Option Investor
Newsletter

Daily Newsletter, Monday, 8/22/2011

Table of Contents

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

Market Wrap

Bears Ain't Afraid of No Bull

by Keene Little

Click here to email Keene Little
Market Stats

I'm filling in for Todd tonight who took last Wednesday's newsletter for me.

Equity futures opened in the hole last night and dropped quickly from there. ES (S&P emini futures) was down almost 13 points in the first 10 minutes of trading. But that was the low of the session and as news spread about Libya and the success of the rebels in Tripoli, and then Gaddafi's disappearance Europe started to rally and our futures followed. By early morning ES was up +22.50 for a turnaround of almost 35 points. We were poised for a good day. But then the bears attacked.

The opening high was THE high for the day and the bulls could not get anything going from there. The DOW made a high of 11020 (+203), dropped back down near Friday's low and the trading range tightened for the rest of the day from there. The DOW may have finished positive (+37) but it was a disappointing day if you're of the bovine persuasion. The sideways trading range since last Thursday is looking like a bearish continuation pattern but with the possibility it's in a bottoming formation. So far it's not bullish.

Part of the problem that we're still dealing with is the angst about the debt and banking issues in Europe (and by extension, the U.S.). Today there was news that the ECB (European Central Bank) spent almost $21B last week buying government bonds to protect some of the countries that are in trouble, such as Spain and Italy. The market is appropriately concerned about how long the emergency purchases will have to continue and therefore how much more risk will be taken on by the banks.

While the ECB's purchase has knocked bond rates down some there is concern that some of the national parliaments might not give their approval for the use of eurozone's rescue fund to take over the purchases until this fall. In the meantime Merkel and Sarkozy have both made it clear there will be no Euro bonds. This has left the ECB with the burden of being the buyer of last resort so that no country defaults, which would start a chain reaction of defaults amongst the banks.

The ECB is currently spending money on bonds at the rate of about $600B euros a year (about $860B U.S.) and it's still not enough. If the market senses the ECB is not able to keep up with the needs of the governments to sell their debt it could create a panic. Many believe the ECB will have to purchase at least half of Spain's and Italy's debt, which will amount to about $1.2T and that it intends to hand off the debt to the rescue fund once it's approved. So if the rescuing governments do not approve of funding the rescue fund there could be some additional angst in the market in a couple of months. Perhaps not coincidentally there is a price pattern that I'm watching that calls for a rally into September/October and then a hard selloff from there.

So the whole debt-bonds-banks issue continues to worry the market and we're finding large swings in prices depending on the news at the moment. The 35-point swing in S&P futures overnight was just a typical example. The DOW's intraday swing of only 200 points seemed like a gentle day today. The VIX remains high and price swings is proof of the need to closely monitor trades since they can quickly get away from you. This is probably not going to die down for a while.

It was a quiet day otherwise with no major economic reports. Once the excitement from what it could mean if Libya is freed from Gaddafi (mostly for European businesses) died down there seemed little reason to rally and the bulls simply walked away. The market more of less settled lower all day rather than experience any strong selling.

For now I'm assuming the May high was THE high for the year (for SPX and most other indexes)and that we've started an impulsive decline since then, which means I'm looking for a 5-wave move down to confirm we've had a longer-term trend change (for the return of the bear market). The May-June decline would be the 1st wave down, followed by a 2nd wave correction into the July 7th high and then a 3rd wave down to the current low. The steep drop from July 7th looks like a 3rd wave -- sharp and strong -- and once it finishes we should then get a flattish 4th wave correction that lasts for a few weeks. It could be marked with a lot of chop and whipsaw price action and once it finishes we'd get the 5th wave down to a new low, potentially into October.

