Option Investor
Newsletter

Daily Newsletter, Monday, 5/16/2011

Table of Contents

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

Market Wrap

Europe Casts A Cloud Over The Market...Again

by Todd Shriber

Click here to email Todd Shriber
A familiar, negative catalyst weighed on the market today, leading to blood-letting on all the major indexes with the Nasdaq and the Russell 2000 bearing the brunt of the pain.

Stats Table

As I just mentioned, Europe was a big problem for the market today and one can pick his or her poison as to what the major European issue of the day was. It is never a good thing when someone as powerful as the head of the International Monetary Fund (IMF) is arrested on attempted rape charges, but that is the boat Dominique Strauss-Kahn finds himself in. On Monday, a New York judge denied bail for Stauss-Kahn after prosecutors were able to prove he presents a flight risk.

The alleged attack on a 32-year old employee of the Sofitel Hotel in Manhattan occurred on Saturday and it seems the decision to deny bail for the man once thought to be a leading contender for the French presidency is the right one as France does not extradite its nationals, according to Bloomberg News. Diplomatic immunity does not apply here and Strauss-Kahn could face up to 25 years in prison if convicted.

Dominique Strauss-Kahn

The IMF wants the world to know it is still a functioning body and it showed as much by approving a bailout of nearly $111 billion for the ''P'' in PIGS, Portugal. For those keeping score at home, a bailout of that magnitude is not a good thing when a country sports a 2010 GDP of less than $246 billion, which Portugal did last year, according to the IMF.

As for Greece, the ''G'' in PIGS, the country that some would credit with starting Europe's sovereign debt crisis, no decision is expected today, but the European Union is pushing the country to sell more than $107 billion in assets to in an effort to get its fiscal house in order. The chart below is a couple of days old, but it tells the story: Yields on Greek bonds are blowing out yet again.

Greek Bond Yields

Here in the States, investors had to contend with one economic report and it was not pretty. The New York Federal Reserve's Empire State manufacturing survey fell to 11.9 in May from 21.7 in April. Economists were expecting a reading of 19.7. While the May reading does signal expansion, it does so at a much slower rate than in previous months and making matters worse, the prices paid index soared to 69.9, the highest mark since August 2008.

Prices Paid Index

It was another wild day in the oil complex as oil futures, the West Texas varietal, remain below $100. The Commodities Futures Trading Commission reports that hedge funds and other speculators cut their long bets on crude by 10% for the week ending last Tuesday. Gasoline futures tumbled as well after the Army Corps of Engineers the Morganza Floodway north of Baton Rouge, La., over the weekend in a bid to lower the flood-swollen Mississippi River, easing concerns that flooding would hamper gasoline output on the East Coast, the Wall Street Journal reported.

Oil's slide weighed on Dow components XOM and CVX, both which were lower by just under 1%, but COP was flat on the day. Of course, oil's recent woes have resulted in a stellar performance for airline stocks. Whenever I think of airline stocks, I rarely think anything positive. I think of ''Wall Street'' (the first version) where Gordon Gekko says guys like him get burned on airline stocks. I think of real life where even Warren Buffett admits he was lucky on an old investment in US Air. And I think that oil needs to fall a lot more for airline stocks to pique my interest. Still, if you find yourself feeling bearish on oil, and do not have a futures account to short futures with or if you do not want to fool around with inverse ETFs, take a look at the Guggenheim Airline ETF (FAA). To be clear, I am not a buyer or seller of this ETF, my view is that it is worth a look as a conservative short oil play.

Airline ETF

Airlines provide me with an interesting segue as that sector has been home to plenty of mergers and acquisitions activity over the years, much of it dubious, and it was M&A drama that was behind an ugly slide for NYSE Euronext (NYX) today. Nasdaq OMX (NDAQ) and IntercontinentalExchange (ICE) scuttled their $11.3 billion bid for the operator of the New York Stock Exchange after the Justice Department threatened an antitrust lawsuit.

Now, NYSE Euronext shareholders are forced to embrace an inferior takeover from Germany's Deutsche Boerse. If you like M&A drama, you are in luck because the Deutsche Boerse/NYSE Euronext deal is by no means a foregone conclusion. While U.S. regulators will have less to crow about under this scenario, the folks at the European Commission in Brussels, typically a bit more ornery with their M&A concerns than their U.S. counterparts, are probably going to raise some issues.

