was not as stellar. The index gained barely more than a point and failed to move above resistance at 2788 after spending a good part of the afternoon in the red. Amazon (AMZN) may have been the culprit as that stock shed 2.3% after UBS lowered its rating to ''neutral'' from ''buy.'' Remember, the iPad 2 announcement is scheduled for Wednesday, and that is a potential catalyst to get the Nasdaq moving more in sync with its counterparts.

Nasdaq Chart

Today's fun fact is especially relevant since Tuesday is the first day of March. The first day of a new month is normally pretty good for stocks as highlighted by this factoid courtesy of Bloomberg News: The three biggest gains in the past seven months -- and 5 of the 25 biggest rallies in 2010 -- occurred on the first trading day of the month.

Before I depart and wish you a good week, I am going to take this opportunity to blow of a bit of market-related steam. I listened to a pair of comments over the weekend that have stuck with me. I will retell the stories in reverse order.

First, I am not a big fan of awards shows, but I go to my parents' house for dinner every Sunday and my mom had the Oscars on. While I never condone political interjections in acceptance speeches at the Oscars, I have to admit I enjoyed it when the directors of the best documentary, a film called the ''Inside Job,'' which chronicles the financial crisis, took the stage and one of them pointed out no executive involved in the crisis is in jail today.

Oddly enough, on Saturday night I was at local watering hole and was standing behind two people that work in the mortgage business from what I could gather of their conversation. Their conversation drifted to Countrywide when both agreed that Countrywide has ''gotten a bum wrap'' and really is a ''good company.'' I promptly finished my adult beverage and left because I was finding it hard to bite my tongue.


New Option Plays

Refiners and Retail

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Hess Corp - HES - close: 87.03 change: +2.23

Stop Loss: 82.40
Target(s): 92.25, 98.50
Current Option Gain/Loss: +0.0%
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Oil and gas stocks continue to show relative strength. HES is a refiner as well and the stock just broke out past resistance near $85.00. I am suggesting bullish positions now. You might want to wait and cross your fingers the stock provides a dip back into the $86-85 zone so we can buy a dip instead. The $90.00 level might offer some round-number resistance but I'm setting our targets at $92.25 and $98.50.
The Point & Figure chart for HES is bullish with a $107 target.

Open Bullish Positions Now

- Suggested Positions -

Buy the April $90 calls (HES1116D90) current ask $2.76

- or -

Buy the May $90 calls (HES1121E90) current ask $4.15

Annotated Chart:

Entry on March 1st at $ xx.xx
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on February 28th, 2010


Ross Stores Inc. - ROST - close: 72.04 change: +0.37

Stop Loss: 68.95
Target(s): 74.90, 77.75
Current Option Gain/Loss: + 0.0%
Time Frame: 2 to 4 weeks
New Positions: Yes see below

Company Description

Why We Like It:
Investors seem unafraid of what rising oil prices and gasoline prices might do to consumer spending. Retail stocks are still rising. Shares of ROST are on the verge of breaking out to new highs. I am suggesting new bullish positions now. More conservative traders may want to wait for a new high at $73.00 before initiating positions. Our targets are $74.90 and $77.75. However, we will plan to exit ahead of the mid March earnings report.
The Point & Figure chart for ROST is bullish with a $97 target.

- Suggested Positions -

Buy the April $75 calls (ROST1116D75) current ask $1.45

Annotated Chart:

Entry on March 1st at $ xx.xx
Earnings Date 03/17/11 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on February 28th, 2010


In Play Updates and Reviews

Another Monthly Gain

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 marked its third monthly gain in a row. Bulls are still in buy-the-dip mode. Our RIG play was triggered. I'm suggesting new entries on FDS and OXY.

-James

Current Portfolio:


CALL Play Updates

Baker Hughes Inc. - BHI - close: 71.05 change: -0.45

Stop Loss: 67.90
Target(s): 74.75, 79.00
Current Option Gain/Loss: -22.5% and -17.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/28 update: The rally in oil paused on Monday but that didn't stop the rally in energy stocks. BHI dipped to $69.56 intraday before bouncing back. I would use this dip as another entry point to open bullish positions. Our targets are $74.75 and $79.00.