Following a 5-wave move down we'd then have a setup for a high bounce into the end of the year and this is what I'm depicting on the weekly chart below (bold red). The 4th wave might never make it above the 200-week MA, currently near 1152, as price chops up and down in a 50-point range. That's just speculation at this point since 4th wave corrections can do just about anything (except overlap the bottom of wave 1, which is the June low at 1258, in which case would mean something more bullish is happening) and it will be a challenging time to trade. If it were to play out that way, I'm projecting the low for the 5th wave to be down around 1040, possibly 1018 to hit the 50% retracement of the 2009-2011 rally (notice the low on August 9th hit the 38% retracement at 1101.73 (the low was 1101.53).

S&P 500, SPX, Weekly chart

The alternate wave count that I'm considering (dashed red) calls for a higher rally once we put in a low. We could be looking at a rally back up to the 1250-1300 area to correct the July-August decline. Tom DeMark put out a call for a bottom near here and an end-of-year rally that could make a new high for the year before turning much lower next year. So that bullish potential needs to be respected, especially if the decline from this year into next will form a corrective A-B-C pattern instead (where the b-wave bounce from here could make a new high and still be part of a larger bearish pattern). The bottom line -- be prepared for anything from here as it's going to require several more weeks of price action to help determine the higher-odds scenario. BTW, with either scenario, do you see the potential for a large H&S topping pattern since 2010? The downside objective out of it will be close to a test of the March 2009 low, which is where I think we're eventually heading.

A slight variation of the possibilities is shown on the daily chart below. If the August 9th low was the end of the leg down from July we could be in the middle of an a-b-c bounce that will take SPX up to the 1250-1270 area sooner rather than later (dashed line). Or we've got one more minor new low, possibly down to the 1090 area, before starting a larger bounce. The 4th wave idea with a choppy consolidation for a few weeks, shown on the weekly chart above, might not be the correct pattern. Play short term for now since there are no good longer-term trade setups that I currently see.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- Short-term bullish above 1190 and more bullish above 1270
- bearish below 1170 for a drop to 1090-1100

On August 15th SPX broke above its downtrend line from July 26th and has since dropped back down to it and is riding it down towards what could be a retest of the August 9th low. I show a choppy ride down to the 1090 area to close the September 2nd gap (1089.89) but with the bullish divergence and the choppy price pattern to the downside I think the risk is on the short side now. We could see price come blasting out of here.

S&P 500, SPX, 120-min chart

The DOW's pattern is very similar to SPX and therefore I have the same expectations. If the bounce off the August 9th low gets two equal legs up and starts back up from here we get an upside target at 11727. If the 2nd leg up (the c-wave) reaches 162% of the 1st leg up it points to 12300, which crosses the broken uptrend line from March 2009 at the end of the month. That would be one helluva rally from here in such a short period of time. Maybe a QE3 announcement from Bernanke from Jackson Hole, Wyoming this coming Friday? His QE2 announcement from there last year did wonders for the stock market and he was very proud of his accomplishment. The decline from May has given back "only" 78.6% of that rally so maybe thinks he can do it again.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 11,500 and more bullish above 12,000
- bearish below 11,300

NDX had made a higher high on July 26th, above its July 7th high, and therefore can't be counted the same as SPX (and other indexes which made lower highs after the July 7th highs). That increases the probability that the August 9th low was the completion of the decline and the current pullback is part of a large upward correction, as shown on its chart in bold red. The alternative is a very bearish crash scenario (worse than we've seen so far) and I have very little reason to believe in that).

So a higher bounce is expected and I see two upside targets that make sense to me, from both a trend line as well as a Fib projection/extension. A rally up to the 50% retracement of the decline is near 2237, which crosses the broken uptrend line from March 2009 - August 2010 in early September. Or a rally up to 2300 to back test the broken uptrend line from March 2009 - July 2010, just above the 62% retracement at 2284. Note that this pattern calls for a very strong selloff into the end of the year instead of a rally that I pointed out as a possibility on the SPX chart.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 2175 and more bullish above 2320
- stay bearish below 2100

