Option Investor
Newsletter

Daily Newsletter, Tuesday, 3/15/2011

Table of Contents

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

Market Wrap

Markets Nuked By Japan

by Jim Brown

Click here to email Jim Brown
The Dow was knocked for a -298 point loss at the open by the continued bad news from the damaged nuclear plant in Japan.

Market Statistics

The continuing flow of negative news from Japan and their leaking nuclear plants created an unreasonable drop in our markets at the open. The uncertainty of what is actually happening in Japan somehow translated into a monster futures drop overnight and a huge opening decline. This decline triggered sell stops and forced margin selling as all the weak holders were flushed out of the market.

The fear over the potential meltdown is vastly over done. These are not the same kind of reactors that exploded in Chernobyl. The potential for a major disaster is significantly less. The kind of radiation they are releasing in the form of steam has a very short half-life from several seconds to several days. The amounts being released are miniscule and are not specifically harmful unless you were right at the plant when it was released. Read this detailed description for the real story: Meltdown Link

Here is the key point for tonight. There are four reactors at the Fukushima Daiini plant. The first one was installed in 1981, 30 years ago! All four have had the cooling systems repaired and three have already been shutdown and are no longer a problem. The fourth one is in cool down mode and it expected to be successfully shutdown within the next several hours. Three are now "cold" and the fourth is going through the shutdown mode as I type this. The nuclear problem is over and there was NO catastrophic meltdown.

The market crash today was simply a prime example of heard mentality. The lead cows panicked and the rest of the herd followed them off the cliff. Unfortunately once you run over the cliff it is very difficult to reverse your direction until you hit bottom. Where that bottom might be is the $64 question.

The Fed did its best to reassure the markets today when they improved their statement language and reaffirmed they will complete the entire $600 billion QE2 program along with leaving the "extended period" phrase in the statement. There was no mention of extending QE2 or a possible QE3 but that should not have mattered. What they said was perfectly scripted and it was unanimous. There were no dissenting votes as many had expected.

The Fed did acknowledge higher commodity prices such as oil but said they believe the prices are only temporary. Despite the higher commodity prices the Fed said inflation was still low and was expected to remain low for the foreseeable future.

They said specifically they would complete the $600 billion in treasury purchases by the end of June. Since the next meeting is April 27th this means they would gain nothing by announcing at the end of April they were ending the program early in May. It would cause more harm in the market to have a sudden change in direction. We can glean from today's announcement the program will end on schedule and that means there should be no further worries by fund of an early termination.

The Fed said the economic recovery was "on firmer footing and overall conditions in the labor market appear to be improving gradually." This was a change from the prior statement where they said the recovery was progressing "at a rate that has been insufficient to bring about a significant improvement in labor market conditions."

The new language inserted into the statement had this phrase. The FOMC will "pay close attention to the evolution of inflation and inflation expectations." This could mean the recent uptick in commodity prices has started to concern some Fed members. This is a way to ever so slightly lean towards a future bias change. It might have also been a phrase the hawks wanted to add in order to get their vote on the statement with no dissent. It is seen as a veiled warning for the future. Up until now the Fed has always claimed that inflation was nonexistent and bordering on disinflation. Could the stance be changing ever so slightly?

The Fed left rates at 0.125% and kept the extended period statement. In reality the Fed cannon raise rates until it reduces its balance sheet. It would be financial suicide even for the Fed to start hiking rates with more than $2 trillion in treasuries on its books. When we see the Fed beginning to sell treasuries rather than buy them we will know the end is in sight but it could still take many months before they can raise rates.

The unanimous vote was a key point. This will stifle many of the analysts and commentators who have been expecting an early end to QE2. Without any dissenters the analysts have run out of bricks to build the foundation of their arguments. QE2 will complete on time and for the full $600 billion.

There were some analysts who expected the possible mention of extending QE2 because of the Japan quake and Middle East crisis. There was no mention today and they can still extend it in the future if they so desired. I am sure there was no rush to make an extension decision with three months left on the program. They can monitor the impact of Japan and the Middle East and extend the program later if needed.

The statement had something for everybody and tied up a couple loose ends. It was credited with the afternoon rebound in the markets but the damage was already done. The margin selling at the close prevented a continued rebound.