- Suggested Positions -

Long the March $75 calls (BHI1119C75) Entry @ $1.02

- or -

Long the April $75 calls (BHI1116D75) Entry @ $2.13

Entry on February 28th at $71.74
Earnings Date 05/04/11 (unconfirmed)
Average Daily Volume = 5.3 million
Listed on February 26th, 2010


Peabody Energy Corp. - BTU - close: 65.49 change: +0.19

Stop Loss: 61.75
Target(s): 69.75, 74.00
Current Option Gain/Loss: -55.1%, and -13.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/28 update: The bounce in BTU stalled a bit as shares test resistance near $66.00. I remain bullish and would still consider new positions in the $66-64 zone or more conservative traders could wait for a breakout past the recent highs near $66.85. Although readers may want to buy the April calls instead of March. If BTU takes too long to climb the March calls are going to evaporate with less than three weeks left. Our first exit target is $69.75. Our second target is $74.00.

The Point & Figure chart for BTU is bullish with an $80 target.

- Suggested Positions -

Long the March $70 calls (BTU1119C70) Entry @ $1.07

- or -

Long the June $70 calls (BTU1118F70) Entry @ $3.60

Entry on February 17th at $66.30
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 4.6 million
Listed on February 16th, 2010


BorgWarner - BWA - close: 77.61 change: +0.66

Stop Loss: 73.75
Target(s): 79.75, 84.50
Current Option Gain/Loss: + 9.0%, and -17.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/28 update: BWA is still bouncing and was kind enough to provide another dip to $76.25. If you open positions now you may want to scale up your stop loss. Our targets are $79.75 and $84.50. Our plan was to use small positions to limit our risk.

SMALL bullish positions

- Suggested Positions -

Long the March $80 calls (BWA1119C80) Entry @ $1.10

- or -

Long the April $80 calls (BWA1116D80) Entry @ $2.47

Entry on February 25th at $76.06
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 2.3 million
Listed on February 24th, 2010


Caterpillar Inc. - CAT - close: 102.93 change: +0.93

Stop Loss: 97.90
Target(s): 104.75, 107.50
Current Option Gain/Loss: + 5.9%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
02/28 update: CAT almost hit $101.50 on its intraday dip after gapping higher at the open. Another couple of days like today and CAT will be at our first exit target.

- Suggested Positions -

Long the March $105 calls (CAT1119C105) Entry @ $1.35

02/23 Triggered @ $101.00. Option @ $1.35
02/22 Still waiting for a dip to $101.00
02/12 Adjusted our trigger, targets, stop loss and strike price.

Entry on February 23 at $101.00
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 6.2 million
Listed on February 5th, 2010


Check Point Software - CHKP - close: 49.84 change: -0.45

Stop Loss: 47.90
Target(s): 54.50
Current Option Gain/Loss: -11.5%, and - 0.0%
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
02/28 update: CHKP gapped open higher at $50.28 but quickly gave into some profit taking. Traders bought the dip near $49.50 and I would still open new positions now. Our target is $54.50. We only have three weeks left on March calls so you may want to play Aprils.

- Suggested Positions -

Long the March $50 calls (CHKP1119C50) Entry @ $1.30

- or -

Long the April $52.50 calls (CHKP1116D52.5) Entry @ $0.85

Entry on February 28th at $50.28
Earnings Date 04/26/11 (unconfirmed)
Average Daily Volume = 3.0 million
Listed on February 26th, 2010


Fastenal Co. - FAST - close: 62.13 change: +0.62

Stop Loss: 59.90
Target(s): 67.25
Current Option Gain/Loss: -70.5%, and -28.8%
2nd Position Option Gain/Loss: +25.0%, and + 1.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
02/28 update: FAST surged at the open but the strength faded midday. Shares bounced at short-term support/resistance near $61.50 to rally back into the close. I would still consider new positions now.

Readers may want to keep in mind that the most recent data listed short interest at 13.6% of the 132 million-share float.

- Suggested Positions -

Long the March $65 calls (FAST1119C65) Entry @ $0.85

- or -

Long the May $65 calls (FAST1121E65) Entry @ $2.25

-2nd Entry as of listed 2/24, Entered 2/25-

Long the March $65 calls (FAST1119C65) Entry @ $0.20

- or -

Long the APRIL $65 calls (FAST1121D65) Entry @ $0.99

02/24 Buy the dip. New Entry (2nd position).
02/23 New entry point @ 60.96. March $65 call @ 0.25, May $65 call @ $1.45
02/22 Entry @ 62.99, NEW STOP @ $59.90
02/19 Adjusted entry point. Buy calls now. Very small positions
02/12 New trigger @ 61.55, new stop loss @ 59.40