The RUT shows a pattern similar to SPX with a 5-wave decline from July 7th, which calls the current decline from last week the 5th wave. If correct we should be looking for the completion of the decline near here (or a test of the low) and a higher bounce to correct the decline. It could be a sloppy choppy affair that takes us into the end of the year without a lot of points (correct more in time than price) or it could be a steeper correction (more price than time) that jumps back up to the 62% retracement (765) and a back test of its broken uptrend line from March 2009 - August 2010 by mid September, followed by a strong selloff into the end of the year. It could of course continue lower before it will be ready to rally so it's the reason why I urge caution by both sides here and let price point the way.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 700 and more bullish above 775
- stay bearish below 680

At the August 9th low we saw VIX shoot up to a high of 48 and well above the top of its Bollinger Band. Following the bounce off the lows the VIX dropped back down to the middle of the band (20-dma) and almost made it back up to the top of the band again. This is typical "price" action inside the Bollinger Band and usually a good reversal setup. The top of the band is pushing higher and the VIX could certainly follow (which would be a strong trend indication) but with SPY testing the August closing lows while VIX makes a lower high it's a good setup for a reversal for each. Notice too in the top chart below how the volume has contracted considerably from the decline into the August low, especially today. It's another sign that the selling strength is disappearing, which is not a guarantee for a bottom but it's telling bears don't press your luck here.

SPY vs. VIX, Daily chart

Earlier in the month the 10-year yield, TNX, dropped below its uptrend line from December 2008 and the bottom of a parallel down-channel from February, near 2.47%. From there it has now made it down to a Fib projection for the leg down from July 1st where it is equal to 162% of the April-June decline, at 1.974%. Last Thursday's low was 1.978% and it finished with a hammer candlestick. So it's a good setup for a rally, especially considering that it looks like it has completed a 5-wave move down from July 1st where the 5th wave is equal to the 1st. Short TLT (long TBT) is the recommended play, using last Thursday's high/low as your stop.

10-year Yield, TNX, Daily chart

Just before the close there was a news release about Goldman Sachs' CEO, Lloyd Blankfein, hiring high-profile Washington defense attorney Reid Weingarten, the same attorney who represented Bernie Ebbers (WorldCom) and Enron's accounting officer Richard Causey. The concern for stock holders is of course why Blankfein would need such an attorney. GS stock sold off in the last 15 minutes of the day, dropping about $7 from 111.50 to 105.50. This also dropped the bank indexes at the end of the day.

As with so many other indexes, BKX looks like it's in the process of completing the 5th wave down in the decline from July 7th. The 5th wave equals the 1st wave at 35.11, which is where BKX had found support until the late-day selloff to 35.09. It's a good setup for a rally from here and now all the bulls need to do is grab hold of the ball and stop giving it back to the bears.

KBW Bank index, BKX, Daily chart

Another index, another 5-wave move down from July 7th. In this case the downside target is not quite as clear since the 5th wave already exceeded the 1st wave (at 4315) and could be heading for 4085 (5th wave = 162% of the 1st wave). At 4082 is the 88.6% retracement of the rally from July 2010, another potential reversal Fib. But as with the other indexes, the short-term pattern looks like it's putting in an ending pattern.

Transportation Index, TRAN, Daily chart

The weekly dollar chart below shows how long it's been consolidating sideways in a very choppy pattern. That makes it look like a bearish continuation pattern and I'm thinking the descending wedge from the high in 2010 is the correct pattern. This calls for a decline to the $70 area, perhaps into an October low. That could support a stock market rally into October (supporting the view on the SPX daily chart). The descending wedge would finish an A-B-C pullback from late 2008, which in turn is part of a larger A-B-C bounce from early 2008, which calls for a strong rally in the c-wave, which is shown below. A rally up to a Fib projection at 98.75 (probably into late 2012 or 2013) will be the target once a bottom is put in.

