Option Investor
Newsletter

Daily Newsletter, Thursday, 3/3/2011

Table of Contents

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

Market Wrap

Job Expectations Increase Bullish Sentiment

by Jim Brown

Click here to email Jim Brown
Improving hiring in multiple economic reports plus a calming of tensions surrounding Libya put the bulls into stampede mode on Thursday.

Market Statistics

Thursday was a case of good news breaking out all over and buyers rushed back into the market in anticipation of a great jobs report on Friday. Shorts were crushed and the bearish negativity from earlier in the week was almost completely erased.

The first report out this morning was the weekly Jobless Claims, which came in at 368,000 and a drop of -20,000 from the prior week. This is the second consecutive week of declines under 400K and the lowest level in 2.5 years. This suggests the long awaited jobs recovery is starting to blossom. Unfortunately it has a long way to go but at least we are finally moving in the right direction.

The Monster Employment Index rose +7 points to 129 from 122 in January. The Monster index is calculated by measuring online help-wanted ads. The seven-point gain was not particularly strong but it is still a move in the right direction.

The biggest report for the day was the ISM Nonmanufacturing Index, which came in at 59.7 for February. This is the highest level since August 2005. The internal components also rose by an average of two points with the Business Activity component rising to 66.9 from 64.6. The employment component rose +1.1 to 55.6 and the highest level since April 2006. Exports rose by +3 to 56.5.

The four ISM reports we saw this week all indicated a strengthening of the recovery and a sharp increase in employment. The last time the ISM indexes were this strong was late 2003 and GDP was rocking along at nearly a 5% clip.

ISM Nonmanufacturing Chart

Every report we saw this week pointed to stronger hiring and that has spiked estimates with some whisper numbers as high as 350,000. The official consensus estimate is for a gain of 178,000 with many analysts and brokers individually expecting numbers in the 250,000 to 265,000 range. Bill Gross at Pimco expects "somewhere in the 200,000 category" for the next 6-12 months.

Gross also warned against aggressive budget cutting because of the fragile economy and warned the Fed will have to provide a follow on stimulus program of some sort after QE2 ends. Gross said the sudden removal of $150 billion a month in treasury purchases would create a void that would be disruptive to the recovery. Obviously Gross is talking his own book since he manages $1.2 trillion in bonds and he does not want to see the value of those bonds plunge with treasury prices. I do agree with him that the economy is not quite ready to run on its own and will still need some support. Where that support might come from is unknown. I seriously doubt the Fed will implement a QE3 but stranger things have happened.

Some analysts have started expressing worry that the expectations for the payroll report on Friday have already been priced in after today's rally. The also worry that a payroll miss is now a strong possibility even if the jobs gains come in at the consensus estimate of +178,000. That could be considered a miss given the sudden ramp higher in the whisper numbers.

The last report for the day was the Chain Store Sales for February. The headline number came in at 4.2% and slightly below the 4.7% in January. Despite the minor decline the sales were very strong. Sales were reportedly helped late in the month by better weather and analysts are expecting March sales to be even stronger. However, Easter will come three weeks later this year and shift most holiday sales into April. That makes the comparisons over March 2010 difficult.

In February the biggest gains were in the luxury stores with a +10.1% gain followed by wholesale stores a +7.7%, department stores +5.7% and apparel stores +3.2%.

In stock news Citigroup rallied despite continuing claims they may have to take a $10 billion loss because of a change in tax rates and another $5 billion in losses because of changes in CDO accounting and liabilities from suits over sales of CDOs. Evidently this worry has been priced in over the last couple of weeks. Citi began to fall on Feb 22nd and closed at a two month low on Tuesday. It just seems like every day there is another revelation of billions more in risk. Once they get past these problems it should be smooth sailing but there are definitely stormy waters ahead.