Entry on February 22nd at $62.99
Earnings Date 04/12/11 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on February 8th, 2010


FactSet Research Systems - FDS - close: 104.88 change: -0.12

Stop Loss: 99.95
Target(s): 109.50
Current Option Gain/Loss: + 0.0%
Time Frame: 2 to 3 weeks
New Positions: Yes, see below

Comments:
02/28 update: FDS gapped open at $105.68 and hit $106.37 before fading lower. Unfortunately the intraday low was $104.12 before the stock rebounded into the close. Our trigger to buy calls was not hit at $104.00. I am suggesting we ditch the trigger and buy calls now. More conservative traders may still want to wait for a dip closer to the $103-102 zone.

We'll use a stop loss at $99.95. Our target is $109.50. I would be tempted to aim higher but we only have two or three weeks. FDS is due to report earnings in mid March but we don't have a confirmed date yet. Given our wide stop loss I would consider this a slightly more aggressive trade so keep your positions small!

open small positions now.

- Suggested Positions -

Buy the March $105 calls (FDS1119C105) current ask $2.05

Entry on March 1st at $ xx.xx
Earnings Date 03/15/11 (unconfirmed)
Average Daily Volume = 213 thousand
Listed on February 26th, 2010


F5 Networks Inc. - FFIV - close: 118.01 change: -2.17

Stop Loss: 109.90
Target(s): 129.00
Current Option Gain/Loss: -33.3%, and -32.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/28 update: FFIV underperformed on Monday but the action today looks like a new entry point. Traders bought the dip twice near $116.50. I am suggesting new positions now. We do have a wide (aggressive) stop at $109.90 but more conservative traders could up their stop toward $114 or $115 instead. The March $120 are currently at $3.80 (ask) and the April $125 are asking $4.80. The plan was to use small positions to limit our risk. Our target is $129.00.

SMALL bullish positions

- Suggested Positions -

Long the March $120 calls (FFIV1119C120) Entry @ $5.40

- or -

Long the April $125 calls (FFIV1116D125) Entry @ $6.80

02/28 Buy the dip, New Entry point.
02/25 FFIV gapped open higher on an upgrade.

Entry on February 25th at $121.00
Earnings Date 04/20/11 (unconfirmed)
Average Daily Volume = 3.7 million
Listed on February 24th, 2010


Fossil, Inc. - FOSL - close: 76.74 change: -1.13

Stop Loss: 72.49
Target(s): 82.00, 88.00
Current Option Gain/Loss: + 0.0%, and + 0.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/28 update: Thankfully we did not have to wait very long for FOSL to hit our buy-the-dip entry point at $76.75. I would still consider new positions now. Our exit targets are $82.00 and $88.00.

- Suggested Positions -

Long the March $80 calls (FOSL1119C80) Entry @ $1.40

- or -

Long the April $80 calls (FOSL1116D80) Entry @ $2.60

Entry on February 28th at $76.75
Earnings Date 05/11/11 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on February 26th, 2010


IntercontinentalExchange, Inc. - ICE - cls: 128.20 chg: +1.29

Stop Loss: 119.90
Target(s): 138.00, 148.00
Current Option Gain/Loss: -21.8%, and -20.5%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/28 update: ICE opened at $127.46 and then saw a quick spike over $130 before paring its gains. If you don't feel like chasing it here readers may want to wait for dips near the $125 area. Bear in mind that this is an aggressive trade. The stock is volatile and there is a chance that ICE makes an acquisition bid for another exchange. If Wall Street thinks ICE is paying too much the stock will decline on the news. Our targets are $138.00 and $148.00.

I want to warn you that the March options will probably be extremely volatile.

- Suggested Positions - (Small Positions Only)

Long the March $130 calls (ICE1119C130) Entry @ $3.20

- or -

Long the April $135 calls (ICE1116D135) Entry @ $3.40

Entry on February 28th at $127.46
Earnings Date 05/04/11 (unconfirmed)
Average Daily Volume = 938 thousand
Listed on February 26th, 2010


Jones Lang Lasalle Inc. - JLL - close: 98.42 change: +0.92

Stop Loss: 93.30
Target(s): 102.50, 109.00
Current Option Gain/Loss: - 5.7%, and - 2.9%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/28 update: JLL opened higher, which was a popular trend on Monday, but shares faded intraday. I would still consider new positions now or you could wait for a dip toward the $97-95 zone. We have a stop loss at $93.30. JLL has see a lot more volatility in the last month so let's keep our position size small to reduce our risk. Our targets are $102.50 and $109.00.