U.S. Dollar contract, DX, Daily chart

Gold certainly appears at this point to be in a blow-off move to what will very likely be a very important high. Gold has even reached the price of platinum and each time that has happened in the past it has marked the high for gold. Bullish sentiment has recently exceeded 98%, which again has marked highs in the past few years. So the pieces are in place to call a high but in a blow-off top it's obviously risky to try to short the move. Likewise it's now risky to chase this higher. As for upside targets, I'm watching the trend line along the highs from 2006 and 2008, currently near $1960. And then there's a Fib projection near $2007. A rollover from either would be an opportunity to try a sort play (GLL is the gold inverse ETF). The potential for a big ride back down is significant.

Gold continuous contract, GC, Weekly chart

Silver has not been able to keep up with gold and just today was finally able to retrace 62% of its decline in May. It has now popped above the top of a potential rising wedge and it tagged its broken uptrend line from August 2010. A turn back down from here, with a close below 43, would create a sell signal.

Silver continuous contract, SI, Daily chart

Oil looks ready to bounce higher and could make it up to the $95 area to tag its downtrend line from May and its 50 and 200-dma's. Two equal legs for its bounce off the August 9th would be at 92.46. If oil does bounce as depicted it should mean the stock market will do the same.

Oil continuous contract, CL, Daily chart

There were no major economic reports today and tomorrow is another quiet day with only the New Home Sales report at 10:00 AM. Wednesday will be a little busier and the durable goods orders will provide more information about how well the economy is doing (we know it's slowing). Friday's GDP and Michigan Sentiment numbers will also be important. Bernanke's Jackson Hole, WY meeting will also have the market anxious to hear what new rescue plan he will come up with. That also has me wondering whether or not we'll see some kind of rally into Friday.

Economic reports, summary and Key Trading Levels

The bears have not let up and they still control the tape but they look to be getting tired. Selling momentum is clearly waning so they're keeping the bulls back but they're not able to much more than drive prices back to the lows of the day or minor new lows. But the bulls clearly can't do anything with presents handed to them, such as the pop higher on Friday and today.

The price pattern also supports the idea that we should be looking for a low. The market could always surprise me with a further decline, something more than a relatively minor new low such as SPX 1090, but at this time I don't see that. I'm looking for a low to do some buying since there could be a good trading opportunity. It might last for only a week or it could be a multi-month move that retraces a good portion of the decline. We won't know which until the bounce gets underway. But I think it's at least less risk now looking for a trade on the long side. That would change if SPX drops below 1090 and doesn't look to be bottoming.

Finally, in what I consider a classic example of social mood swings and how the cycles repeat, take a look at this cartoon that was drawn in 1934. Notice the academics in the wagon and what the sign in lower left corner says:

SPEND! SPEND! SPEND!

Do you the sense that capitalists are being blamed for everything today, especially by the government? And now instead of Stalin standing over on the right we have the Chinese leaders. So in some small way know that this period too shall pass. Once we get through this bear market cycle (and we have to get through it to get to the other side), we'll get back to growth and better times.

Good luck and I'll be back with you on Wednesday.

Key Levels for SPX:
- Short-term bullish above 1190 and more bullish above 1270
- bearish below 1170 for a drop to 1090-1100

Key Levels for DOW:
- bullish above 11,500 and more bullish above 12,000
- bearish below 11,300

Key Levels for NDX:
- bullish above 2175 and more bullish above 2320
- stay bearish below 2100

Key Levels for RUT:
- bullish above 700 and more bullish above 775
- stay bearish below 680

Keene H. Little, CMT


New Option Plays

Waste Services

by James Brown

Click here to email James Brown

Editor's Note:

I had written a trade to buy calls on DMND tonight. The stock has huge short interest at 48% of the float. The stock could easily see a short squeeze back toward its highs. Yet the spreads on DMND's options are way too wide to trade. Stock traders may want to give it a try.

We also considered buying puts on WHR, with the breakdown to a new relative low. Yet shares look extremely oversold with the stock down eight weeks in a row.