Citigroup Chart

The Treasury Dept expects to get a $6.3 billion payment from AIG after the company sold $9.6 billion in MetLife shares on Wednesday. AIG and the Treasury sold 146.8 million shares of MET at $43.25 and demand was said to be strong. They expected the sale to take a couple days but demand was so strong they closed the book the first day. The shares were received when MetLife purchased AIG's Alico International Insurance Company in 2010 for $16.2 billion. The AIG bailout was valued $182 and through payments like these the government's stake has been whittled down to ONLY 92.2% of AIG's common stock and some preferred shares in two special purpose vehicles holding some MetLife assets and shares in AIA Group and other assets. After payment for the MetLife share sale the Treasury's stake in those special vehicles will decline to $11.9 billion. The Treasury Dept is expected to sell $15 billion or more in AIG stock in late May.

AIG Chart

Apple (AAPL) has rebound nearly to its prior highs over the last week and yesterday's iPad 2 announcement with Steve Jobs in attendance was a major plus. Apple shares rose +7.44 today to close at $360. The iPad 2 was well received and Apple did not feel a need to further discount prices. Goldman Sachs raised the price target to $450 on belief the new iPad would solidify Apple's lead in the sector. Forrester Research said Apple iPad sales would be 80% of all tablets sold this year.

Gartner Inc cut its PC sales forecast for 2011 and 2012 based on expected weaker demand for mobile consumer PCs because of the popularity of the iPad and expected sales of equivalent tablets. Gartner still expects worldwide shipments of PCs to total 387.8 million in 2011. That is a 10.5% increase from 2010 but it is a drop from the 15.9% gain they previously expected. 2012 sales are expected to be 440.6 million units and an increase of +13.6% over 2011.

Apple Chart

Valero (VLO) released its Q1 earnings guidance and it was a blowout. Earnings are now expected to be 76-91 cents. This compares to analyst estimates of 55-cents. The trigger for this earnings blowout is the discount between Brent and Gulf crude prices and the benchmark U.S. WTI crude contract. I have reported on this many times in the past. Storage capacity at Cushing Oklahoma is full and new oil production headed for Cushing has no place to be stored. This is pushing the price of WTI to a $10-$15 discount to Brent or Louisiana Light crude. With the refiners on the coasts forced to pay Brent prices for their oil any refiner with access to a pipeline to Cushing can buy oil significantly cheaper but the refined gasoline is still based on the higher Brent prices. Valero said this condition will last until a new pipeline connects Cushing to the gulf coast. This could take up to two years. The excess oil going to Cushing is coming from Canadian oil sands and from the Bakken, which is currently producing 350,000 bpd. Valero shares gained +8% on the news.

Valero Chart

While on the subject of oil prices we saw Brent pullback to $113 intraday from $118 on Wednesday. WTI declined to $100 but rebounded to over $102 after the close. Prices fell as various entities suggested peace plans for Libya. Prices rebounded when news broke that opposition forces had strengthened their hold on critical oil ports and facilities. In the U.S. the national average for gasoline prices rose to $3.43 with prices on the coasts significantly higher. Oakland saw $3.83 and Bridgeport CT $3.66. If Brent holds over $110 we can expect to see $4 gasoline on the coasts.

Brent Crude Chart

The U.S. dollar closed at a new three month low as referenced by the dollar index. The decline today was due to a bounce in the Euro after ECB president Jean-Claude Trichet said the ECB could raise interest rates in April. The bank reiterated its 1% rate for the 23rd consecutive month but warned rate hikes are coming. Most analysts had not expected a rate hike until August at the earliest. This highlights the risk the Fed could also make a change in its statement at the March 15th meeting.

Dollar Index Chart

The IMF warned today that food prices rose +2.2% in February and they will likely remain relatively high in the months ahead. The IMF said the sharply rising food prices were a serious concern for the four billion poor people on the planet. Some analysts have blamed the Fed for the rise in prices because of their QE2 push and its impact on the dollar. A weaker dollar means it takes more dollars to buy the same amount of wheat or corn and that raises the price of food. The IMF said the impact of higher oil prices on food has yet to be felt but they "assumed" the reasons for the spike in prices would be resolved shortly and prices would decline without a major impact on the food chain. They did warn if oil prices don't decline the price of food would move higher.

