Option Investor
Newsletter

Daily Newsletter, Tuesday, 8/30/2011

Table of Contents

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

Market Wrap

Confidence Crumbles, Fed Divided

by Jim Brown

Click here to email Jim Brown
Consumer confidence fell to a two-year low and the Fed minutes of the August meeting showed a sharply divided Fed.

Market Statistics

The Consumer Confidence report for August was dismal. Confidence fell from 59.5 to 44.5 and the lowest level since April 2009. The majority of the damage came from the expectations component, which fell from 74.9 to 51.9, a drop of -23 points. The current conditions component only declined slightly from 35.7 to 33.3. That would suggest consumers feel things are about as bad as they can be today but they had previously expected the future to be significantly better. Those hopes were dashed with the debt debacle, credit downgrade and the string of regional activity reports turning sharply negative.

Those planning on buying a home fell sharply from 4.9% to 3.7% but auto shoppers increased to 12.9% from 11.9%. Appliance buying plans inproved from 47.7% to 50.1%. That increase in plans to buy cars and appliances differs sharply from the employment components.

Those who believe jobs are hard to get increased significantly from 44.8% to 49.1%. Those who felt jobs were plentiful fell slightly from 5.1% to 4.7%. Fewer people expected a raise and more people expected their income to decrease. Why those employment factors would lead to an increase in consumer buying plans is a mystery.

More than half of the respondents expect the stock market to be lower in a year. That is the first time the majority was expecting a decline since March 2009. More than 60% are expecting higher interest rates so obviously the herd is wrong in at least some of their assumptions.

This report is driven in part by the real world experiences of consumers who have been surveyed. This suggests Friday's jobs report could show fewer jobs than previously expected. The current estimates for job gains range from 30,000 to 70,000.

Other real time indexes like the Rasmussen and Bloomberg showed a low for consumer confidence around the 9th of August. That was the result of the S&P credit downgrade on the USA. The cutoff for the Michigan Confidence was August 18th so the survey did not capture the late month rebound as shown in the other two surveys. This confidence number should be the low for this cycle unless economic conditions worsen drastically.

Consumer Confidence Chart

The Case Shiller showed another decline in June home prices over the last 12 months of -4.5%. That is the same number we saw in the May report. Since this is such a lagging report it was mostly ignored.

The most watched report for the day was the FOMC minutes for the August meeting. The minutes showed a Fed that was sharply divided with some members wanting to take additional action immediately at the August meeting but others were strongly opposed. The compromise was the plan to keep rates low into 2013. Three members dissented and that was the most since 1992.

The Fed data showed the recession was deeper than previously expected and the economy had slowed significantly from 2010 levels. The Fed stressed over the rising unemployment and lackluster job growth. They discussed the declining inflation thanks to lower oil prices producing lower fuel prices.

The sovereign debt crisis in Europe was discussed about how that would impact U.S. markets. New data changed their view of how much the Japanese quake impacted the U.S. economy and they revised the impact lower and attributed more of the U.S. weakness with internal problems.

The minutes said "many participants saw increased downside risk to the outlook for economic growth." The slower growth was expected to reduce inflation pressures.

They expressed increased concern that the length of time workers have been unemployed would increase the time required to absorb those workers back into the system. With the Fed's dual mandate of full employment and stable prices it would appear the majority of the members felt additional policy stimulus was needed to accelerate employment.

The FOMC members were confused about what had happened to their recovery and what they could do to provide further stimulus without raising inflation. Most agree there is no monetary crisis at present and that means the Fed's normal methods of economic stimulation are less effective. They discussed QE3 but passed on it for that meeting.

Ahead of the minutes today Chicago Fed President Evans said in an interview the economy was still in a liquidity trap and we need an even lower interest rate, both real rates and Fed rates, to adjust the relationship between savings and investments. Translation, we need to push rates so low that savers will be forced to become investors just to keep up with inflation. He also said the current rising unemployment rate was consistent with a recession so more Fed action was needed.

I predicted in my weekend commentary the Fed was planning on taking additional action at the September 20th FOMC meeting based on the comments by Bernanke in his Friday speech. After the release of the minutes I am even more convinced they will follow through with some new policy statement.

Two of the dissenters at the August meeting have now made their reasons for dissenting known and it would appear they are now leaning towards the consensus views today. Job growth would appear to be slowing again and economic forecasts are being slashed almost daily. Even if the dissenters remained Bernanke still has enough support to take action. With two of those dissenters already sounding more dovish the potential for action is almost guaranteed.

The market rallied on Friday/Monday was due to expectations of future Fed action. When the Dow declined triple digits today on the Consumer Confidence and then rallied back to close positive it was on the growing expectations for Fed action as evidenced in the minutes. The lack of market follow through was related to the strong resistance at this level and the potential for negative news from the ADP payrolls, ISM NY and ISM Chicago on Wednesday. The bad news bulls may be back but they are being fed bad news with a fire hose and they may need to digest some before the markets can move higher. If by chance the Wednesday reports are less bad than expected we could see a positive reaction. However, at this point "bad news is good news" to some extent because it will force the Fed to act. If we suddenly got a string of better than expected economic reports it could actually keep the Fed on hold so slightly better economics may not be that bullish.