- James


NEW DIRECTIONAL CALL PLAYS

Stericycle Inc. - SRCL - close: 81.12 change: +1.16

Stop Loss: 77.75
Target(s): 84.90. 88.50
Current Option Gain/Loss: Unopened
Time Frame: 2 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
We have not yet given up on the idea that stocks might be able to rebound off their August lows again. With that in mind SRCL has been showing relative strength the last couple of days. Traders were buying the dip in the $78 area. I'll confess this isn't the most compelling trade. SRCL looks like it has a cloud of resistance in the $82-84 area not to mention its 50-dma and 200-dma overhead. Yet that doesn't mean shares can't rally higher.

I am suggesting very small bullish positions now but only if SRCL and the S&P500 both open positive tomorrow morning. Our first target is $84.90.

buy calls if SRCL and S&P500 index both open positive tomorrow morning

- Suggested (small) Positions -

buy the SEP $85 call (SRCL1117I85) current ask $1.70

Annotated Chart:

Entry on August xx at $ xx.xx
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 858 thousand
Listed on August 22, 2011



In Play Updates and Reviews

Early Morning Gains Faded

by James Brown

Click here to email James Brown

Editor's Note:

The market's early morning rally quickly faded and stocks settled near their lows for the session.

Our new EXXI trade was triggered today.

-James

Current Portfolio:


CALL Play Updates

Cabot Oil & Gas - COG - close: 66.11 change: -0.48

Stop Loss: 57.00
Target(s): 69.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
08/22 update: Monday was a volatile day for COG. Shares opened above $69.00, plunged to under $65.00 only to bounce and close down about 50 cents. I do not see any changes from my weekend comments.

I am suggesting we use a buy-the-dip entry point at $63.00 to buy calls. If triggered we'll use a stop loss at $57.00. Cautious traders may want to wait for a dip into the $61.50-60.00 zone instead as their entry point. COG bounced near its 100-dma two weeks ago. The 100-dma has risen to $60.62.

We'll set our first target at $69.50.

Buy-the-Dip @ $63.00

- Suggested Positions -

buy the OCT $70 call (COG1122J70)

Entry on August xx at $ xx.xx
Earnings Date 10/25/11 (unconfirmed)
Average Daily Volume = 2.22 million
Listed on August 20, 2011


Deckers Outdoor - DECK - close: 74.21 change: +0.93

Stop Loss: n/a
Target(s): 93.50, 97.00
Current Option Gain/Loss: -85.1%
Time Frame: 1 to 3 weeks
New Positions: see below

Comments:
08/22 update: DECK gapped open higher and spent the day chopping sideways in the $77-74 zone. I am not suggesting new bullish positions at this time but nimble traders could look for a dip toward potential support in the $72-71 zone as a potential entry point.

Earlier Comments:
I do consider this an aggressive trade. DECK can be a volatile normally and in this market the moves get a little crazy. We definitely want to keep our position size small. I am not listing a stop loss on this trade.

- Suggested (SMALL) Positions -

Long SEP $90 call (DECK1117I90) Entry $4.70

08/20 Remainder of our August $90 call position expires at $0.00 (-100%), We took profits on these on the 12th at +232%
08/18 DECK is down nearly 20 points in three days
08/12 1st target hit @ 93.50
bid on Aug. $90 call @ $5.05 (+232.2%)
bid on Sep. $90 call @ $8.45 (+79.7%)

Entry on August 11 at $83.53
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 1.3 million
Listed on August 9, 2011


Dow Jones Industrial (ETF) - DIA - close: 108.30 change: +0.39

Stop Loss: 105.70
Target(s): 114.50,
Current Option Gain/Loss: - 9.8% & -15.0%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
08/22 update: The markets opened higher this morning and the DIA gapped open near $110. Unfortunately the rally didn't stick and stocks spent the day paring their gains. Readers may want to consider waiting for a close over $110 or a dip near $106.00 as alternative entry points.

Earlier Comments:
We will need to use our position size to limit risk.