If the deal with the Germans goes through, the two companies dominate the fixed income derivatives market in Europe because Liffe and Eurex would be residing under one roof, Bloomberg reported. Today's plunge of nearly 13% was the worst one-day performance for NYX since 2009 and if the deal with Deutsche Boerse is scrapped by European regulators, another day like today probably awaits NYX shareholders. I say that because two things are clear: The global exchange business is consolidating and if you have a chance to participate, you take it. Second, the list of rivals that could make a legitimate run at NYX, excluding Deutsche Boerse, is quite small.

NYX Chart

In better M&A news, shares of medical device maker Orthovita (VITA), surged 40.3% after larger rival Stryker (SYK) said it will acquire the company for $304 million in cash. Stryker is offering $3.85 a share for Orthovita, a 41% premium to where the stock closed on Friday. Stryker is using the deal to bolster its orthobiologic and biosurgery offerings. The deal is expected to close in the current quarter. Orthovita Chart
%IGM7%

The marquee earnings report of the day came courtesy of Lowe's (LOW), the second-largest U.S. home improvement retailer behind Dow component Home Depot (HD). North Carolina-based Lowe's said its fiscal first-quarter profit slid 6% to $461 million, or 34 cents per share, from $489 million, or 34 cents per share, a year earlier. Revenue tumbled 2% to $12.19 billion as same-store sales fell 3.3%. Analysts were expecting a profit of 36 cents on sales of $12.54 billion.

The company's guidance failed to give investors reason to cheer. Lowe's cut its full-year profit guidance to $1.56-$1.64 a share on revenue growth of 4% from $1.60-$1.72 a share on sales growth of 5%. Analysts were expecting a profit of $1.72. For the second quarter, the company expects a profit of 65-69 cents on revenue of $14.93 billion. Analysts are forecasting a profit of 68 cents on $14.82 billion.

Lowe's Chart

Looking at the charts, the close below 1330 on the S&P 500 is not a good sign. In the weekend wrap, Jim talked about the dangers here if the 1328 printed and it did today as the intraday low was 1327.32. If we see upside in the coming days, there is still stubborn resistance just over 1340 while further downside could see the index trade below 1300 over the coming weeks.

S&P 500 Chart

The Dow is facing a similar situation. Today's close below 12,550 could encourage further selling and drag the blue-chip index lower to 12,400 and perhaps all the way back to 12,200. Often times when I comment on the Nasdaq, I say that stocks like AAPL, AMZN, GOOG, etc. cannot do all the work. In the case of the Dow these days, it is not reasonable to expect seven stocks to do the work of 30. By seven, I mean the staples and pharma members of the Dow. The longer the high-beta trade stays off, weighing on CVX, CAT and XOM and the more financials fall, the more vulnerable the Dow becomes.

Dow Chart

The Nasdaq is looking really ugly, to put things simply. Support at 2825 was nowhere to be found today nor was psychological support at 2800. A close at 2782 has the index flirting with the 50-day moving average at 2773. If that does not act as support, a return to 2700 could be in the cards.

Nasdaq Chart

The best thing that can be said about the Russell 2000 is that it closed above critical support at 820 today. On the other hand, it also closed at its low for the day and below the 50-day moving average. A break below 820 violates the uptrend and could mean a move all the way back to 775.

Russell 2000 Chart

I am really not a fan of the current state of affairs in the market. International headline risk is too much of an issue. One week it is China. The next it is Europe and I would not ignore the Middle East. There is obvious technical concern facing every one of the major indexes as I just highlighted and stocks are getting no help from lower oil prices, making me think the ''sell in May'' crowd is having its way, at least for the time being.


New Option Plays

Volatility Could Rise

by James Brown

Click here to email James Brown

Editor's Note:

It looks like the path of least resistance might be down, at least on a short-term basis. I'm not suggesting new trades tonight but if you feel like you must trade I'm adding a bullish bet on the volatility index (VIX), which should rise as stocks fall.

- James


NEW DIRECTIONAL CALL PLAYS

Volatility Index - VIX - close: 18.24 change: +1.17

Stop Loss: 15.45
Target(s): 24.00
Current Option Gain/Loss: +0.0%
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Stocks look fragile and any acceleration lower for the market's major indices should fuel a rally in the VIX index. I do consider this an aggressive, higher-risk trade since the stock market's longer-term trend is still higher. I would only trade very small positions.