Other economic reports included the NAHB Housing Market Index, which rose to 17.0 for March and a ten-month high. The expectations component rose from 25 to 27 and +3 points over March 2010. Buyer traffic remained at 12 but is still +2 points higher than March 2010. Analysts believe the slightly better report ahead of the spring selling season is bullish. The Housing Index dropped significantly at the open but quickly recovered and closed with a +0.6% gain.

The NY Empire Manufacturing Survey rose more than +2 points to 17.5 from 15.4 and backorders finally turned positive. The +2.6 print on backorders was the first positive number in more than a year. However, new orders declined -6 points to 5.8. The employment component soared to 9.1 from 3.6 but it has been very volatile in recent months. Prices paid and prices received both rose and indicate sales are strong enough to allow manufacturers to pass on costs to their customers.

Empire Manufacturing Chart

The remaining reports for the week include the PPI, CPI and the Philly Fed Survey. The Philly Fed is a proxy for the national ISM so it is the most critical of the three.

Economic Calendar

Dow component GE was knocked for a -6% decline at the open but recovered to close down by -1.5%. The GE problem was the Japanese nuclear leak. GE designed the four reactors in question about 40 years ago plus 29 of the same design in the U.S. and elsewhere. Late in the day Barclay's said GE had ZERO liability from the failures under Japanese law.

This was not a failure in the reactor. This entire scenario was due to plant operators placing their backup diesel generators next to the ocean where the tsunami could wipe them out. It was a bad decision by plant operator decades ago that resulted in the problem. The reactors did exactly what they were supposed to do when the quake hit by shutting down automatically. Once they shutdown and electricity production stopped it was up to the backup generators to keep the cooling flowing. When the generators were wiped out by the tsunami 26 minutes later they had to switch to their secondary backup of batteries to power the cooling pumps. Without electrical power the batteries could only last so long and once the batteries were exhausted the cooling failed. This was not a liability issue for GE. Shares are grossly oversold on this news.

GE Chart

Companies that do have liability to Japan are Aflac (AFL) and Hartford Group (HIG). Both have substantial insurance risk to the quake and tsunami damage. Aflac is the number one insurer in Japan in terms of individual policies in force. They derive 75% of their profits from Japan. Japan estimated the quake and tsunami damages could be 15 trillion yen or about 3% of the country's GDP. Insurance modeler AIR Worldwide estimated insured losses could be as high as $35 billion but that did not include tsunami losses. However, as the largest insurer in Japan that also means they have policies in force on the 99% of the population that was not impacted by the quake and those will remain profitable. Once the impact to their financials is known they will raise rates on everyone else to recover the losses in the years ahead. Aflac shares are down hard since last week but I would not be bottom fishing here. It is way too early.

Aflac Chart

There are some concerns that our treasury market could be disrupted by Japan. The country is the third largest holder of U.S. treasuries and they may be forced to sell quite a few to pay for the recovery. It could be a while before this impact appears if in fact that is the way they decide to raise money.

There were some stock winners today. The NPD Group released a report saying 61% of digital movies delivered by download in January and February came from NetFlix. The number two provider was Comcast at 8% with Time Warner Cable, DirecTV and Apple in a three-way tie for third. NPD said digital movie downloads now make up 25% of al home video volume. The news powered NetFlix shares to a $16 gain.

NetFlix Chart

Freeport McMoran (FCX) rebounded strongly after the miners said there would be no material impact from the Japanese quake. In January Japan imported nearly one third of copper supplies from Chile with the worlds biggest copper mines. The quake shutdown several copper smelters but as of Tuesday they had not claimed force majeure to prevent deliveries. BHP Billiton (BHP) and Freeport said the world market for copper is so tight there would be no impact. Other countries and primarily China can easily absorb any additional ore according to BHP. Companies were touching base with buyers to see if they needed to divert any shipments on a temporary basis.

Freeport McMoran Chart

Our markets plunged at the open but the damage was much worse on Japan's Nikkei. At the morning lows the index has fallen -15% since the quake. However, now that the reactors have been shutdown and the crisis is over the Nikkei has rallied +531 points in early trading on Wednesday.