- Suggested (small) Positions -

Long SEP $110 call (DIA1117I110) Entry $3.15

- or -

Long SEP $112 call (DIA1117I112) Entry $2.20

08/20 add a stop loss at $105.70

Entry on August 19 at $108.00
Earnings Date --/--/--
Average Daily Volume = 15 million
Listed on August 18, 2011


Energy XXI Ltd. - EXXI - close: 22.04 change: -1.46

Stop Loss: 19.90
Target(s): 27.50
Current Option Gain/Loss: - 11.5%
Time Frame: 6 to 12 weeks
New Positions: see below

Comments:
08/22 update: It was another rocky day for EXXI. Shares gapped open higher at $24.29, rallied to $24.66, and then plunged -10%. Shares hit our buy-the-dip entry point at $22.00. We have a stop loss at $19.90. The August 9th low was $21.04. Nimble traders may want try and buy calls on a dip near $21.00 instead. Cautious traders will want to wait and buy the bounce. Our first multi-month target is $27.50.

- Suggested Positions -

Long DEC $25 call (EXXI1117L25) Entry $2.60

Entry on August 22 at $22.00
Earnings Date 10/25/11 (unconfirmed)
Average Daily Volume = 1.4 million
Listed on August 20, 2011


Green Mountain Coffee Roasters - GMCR - close: 85.42 change: + 1.34

Stop Loss: n/a
Target(s): 99.50, 107.50
Current Option Gain/Loss: ---.-- & (-65.7%)
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
08/22 update: GMCR tried more than once to rally higher this morning but couldn't get past resistance near $90. The stock spent the rest of the day hugging support near $85.00. I am not suggesting new positions at this time.

Earlier Comments:
As a high-risk, speculative play we wanted to keep our position size very small. We are not using a stop loss on this play.

- Suggested (SMALL) Positions -

Long SEP $100 call (GMCR1117I100) Entry $3.65

08/18 if you're bearish on the market, then exit now! Sep.bid @$2.29
08/15 exit August $95 calls immediately. Bid @ $7.95 (+190.1%)
08/10 Consider exiting all August options now
08/09 adjusting 2nd target to $107.50
08/09 1st target hit at $99.50.
Aug. $95 call bid $6.30 (+129.9%), Sep. $100 call bid $6.95 (+90.4%)
08/08 we are not using a stop loss on this trade

Entry on August 8 at $91.26
Earnings Date 12/08/11 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on August 6, 2011


O'Reilly Automotive - ORLY - close: 61.84 change: +0.77

Stop Loss: 57.80
Target(s): 63.75, 66.00
Current Option Gain/Loss: + 52.6%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
08/22 update: Trading in ORLY was relatively quiet. The stock opened near $62 and spent the rest of the session oscillating on either side of this level and its 50-dma. Conservative traders may want to consider a higher stop loss. I'm not suggesting new positions at this time but readers can keep their eyes open for another bounce from the 200-dma as a potential entry point.

Earlier Comments:
Use a small position size to limit your risk.

- Suggested (small) Positions -

Long SEP $60 call (ORLY1117I60) entry $1.90

08/20 new stop loss @ 57.80
08/15 trade opened
08/13 adjusted entry point. removed Aug. strike
08/10 new trigger at $55.00
08/09 adjusted targets to $63.75 and $66.00.

Entry on August 15 at $60.37
Earnings Date 10/26/11 (unconfirmed)
Average Daily Volume = 1.7 million
Listed on August 6, 2011


SPDR S&P500 ETF - SPY - close: 112.73 change: +0.09

Stop Loss: n/a
Target(s): 119.75, 122.50
Current Option Gain/Loss: Sep.$120call (-56.8%)
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
08/22 update: The SPY's early morning gap open higher and rally failed near $115 and shares formed a new lower high. The SPY hit $112.41 this afternoon as it drifted toward support near $112.00.