FYI: March options are likely to be very volatile.

- Suggested Positions - (Small Positions)

Long the March $100 calls (JLL1119C100) Entry @ $1.75

- or -

Long the April $100 calls (JLL1116D100) Entry @ $3.40

Entry on February 28th at $97.96
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 386 thousand
Listed on February 26th, 2010


3M Co. - MMM - close: 92.23 change: +1.98

Stop Loss: 88.75
Target(s): 94.50, 99.00
Current Option Gain/Loss: +66.8%, and +53.8%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/28 update: Over the weekend, 3M's CEO made headlines with hits comment that President Obama was "anti-business". I doubt his comments are what fueled MMM's relative strength on Monday. The stock opened higher and closed with a +2.1% gain. If you're still looking for an entry point I would wait for a dip into the $91.00-90.50 zone.

- Suggested Positions -

Long the March $90 calls (MMM1119C90) Entry @ $1.75

- or -

Long the April $95 calls (MMM1116D95) Entry @ $0.78

Entry on February 25th at $89.75
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 3.5 million
Listed on February 24th, 2010


Nike Inc. - NKE - close: 89.03 change: +1.05

Stop Loss: 84.80
Target(s): 88.00, 91.50
Current Option Gain/Loss: +117.7%, and +140.4%
2nd Position Gain/Loss: + 42.1%, and + 21.5%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/28 update: NKE continues to show strength and rallied to a new relative high. Shares might see potential round-number resistance at $90.00 so don't be surprised to see another pull back that lasts a couple of days. I am not suggesting new positions at this time. Our final exit target is $91.50.

- Suggested Positions - (Small Positions Only!)

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

- or -

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

2nd position, buy the bounce from $85.50

Long the March $85 calls (NKE1119C85) Entry @ $3.20

- or -

Long the April $90 calls (NKE1116D90) Entry @ $1.86

02/25 New stop loss @ 84.80
02/24 New entry point, buy the bounce from $85.50, Add 2nd position
02/19 Adjusted final target to $91.50
02/18 1st Target Hit @ 88.00. March $85 call @ 3.75 (+79.4%)
02/18 1st Target Hit @ 88.00. April $90 call @ 1.80 (+91.4%)

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


Occidental Petrol. - OXY - close: 101.97 change: -1.13

Stop Loss: 96.75
Target(s): 106.75, 109.75
Current Option Gain/Loss: + 0.0%, and + 0.0%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
02/28 update: OXY hit a little profit taking today but traders are still buying the dip near the $101 level. I am adjusting our entry point strategy. Instead of waiting for a dip near $100.00 I am suggesting we buy calls now. More conservative traders could wait for OXY to breakout higher from this consolidation pattern of lower highs. I'd rather buy calls now since the OIX and OSX are breaking out higher or poised to do so.

Since oil is likely to be a volatile commodity with all the geopolitical risks and headlines I am suggesting we keep our option position size in OXY relatively small to limit our risk.

Don't forget that March calls expire in just less than three weeks. You may be more comfortable with the Aprils.

Open Small Bullish Positions Now!

- Suggested Positions -

Buy the March $105 calls (OXY1119C105) current ask $1.33

- or -

Buy the April $105 calls (OXY1116D105) current ask $2.75

02/28 Adjusted entry strategy. Buy calls now!

Entry on March 1st at $ xx.xx
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 4.9 million
Listed on February 22nd, 2010


Transocean Ltd. - RIG - close: 84.63 change: +1.83

Stop Loss: 79.75
Target(s): 89.50, 94.00
Current Option Gain/Loss: + 9.7%, and + 2.7%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/28 update: Hmm... RIG delivered an interesting session. The stock was weak this morning and then slowly began to gather steam after traders bought the dip near $81.35. Finally in the last few minutes of trading the stock broke out higher and pushed through resistance at $84.00. Our trigger to buy calls was hit at $84.25. I would still buy calls now at current levels. Odds are the headline that the U.S. has actually approved the first new deepwater drilling permit since the Gulf oil spill is what sent RIG higher. Our profit targets are $89.50 and $94.00.

Please note that the March calls will likely be very volatile.