Volume was decent today but not strong. A total of 7.7 billion shares were traded suggesting traders were still not buying with conviction. This compares with 8.6 billion on Tuesday when the market was down hard. Technicians are always disappointed when up days don't have as much volume as down days. However, volume on down days is increased by stop loss selling and forced margin selling. On the upside there are limited buy stops to add to volume and there is no automatic margin buying. I am not saying volume is not important but comparing Tuesday and Thursday I don't think that difference is material.

Today's rally was almost all short covering at the open. The upward progress after 11:AM was minimal. The economic news coupled with some positive news out of Libya caused the futures to be wildly positive overnight and that created a monster short squeeze. When Wednesday's test of S&P 1,300 did not result in an immediate rebound it increased the conviction of the bears and they loaded up on the afternoon decline. They reaped the results of betting against positive economic fundamentals at today's open.

On a side note I got an email today from a reader who thought I was too bearish. If that is the opinion readers are gleaning from my writing then I need to find a different profession. I have been advocating buying the dips for months and poking good-natured fun at the bears for constantly trying to short a bull market. I actually get a lot of mail on that topic as well. On Tuesday I expressed concern "IF" the S&P could not hold support at 1295 but I still recommended buying the dip to that level. I find that hard to believe that is a bearish outlook.

The S&P rebounded to close at 1330 and a two-week high. I would have rather seen the rally in a normal pattern of buying but I will take it regardless of the method. I am sure there were more shorts loading up at the close so the potential for a move higher still exists. I am concerned that anything under 200,000 on the payroll numbers will be considered a miss BUT it is still a dramatic improvement over the 36,000 job gains in January.

The S&P cash rallied to a level that has no real resistance once over 1330 until 1344 but the S&P futures stopped just short of resistance at 1332 and its congestion highs from Tuesday.

S&P Futures Chart

S&P-500 Chart

The Dow rallied to close at the highs for the week and Tuesday's loss is in the rear view mirror. The industrials were the biggest drivers with IBM, CAT, BA, UTX and MMM the biggest gainers. Like the S&P the Dow came to rest right at resistance so everything depends on Friday's open and the payroll report. Support is well below at 12000 and resistance at 12275.

Dow Chart

The Nasdaq rebounded strongly thanks to PCLN +15, ISRG +9, GOOG +9, AAPL +7 and some strong performances by dozens of other techs. Many of the rebounds were clearly short covering with big gap opens on the individual charts. Others were actually fundamental gains thanks in part to the Gartner estimate for +10% PC sales improvement in 2011.

The Nasdaq closed right at critical resistance at 2800 and like the other indexes our fate is in the hands of the payroll numbers and how much of those expectations are really priced into the market. Support is well below at 2740 and once over 2800 resistance is the recent highs at 2840.

Nasdaq Chart - 90 min

Nasdaq Chart - Daily

The Russell turned in an outstanding performance with an 18 point gain of +2.2%. Like the other indexes it was all short covering and I can't chalk it up to fund manager exuberance over small caps. It is what it is. The Russell did close slightly above recent resistance at 827 but not enough to really call it a breakout. Support is now 805.

Russell Chart

In summary it is all about jobs and the market reaction to the number. With the economic fundamentals rebounding much stronger in recent weeks I would be surprised to see a major meltdown as long as the number is close to the consensus of +178,000. Traders may take profits from Thursday's spike but I doubt we will revisit support at S&P 1300 again. If we did I think it would take on a new bearish perspective. A second test like the dip to 1302 on Thursday is considered confirmation. A third test would be considered negative confirmation. Let's hope we don't go there.

Trade the trend until the trend changes then reevaluate. Blindly sticking to a confirmed bias will keep you frustrated and broke.

Jim Brown

Send Jim an email

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New Option Plays

Potential Short Squeeze

by James Brown

Click here to email James Brown

Editor's Note:

Normally, I tend to avoid listing new plays the night before a jobs report. The market reaction to the jobs data can be so volatile. Yet lately it seems that even a bad jobs report can't stop this bull market. Currently expectations have been growing for a strong number tomorrow. Hopefully that doesn't set us up for a disappointment and an overreaction lower.