There is a growing chance that we'll see the SPY retest the $110 (or 1100 on the S&P500 index). Nimble traders may want to consider buying calls again in the $110.50-110.00 zone on the SPY but the newsletter is not adding new positions at this time.

Earlier Comments:
We are not using a stop loss on this trade.

- Suggested (SMALL) Positions -

Long SEP $120 call (SPY1117I120) Entry $2.55

08/20 Trigger to add positions at $112.00 was NOT hit. We are removing the entry point. Do not add to positions at this time.
08/18 adding a new entry point to buy the Sep.$118call at $112.00
08/16 exit Aug. $118 call now. bid $2.26 (+5.1%)
08/15 1st target hit @ 119.75
bid on the Aug. $118 call @ $2.15 (+0.0%)
bid on the Sep. $120 call @ $3.32 (+30.1%)
08/08 trade opened at $115.00. We are not using a stop loss.

Entry on August 8 at $115.00
Earnings Date --/--/--
Average Daily Volume = 235 million
Listed on August 6, 2011


U.S. Oil Fund - USO - close: 32.72 change: +0.60

Stop Loss: n/a
Target(s): $37.50, 40.00
Current Option Gain/Loss: + 0.7%
Time Frame: 2 to 3 months
New Positions: see below

Comments:
08/22 update: There was some confusion over the price of oil today. Many thought oil might drop given the progress the rebels are making in Libya. Once Ghaddifi is gone and the civil war ends, then Libya's oil should be one step closer to coming back online (although it will probably take months to happen). Instead of oil dropping on expectation for Liby'a supply returning, the price of oil actually rallied, at least WTI oil did. One explanation for the bounce in oil was expectation that Bernanke would announce some sort of stimulus on Friday.

I do not see any changes from my weekend comments. We want to buy the dip at $30.50. The low on August 9th was $30.31. Please see below for further details on this new entry point.

Earlier Comments:
We're not using a stop loss on our original trade (Nov. $34 call entered on Aug. 9th) so keep your position size small!

This is a lottery-ticket style of play.

- Suggested Positions -

Long NOV $34 call (USO1119K34) Entry $2.05

New Entry Point: Buy calls if USO hits $30.50 (again)

Buy the NOV $34 call (USO1119K34)
If triggered, use a stop at $29.00 for this position.

08/20 Adding a new buy-the-dip entry at $30.50, stop @ 29.00

Entry on August 9 at $31.97
Earnings Date --/--/--
Average Daily Volume = 10.7 million
Listed on August 8, 2011


United Technologies Corp. - UTX - close: 67.68 change: +0.23

Stop Loss: n/a
Target(s): 76.40, 79.75
Current Option Gain/Loss: (Sep. - 79.2%)
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
08/22 update: UTX is still bouncing along support in the $67.50-67.00 zone. If the S&P500 breaks down under 1120 then there is a good chance we'll see UTX breakdown to new lows. I am suggesting a new entry point to buy calls at the $65.00 level. We still want to keep our position size very small to limit our risk.

Earlier Comments:
We want to keep our position size small since I'm not listing a stop loss.

- Suggested Positions -

Long SEP $75 call (UTX1117I75) Entry $1.83

Buy the dip at $65.00

buy the SEP $67.50 call (UTX1117I67.5)

08/20 New entry point to buy calls on dip at $65.00
08/20 Our aggressive, higher-risk trade with August options has expired. Entry price on Aug. $75 call (UTX1120H75) was $0.29. exit 0.00 (-100%)

Entry on August 15 at $73.21
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 6.6 million
Listed on August 13, 2011


Whole Foods Market, Inc. - WFM - close: 56.77 change: -0.06

Stop Loss: n/a
Target(s): 63.50
Current Option Gain/Loss: - 33.4%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
08/22 update: WFM spent most of the day churning sideways inside the $58.00-56.50 zone. Shares look headed for potential support in the $56.00-54.00 area. I'd probably wait for a dip into the $55-54 zone before buying calls again.

