Option Investor
Newsletter

Daily Newsletter, Thursday, 5/19/2011

Table of Contents

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

Market Wrap

Surprising Strength Despite Economic Uncertainty

by Jim Brown

Click here to email Jim Brown
Economically it was an ugly day with the Philly Fed Survey taking another massive hit for May but the markets recovered from the opening volatility and moved higher when logically they should have sold off.

Market Statistics

However, we know from past experience if we are looking for the equity markets to act logically we will always be disappointed. The Philly Fed Survey for April declined from a 25-year high in March at 43.4 to 18.5 and a significant reversal. The May report showed that decline in economic activity continued with a headline number of only 3.9 and another -15 point drop. Expectations were for a minor increase of a couple points. This means this index of activity has declined nearly 40 points in only two months and is only 3.9 points away from economic contraction. This is not a good sign for the recovery process.

New orders plunged from 18.8 to 5.4 and backorders imploded from 12.9 to -7.8. Shipments declined from 29.1 to only 6.5. Inventory levels also went negative at -5.4 from +12.0 in March. Manufacturers are moving back to inventory reduction mode rather than building up inventories for future sales. This suggests their outlook has turned negative.

However, the one component that did rise actually rose significantly and contradicts the order components. The employment component spiked from 12.3 to 22.1 for more than an 80% increase in hiring. Why would manufacturers suddenly go on a hiring spree with the orders and shipments in crash mode? To further confuse the issue the hours worked component fell from 17.7 to 3.9. Obviously hiring more workers means fewer hours worked but not that significant a drop.

The Philly Fed Survey has a very strong correlation to the national ISM due out on June 1st. This report suggests we could see another big drop in that report.

Philly Fed Chart

Another negative report came from the Conference Board's Leading Indicators for April. The headline number fell -0.3%. It was the first decline in the index since June 2010. Only four of the ten components posted gains. The drags on the index were jobless claims, supplier deliveries, average workweek, building permits and new orders.

Existing home sales for April declined to an annualized 5.05 million units from 5.09 million in March. Months of inventory increased from 8.3 to 9.2 and home prices declined -5% year over year. April is a month where home sales should increase and these numbers suggest continued weakness rather than improvement.

On the positive side the weekly Jobless Claims fell by -25,000 to 409,000 and the lowest level since April 16th. Continuing claims declined to 3.711 million from 3.792 million. Reportedly this is a result of some automakers putting people back to work as parts shortages begin to ease.

The reports due out on Friday are Regional Employment, Mass Layoffs and the ECRI Weekly Leading Index. None of those are expected to move the market.

The big news in the market today was the Linkedin (LNKD) IPO. Shares were priced at $45 and a $4.25 billion market cap but immediately exploded to as high as $120 intraday. LNKD closed at $93.92 for a gain of +109% and values the company at nearly $10 billion. Linkedin earned $2.08 million in Q1 on $93.9 million in revenue. That works out to about $8.5 million in profit for the year and values the company with a PE of more than 1,000. Linkedin has already warned that it does not expect to be profitable on a GAAP basis in 2011 and it expects its revenue growth rate will decline. The company only sold 7.84 million shares in order to generate some hysteria as investors raced to get a piece of the company. Volume today was more than 30 million shares so almost four times the amount that was offered.

Linkedin Chart - 5-Min

Linkedin is a stock begging to be shorted. Unfortunately for traders there will be no shares available until next Wednesday. I would expect a major decline once shares become available to be shorted. Also, the derision given to the spike in price on the opening day should very quickly sour expectations for further gains.

The big news is the prospects for the coming Facebook and Groupon IPOs. If Linkedin can command this kind of buying interest then how much bigger will those two companies be when they IPO? Faecbook has already been valued at $50 billion by some analysts based on demand for shares in the private market and investments by some key venture capital firms.

This makes the interest in next week's big IPO even crazier. The Russian company Yandex (YNDX) will sell $1 billion in shares. This is the Russian equivalent of Google and the biggest Internet company in Russia. Shares are expected to price in the $20-$22 range.