- Suggested Positions -

Long the March $85 calls (RIG1119C85) Entry @ $2.05

- or -

Long the April $85 calls (RIG1116D85) Entry @ $3.60

02/28 RIG hit our trigger @ 84.25

Annotated Chart:

Entry on February 28th at $84.25
Earnings Date 05/05/11 (unconfirmed)
Average Daily Volume = 5.3 million
Listed on February 26th, 2010


The Toronoto-Dominion Bank - TD - close: 83.71 change: +1.06

Stop Loss: 78.40
Target(s): 84.00, 89.00
Current Option Gain/Loss: +203.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/28 update: TD continues to rally and just hit another new all-time high. Intraday TD hit $83.88. Our first target to take profits is at $84.00 so prepare to take some money off the table. If we're lucky TD will gap open higher above $84.00 tomorrow. I am raising our stop loss to $78.40. I am not suggesting new positions at this time.

Our targets are $84 and $89. We will plan to exit ahead of the March 11th earnings report (unconfirmed date).

- Suggested Positions -

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

02/28 New stop loss @ 78.40
02/26 New stop loss @ 77.90
02/16 New stop loss @ 76.90

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


Proshares Ultra(long) Russell 2000 - UWM - close: 46.98 change: +0.12

Stop Loss: 43.49
Target(s): 49.75, 54.00
Current Option Gain/Loss: -18.1%, and + 8.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Small Positions - UWM Position -

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

-2nd position (entry 2/25)-

Long the April $47 calls (UWM1116D46) Entry @ $2.50

02/26 New stop loss @ 43.49
02/25 April $47 call opened at $2.50
02/24 Add another position, April $47 calls
02/14 UWM opened at $46.90. Option opened @ $2.75

iShares Russell 2000 - IWM - close: 82.27 change: +0.09

Stop Loss: 79.20
Target(s): 84.95, 87.25
Current Option Gain/Loss: -15.1%, and +15.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/28 update: The small cap index struggled to hold its gains and settled with a minor advance. Fortunately investors were buying the dip late in the session, which bodes well for tomorrow. This is probably another entry point but readers may want to raise their stop losses!

Small Positions - IWM Position -

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

-2nd position (entry 2/25)-

Long the April $82 calls (IWM1116D82) current ask @ $2.35

02/26 New stop loss @ 79.20
02/25 April $82 call opened at $2.35
02/24 Add another position (April $82 calls)
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: 18.35 change: -0.87

Stop Loss: N/A
Target(s): 22.50, 28.00
Current Option Gain/Loss: -59.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
02/28 update: It's probably going to take another unexpected event to push the VIX higher and we only have 16 days left before these March options expire. I am not suggesting new bullish positions at this time. I would seriously consider an early exit now before the option evaporates to zero.

- Suggested Positions -

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

02/28 Consider an early exit now.
02/23 1st Target Hit @ 22.50, Option @ 2.35 (+46.8%)

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


Waters Corp. - WAT - close: 83.05 change: +0.61

Stop Loss: 79.80
Target(s): 86.00, 89.90
Current Option Gain/Loss: -16.6%, and -17.1%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/28 update: If you missed the entry point this morning WAT provided another entry this afternoon with the dip back toward $82.50. I would still consider new call positions now. Our targets are $86.00 and $89.90.

FYI: The March calls will likely be very volatile.

- Suggested Positions -

Long the March $85 calls (WAT1119C85) Entry @ $0.90

- or -

Long the April $85 calls (WAT1116D85) Entry @ $1.75

Entry on February 28th at $82.61
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 876 thousand
Listed on February 26th, 2010


PUT Play Updates

Freeport-McMoran - FCX - close: 52.95 change: +0.50

Stop Loss: 55.15
Target(s): 50.25, 47.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see trigger

Comments:
02/28 update: FCX is still trying to inch higher but shares are struggling with technical resistance at the 100-dma. More aggressive traders may want to consider bearish positions now.

I am suggesting we use a trigger to buy puts at $54.00 and we'll use a stop loss at $55.15. If triggered our first target is $50.25. Our second target is $47.00.

Trigger @ 54.00

- Suggested Positions -

Buy the March $52.50 PUTS (FCX1119O52.5) current ask $2.03

- or -

Buy the April $50.00 PUTS (FCX1116P50) current ask $2.13

02/26 Update our trigger to buy puts at $54.00, stop 55.15

Entry on February xxth at $ xx.xx
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 14.4 million
Listed on February 19th, 2010