Option Investor
Newsletter

Daily Newsletter, Thursday, 3/24/2011

Table of Contents

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

Market Wrap

Bad News Fails To Halt Rally

by Jim Brown

Click here to email Jim Brown
The bad news bulls are back in charge with bad news having little impact on traders and dip buying back in force with the indexes clearly over high profile resistance.

Market Statistics

The S&P moved over resistance at 1300 and the NDX exploded over resistance at 2270 to close +41 points higher. Bad news out of Japan, Libya, Syria and Portugal failed to slow the advance. Demonstrators died in both Yemen and Syria as the governments continue to crackdown on protests. Coalition forces destroyed a Libyan fighter that had violated the no-fly zone. Instead of reacting to bad news traders focused on better than expected earnings and guidance and a sharp decline in weekly jobless claims as a reason to own stocks.

There were only a couple economic reports today and the first was the weekly Jobless Claims. Those filing unemployment claims for the first time declined to 382,000 from 387,000 in the prior week. That is not a big drop but it was enough to push the four-week moving average that eliminates the week-to-week volatility to 385,250 and the lowest level since September 2008. This is good news because it means employment conditions are improving. However, 8.77 million workers are still receiving benefits under the various programs.

On the flip side of the economic coin the Durable Goods Orders for February declined by -0.9% compared to a +2.7% gain in January. New orders were the culprit and fell to -0.9% from +3.6 in January. The durable goods numbers are coming in contrary to what we are seeing in the various other reports and suggests a timing problem with the data, possibly related to the blizzards in January and February. With the regional Fed surveys showing strong gains this report will likely rebound in March. In recent history there have only been four prior press conferences by the Fed chairman. In October 1979 Paul Volcker held a press conference to announce a rate increase. Greenspan spoke to the press in 1992 and Bernanke spoke at the National Press Club and took questions in February 2009 and again in February 2011. The Fed Chairman also appears in front of Congress twice a year to give an economic update but despite the questioning by panel members there are still scripted and on message appearances.

To say this was an unprecedented announcement by the Fed would be an understatement. The Fed has always, prior to Bernanke, been a backroom organization and the vast majority of the public has no clue what the Fed really does. For decades the analyst community and institutional traders have begged for more transparency by the Fed. Tell us what you are going to do and when and we can deal with it. The Fed has typically dealt in mysterious statements and Greenspan has admitted to creating Greenspeak where sentence structure and wording made it impossible to decipher exactly what he meant. Bernanke has resorted too much simplified announcements but still maintains phrases like "considerable period" to keep the market guessing.

By stepping out in front of a likely hostile group of reporters armed with pointed questions Bernanke could do wonders for the Fed's image OR it could be a disaster. The FOMC statements are still cleverly crafted and revised to reveal just the right amount of economic enthusiasm and guidance. In a press conference where Bernanke will be forced to speak without time to review his words for context and multiple meanings, he could get into trouble. However, if he answers forthrightly and honestly he could come across as just one of the guys and succeed in removing some of the hostility the public holds for the Fed.

The first press conference will be April 27th and you can bet there will be considerable volatility around that event. Here is the wildcard. Do you think he is going to hold the first one in April in order to better explain his reasons for making a directional change at that April meeting? Suppose the announcement contained an end to QE2 or an extension to QE2 and the press conference was scheduled to deal with the market impact. This makes the April 27th FOMC meeting even more anticipated or maybe feared so volatility could be huge.

Friday's economic events will include the final Q4 GDP revision and Consumer Sentiment. Complicating the day will be speeches from Fed heads Richard Fisher (Dallas), Narayana Kocherlakota (Minneapolis), Charles Evens (Chicago), Dennis Lockhart (Atlanta) and Charles Plosser (Philadelphia).

There was a flurry of stock news out today. Walgreens announced it was buying Drugstore.com (DSCM) for $409 million. This gives Walgreens access to 60,000 more products being sold online by Drugstore.com, Beauty.com and VisionDirect.com. DSCM had sales of $456 million in 2010 and employs 1,000 people. Walgreens had revenue of $67 million in the same period and operates 7,689 drugstores. DSCM shares rallied +113% on the news to $3.81.