In other news Goldman Sachs downgraded the chip equipment sector to "cautious" from "neutral" on expectations for a glut in the processor market in the months to come. Goldman said processor shipments outpaced PC sales by 10% in the first quarter alone. The analyst said PC sales are still slowing and consumers will be pressured by fuel prices in Q2. Capex levels in 2012 will likely decline -20% as capacity peaks in Q4. Wall Street consensus estimates are for a +6% increase in sales by Intel. Goldman believes Intel sales will be flat with average selling prices declining on excess capacity.

Goldman cut Intel (INTC) and KLA-Tencor (KLAC) to a "sell" from neutral and cut Applied Materials (AMAT) to neutral from buy.

Intel Chart

KLAC Chart

Citi ignored the sector downgrade by Goldman and reiterated their overweight rating on the tech sector and especially Hewlett Packard. However, Citi lowered its price target on HPQ to $45 from $65. That does not imply any serious conviction on the part of Citi and HPQ declined on the news.

Hewlett Packard Chart

Brocade Communications (BRCD) reported Q1 earnings after the bell and beat the street by +3-cents with earnings of 6-cents per share. That was a +9.8% increase over the comparison quarter. Revenue rose +17% and was inline with expectations. The stock was flat in after hours trading.

A stock that was not flat was the Gap (GPS). Gap reported income that fell -23% to 40-cents. That actually beat the street by a penny because analysts were expecting a bad quarter. However, same store sales declined -3%. The company warned it now expects full year earnings to decline to $1.40-$1.50 from its February forecast of $1.88-$1.93. Analysts were expecting $1.84. Their average costs are expected to rise by up to 20% in the last half of the year thanks to rising cotton prices and higher labor costs in China. Shares plunged from $23.33 to $19.71 (-16%) in after hours. Retailers for lower cost items are finding the current economic environment very tough to navigate.

Gap Chart

Liberty Media (LINTA) offered to buy Barnes & Noble (BKS) for $1.02 billion or $17 per share. That equates to a 20% premium over the BKS closing price at $14 tonight. Barnes and Noble put itself up for sale back in August saying its shares were undervalued. BKS has been developing its Nook electronic reader in order to compete with Amazon. Rival Borders Group filed for bankruptcy in February when it could not stop the bleeding as a result of Amazon's dominance and the impact of the Kindle on book sales. BKS will introduce a new electronic reader product at a media event in New York next Wednesday. The offer by Liberty Media is contingent on the Chairman and largest shareholder (29%), Leonard Riggio, remaining with the company and be involved with its operation. One analyst said he believed the $17 was a starting price and the eventual price could be closer to $20.

Barnes & Noble Chart

Commodities were weak again despite a decline in the dollar. On Wednesday we saw crude prices rally to more than $100 but they could not hold their gains. The flood headlines are fading and the weaker economic reports are suggesting demand could slow. Even a new hurricane forecast for the season that starts in two weeks could not give crude a lift. The NOAA forecast calls for an above normal hurricane season with 12-18 named storms, 6-10 hurricanes and 3-6 major hurricanes of category three or above. That is winds of more than 110 mph. The 2010 season produced 19 named storms and tied with 1887 and 1995 as the third most active season. There were 12 hurricanes and tied with 1969 as the second most active in that category. No hurricane made landfall in the U.S. in 2010. The gulf has been rather lucky in the storm category since Katrina and Rita in 2005. There has been minimal damage with no direct hits since 2008.

Crude prices declined to $98.57 for a loss of -1.53 but that is just over half of the $2.73 gained on Wednesday. WTI futures expire at the close on Friday so this is probably expiration volatility with a dose of flood panic for good measure.

Crude Chart

The S&P managed to hold in positive territory at the close but the conviction was definitely lacking. Despite the rebound from Tuesday's lows we are still in a downtrend that started on May 2nd. We have seen progressive lower highs and lower lows and our two day bounce has not changed that trend. The progressively weaker economics should eventually lead to a weaker market as traders move to the sidelines ahead of the end of QE2. There is too much uncertainty and what is certain, like today's Philly Fed Survey, has been negative.

I still believe we have risk to 1295-1300 on the S&P. That risk will remain until we see a new relative high over 1360.