Nikkei Chart

The S&P plummeted to 1261 at the open and within two points of the 100-day average. This should be strong support but the markets are always prone to over reaction on world events. This selling was grossly overdone and even though the indexes did not make it back to positive territory I believe the worst was over. As I said earlier the weak holders have been flushed out of the market and those wanting new long positions have been given an excellent buying opportunity. The Fed has confirmed QE2 will complete on schedule and the recovery is improving. The Japanese reactors have been shutdown and the nuclear crisis is over. There is nothing on the horizon to prevent our markets from rebounding from here. I view this as a buying opportunity. The two-day drop was a knee jerk event on the nuclear news. It is over.

S&P-500 Chart

Dow Chart

The Nasdaq fell farther on a percentage basis because of fears over the Japanese chip industry. More than 20% of chips used in the U.S. come from Japan. Even if the tsunami did not reach the chip factories the quake caused damage. There have been more than 1,000 aftershocks, some as large as 6.9. When these quakes shake the chip plants they shake the delicate production equipment out of alignment. When you are dealing with microscopic tolerances the shaking forces a realignment of all processes that could take days or weeks if the aftershocks don't subside. How that delay in production will impact U.S. tech companies is unknown.

The Nasdaq rebounded +50 points off its low at 2619 but still gave back -33 points for the day. The key level to watch now is 2,675 and current overhead resistance. Support from this level is 2615 and almost exactly where it stopped on the morning drop.

Nasdaq Chart

I am looking for a rebound on Wednesday. With the nuclear problem resolved the quake becomes just another unfortunate circumstance and historically the market allows about a 72-hour period of mourning and reaction before closing that chapter in the book and moving to the next story. The reaction was overdone and could just as easily see an overdone rebound. I am not betting on that because we did break some key technical levels today. The market may need a day or two to acclimatize to these levels before moving higher. With the FOMC behind us the focus should start to move to Q1 earnings, which starts in three weeks. There will be a flurry of mid-quarter guidance over the next week or so and hopefully it will take investor's minds off Japan. Did you notice how Libya dropped out of the headlines? Did you know that Saudi Arabia sent troops into Bahrain? Those were big headlines the prior week and the market has forgotten about them while the Japan news was hot. Something will return to hog the headlines later this week and I hope it is a market rebound. Time will tell.

Jim Brown

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New Option Plays

Financials and Technology

by James Brown

Click here to email James Brown

Editor's Note:

Fears over a potential meltdown at one or more of Japan's nuclear energy plants sparked a global sell-off on Tuesday morning. Yet by the closing bell stocks were well off their lows. The Japanese stock market had fallen more than -15% in the last two days. The sell-off got so bad that eventually traders thought it was overdone and started buying anything Japanese expecting a bounce back. I am listing some of the Japanese ETFs and high-profile Japanese names below but they have all seen a significant bounce off their intraday lows today. Now the Japanese NIKKEI index is already up +6% during Wednesday's session. If Japan's market can hold these gains then all of these Japanese ETFs and stocks will likely gap open higher tomorrow morning.

Japanese ETFs: EWJ, SCJ, JPP, JSC, ITF, EZF (double long), EWV (double short). Note that some of these ETFs do not have options. Almost none of them had any volume until the last couple of days.

High-profile Japanese companies: CAJ, HMC, HIT, SNE, and TM.

In addition to tonight's new candidates these stocks caught my eye and might offer some opportunity: WFMI, DE, MON, BHI, INTU, CHKP, and TEVA.

- James


NEW DIRECTIONAL CALL PLAYS

Capital One Financial - COF - close: 51.10 change: +1.64

Stop Loss: 47.75
Target(s): 54.75, 59.00
Current Option Gain/Loss: + 0.0%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
COF has been somewhat resistant to the market's recent weakness. Shares have been consolidating sideways in the $48-50 zone the last several days. Traders bought the dip at support this morning and COF exploded higher. The rally was fueled by news from the company that the number of bad, uncollectable accounts (charge offs) were going down and have been falling for three months in a row.

We can use the breakout over resistance at $50.00 as a bullish entry point. If you don't want to chase it here you can wait for a potential dip near $50.00 again. I am suggesting bullish positions now. Our targets are $54.75 and $59.00.