I am suggesting new positions now. More conservative traders could wait for a rise past the 20.00 mark. NOTE: VIX June options expire on June 15th.

Open Small Bullish Positions

Buy the June 20.00 call (VIX1115F20) current ask $1.75

Annotated Chart:

Entry on May 17th at $ xx.xx
Earnings Date --/--/--
Average Daily Volume = xxx
Listed on May 16th, 2011



In Play Updates and Reviews

Tech Stocks Hammered

by James Brown

Click here to email James Brown

Editor's Note:

High-flying NASDAQ tech stocks were big underperformers today. We saw ALXN and AMZN both hit our stop losses.

-James

Current Portfolio:


CALL Play Updates

Apple Inc. - AAPL - close: 333.30 change: -7.20

Stop Loss: 339.40
Target(s): 374.00, 395.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see trigger

Comments:
05/16 update: Ouch! AAPL lost -2.1% on Monday putting its two-day decline at more than $13. The breakdown under the $340 level is bearish. The stock could have support near $330 but there is a chance AAPL might fall toward stronger support near $320 and its 200-dma. I would definitely consider buying calls on a dip near $320 and if AAPL can find support at $330 again we'll consider buying calls there too. In the meantime, we're in a wait-and-see mode. Our breakout trigger to buy calls at $352.50 won't get hit any time soon.

Buy-the-breakout Trigger @ $352.50

- Suggested Positions -

Buy the June $370 calls (AAPL1118F370)

- or -

Buy the July $380 calls (AAPL1116G380)

Entry on May xxth at $ xx.xx
Earnings Date 07/20/11 (unconfirmed)
Average Daily Volume = 16.6 million
Listed on May 2nd, 2011


Express Scripts - ESRX - close: 59.59 change: -0.33

Stop Loss: 56.75
Target(s): 64.00, 68.50
Current Option Gain/Loss: - 7.1% & - 7.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/16 update: Investors favored defensive names on Monday. ESRX recovered from its morning spike lower and almost hit new relative highs before the intraday rebound faded. Given the market's weakness we should look for a dip toward the $58.00 or $57.00 levels. No new positions at this time. Our targets are $64.00 and $68.50. FYI: The Point & Figure chart for ESRX is bullish with a $72 target.

- Suggested Positions -

Long the June $60 call (ESRX1118F60) Entry @ $1.53

- or -

Long the August $60 call (ESRX1120H60) Entry @ 3.15

Entry on May 10th at $59.21
Earnings Date 07/28/11 (unconfirmed)
Average Daily Volume = 4.6 million
Listed on May 9th, 2011


Fastenal Co. - FAST - close: 66.29 change: -0.32

Stop Loss: 63.75
Target(s): 69.50, 74.00
Current Option Gain/Loss: -36.3% & -40.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
05/16 update: FAST held up reasonably well considering the NASDAQ sell-off today. Shares may not hold up if the NASDAQ continues to sink. I am suggesting we exit our May calls immediately. I am not suggesting new positions at this time.

FYI: FAST is due to split 2-for-1 on May 23rd. Plus, the Point & Figure chart for FAST is bullish with a $72 target.

- Suggested Positions -

May $65.00 calls (FAST1121E65) Entry @ $2.20, Exit 1.40 (-36.3%)

- or -

Long the June $70.00 calls (FAST1118F70) Entry @ $0.75

05/16 Exit May $65 calls ASAP. Bid @ 1.40 (-36.3%)

Entry on April 26th at $66.25
Earnings Date 04/12/11 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on April 23rd, 2011


FactSet Research Systems - FDS - close: 107.52 change: -1.98

Stop Loss: 105.85
Target(s): 114.75, 119.50
Current Option Gain/Loss: -75.6%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/16 update: Warning! FDS underperformed the market's major indices on Monday with a -1.8% decline. More conservative traders may want to exit early right now. Shares have closed under the 10-dma and the $108 level. The next stop looks like the $106 area. I am adjusting our stop loss to $105.85. I am not suggesting new bullish positions at this time.

Please note that this is a higher-risk, more aggressive trade because FDS doesn't have a lot of option volume and the option spreads are a little too wide. Keep your position small to limit our risk.

(small positions only!) Suggested Positions

Long the June $115 call (FDS1118F115) Entry @ $2.05

05/16 New stop loss @ 105.85, More conservative traders may want to exit early now!