S&P Chart

The Dow pattern is the same as the S&P. We saw a bounce off the 50-day average but considering how oversold we were on Tuesday there was little conviction to the bounce. Dow 12,605 is resistance and we are heading into a weekend with event risk. I believe the Dow has risk to 12,200 over the next several weeks.

Dow Chart

The Nasdaq managed to gain +8 points but it could not break over the 2825 resistance level despite decent gains in the big cap tech stocks. We have seen more conviction in the Nasdaq over the last three days than in the broader market but the downgrade on the chip sector by Goldman was an anchor for that conviction. The pattern on the Nasdaq is the same as the other indexes with a down trending channel. I believe there is further downside risk ahead.

Nasdaq Chart

I see no reason to rush into the market on Friday. We have so many conflicting events with economics weakening and numerous companies lowering their guidance for the rest of 2011. Friday is not likely to post a big market move thanks to the churn from expiring options. What it will do is set us up for a pivotal move next week. We will either fail at the top of the current down trending channel or less likely but still possible, break through that top and start moving back towards the recent highs. I would be very surprised to see that happen but I have been surprised before.

Definitely, enter passively and exit aggressively.

Jim Brown

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New Option Plays

Drug Manufacturer

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Forest Labs Inc. - FRX - close: 35.28 change: +0.13

Stop Loss: 33.25
Target(s): 39.00, 42.50
Current Option Gain/Loss: + 0.0%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Drug stocks have been a bright spot in the market with the DRG index showing plenty of relative strength. FRX just broke out to new two-year highs and has a chance to try and catch up with its peers. I am suggesting small bullish positions now or you can wait for a dip into the $34.50-34.00 zone. Our target is the $39.00 level and the $42.50 mark. We'll start with a stop loss at $33.25. FRX's point & figure chart has a triple-top breakout buy signal with a $53 target.

- Suggested Positions -

buy the June $37 call (FRX1118F37) current ask $0.75

- or -

buy the August $37 call (FRX1120H37) current ask $1.40

Annotated Chart:

Entry on May 20th at $ xx.xx
Earnings Date 07/21/11 (unconfirmed)
Average Daily Volume = 3.2 million
Listed on May 19th, 2011


In Play Updates and Reviews

Volatility is Contracting

by James Brown

Click here to email James Brown

Editor's Note:

The stock market's major indices manage to post another gain but progress was muted. The volatility index is slipping lower and we've closed our play on the VIX.

-James

Current Portfolio:


CALL Play Updates

Apple Inc. - AAPL - close: 340.53 change: +0.66

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:
05/19 update: APPL posted its third gain in a row but shares seemed to stall at technical resistance near the 40 and 50-dma. Volume was fading as well. I don't see any changes from my prior comments. I'd rather buy calls on a dip near $320 and the 200-dma. In the mean time our breakout trigger at $352.50 is ready should AAPL suddenly surge higher.

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


Boeing Co - BA - close: 78.04 change: +0.88

Stop Loss: 73.60
Target(s): 79.75, 84.50
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see Trigger

Comments:
05/19 update: Hmmm... did we miss the entry point in BA? The stock bounced for a second day and closed back above what looks like short-term resistance at $78.00 We do not want to open positions at current levels. For the moment, we'll leave our plan unchanged with a buy-the-dip trigger at $75.00. If triggered our targets are $79.75 and $84.50. The Point & Figure chart for BA is bullish with an $87 target.

Trigger @ $75.00

- Suggested Positions -

Buy the June $80 call (BA1118F80) current ask $0.80

Entry on May xxth at $ xx.xx
Earnings Date 07/27/11 (unconfirmed)
Average Daily Volume = 4.8 million
Listed on May 17th, 2011


Estee Lauder Companies - EL - close: 101.80 change: -0.20

Stop Loss: 98.75
Target(s): 107.00, 109.95
Current Option Gain/Loss: -20.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
05/19 update: It was a relatively quiet day for EL. Shares bounced along the $101.50 level. I would still consider new positions now or you could wait for a dip closer to the $100.50-100.00 zone instead. Our targets are $107.00 and $109.95.