- Suggested Positions -

Buy the April $50 call (COF1116D50) current ask $2.72

- or -

Buy the April $55 call (COF1116D55) current ask $0.68

Annotated Chart:

Entry on March 16th at $ xx.xx
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 4.4 million
Listed on March 15th, 2010


F5 Networks - FFIV - close: 110.67 change: +1.70

Stop Loss: 107.75
Target(s): 119.75, 124.50
Current Option Gain/Loss: Unopened
Time Frame: 4 to 5 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
If you believe the market will continue to bounce off today's lows then this could be a tradable bottom in FFIV. Shares have bounced twice from support near $105.00 in the last two weeks. This time FFIV is also bouncing from technical support at its simple 200-dma. Aggressive traders could buy calls now. I want to see a little confirmation first. I am suggesting a trigger to buy calls at $112.75. If triggered we'll use a stop loss at $107.75. There is potential resistance at the 50 and 100-dma. We'll set our targets at $119.75 and $124.50. I would consider this an aggressive, higher-risk trade because FFIV can be so volatile. Keep your position size small.

Buy calls with a Trigger @ $112.75 (small positions)

- Suggested Positions -

Buy the April $115 call (FFIV1116D115) current ask $4.60

- or -

Buy the April $120 call (FFIV1116D120) current ask $2.80

Annotated Chart:

Entry on March xxth at $ xx.xx
Earnings Date 04/20/11 (unconfirmed)
Average Daily Volume = 2.8 million
Listed on March 15th, 2010


In Play Updates and Reviews

Capitulation or More to Come?

by James Brown

Click here to email James Brown

Editor's Note:

There are plenty of opinions on the market's recent weakness. Some are crying that today's huge drop at the open was capitulation. Others are suggesting the market correction is just getting started. While the bounce off the lows could offer opportunity the short-term trend for stocks has developed a bearish pattern of lower highs and lower lows. We had several plays get stopped out today. A handful of our candidates gapped open lower under our stop losses.

It doesn't matter if you're trading calls or puts I would keep your position size small to limit your exposure.

-James

Current Portfolio:


CALL Play Updates

Cerner Corp. - CERN - close: 103.53 change: +0.33

Stop Loss: 99.45
Target(s): 104.85, 109.00
Current Option Gain/Loss: -35.1%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/15 update: CERN is still holding up well. Shares gapped open lower at $101.18 but managed to rebound near $100.50. I would still consider new bullish positions here or you could wait for a dip closer to the $100.00 mark or the 50-dma (near $98.67). Keep in mind that our stop loss is currently at $99.45.

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

03/12 New stop loss @ 99.45
03/04 1st Target Hit @ $104.85, Option @ $3.15 (+16.6%)

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


Citrix Systems Inc. - CTXS - close: 69.34 change: -1.752

Stop Loss: 67.90
Target(s): 77.00, 79.90
Current Option Gain/Loss: -50.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/15 update: CTXS broke down under the $70.00 level but found support at its 50-dma. The intraday low was $68.19. Unfortunately the afternoon rebound in CTXS failed at the $70.00 mark. Readers could launch positions here but you might want to wait for a new rise past $70.00 to reaffirm the trend higher.

I do consider this a slightly more aggressive trade. Our targets are $77.00 and $79.90. The Point & Figure chart for CTXS is bullish with a $94 target.

- Small Bullish Positions -

Long the April $75 calls (CTXS1116D75) Entry @ $2.20

03/12 New stop loss @ 67.90

Entry on March 7th at $71.89
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 2.3 million
Listed on March 5th, 2010


Fossil, Inc. - FOSL - close: 82.55 change: +0.12

Stop Loss: 79.40
Target(s): 82.00, 88.00
Current Option Gain/Loss: +107.1%, and + 96.1%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/15 update: We are still in this trade but only by the skin of our teeth. Shares of FOSL gapped open lower at $79.78 and fell to $79.41 before bouncing. Our stop loss is at $79.40. FOSL saw a strong intraday bounce and actually closed in positive territory. I would be tempted to buy this bounce but at the moment S&P futures are trending lower in after hours action. Readers will want to stay cautious tomorrow. Conservative trades will want to seriously consider an early exit right now! Our final target is $88.00.