- James


NEW DIRECTIONAL CALL PLAYS

Quality Systems Inc. - QSII - close: 81.77 change: +1.05

Stop Loss: 77.90
Target(s): 87.25, 94.50
Current Option Gain/Loss: + 0.0%
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
QSII is another healthcare information technology company. The stock's late February breakdown proved to be a bear trap and now shares are breaking out past resistance near $81.00. The stock can be somewhat volatile so I consider this a slightly aggressive trade. I am suggesting new positions now but you could cross your fingers and hope for a dip near $80.00 instead and buy calls there. I'm giving QSII room to move with a stop loss at $77.90. Our upside targets are $87.25 and $94.50. Odds are good QSII could see another more short covering.

FYI: Readers will be interested to note that the most recent data listed short interest in QSII at almost 28% of the very small 17.5 million-share float. That's definitely a recipe for a short squeeze. Plus, the Point & Figure chart for QSII is bullish with a $119 target.

- Suggested Positions -

Buy the April $85 calls (QSII1116D85) current ask $1.40

- or -

Buy the June $85 calls (QSII1118F85) current ask $3.50

Annotated Chart:

Entry on March 4th at $ xx.xx
Earnings Date 05/31/11 (unconfirmed)
Average Daily Volume = 154 thousand
Listed on March 3rd, 2010


In Play Updates and Reviews

Stocks Rally On Economic News

by James Brown

Click here to email James Brown

Editor's Note:

Another day of strong economics and a drop in oil prices fueled a rebound in stocks. We saw TD gap open above our first exit target to take profits. I have updated several stop losses below.

-James

Current Portfolio:


CALL Play Updates

Baker Hughes Inc. - BHI - close: 70.21 change: +1.40

Stop Loss: 67.90
Target(s): 74.75, 79.00
Current Option Gain/Loss: -56.8% and -35.6%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/03 update: Energy stocks continued to rally even as crude oil futures saw some profit taking on Thursday. BHI is bouncing from support near $68.00 and this continues to look like a bullish entry point to buy calls on this stock. However, there was some news out this afternoon that could impact the stock tomorrow as it gets more widely disseminated.

This afternoon headlines for BHI started to circulate. The company had disclosed in an SEC filing that unrest in Libya and other Mideast countries would cut between 4 cents to 7 cents off their Q1 earnings. BHI announced that their operations in Libya remain closed while operations in Egypt and Tunisia had resumed. Altogether the North Africa and Egypt region accounts for 3% of BHI's revenue. This news was announced during the day and failed to have much impact on BHI's stock price but I'm cautious that it could produce a reaction tomorrow. Readers may want to be on watch for another dip into the $68.50-68.00 zone. As long as BHI holds the $68.00 level I would use the dip as an entry point to buy calls.

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: 69.32 change: +3.37

Stop Loss: 61.75
Target(s): 69.75, 74.00
Current Option Gain/Loss: +40.1%, and +37.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
03/03 update: Positive analyst comments, a higher price target, and a bullish market environment all worked together to propel shares of BTU higher. The stock has broken away from its recent consolidation and hit $69.61 intraday. The stock settled with a +5.1% gain. Odds are pretty good BTU will hit our first exit target at $69.75 tomorrow (as long as the jobs number doesn't tank the market).

I am raising our stop loss to $64.75. If you're looking for a new bullish entry point I'd wait for a dip into the $67-66 zone.

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

03/03 New stop loss @ 64.75

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: 77.62 change: +1.70

Stop Loss: 73.75
Target(s): 79.75, 84.50
Current Option Gain/Loss: -18.1%, and -17.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/03 update: BWA gapped open higher at $77 and rallied toward short-term resistance near $78. The close over its 10-dma is short-term bullish and would consider new positions here. 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: 104.25 change: +3.28

Stop Loss: 97.90
Target(s): 104.75, 107.50
Current Option Gain/Loss: - 7.4%
2nd Option Gain/Loss: +25.8%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/03 update: The big bounce in the DJIA got a boost from shares of CAT, which were outperforming today given its +3.2% gain. The stock is above its highs from earlier this week and back above the $104 level. If you missed the recent entry point I'd wait for a dip near the $102 area.