- Suggested Positions -

Long the June $105 call (EL1118F105) Entry @ $1.95

Entry on May 19th at $102.10
Earnings Date 08/11/11 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on May 18th, 2011


Express Scripts - ESRX - close: 60.66 change: +0.52

Stop Loss: 56.75
Target(s): 64.00, 68.50
Current Option Gain/Loss: +18.9% & + 7.9%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/19 update: The healthcare sector index almost closed in negative territory. Yet ESRX continues to drift higher and posted a +0.8% gain. Volume was pretty light on today's session. I would consider new positions here but you might want to use a tighter stop loss. 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: 66.34 change: +0.00

Stop Loss: 64.75
Target(s): 69.50, 74.00
Current Option Gain/Loss: -53.3%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
05/19 update: FAST remains stuck in its trading range. The early morning rally failed. Our plan is to exit this position on Friday at the closing bell. FAST will begin trading at its 2-for-1 split price on Monday.

- Suggested Positions -

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

05/18 Plan on exiting Friday at the close.
05/17 New stop loss @ 64.75
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


Freeport McMoran - FCX - close: 47.97 change: -0.65

Stop Loss: 45.99
Target(s): 53.50
Current Option Gain/Loss: - 17.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
05/19 update: Our very aggressive play on FCX is not off to a very good start. The dollar trended lower today but that did not help the price of copper, which also slipped lower. Gold prices barely closed in positive territory. FCX opened higher at $48.72 and then closed near its lows for the session, which is not a good signal. If FCX doesn't show some strength tomorrow we'll exit and cut our losses early.

Earlier comments:
I consider this a very aggressive and higher-risk trade. We want to keep our position size very small. If FCX does not produce any follow through on this bounce we'll consider an early exit in the next day or two.

- Very Small Positions -

Long the June $50 call (FCX1118F50) Entry @ $1.52

Entry on May 19th at $48.72
Earnings Date 07/21/11 (unconfirmed)
Average Daily Volume = 21.8 million
Listed on May 18th, 2011


International Business Machines - IBM - close: 170.59 change: +0.15

Stop Loss: 165.90
Target(s): 174.75, 179.50
Current Option Gain/Loss: + 26.9%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
05/19 update: IBM is quietly consolidating sideways near the $170 level. The lack of movement these last couple of days makes me cautious. I'm not suggesting new positions at the moment.

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: 72.89 change: -0.58

Stop Loss: 69.90
Target(s): 79.50, 84.00
Current Option Gain/Loss: -47.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/19 update: Warning! There was no follow through on yesterday's bounce. I would now expect a drop toward the $71-70 area. I am not suggesting new positions at this time.

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: 56.51 change: -0.19

Stop Loss: 52.90
Target(s): 59.50
Current Option Gain/Loss: +71.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/19 update: Retail stocks did not react well to some disappointing earnings news in the sector. JOSB did okay with a minor decline. The $54 level should be support of JOSB does see a dip. I am not suggesting new positions at this time. More conservative traders might want their stop closer to the $54.00 level.

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

05/18 new stop loss @ 52.90
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: 54.45 change: +0.84

Stop Loss: 51.75
Target(s): 58.00
Current Option Gain/Loss: + 1.5%
Time Frame: about 3 weeks
New Positions: see below

Comments:
05/19 update: NTAP displayed relative strength with a +1.5% gain. The stock is nearing its recent highs from two weeks ago. A breakout past this level should set up for a rally toward the $58 area and the top of the gap down. I am not suggesting new positions tonight.

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

- Suggested Positions -

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

05/18 New stop loss @ 51.75

Entry on May 9th at $53.33
Earnings Date 05/25/11 (confirmed)
Average Daily Volume = 5.8 million
Listed on May 7th, 2011


O'Reilly Automotive - ORLY - close: 60.19 change: +0.68

Stop Loss: 57.75
Target(s): 62.75, 67.25
Current Option Gain/Loss: - 100% & -54.5%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/19 update: AAP reported earnings last night and missed. This sent all the auto-part related stocks lower. ORLY spiked lower to $57.92 before bouncing from support. Volume was pretty heavy on today's decline. The drop was really bad timing since we had planned on exiting our May calls tonight at the closing bell. I am not suggesting new positions at this time.