Entry on May 13th at $110.25
Earnings Date 06/15/11 (unconfirmed)
Average Daily Volume = 211 thousand
Listed on May 10th, 2011


International Business Machines - IBM - close: 168.86 change: -1.06

Stop Loss: 165.90
Target(s): 174.75, 179.50
Current Option Gain/Loss: + 6.9%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
05/16 update: IBM is slipping toward recent support near $168.00. If this level breaks the stock should find additional support near $166.00. I'm not suggesting new positions at this time. Let's wait and see where the market bounces first.

Our first target is $174.75. Our second and final target remains $179.50. FYI: The Point & Figure chart for IBM is bullish with a $208 target.

- Suggested Positions -

Long the June $170 calls (IBM1118F170) Entry @ $2.60

05/12 Adjusted first target to $174.75
05/10 New stop loss @ 165.90

Entry on May 5th at $167.50
Earnings Date 04/19/11
Average Daily Volume = 4.8 million
Listed on April 27th, 2011


Illumina Inc. - ILMN - close: 74.88 change: -1.38

Stop Loss: 69.90
Target(s): 79.50, 84.00
Current Option Gain/Loss: - 9.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/16 update: There is no change from my prior comments on ILMN. The trend is up but shares look poised for some profit taking. Watch for support in the $73-72 zone. We'll wait for a dip or a bounce before considering new positions.

Our targets are $79.50 and $84.00. The Point & Figure chart for ILMN is bullish with a $90 target.

FYI: The most recent data listed short interest in ILMN at 22% of the 121 million-share float.

- Suggested Positions -

Long the June $75 call (ILMN1118F75) Entry @ $2.75

Entry on May 11th at $74.50
Earnings Date 07/27/11 (unconfirmed)
Average Daily Volume = 1.9 million
Listed on May 10th, 2011


Jos. A Bank Clothiers - JOSB - close: 54.80 change: -0.32

Stop Loss: 51.75
Target(s): 59.50
Current Option Gain/Loss: +28.5%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/16 update: JOSB gave up -0.5% on Monday. I don't se any changes from my weekend comments. A dip or bounce near the $53.00 area can be used as a new entry point.

FYI: The most recent data listed short interest in JOSB at more than 21% of the small 27.3 million-share float. The risk of a short squeeze is pretty high.

- Suggested Positions -

Long the June $55 calls (JOSB1118F55) entry @ $1.75

05/14 Exit the May calls. May $55 call @ 0.90 (+28.5%)
05/12 New stop loss at $51.75

Entry on April 26th at $52.75
Earnings Date 06/02/11 (unconfirmed)
Average Daily Volume = 510 thousand
Listed on April 25th, 2011


NetApp, Inc. - NTAP - close: 53.10 change: -0.89

Stop Loss: 50.75
Target(s): 58.00
Current Option Gain/Loss: -23.6%
Time Frame: about 3 weeks
New Positions: see below

Comments:
05/16 update: Selling in tech stocks on Monday pulled NTAP to a -1.6% decline. Shares paused at technical support near the 10 and 100-dma. I've been suggesting readers look for a dip near $53 as a possible entry point. This could be it. Or you can wait for the bounce first. Our target to exit is the $58.00 mark.

NOTE: We do not want to hold over the May 25th earnings report.

- Suggested Positions -

Long the June $55 calls (NTAP1118F55) Entry @ $1.90

Entry on May 9th at $ xx.xx
Earnings Date 05/25/11 (confirmed)
Average Daily Volume = 5.8 million
Listed on May 7th, 2011


O'Reilly Automotive - ORLY - close: 60.26 change: -0.64

Stop Loss: 57.75
Target(s): 62.75, 67.25
Current Option Gain/Loss: -42.8% & - 6.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/16 update: ORLY has pulled back toward support near $60 but I'm not expecting this level to hold if the major market indices continue to sink. ORLY appears to have additional support at $59 and $58 so we'll wait and see where it bounces.

I will repeat my comments from this weekend that readers may want to exit their May $60 calls immediately. The plan was to keep our position size small to limit our risk.

- Suggested (Small) Positions -

Long the May $60 calls (ORLY1121E60) Entry @ $1.05

- or -

Long the June $60 calls (ORLY1118F60) Entry @ $1.65

05/14 Consider exiting the May calls now!