- Suggested Positions -

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

- or -

Long the April $105 calls (CAT1116D105) Entry @ $2.78

03/03 2nd position (April $105 calls) opened at $2.78
03/02 Buy calls on the bounce.
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


Cerner Corp. - CERN - close: 104.54 change: +2.67

Stop Loss: 97.75
Target(s): 104.85, 109.00
Current Option Gain/Loss: +22.2%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/03 update: Our CERN trade is off to a good start. Shares gapped open higher at $102.62 and rallied to a +2.6% gain. This is a new all-time high for the stock. If you missed the entry point this morning I would probably look for a dip into the $103.00-101.00 zone as another entry. Our first target to take profits could be hit tomorrow at $104.85 (the high today was $104.77). Our second and final target is $109.00.

FYI: I want to point out that the most recent data (as of Feb. 15th) listed short interest at 13.9% of CERN's 70-million share float. That definitely seems like a high amount of shorts and fuel for a short squeeze. Plus, the Point & Figure chart for CERN is bullish with a $115 target and what appears to be a relatively fresh quadruple top breakout buy signal.

- Suggested Positions -

Long the April $105 calls (CERN1116D105) Entry @ $2.70

Entry on March 3rd at $102.62
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 600 thousand
Listed on March 2nd, 2010


Check Point Software - CHKP - close: 50.44 change: +1.55

Stop Loss: 47.90
Target(s): 54.50
Current Option Gain/Loss: + 0.0%, and +11.7%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/03 update: Traders did buy the bounce from support and CHKP is back above the $50.00 mark. Today's rally add +3.1%. I would still consider new positions now or you could hope for a dip near $49. I prefer the April calls at this point. Our target is $54.50.

- 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: 62.35 change: +1.76

Stop Loss: 59.90
Target(s): 67.25
Current Option Gain/Loss: -70.5%, and -24.4%
2nd Position Option Gain/Loss: +20.0%, and +11.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/03 update: FAST sprang higher after support near $60.00 held its ground. The stock posted a +2.9% gain. If you're looking for another entry point I'd wait for a dip near $61.

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: 105.11 change: +1.92

Stop Loss: 99.95
Target(s): 109.50
Current Option Gain/Loss: + 2.3%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
03/03 update: Hmm... FDS rallied to the $105 level and then ran out of steam. The stock just hung there churning sideways in a narrow range. I remain bullish but readers may want to start this trade with small positions.

Don't forget we want to exit ahead of earnings. FDS is now expected to announce on March 15th before the opening bell. We'll plan on exiting March 14th at the close to avoid holding over the report.

Given our wide stop loss I would consider this a slightly more aggressive trade so keep your positions small!

small positions - Suggested Positions -

Long the March $105 calls (FDS1119C105) Entry @ $2.15

Entry on March 1st at $105.01
Earnings Date 03/15/11 (confirmed)
Average Daily Volume = 213 thousand
Listed on February 26th, 2010


F5 Networks Inc. - FFIV - close: 114.35 change: +1.15

Stop Loss: 109.90
Target(s): 129.00
Current Option Gain/Loss: -66.6%, and -55.8%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/03 update: Stay cautious here! FFIV continues to underperform. The stock posted a +1% gain but traders were selling into strength. I am starting to think we want to exit this trade on any bounce near $120 just to try and recoup some of our capital back. I am not suggesting new bullish positions at this time.

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

03/03 Turn defensive. Start looking for an early exit.
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: 80.33 change: +4.14

Stop Loss: 74.75
Target(s): 82.00, 88.00
Current Option Gain/Loss: +82.1%, and +57.6%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/03 update: FOSL was a big winner today. The stock broke through the short-term trend of lower highs and rallied to a +5.4% gain. The close over $80 is also encouraging and volume picked up on the advance. I would not chase it here. If you're looking for an entry point I'd wait for a dip near $78. We will raise our stop loss to $74.75. 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

03/03 new stop loss @ 74.75

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


Hess Corp - HES - close: 85.20 change: +0.69

Stop Loss: 81.60
Target(s): 92.25, 98.50
Current Option Gain/Loss: -26.5%, and -24.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/03 update: HES posted a gain (+0.8%) but failed to keep up with its peers. The OIX rallied +1.7% and the OSX index rallied +1.6%. While this is disappointing the overall picture for HES remains bullish. Readers may want to start positions here but just keep your position size smaller. Alternatively, I recently suggested waiting for a breakout over $86.00 as an entry point.