The plan was to keep our position size small to limit our risk.

- Suggested (Small) Positions -

May $60 calls (ORLY1121E60) Entry @ $1.05, Exit 0.00 (-100%)

- or -

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

05/19 Scheduled exit May calls. Closed @ $0.00 (-100%)
05/18 Prepare to exit May calls tomorrow
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


Sherwin-Williams Company - SHW - close: 86.51 change: +0.47

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:
05/19 update: SHW continues to drift higher and shares set a new all-time closing high today. More aggressive traders may want to buy calls now. Our plan is to launch positions when SHW touches $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: 54.82 change: +0.27

Stop Loss: 52.75
Target(s): 59.00
Current Option Gain/Loss: -38.7% and -25.0%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
05/19 update: It was a little bit of a choppy session but the market's major indices managed to close higher. I would still consider new call positions here at current levels.

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


Tiffany & Co. - TIF - close: 70.26 change: +0.13

Stop Loss: 67.70
Target(s): 74.50
Current Option Gain/Loss: - 2.0%
Time Frame: about five days
New Positions: see below

Comments:
05/19 update: Shares of TIF gapped open to a new all-time high this morning and then faded lower with the market's weakness. Shares managed to recover and still posted a gain. I would open new call positions at current levels.

FYI: In the news today TIF announced an increase in their quarterly cash dividend to 29 cents a share (+16%).

Keep in mind this is a short-term trade. We want to exit ahead of the May 26th earnings report. I'm suggesting a target at $74.50.

- Suggested Positions -

Long the June $72.50 call (TIF1118F72.5) Entry @ $1.48

Entry on May 19th at $70.45
Earnings Date 05/26/11 (unconfirmed)
Average Daily Volume = 1.49 million
Listed on May 18th, 2011


Union Pacific - UNP - close: 102.79 change: +0.76

Stop Loss: 98.95
Target(s): 109.00, 114.00
Current Option Gain/Loss: -11.1%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
05/19 update: UNP spiked higher this morning to briefly traded over the $104 level only to reverse. Shares ended the session up +0.7% but the move looks like a failed rally at resistance. I'd take a step back. UNP might provide another entry point on a dip in the $101-100 zone.

- 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: 88.10 change: +0.95

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:
05/19 update: UTX delivered a bounce (+1.0%) on Thursday but the rally stalled at its 10-dma. Shares are kind of in no-man's land right now. There is support in the $86-85 zone and resistance near $90. Currently we have a trigger to buy calls on a dip at $86.50. More conservative traders could wait for a dip near $85 and its 50-dma instead. If UTX hits $86.50 first then our targets are $89.50 and $94.75.

Buy-the-dip Trigger @ $86.50

- 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: 147.01 change: +0.15

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:
05/19 update: WYNN barely pushed its bounce to three days in a row. Shares almost didn't close in positive territory. Currently the stock remains in the middle of its trading range. There is no change from my prior comments.

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: 90.96 change: -0.87

Stop Loss: 96.15
Target(s): 85.25
Current Option Gain/Loss: -10.6%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
05/19 update: Oil stocks were mixed on Thursday. A drop in the dollar failed to live oil prices. PXD spent the day testing the $90.00 level. I am not suggesting new positions at this time.

Earlier Comments:
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 bearish 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

Volatility Index - VIX - close: 15.52 change: -0.71

Stop Loss: 15.45
Target(s): 24.00
Current Option Gain/Loss: -40.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
05/19 update: Our speculative bet on the VIX did not pan out. Stocks bounced instead of breaking down. Now the VIX looks poised to fall toward its recent lows. It was our plan to exit today at the close if stocks close higher.

Earlier Comments: This is an aggressive, higher-risk trade since the stock market's longer-term trend is still higher. I would only trade very small positions. NOTE: VIX June options expire on June 15th.

Small Bullish

June 20.00 call (VIX1115F20) Entry @ $1.75, Exit 1.05 (-40%)

05/19 Planned Close. Option @ -40%

chart:

Entry on May 17th at $18.54
Earnings Date --/--/--
Average Daily Volume = xxx
Listed on May 16th, 2011