Drugstore.com Chart

It was a tech rally day. Amazon rallied +$6 to $171 after William Blair upgraded the stock to outperform from market perform. The analyst said the company stood to gain significant market share and is doing well competitively against retailers like WalMart and Target. He said the proliferation of smartphones and mobile commerce has the potential to vastly increase price transparency for consumers, which would enhance the growth opportunity for Amazon. The demise of Borders Group is not hurting them either.

Most people don't realize that Amazon is a very strong provider of cloud computing through Amazon Web Services. They are not just a retailer. They are making it tough for other cloud companies to compete. For instance you can get a virtual server free for a YEAR just for signing up and there is no contract. After your free year they will bill you on a month-to-month pay as you go for your actual monthly usage. That is tough to compete with it you are trying to sell virtual servers at retail.

Amazon Chart

Red Hat (RHT) rallied 18% on better than expected earnings of 26 cents compared to estimates of 22-cents. Billings rose more than 30% as customers increased data center usage. This was the fastest rate of growth in 12 quarters. "People are renewing old infrastructure that could not afford to replace it before" according to the CFO. Red Hat raised its full year guidance to 94-96 cents and analysts were expecting 93-cents.

This is further evidence the economy is rebounding and there are better times ahead.

Red Hat Chart

Nvidia (NVDA) announced the GeForce GTX 590 video card, the fastest dual graphics card available today, and shares of the tech company gained +8%. The new card has 1024 Nvidia Cuda cores, 3GB of GDDR5 memory, 32 tessellation engines and over six billion transistors and includes 3D Vision technology. The card sales price is $699 for those gamers who want the absolute fastest and quietest card available. This card has been expected for sometime and the lack of an announcement has weighed on the stock.

Nvidia Chart

Not all the news was good. Best Buy (BBY) reported earnings of $1.98 per share that beat analysts estimates for $1.84 but the details were not good. Profits fell to $651 million from $779 million in the comparison quarter. Revenue in the U.S. declined -4% while international revenue rose +4%. The company said U.S. shoppers were not buying the new 3D and Internet enabled TVs. Sales of TVs and entertainment hardware fell but were offset to some extent by sales of tablet computers and mobile phones.

Best Buy Chart

Research in Motion (RIMM) reported earnings after the bell and they were not pretty. They beat on earnings by two cents but revenue was light by $80 million at $5.56 billion. That would not have been a big deal but they warned on earnings and revenue for the current quarter. Earnings guidance was $1.47 to $1.55 and analysts were expecting $1.65. Revenue guidance was $5.2 to $5.6 billion and analysts expected $5.64 billion. Gross margin was expected to decline to 41.5% from 44.5% due to a decline in the average selling price of phones. RIMM shares fell -10% to $57.40.

The company said it sold 14.9 million BlackBerry phones. RIMM said corporate clients were interested in buying "tens of thousands" of the new PlayBook tablet because they liked the architecture. RIMM also announced the PlayBook would run Android applications. RIMM is also transitioning to a new OS called QNX beginning in 2012 that will turn the BlackBerry into a "superphone." They claim carrier eagerness and interaction is extremely high and advance demand is exploding.

RIMM Chart

Oracle (ORCL) also reported earnings after the close and income rose +78% to $2.1 billion and 41-cents from $1.2 billion and 23-cents in the comparison quarter. Excluding items Oracle earned 54-cents and beat the street by 4-cents. Oracle predicted revenue slightly higher for the current quarter but earnings were forecast at 69-73 cents. Analysts were expecting 66-cents. New software license sales rose +30% to $2.2 billion. That was well above Oracle's own estimate of 10-20%. Former HP CEO Mark Hurd handled the conference call because Larry Ellison was on jury duty. Oracle shares rallied to $33.40 in after hours.

Oracle Chart

The markets gapped open again this morning but within 30 minutes had given back most of its gains with the S&P coming within 20 cents of turning negative at 1297.74. The dip was immediately bought and the resulting rally continued to creep slowly higher for the rest of the day with the S&P closing right at 1310. Moving over 1300 was a critical indicator for the bulls. That suggests the bull market is back on track. However, there was no volume to confirm the move.

Volume across all exchanges managed only 7.1 billion shares. That was only slightly higher than the 6.9 billion on Wednesday but a little better than the lowest day of the year on Tuesday at 6.3 billion. Without volume the bears will continue to harbor hope for another decline.