Earlier Comments:
We want to keep our position size small since we're not listing a stop loss.

- Suggested Positions -

Long SEP $60 call (WFM1117I60) Entry $2.45

Entry on August 15 at $58.68
Earnings Date 11/03/11 (unconfirmed)
Average Daily Volume = 2.3 million
Listed on August 13, 2011


PUT Play Updates

Alexander & Baldwin, Inc. - ALEX - close: 37.35 change: -0.01

Stop Loss: 40.75
Target(s): 32.50
Current Option Gain/Loss: Sep: -10.0%, DEC: -22.7%
Time Frame: 4 to 12 weeks
New Positions: see below

Comments:
08/22 update: ALEX is off to a quiet start. Shares did gap open higher at $38.33, which provides a slightly better entry point. Volume was pretty light today. Overall I don't see any changes from my weekend comments.

I am suggesting put option positions now. We'll start the play with a stop loss at $40.75. More conservative traders may want to consider a stop a little bit closer to the 10-dma (currently at $39.12). We'll set our target at $32.50.

- Suggested Positions -

Long SEP $35 PUT (ALEX1117U35) Entry $1.00*

- or -

Long DEC $30 PUT (ALEX1117X30) Entry $1.10*

08/22 ALEX gapped open higher at $38.33
* options did not trade on Monday. These entries are estimates.

Entry on August 22 at $38.33
Earnings Date 11/10/11 (unconfirmed)
Average Daily Volume = 279 thousand
Listed on August 20, 2011


Teekay Corp. - TK - close: 23.18 change: +0.26

Stop Loss: 24.55
Target(s): 20.25, 17.50
Current Option Gain/Loss: SEP: +11.7%, OCT: + 0.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
08/22 update: The gap open higher this morning provided a better entry point. Shares spent the rest of the day consolidating sideways. I would still consider new positions now at current levels.

- Suggested Positions -

Long SEP $22.50 PUT (TK1117U22.5) Entry $0.85

- or -

Long OCT $20.00 PUT (TK1122V20) Entry $0.75*

08/22 *option did not trade, this is an estimate.

Entry on August 22 at $23.44
Earnings Date 11/03/11 (unconfirmed)
Average Daily Volume = 531 thousand
Listed on August 20, 2011


CBOE Volatility Index - VIX - close: 42.43 change: - 0.61

Stop Loss: n/a
Target(s): 26.00, 22.50
Current Option Gain/Loss: -95.0%
Second Position Gain/Loss: - 92.0%
Third Position Gain/Loss: -76.3%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
08/22 update: The stock market's gap open higher this morning prompted the VIX to gap open lower at $38.80. Yet as stocks retreated the VIX recouped its losses. By the closing bell today the VIX was down to a -1.4% drop. I do not see any changes from my prior comments.

The VIX might actually see a new relative high over 48 if the S&P500 trades below the 1100 level. I would be tempted to buy puts again on a spike into the 48-50 area but I would keep positions very small.

Earlier Comments:
I am not listing a stop loss on this trade. We should consider this a higher-risk, speculative trade. I'm setting our targets at 26.00 and 22.50.

- Suggested Positions -

Long SEP $25.00 PUT (VIX1121U25) Entry $4.00

- Second Position, entered at the open on Monday, Aug. 8th -
(very small positions)

Long SEP $25.00 PUT (VIX1121U25) Entry $2.50

- 3rd Position, listed Aug. 8th, Open Aug. 9th @ open. -

Long SEP $30.00 PUT (VXI1121U30) Entry $5.70

08/17 August VIX options expire
1st position Aug. $25 put @ $0.00 (-100%)
2nd position Aug. $25 put @ $0.00 (-100%)
08/08 3rd position listed to buy at the open on Aug. 9th
08/08 2nd position was filled the open.

Entry on August 5 at $28.48
Earnings Date --/--/--
Average Daily Volume = xxx
Listed on August 4, 2011