- Suggested Positions -

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

- or -

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

03/09 New stop loss @ 79.40
03/05 New stop loss @ 76.75
03/05 1st Target Hit @ $82.00, Options @ +142% and +92.3%
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


Jones Lang Lasalle Inc. - JLL - close: 96.41 change: -2.13

Stop Loss: 93.85
Target(s): 102.50, 109.00
Current Option Gain/Loss: -85.7%, and -17.6%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/15 update: JLL gapped open lower but found support at the bottom of its trading range near $94.00. This also happens to be technical support at the 50-dma. The intraday bounce looks like a new bullish entry point. However, market futures are trending lower after hours. Readers may want to look for another dip into the $95-94 zone and initiate positions then.

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

03/10 New stop loss @ 93.85

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


Polaris Industries, Inc. - PII - close: 80.12 change: -0.11

Stop Loss: 78.49
Target(s): 84.95, 89.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 7 weeks
New Positions: Yes, see trigger

Comments:
03/15 update: PII did not see that much volatility. The drop to $78 and bounce is consistent with what appears to be a bull-flag type of consolidation in PII. Aggressive traders could buy this bounce with a stop loss under today's low. I am suggesting readers wait for the breakout over $82.00. The newsletter has a trigger at $82.25. If triggered our targets are $84.95 and $89.00. FYI: The Point & Figure chart for PII is bullish with a $98 target.

Trigger @ 82.25

- Suggested Positions -

Buy the April $85 calls (PII1116D85) current ask 1.50

Entry on March xxth at $ xx.xx
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 396 thousand
Listed on March 14th, 2010


Quality Systems Inc. - QSII - close: 79.73 change: -1.31

Stop Loss: 77.90
Target(s): 87.25, 94.50
Current Option Gain/Loss: -40.7%, and -16.1%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/15 update: The big gap down in the NASDAQ this morning definitely took its toll on QSII. Shares of QSII opened lower at $79.37 but managed to bounce off its rising 40-dma. Unfortunately, like so many other stocks today, prior support acted as new resistance late this afternoon. QSII struggled with the $80 level and its 30-dma overhead. Readers may want to wait for a new close over the $81.50 level before initiating new positions. You might want to consider raising your stop loss toward today's low of $78.66.

Prior Comments:
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 -

Long the April $85 calls (QSII1116D85) Entry @ $1.35

- or -

Long the June $85 calls (QSII1118F85) Entry @ $3.40

Entry on March 4th at $81.44
Earnings Date 05/31/11 (unconfirmed)
Average Daily Volume = 154 thousand
Listed on March 3rd, 2010


Stericycle Inc. - SRCL - close: 86.54 change: -1.38

Stop Loss: 84.95
Target(s): 94.00, 99.00
Current Option Gain/Loss: -32.2%, and -30.4%
Time Frame: 6 to 8 weeks
New Positions: see trigger

Comments:
03/15 update: SRCL did not see that much weakness. Shares gapped open lower and hit a new four-day low (85.29) before paring its losses. I wouldn't be surprised to see another dip toward $85.00 and its 30-dma. Readers can look for the dip near $85.00 or wait for another rally past $88.00 as potential entry points.

Our targets are $94.00 and $99.00. The $90 level could be round-number resistance but after four weeks of consolidating sideways I'm not expecting $90 to be an issue. Let's keep our position size small to limit our risk.

- Suggested (SMALL) Positions -

Long the April $90 calls (SRCL1116D90) Entry @ 1.55

- or -

Long the May $95 calls (SRCL1121E95) Entry @ 1.15

Entry on March 14th at $88.25
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 481 thousand
Listed on March 9th, 2010


PUT Play Updates

Joy Global Inc. - JOYG - close: 89.56 change: -1.05

Stop Loss: 93.75
Target(s): 85.25
Current Option Gain/Loss: - 2.4%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/15 update: Stay defensive on this trade. The market weakness pushed JOYG to gap open lower but the stock found support and bounced at last week's lows. That's a potentially bullish development. I remain hesitant to launch new bearish positions here. Please note our new stop loss at $93.75. More conservative traders may want to move their stop closer to the $92.50 or $92.00 levels.