We have to look at all the macro factors I pointed out last week. To update, the economy is improving. Japan did not turn into a nuclear wasteland and Qaddafi has been ineffective in combating the no-fly, no-drive coalition. Saudi did not have a revolution and continued negative news out of Yemen and Syria is falling on deaf ears. Oil prices at $105 and gas prices at $3.57 appear to be having a limited impact on demand.

To put it clearly for everyone, "All the bad news is already priced into the market."

I ran across a really funny article on Forbes about why bears refuse to give up on their views of an impending decline. Share this with your bearish friends. My Apologies to Bears

We are rapidly approaching the end of the calendar quarter. That means fund managers will be investing excess cash into equities and they will be receiving new retirement contributions to put to work. Hedge funds will be closing shorts that are not working and trying to get on the right side of the trend for their end of quarter updates. Unless we get another massive earthquake or some unexpected news on the currency crisis out of the Eurozone there is nothing on the horizon to push stocks lower. If you know of something that is not already known by the market, send me an email and I will share it with fellow readers.

Obviously it is a stock market and it can still go down for any reason at any time but I think today's close well over recent resistance is a positive message. S&P 1300 is now initial support and there is plenty of overhead resistance at various levels but the trend appears to be positive. Getting over 1330 would be very bullish but I doubt it will be a cakewalk.

Today's close at 1310 was exactly on downtrend resistance and the 30-day average. This should be a hurdle to further upward progress but I believe it will happen.

S&P Chart

Fortunately for market sentiment the Dow has already busted through the equivalent downtrend resistance and the 30-day average. The Dow is very close to key resistance at 12250-12275 and is only 1.8% from a new 52-week closing high. Last week would you have believed the Dow could rebound to only 221 points away from a new high in only six days? Good news is breaking out all over and I think those seeing the glass half full are in for some disappointment.

Dow Chart

The Nasdaq gapped over resistance at 2700 and never looked back. It came to rest at the converging resistance of the 30 and 50-day averages at 1242 and downtrend resistance from the February highs. After the bell today RIMM and Oracle reported earnings with RIMM declining over 10% and Oracle spiking +5%. Fortunately Oracle's market cap is $162 billion and RIMM's is $34 billion. They should more than equal out on their impact to the Nasdaq indexes. In fact Oracle's gain probably has the edge.

I would love to see another gap higher on the Nasdaq to get it over that converging resistance but I will take the breakout any way we can get it. This could be a tough battle. Nasdaq futures are up about seven points at 8:15 ET. Support on the Nasdaq composite is now 2725.

Nasdaq Chart

The Nasdaq 100 big cap index surged higher despite bad news for Google. Google gained nearly $5. The big caps appear to have shaken off the selling from last week and going into the end of the quarter they could outperform.

Nasdaq 100 Chart

The semiconductors had been depressed since before the Japanese quake. The breakout today over decent resistance was on improving news from Japan that plants had not been damaged as much as traders feared. This is very positive for the SOX and the Nasdaq.

Semiconductor Chart

The Russell surged ahead and while it only rose half as much as the Nasdaq in percentage terms it did breakout over the equivalent resistance levels. Russell stocks are not favorites of the window dressing crowd at quarter end. Funds typically favor the highly liquid big caps so they can exit quickly early in the next quarter. Small caps are seen as longer-term investments so the Nasdaq 100 should continue to outperform over the next week. However, any further move higher in the Russell will be a confirmation of the improving sentiment.

Russell 2000 Chart

I have a lot more confidence in the market today than I did on Tuesday. I view the breakout by the SOX, NDX and Nasdaq from prior congestion levels as very positive. With the end of the quarter just ahead and window dressing likely, I would not want to be short this market. I believe we have shifted back into buy the dip mode until proven wrong.

Jim Brown

Send Jim an email

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New Option Plays

Pushing Higher

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate I would keep an eye on O'Reilly Automotive (ORLY). Consumers are keeping their cars longer and thus paying for more repairs. Shares of ORLY might be a bullish candidate on a dip into the $57-56 area or a breakout past $58.00.