FYI: Believe it or not the options values didn't move for us today. <-- The Point & Figure chart for HES is bullish with a $107 target. -->

- Suggested Positions -

Long the April $90 calls (HES1116D90) Entry @ $2.60

- or -

Long the May $90 calls (HES1121E90) Entry @ $4.15

03/02 Adjusted stop loss to $81.60

Entry on March 1st at $87.17
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on February 28th, 2010


IntercontinentalExchange, Inc. - ICE - cls: 129.48 chg: +1.97

Stop Loss: 119.90
Target(s): 138.00, 148.00
Current Option Gain/Loss: -15.6%, and -25.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/03 update: ICE is still inching higher. The stock is now challenging potential resistance near the $130 level. At this point readers may want to wait for a breakout past $130 before considering new bullish positions. Or you could cross your fingers and hope ICE sees another dip near $125.

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: 98.85 change: +1.67

Stop Loss: 93.30
Target(s): 102.50, 109.00
Current Option Gain/Loss: - 8.5%, and - 2.9%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/03 update: JLL posted a +1.7% gain and closed above its 10-dma. I would consider new positions here or you could wait for a move past the $100.00 mark. 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: 92.81 change: +1.49

Stop Loss: 88.75
Target(s): 94.50, 99.00
Current Option Gain/Loss: +85.7%, and +76.9%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/03 update: Today's +1.6% gain lifted MMM toward its February highs. I would probably look for dips into the $92-91 as our next bullish entry point.

- 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: 89.84 change: +1.82

Stop Loss: 84.80
Target(s): 88.00, 91.50
Current Option Gain/Loss: +153.5%, and +188.2%
2nd Position Gain/Loss: + 65.6%, and + 45.6%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/03 update: The bullish market tone and some generally positive same-store sales figures out of the retail sector helped fuel gains in NKE. The stock is now challenging resistance at $90.00 again. Where it goes from here will probably depend on the market's reaction to the jobs report tomorrow morning.

I am not suggesting new positions at this time. Our final target is at $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: 103.41 change: +2.62

Stop Loss: 97.90
Target(s): 106.75, 109.75
Current Option Gain/Loss: -24.0%, and + 9.7%
2nd Positions Gain/Loss: +39.2%, and +20.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/03 update: As expected OXY delivered a strong bounce from support near $100. Shares actually gapped open at $101.71 and closed with a +2.5% gain. If you're looking for a new entry point you may want to wait for a dip near $102.

Our plan was to use small positions to limit our risk. Don't forget that March calls expire in just less than three weeks.

Small Bullish Positions - Suggested Positions -

Long the March $105 calls (OXY1119C105) Entry @ $1.87

- or -

Long the April $105 calls (OXY1116D105) Entry @ $2.78

-2nd Position on bounce at $100 - Entry March 3rd -

Long the March $105 calls (OXY1119C105) Entry @ $1.02

- or -

Long the April $105 calls (OXY1116D105) Entry @ $2.54

03/03 OXY gapped open higher at $101.71, affecting our new entry
03/02 Buy calls on this bounce near $100 (2nd positions listed)
03/02 New stop loss at $97.90
02/28 Adjusted entry strategy. Buy calls now!