Our target is $85.25. Aggressive traders could aim for the $84 lows or a drop closer to $80.

- Suggested Positions -

Long the April $85 puts (JOYG1116P85) Entry @ $2.50

03/15 New stop @ 93.75

Entry on March 11th at $90.00
Earnings Date 06/02/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on March 10th, 2010


CLOSED BULLISH PLAYS

Apple Inc. - AAPL - close: 353.56 change: +1.57

Stop Loss: 344.00
Target(s): 364.00, 379.00
Current Option Gain/Loss: -40.5%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/15 update: It was a rough day for the stock market with the Dow Jones Industrials plunging nearly 300 points. I believe the sell-off in AAPL today had nothing to do with APPL and everything to do with investors over-reacting and the just widespread market weakness.

Shares of AAPL gapped open lower at $342.10, which was under our stop loss at $344.00 so the play was closed immediately. Traders bought the dip near $340 and the stock bounced back nearly to $348 before closing under its 50-dma, which is now technical overhead resistance.

Prior Comments:
This is an aggressive, higher-risk trade so we want to keep our position size small to try and limit our risk. FYI: The Point & Figure chart for AAPL is bullish with a $448 target.

- Small Bullish Positions -

April $365 calls (AAPL1116D365) Entry @ $6.00, Exit @ $3.57 (-40.5%)

03/15 Stopped out on gap down. Options @ -40.5%

chart:

Entry on March 14th at $353.18
Earnings Date 04/19/11 (unconfirmed)
Average Daily Volume = 18 million
Listed on March 12th, 2010


Cognizant Technology Solutions - CTSH - close: 74.00 change: -1.37

Stop Loss: 74.75
Target(s): 82.25, 84.75
Current Option Gain/Loss: -72.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
03/15 update: The big gap down for the NASDAQ on Tuesday morning wreaked havoc on tech stocks. Shares of CTSH opened at $72.67, well below our stop loss at $74.75. CTSH plunged to $70.53, under its 100-dma, on an intraday basis before bouncing back to trim its losses. Our play was closed at the open.

- Suggested Positions -

April $80 calls (CTSH1116D80) Entry @ $1.80, Exit @ 0.50 (-72.2%)

03/15 Stopped out on gap down @ 72.67, Option @ -72.2%

chart:

Entry on March 9th at $78.25
Earnings Date 05/04/11 (unconfirmed)
Average Daily Volume = 2.2 million
Listed on March 8th, 2010


Fastenal Co. - FAST - close: 60.51 change: -0.74

Stop Loss: 59.90
Target(s): 67.25
Current Option Gain/Loss: - 100%, and -66.6%
2nd Position Option Gain/Loss: - 100%, and -64.6%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/15 update: FAST is another casualty of the market's morning weakness. Shares gapped open lower at $59.41, which was under our stop at $59.90. Shares bounced back intraday but failed at the 50-dma.

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 -

March $65 calls (FAST1119C65) Entry @ $0.85, exit @ -100%

- or -

May $65 calls (FAST1121E65) Entry @ $2.25, exit near $0.75 (-66.6%)

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

March $65 calls (FAST1119C65) Entry @ $0.20, Exit @ -100%

- or -

APRIL $65 calls (FAST1121D65) Entry @ $0.99, Exit @ 0.35 (-64.6%)

03/15 Stopped out on gap down. Options @ -100%, -66.6%, -100%, -64.4%
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

chart:

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


3M Co. - MMM - close: 89.50 change: -1.52

Stop Loss: 88.75
Target(s): 94.50, 99.00
Current Option Gain/Loss: - 69.7%, and - 38.4%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/15 update: It can be tough being a Dow Industrials component when the index is down almost -300 like it was Tuesday morning. Shares of MMM opened at $89.05 and quickly fell toward short-term support near $88.00 and its 100-dma before bouncing. It's worth noting that the bounce failed late Tuesday afternoon at $90 and its 50-dma. Our stop loss was hit early this morning at $88.75.