- James


NEW DIRECTIONAL CALL PLAYS

Norfolk Southern - NSC - close: 67.75 change: +1.07

Stop Loss: 64.90
Target(s): 72.00, 74.90
Current Option Gain/Loss: + 0.0%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The Dow Jones Transportation index looks ready to rally and breakout past the 5200 level in spite of high oil prices. The Dow Jones U.S. Railroad index looks even stronger. In just the last few days NSC has broken out past resistance near $66, pulled back, and we're already seeing investors buy the dip.

I am suggesting bullish positions now. We'll use a stop loss at $64.90. More conservative traders might want to consider a stop closer to the $66.00 level instead. The $70.00 level could offer potential resistance but I'm setting our profit targets at $72.00 and $74.90. We do not want to hold past NSC's late April earnings report.

- Open Bullish Positions Now @ current levels

- Suggested Positions -

Buy the April $70 calls (NSC1116D70) current ask $0.50

- or -

Buy the May $70 calls (NSC1121E70) current ask $1.40

Annotated Chart:

Entry on March 25th at $ xx.xx
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 3.0 million
Listed on March 24th, 2011


In Play Updates and Reviews

Five Out of Six

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 is up five out of the last six days and today's gain has pushed the index above resistance near the 1300 level and its 50-dma. Buy-the-dip seems to be the name of the game again.

Looking at our candidates below, BHI hit our trigger to buy calls. FOSL hit our first target to take profits. INFY hit our stop loss.

-James

Current Portfolio:


CALL Play Updates

Baker Hughes - BHI - close: 71.32 change; +0.09

Stop Loss: 67.95
Target(s): 76.50, 79.75
Current Option Gain/Loss: -18.0% and -13.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/24 update: The action in BHI was not what I had in mind. Before the opening bell shares of BHI were upgraded by UBS to a "buy". This news lifted shares and the stock gapped open higher at $72.35. We had a trigger to buy calls at $72.25 so the play was immediately opened. Unfortunately, BHI failed to hold these gains and almost immediately plunged back under resistance at the $72.00 level and the stock closed with a very minor gain. It was not a very impressive display of strength.

Our new call play on BHI is now open but I would not launch new call positions here. The high this morning was $72.40. Let's wait for BHI to trade at $72.50 before initiating new positions. Our first target is $76.50. Our second target is $79.75. More aggressive traders could aim higher. FYI: If BHI can breakout past the $72.00 level it would create a new quadruple top breakout buy signal on its Point & Figure chart.

- Suggested Positions -

Long the April $75 calls (BHI1116D75) Entry @ $1.00

- or -

Long the May $75 calls (BHI1121E75) Entry @ $2.61

Chart:

Entry on March 24th at $72.35 *gap higher*
Earnings Date 05/03/11 (unconfirmed)
Average Daily Volume = 4.6 million
Listed on March 23rd, 2011


Baidu, Inc. - BIDU - close: 133.48 change: +0.90

Stop Loss: 119.95
Target(s): 139.00, 147.50
Current Option Gain/Loss: +109.3%, and + 65.6%
Time Frame: 4 to 5 weeks
New Positions: see below

Comments:
03/24 update: BIDU rallied to $135.00 intraday but spent most of the day hovering around the $134 level. The stock is a little bit overbought here and I wouldn't be surprised to see a correction. A dip to the $130 or $127.50 zone could be a new bullish entry point. More conservative traders might want to consider raising their stops closer to the $125 area.

Our first target to take profits is at $139.00. The high today was $133.97. We will plan to exit ahead of BIDU's late April earnings report. BIDU can be a volatile stock so I would consider this a more aggressive, higher-risk trade.

- Suggested Positions -

Long the April $130 calls (BIDU1116D130) entry @ $3.20

- or -

Long the May $135 calls (BIDU1121E135) entry @ $5.10

Entry on March 22 at $127.00
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 6.0 million
Listed on March 21st, 2010


Caterpillar Inc. - CAT - close: 108.37 change: +1.61

Stop Loss: 99.00
Target(s): 109.00, 114.00
Current Option Gain/Loss: +76.4%, and +25.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/24 update: CAT provided a bullish 2011 outlook this morning and that helped the stock rally to a new high. Shares hit $108.90 intraday and the stock closed with a +1.5% gain. I am not suggesting new positions at this time. Our first target to take profits is at $109.00. More conservative traders may want to raise their stops toward the $103 or $104 areas.