Entry on May 4th at $60.15
Earnings Date 04/27/11
Average Daily Volume = 1.1 million
Listed on April 30th, 2011


Powershares QQQ ETF - QQQ - close: 57.40 change: -1.01

Stop Loss: 56.99
Target(s): 64.00
Current Option Gain/Loss: -69.4% & -51.0%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
05/16 update: We need to be careful here. Over the weekend I discussed that the QQQs looked like they might see a dip toward the 50-dma, which is what occurred today. A bounce from here could be used as a new entry point. Any further declines will probably hit our stop loss at $56.99. Our upside target is $64.00. The Qs don't move very fast so we'll have to be patient.

- Suggested Positions -

Long the June $60 calls (QQQ1118F60) Entry @ 0.59

- or -

Long the July $60 calls (QQQ1116G60) Entry @ 1.00

05/12 New stop loss at $56.99

Entry on May 4th at $58.15
Earnings Date --/--/--
Average Daily Volume = 50 million
Listed on April 30th, 2011


Sherwin-Williams Company - SHW - close: 85.89 change: -0.31

Stop Loss: 83.95
Target(s): 92.25, 98.50
Current Option Gain/Loss: Unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see Trigger

Comments:
05/16 update: Traders bought the early morning dip in SHW. The stock bounced back toward last week's highs. Currently our plan is to launch bullish positions on a breakout at $87.00. If triggered our first target is $92.25. Our second, much more aggressive target is $98.50. I would not be surprised to see some resistance near the $90 and $95 levels. The Point & Figure chart for SHW is bullish with a $99 target. If the stock can rally past $87 it will produce yet another buy signal.

Trigger @ $87.00

- Suggested Positions -

buy the June $90 call (SHW1118F90) current ask $0.65

- or -

buy the Sept. $90 call (SHW1117I90) current ask $2.50

Entry on May xxth at $ xx.xx
Earnings Date 07/21/11 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on May 14th, 2011


ProShares Ultra(long) S&P 500 - SSO - close: 53.62 change: -0.70

Stop Loss: 52.75
Target(s): 59.00
Current Option Gain/Loss: -46.2% and -30.0%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
05/16 update: The SSO has fallen toward its early May lows and looks like it will test the 50-dma near $53.00 soon. Wait for a bounce from the 50-dma before considering new bullish positions.

The SSO is twice as volatile as the market so we want to keep our position size small. Our multi-week target is the $59.00 level.

Small Positions Only - Suggested Positions -

Long the June $56 call (SSO1118F56) Entry @ $1.60

- or -

Long the September $60 call (SSO1117I60) Entry @ $2.00

Entry on May 5th at $54.39
Earnings Date --/--/--
Average Daily Volume = 11.3 million
Listed on May 4th, 2011


Tractor Supply Co. - TSCO - close: 60.41 change: -1.48

Stop Loss: 56.99
Target(s): 69.00
Current Option Gain/Loss: -40.0% & -12.5%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/16 update: I cautioned readers to look for another dip near $60.00 before initiating new positions. TSCO is getting close to this level. More conservative traders could wait for a dip near the 50-dma instead (currently $59.15).

There is resistance at $65.00 but I'm setting our profit target at $69.00. More conservative traders may want to take profits at $64.80 and then sell the rest at $69.00.

- Suggested Positions -

Long the June $65 call (TSCO1118F65) Entry @ $1.00

- or -

Long the July $65 call (TSCO1116G65) Entry @ $1.20

Entry on May 11th at $61.62
Earnings Date 07/21/11 (unconfirmed)
Average Daily Volume = 958 thousand
Listed on May 10th, 2011


Union Pacific - UNP - close: 101.00 change: +0.54

Stop Loss: 98.95
Target(s): 109.00, 114.00
Current Option Gain/Loss: -31.4%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/16 update: UNP saw a bounce from the $100 level this morning but the rally attempt failed at $102.00. The stock remains in jeopardy of breaking down under the $100 level. More conservative traders might want to wait for a close over $102.00 again before considering new positions. Our targets are $109.00 and $114.00. FYI: The Point & Figure chart for UNP is bullish with a $116 target.

- Suggested Positions -

Long the June $105 call (UNP1118F105) Entry @ $1.62

Entry on May 9th at $102.19
Earnings Date 07/21/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on May 7th, 2011


United Technologies Corp. - UTX - close: 88.88 change: -0.10

Stop Loss: 83.49
Target(s): 89.50, 94.75
Current Option Gain/Loss: Unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see trigger

Comments:
05/16 update: UTX bounced from its morning lows near support at $88 and its 20-dma. I don't see any changes from my prior comments.