- Suggested Positions -

March $90 calls (MMM1119C90) Entry @ $1.75, Exit @ 0.53 (-69.7%)

- or -

April $95 calls (MMM1116D95) Entry @ $0.78, Exit @ 0.48 (-38.4%)

03/15 Stopped out @ 88.75, Options @ -69.7% & -38.4%

chart:

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: 85.33 change: -0.88

Stop Loss: 84.80
Target(s): 88.00, 91.50
Current Option Gain/Loss: - 33.4%, and - 4.2%
2nd Position Gain/Loss: - 56.5%, and - 51.6%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/15 update: The action in NKE was a familiar story. Shares gapped open lower, under support near $85 and its 50 and 100-dma. The opening trade of $84.63 was below our stop loss at $84.80 so the play was closed immediately. Shares bounced off their intraday lows but prior support acted as new resistance.

- Suggested Positions - (Small Positions Only!)

March $85 calls (NKE1119C85) Entry @ $2.09, Exit @ $1.39 (-33.4%)

- or -

April $90 calls (NKE1116D90) Entry @ $0.94, Exit @ $0.90 (-4.2%)

2nd position, buy the bounce from $85.50

March $85 calls (NKE1119C85) Entry @ $3.20, Exit @ $1.39 (-56.5%)

- or -

April $90 calls (NKE1116D90) Entry @ $1.86, Exit @ $0.90 (-51.6%)

03/15 Stopped out on gap down. Options @ -33%, -4%, -56%, -52%
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%)

chart:

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


Norfolk Southern Corp. - NSC - close: 65.56 change: -0.37

Stop Loss: 63.90
Target(s): 69.75, 74.00
Current Option Gain/Loss: -33.6%, and -54.2%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/15 update: We almost escaped without getting stopped out but NSC opened lower at $64.05 and hit $63.90 before bouncing back. Our stop loss was hit at $63.90 closing this trade. Readers may want to keep NSC on their watch list another move higher past $66 and 67 could be a new bullish entry point.

- Suggested Positions -

April $65 calls (NSC1116D65) Entry @ $2.50, Exit @ $1.66 (-33.6%)

- or -

April $70 calls (NSC1116D70) Entry @ $0.70, Exit @ $0.32 (-54.2%)

03/15 Stopped out, Options @ -33.6%, -54.2%

chart:

Entry on March 14th at $65.84
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 3.1 million
Listed on March 12th, 2010


Waters Corp. - WAT - close: 82.70 change: -2.03

Stop Loss: 83.40
Target(s): 86.00, 89.90
Current Option Gain/Loss: - 72.2%, and - 25.7%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/15 update: Ouch! Support at $84.00 could not hold WAT given the tidal wave of weakness in the market this morning. Shares of WAT gapped open lower at $82.50, which was under our stop loss of $83.40.

Readers may want to keep WAT on their watch list since the stock managed an intraday bounce off its 30-dma and should still have support near the $80 level.

- Suggested Positions -

March $85 calls (WAT1119C85) Entry @ $0.90, Exit @ 0.25 (-72.2%)

- or -

April $85 calls (WAT1116D85) Entry @ $1.75, Exit @ 1.30 (-25.7%)

03/15 Stopped out, gap down. Options @ -72.2%, -25.7%
03/12 New stop loss @ 83.40
03/10 New stop loss @ 82.80
03/05 New stop loss @ 81.80
03/04 1st Target Hit @ $86.00. Options @ +100%, and +57.1%
The March $85 was bid near $1.80, the April $85s near $2.75.

chart:

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


Wynn Resorts Ltd. - WYNN - clos: 121.17 change: -2.82

Stop Loss: 119.75
Target(s): 129.75, 137.50
Current Option Gain/Loss: -40.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/15 update: Our aggressive trade on WYNN has not panned out. The stock could not hold support near $120 and its 50-dma given the huge market declines at the open on Tuesday morning. Shares of WYNN gapped down at $120.17 and quickly hit our stop loss at $119.75 as it fell to $117.21 intraday.

Prior comments:
We want to keep our position size small to limit our risk.

- small bullish positions -

April $130 calls (WYNN1116D130) Entry @ $2.84, Exit @ $1.70 (-40.1%)

03/15 Stopped out, Option @ -40.1%

chart:

Entry on March 14th at $122.48
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 1.8 million
Listed on March 12th, 2010