Entry on March 1st at $104.12
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 4.9 million
Listed on February 22nd, 2010


Transocean Ltd. - RIG - close: 85.35 change: -0.12

Stop Loss: 79.75
Target(s): 89.50, 94.00
Current Option Gain/Loss: +15.6%, and +12.5%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/03 update: After yesterday's bullish outperformance, shares of RIG underperformed today. The trend is still up and I would still consider new positions right here near $85. 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

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


Ross Stores Inc. - ROST - close: 72.41 change: +0.38

Stop Loss: 69.75
Target(s): 74.90, 77.75
Current Option Gain/Loss: - 9.3%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
03/03 update: The action in ROST today was pretty anticlimactic. The company's February same-store sales were +3.0% versus estimates of +1.4% and yet the stock barely moved. The lack of action in the stock makes me cautious. I am raising our stop loss to $69.75. 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 -

Long the April $75 calls (ROST1116D75) Entry @ $1.60

03/03 New stop loss @ 69.75

Entry on March 1st at $72.55
Earnings Date 03/17/11 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on February 28th, 2010


The Toronoto-Dominion Bank - TD - close: 86.12 change: +3.45

Stop Loss: 80.90
Target(s): 84.00, 89.00
Current Option Gain/Loss: +351.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/03 update: Target exceeded. We were lucky today. The data available listed TD's earnings report for mid March (around the 11th). The company actually reported this morning and thankfully the results were positive. Excluding one-time items TD reported a profit of $1.74 (in Canadian dollars:CDN) versus estimates of CDN$1.55. Management raised their cash dividend from CDN$0.61 to $0.66 a share.

The stock gapped open higher at $84.73 and rallied to a +4.1% gain. Shares hit $86.87 intraday. Our first profit target to exit was at $84.00 so the gap open exceeded our target. Our March $80 calls opened at $6.00 (+344%). I would not chase it here. TD could see some post-earnings profit taking. I am raising our stop loss to $80.90. Our final target remains $89.00. No new positions at this time.

- Suggested Positions -

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

03/03 new stop loss @ 80.90
03/03 Target exceeded. Gap higher at $84.73 vs. target $84.00
03/03 March $80 call opened @ $6.00 (+344.4%)
02/28 New stop loss @ 78.40
02/26 New stop loss @ 77.90
02/16 New stop loss @ 76.90

chart:

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


Proshares Ultra(long) Russell 2000 - UWM - close: 47.55 change: +2.07

Stop Loss: 43.49
Target(s): 49.75, 54.00
Current Option Gain/Loss: - 7.2%, and +24.0%
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: 82.80 change: +1.84

Stop Loss: 79.20
Target(s): 84.95, 87.25
Current Option Gain/Loss: - 0.0%, and +28.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
03/03 update: Small caps rebounded along with the rest of the market and the IWM posted a +2.2% gain. The index has rallied back toward short-term resistance. While the trend is up it could see a little dip tomorrow (assuming the jobs report doesn't disappoint). I'd probably buy dips on the IWM near $81.50ish.

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: 18.60 change: -2.10

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:
03/03 update: Strategy update! It looks like the bulls are back in control. The VIX is likely to languish between the 20 and 15 levels for the time being. I am suggesting we exit this trade tomorrow (Friday) at the closing bell to salvage any remaining capital. The VIX hit our first target a couple of weeks ago but odds are against seeing another huge spike higher. Or if you're more comfortable holding this as some sort of hedge against your bullish portfolio then keep it but don't forget these options expire around March 16th.

- Suggested Positions -

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

03/03 Plan to exit tomorrow at the closing bell
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: 84.65 change: +2.22

Stop Loss: 79.80
Target(s): 86.00, 89.90
Current Option Gain/Loss: +33.3%, and +28.5%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/03 update: The market's bullish tone on Thursday was enough to lift WAT past resistance to new highs. Shares outperformed with a +2.6% gain. Nimble traders may want to consider new positions on dips near the rising 10-dma. 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


CLOSED BEARISH PLAYS

Freeport-McMoran - FCX - close: 52.40 change: +0.42

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

Comments:
03/03 update: I am dropping FCX as a put candidate. The stock is still underperforming the market and the current trend is bearish with a pattern of lower highs and lower lows. I just don't want to fight the market's trend. Our strategy could still work, buying puts on a bounce near the trendline of lower highs (resistance), but I would rather put our money in bullish candidates that offer more opportunity.

I recently adjusted our trigger to $53.50 but that has yet to be hit. The play was unopened.

03/03 Removed from the play list, unopened.
03/02 New trigger at $53.50
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