The reports due out on Wednesday are important but the ISM on Thursday is critical. Official expectations are for 50 and right on the line separating contraction from expansion. Under 50 is contraction and I don't see how it would be possible for a number over 50 given the regional declines. I almost feel the official estimates are being held at 50 to avoid pressuring sentiment any more than necessary. If they were predicting a decline to 40 and seriously in contraction territory it would be market negative.

The payroll report on Friday is the next major event and the official estimates are running between 30,000-70,000 but some are expecting a loss of jobs. The ADP report on Wednesday will give analysts one last chance to adjust their estimates for the payroll report on Friday.

Economic Calendar

Gold prices rallied strongly once again on expectations the Fed is going to act in September. Gold rallied +44 to $1836 and right at the top of its recent resistance range. Actual gold demand continues to grow according to the CEO of Goldcorp (GG) and we are approaching the high demand festival season in India and Asia plus central bank buying is increasing. He expects a short-term dip but said $2400 is still a logical target for gold over the next couple years.

Gold Chart

Oil prices rallied sharply after the new Libyan government oil spokesman, Nouri Berouin, told Reuters it could take a long time for production to return. Some production will resume soon but returning to pre war levels could take years. His preliminary estimate is 15 months "once we start returning fields to production." He said minefields around some facilities could slow the restart. Also, some workers left the fields so quickly that the fields could have been damaged by the hasty shutdown. He said, "Once our fields are secure we need to clear the mines. Building up output will require logistical support from our foreign partners." That translates to "We don't have any money, parts or experience." He said the national oil companies will be restructured and become more independent. Since the oil companies were basically a cash cow for Gadhafi a restructuring would be a good idea but those kinds of actions rarely go smoothly since the people in charge then are probably not in charge now.

Brent crude rallied strongly on the news.

WTI Crude Chart

Brent Crude Chart

Hurricane Irene may have caused as much as $20 billion in damages with the majority of that due to flooding rather than wind damage. Unfortunately a new tropical storm named Katia is moving towards the Caribbean and it already has winds in excess of 60 mph and it is still well east of the warm Caribbean waters. The current storm track, although preliminary, has it targeting North Carolina and the east coast. The landfall would not occur until next Wednesday.

Tropical Storm Katia

Now you see it, now you don't. Hewlett Packard shocked the world with the cancellation of their tablet program two weeks ago after only six weeks on the market. On Saturday after the announcement they slashed prices to $99 and $149 to blow out all their inventory and there was a feeding frenzy. Within hours of the news hitting the web there were no HP tablets available anywhere. After a very short dip on Ebay they are again selling in the $250 range for the 16gb model and $300 for the 32gb models. Bidding is extremely brisk with dozens of bids on every auction. The TouchPad went from "can't give them away" to "I am willing to pay big money to get one." HP said the "stunning demand" for the tablets had convinced them to make another production run to meet unfilled demand before officially retiring the product.

Resurrecting the TouchPad could help HP sell off its PC business. While many buyers may not be interested in the actual PC business the addition of a working tablet they could quickly revitalize makes the PC division more valuable. Several companies have expressed interest in the WebOS software. I view this as more confirmation the current Hewlett Packard management is in a fog. They should have considered all these factors before their ill-timed cancellation announcement. HPQ shares are up +15% from their post announcement lows.

Hewlett Packard Chart

Fourteen Borders stores will be resurrected by Book-a-Million (BAMM). The stores were slated for closure after Borders filed bankruptcy and said it was going to liquidate. BAMM will take over the leases beginning on September 20th. Borders is liquidating its remaining 399 stores.

Peabody Energy (BTU) and partner ArcelorMittal finally acquired Macarthur Coal after a year of pursuing the acquisition. Macarthur finally relented against the pressure of Peabody's hostile bid and recommended shareholders accept the sweetened bid of $16 per share. That was a 44% premium over the share price before the offer was made. ArcelorMittal was already a 16% shareholder in Macarthur and the second biggest shareholder. The deal is worth $5.2 billion and gives Peabody another 270 million tons of coal. Peabody also signed a deal to develop a Chinese surface mine and produce 50 million tons of coal annually over the next several decades. Peabody also gained a big chunk of Australian coal terminal space with the Macarthur acquisition. The terminal in Australia is shared by multiple coal companies and ships stack up outside the harbor in lines that can sometimes take weeks to load coal destined for Asia. Having another loading facility in that terminal is a big plus for Peabody. BTU has rallied +$6 in the last week on expectations the deal would get done.