We have two different triggers to open positions here. One is a buy-the-dip entry point at $86.50 with a stop loss at $84.75. Another one is a breakout entry point at $90.75 but with very small positions and a stop loss at $87.75.

If UTX hits $86.50 first then our targets are $89.50 and $94.75. If UTX hits $90.75 first then our targets are $94.75 and $98.50.

Buy-the-dip Trigger @ $86.50
-OR-
breakout @ $90.75 and use small positions to limit our risk!

- Suggested Positions -

Buy the June $90 calls (UTX1118F90)

Entry on April xxth at $ xx.xx
Earnings Date 04/20/11
Average Daily Volume = 3.7 million
Listed on April 27th, 2011


Wynn Resorts Ltd. - WYNN - close: 140.54 change: -5.73

Stop Loss: 146.40
Target(s): 159.75, 169.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see Trigger

Comments:
05/16 update: WYNN has fallen toward the bottom of its recent trading range near support at $140. Odds are WYNN won't hit our breakout trigger to buy calls at $152.00 any time soon. We may want to start looking for some sort of buy the dip entry. The $130 level should offer some support. If WYNN bounces there it could be an entry point. We'll reconsider adjusting our entry strategy later this week.

Prior Comments:
This stock can be somewhat volatile so I am suggesting we keep our position sizes small to limit our risk. We'll use a trigger to buy calls at $152.00. If triggered at $152.00 our targets are $159.75 and $169.00. The $160 and $170 levels look like potential resistance.

Trigger @ $152.00

- Suggested Positions -

Buy the June $160 calls (WYNN1118F160) current ask $2.15

Entry on May xxth at $ xx.xx
Earnings Date 07/28/11 (unconfirmed)
Average Daily Volume = 2.1 million
Listed on May 11th, 2011


PUT Play Updates

Pioneer Natural Resources - PXD - close: 89.95 change: -2.20

Stop Loss: 96.15
Target(s): 85.25
Current Option Gain/Loss: + 9.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/16 update: Oil stocks continued to sink and PXD failed at its 10-dma again. Shares lost -2.3%. We want to keep our position size small to limit our risk because oil and oil stocks have been increasingly volatile lately. Our target is $85.25. More aggressive traders could aim for the rising 200-dma instead. FYI: The Point & Figure chart for PXD is bullish with a $72 target.

-Small Bearish-

Long the June $90 PUT (PXD1118R90) Entry @ $3.30

Entry on May 16th at $91.64
Earnings Date 07/27/11 (unconfirmed)
Average Daily Volume = 1.9 million
Listed on May 14th, 2011


CLOSED BULLISH PLAYS

Alexion Pharma. - ALXN - close: 96.32 change: -3.21

Stop Loss: 95.75
Target(s): 104.85, 109.00
Current Option Gain/Loss: -82.9%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
05/16 update: Monday was a rough day for shares of ALXN with a -3.2% decline. Not only did today's drop breakdown below several key moving averages but the intraday low hit $95.61. Our stop loss was hit at $95.75 .

- Suggested Positions -

June $105 call (ALXN1118F105) Entry @ $2.35, Exit 0.40 (-82.9%)

05/16 Stopped out @ 95.75, Option @ -82.9%

chart:

Entry on May 13th at $101.00
Earnings Date 07/21/11 (unconfirmed)
Average Daily Volume = 832 thousand
Listed on May 12th, 2011


Amazon.com - AMZN - close: 192.51 change: -10.05

Stop Loss: 198.00
Target(s): 213.50, 219.75
Current Option Gain/Loss: -67.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/16 update: AMZN was crushed today. There was a Bloomberg story that Amazon's cloud computing services were involved in Sony's massive security breach. Now add a sell-off across the technology space and AMZN was a big underperformer today, down -4.9%. Shares gapped open lower at $200.54 and quickly hit our stop loss at $198.00. We knew this was an aggressive trade and clearly labeled it a higher-risk play but today's weakness is still surprising.

- Suggested (SMALL) Positions -

June $215 call (AMZN1118F215) Entry @ $3.65, Exit $1.20 (-67.1%)

05/16 Stopped out @ 198.00, Option @ -67.1%

chart:

Entry on May 13th at $205.70
Earnings Date 07/21/11 (unconfirmed)
Average Daily Volume = 6.4 million
Listed on May 12th, 2011