Our secondary target is $114.00.

- Suggested Positions -

Long the April $105 calls (CAT1116D105) Entry @ $3.40

- or -

Long the May $110 calls (CAT1121E110) Entry @ $3.15

Entry on March 18th at $104.99 (gap higher)
Earnings Date 04/29/11 (unconfirmed)
Average Daily Volume = 7.4 million
Listed on March 17th, 2010


Cerner Corp. - CERN - close: 108.65 change: +0.57

Stop Loss: 101.90
Target(s): 104.85, 109.50
Current Option Gain/Loss: +74.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/24 update: CERN is still drifting higher and shares hit $108.88 intraday. Our final target to exit is $109.50 although more aggressive traders may want to aim higher. I am not suggesting new positions at this time. Our target to exit is $109.50.

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

03/22 New stop loss @ 101.90
03/21 Adjusted final target to $109.50
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


Capital One Financial - COF - close: 51.86 change: +0.45

Stop Loss: 49.49
Target(s): 54.75, 59.00
Current Option Gain/Loss: - 2.6% and -52.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/24 update: It was a very interesting day for COF. As you may have heard recently Bank of America (BAC) made huge headlines when the Federal Reserve denied its request to raise its cash dividend, which suggests the company's balance sheets are not as healthy as its peers. Today it was unveiled that the Fed had also denied COF's request to raise its dividend. While shares of BAC have been sinking on this news, shares of COF managed a big bounce off the initial knee-jerk reaction lower.

I'm not sure I trust this move higher but COF did bounce from technical support near its 50-dma. I would be more defensive here and would hesitate to launch new positions. Furthermore the low today was $49.76. I am raising our stop loss to $49.49. Our targets are $54.75 and $59.00.

- Suggested Positions -

Long the April $50 call (COF1116D50) Entry @ $2.63

- or -

Long the April $55 call (COF1116D55) Entry @ $0.65

03/24 New stop loss @ 49.49

Entry on March 16th at $51.08
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 4.4 million
Listed on March 15th, 2010


CSX Corp. - CSX - close: 78.96 change: +0.61

Stop Loss: 73.45
Target(s): 79.90, 83.75
Current Option Gain/Loss: +42.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/24 update: CSX continues to inch higher and hit a new 52-week high today. On a positive note the railroad sector looks poised to rally further. Yet short-term, shares of CSX look a little overbought and due for a dip. I would wait for a dip into the $77-75 zone before considering new positions.

Our plan was to keep our position size small to limit our risk. FYI: The Point & Figure chart for CSX is bullish with a $98 target.

- Small Bullish Positions -

Long the April $80 calls (CSX111680) Entry @ $1.06

Entry on March 21 at $77.25
Earnings Date 04/13/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on March 19th, 2010


Fossil, Inc. - FOSL - close: 85.52 change: +1.19

Stop Loss: 78.75
Target(s): 84.90, 89.75
Current Option Gain/Loss: + 75.7%, and +24.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/24 update: Target achieved. The rally in FOSL continued. Shares opened at $84.81 and this afternoon the stock managed to push past resistance at the $85.00 level. Our first target to take profits was hit at $84.90. The April $85 calls were near $2.75 (+66%) and the May $85 calls were near $5.60 (+28.7%). Our second and final target is $89.75.

If you're looking for a new entry point you could buy calls now on the breakout past $85.00 or hope for a dip into the $83-82 zone.

- Suggested Positions -

Long the April $85 calls (FOSL1116D85) Entry @ $1.65

- or -

Long the May $85 calls (FOSL1121E85) Entry @ $4.35

03/24 1st Target Hit @ $84.90. Options @ +66% & +28.7%

chart:

Entry on March 23 at $81.75
Earnings Date 05/10/11 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on March 22nd, 2011


Jones Lang Lasalle Inc. - JLL - close: 100.64 change: +2.15

Stop Loss: 95.40
Target(s): 102.50, 109.00
Current Option Gain/Loss: - 2.9%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/24 update: It was a strong day for JLL. Shares rallied off its 40-dma and closed back above the $100 mark with a +2.1% gain for the session. I am raising our stop loss to $95.40, just under the 50-dma. I would be tempted to launch new call positions here on today's close.

Prior Comments:
We wanted to keep our position size small to limit our risk. Our targets are $102.50 and $109.00.

- Suggested Positions - (Small Positions)

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

03/24 New stop loss @ 95.40
03/17 Exited March calls @ open, Estimated exit @ 0.10 (-94.2%)
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: 83.10 change: -0.20

Stop Loss: 78.49
Target(s): 84.95, 89.00
Current Option Gain/Loss: -32.5%
Time Frame: 4 to 7 weeks
New Positions: see trigger

Comments:
03/24 update: It turned out to be a quiet session for PII. Shares were showing some relative weakness. I wouldn't be surprised to see a dip near $82 or $80 soon. Look for the dip or a bounce from these levels before considering new bullish positions. More conservative traders might want to consider stops a little closer to the $80 level.

Our plan was to keep our position size small. FYI: The Point & Figure chart for PII is bullish with a $98 target.

- Small Positions -

Long the April $85 calls (PII1116D85) Entry @ 2.00

Entry on March 18th at $82.25
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 396 thousand
Listed on March 14th, 2010


Quality Systems Inc. - QSII - close: 81.59 change: +0.57

Stop Loss: 78.60
Target(s): 87.25, 94.50
Current Option Gain/Loss: -59.2%, and -16.1%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/24 update: It ha taken several days but QSII is finally above short-term resistance near $81.00. Today's rally could be used as a new bullish entry point to buy calls. The low this week thus far is $78.67. I am raising our stop loss to $78.60.

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

03/24 New stop loss @ 78.60

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


Whole Foods Market Inc. - WFMI - close: 63.18 change: +1.30

Stop Loss: 57.95
Target(s): 64.75, 69.00
Current Option Gain/Loss: +24.6%, and +17.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/24 update: WFMI extended its rally with a move past potential resistance at $62.00. The stock outperformed on Thursday with a +2.1% gain and shares closed at new multi-year highs. I'd probably look for dips into the $62-60 zone as a potential entry point. More conservative traders might want to ratchet up their stops.

Our upside targets are $64.75 and $69.00. FYI: The Point & Figure chart for WFMI is bullish with an $86 target.

- Suggested Positions -

Long the April $65 calls (WFMI1116D65) Entry @ $0.65

- or -

Long the May $65 calls (WFMI1121E65) Entry @ $2.25

Entry on March 21 at $61.55
Earnings Date 05/11/11 (unconfirmed)
Average Daily Volume = 1.9 million
Listed on March 19th, 2010


PUT Play Updates

Everest Re Group Ltd. - RE - close: 82.59 change: +0.56

Stop Loss: 84.25
Target(s): 76.00, 71.00
Current Option Gain/Loss: -35.0%, and -28.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/24 update: Lack of follow through lower on RE's recent failed rally is worrisome. Given the broader market's strength we might want to consider an early exit soon. I am not suggesting new bearish positions at this time.

Our plan was to keep our position size small to limit our risk. Our targets are $76.00 and $71.00. I would keep our position size small to limit our exposure.

- Small Bearish Positions -

Long the April $80 PUTs (RE1116P80) Entry @ $1.00

- or -

Long the May $80 PUTs (RE1121Q80) Entry @ $2.50

Entry on March 23rd at $81.43
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 381 thousand
Listed on March 22nd, 2011


CLOSED BEARISH PLAYS

Infosys Technologies - INFY - close: 68.25 change: +2.09

Stop Loss: 68.15
Target(s): 60.25, 57.50
Current Option Gain/Loss: -69.7%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/24 update: The Indian market continued to rally with a +0.8% gain but that doesn't explain the +3.1% surge in INFY. Technology stocks were the best performers today but I couldn't find any company specific headlines behind INFY's relative strength. The stock gapped open at $66.70 and rallied to its 50-dma. Our stop loss was hit at $68.15.

- Small Bearish Positions -

April $65 PUT (INFY1116P65) Entry @ $2.48, Exit @ 0.75 (-69.7%)

03/24 Stopped out @ 68.15, Option @ -69.7%

chart:

Entry on March 18th at $65.30
Earnings Date 04/15/11 (unconfirmed)
Average Daily Volume = 1.3 million
Listed on March 17th, 2010