Peabody Chart

Stock news was pretty light today because we are in the middle of the quarter, earnings are over and we are heading into a holiday weekend. Volume has been very weak thanks to the damage from Irene, the heavy risk from the heavy economic calendar and the pending holiday. Volume on Monday was 6.6 billion shares and the lowest volume since August 3rd. Today was not much better at 7.3 billion shares.

This is month end and given the rally in bonds over the last month there were probably some asset allocation programs at work on Monday as strict funds were forced to shift investments from bonds into equities.

End of month retirement contributions will probably be light with most deposits being allocated to money market funds rather than equities. There are still some analysts expecting a return to S&P 1100 for another retest if the week's economics takes a seriously negative turn. Investor sentiment is very bearish.

However, fund managers are facing a monster performance comparison problem compared to Q3/Q4 of 2010. That was a major gain for most funds and 2011 has been a serious challenge for funds to remain positive much less post large gains.

After peaking in February there was two months of declines followed by another peak in April followed by more declines. The markets are basically flat for the year and it would have taken a very nimble manager to profit from the year's volatility. John Paulson's high profile funds are down from -21% to over -30% for the year. If funds are going to make any money for the year it will have to be done over the next 60 days before the fund fiscal year end on October 31st.

This suggests the incentive to buy stocks on any "less bad" news should be strong.

The S&P rallied to 1220 intraday before falling back to 1213 at the close. The peek over the mid August high at 1208 was critical and nobody really expected it to simply continue higher because of the strong resistance at that level. The fact we did not sell off sharply on that resistance and the bad economic news is short term bullish. Unfortunately we don't know how much of that was month end allocation programs and it was on low volume.

The current S&P level is critical. A move higher from here would trigger significant short covering and quite a few traders would not be surprised to see the markets fail here. This would be a textbook failure point but every rally has one and once they pass it the market tone shifts. Interim support is now 1160 and resistance at 1220 and the intraday high.

S&P Chart

The Dow extended its gains over prior resistance at 11,500 and I view this as slightly bullish. However, the Dow only had 14 components in positive territory and CAT and BA provided +25 Dow points of gains so that tells you how weak the rest of the components were.

I view today as a consolidation day. The rebound from the confidence report lows while at the top of its recent gains was also bullish. Any continued move higher from here could trigger another wave of buying but it would help to have some positive economics to boost the blue chips. We can only rally so far on bad news and Fed expectations.

Dow Chart

The Nasdaq extended its gain above prior resistance and appears to be on track to test resistance from the March/June lows at 2600. A positive breakout there should give the index wings.

Nasdaq Chart

The Russell rallied to retest the resistance at the 50% retracement level of the August-2010 to May-2011 rally. This should be decent resistance but the Russell has been on fire. It gained more than 4% on Monday. One more move higher should cement the trend but I would not be surprised to see some consolidation first.

Russell Chart

Economics will be the key for the rest of the week. Europe was fairly quiet this week so it could return to the forefront at any time. For the time being bad economic news is good news for Fed action but there is a limit to how much bad news is good and how much the Fed can impact the markets. If economics turn seriously negative like the confidence report today I seriously doubt any Fed hopes will keep the market alive.

Keep your stops close and don't hesitate to take profits.

Jim Brown

Send Jim an email


New Option Plays

Tech Could Lead

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

F5 Networks Inc - FFIV - close: 79.33 change: +0.61

Stop Loss: 76.25
Target(s): 84.50, 89.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
If the market continues to rally then technology will most likely lead the way higher. FFIV continues to do well and shares outperformed the major indices tonight. We are suggesting very small bullish positions now. Why small positions? We are still facing a lot of economic headlines this week and any of them could be a catalyst for more profit taking. Plus, FFIV is still trading just under round-number resistance at $80.00 and you could argue the stock is short-term overbought with its three-day bounce from $71.20.

The plan is to buy calls on FFIV now but only if the stock and the S&P 500 index both open positive tomorrow morning. Nimble traders may want to consider using a trigger above $80.00 (maybe $80.25 or $80.50) as an alternative entry point just in case the S&P500 opens lower but FFIV rallies.

This is an aggressive, higher-risk entry point. We'll start the trade with a stop loss at $76.25. Our targets are $84.50 and $89.00.

NOTE: Any big dip is going to crush the September calls since they expire in just over two weeks. Readers may want to play the Octobers instead.

buy calls if FFIV and the S&P 500 index open positive tomorrow morning.

- Suggested Positions -

buy the SEP $85 call (FFIV1117I85) current ask $1.68

- or -

buy the OCT $85 call (FFIV1122J85) current ask $4.35

Annotated Chart:

Entry on August xx at $ xx.xx
Earnings Date 10/25/11 (unconfirmed)
Average Daily Volume = 3.5 million
Listed on August 30, 2011



In Play Updates and Reviews

Several Targets Hit Today

by James Brown

Click here to email James Brown

Editor's Note:

We had several bullish targets get hit today (BCR, COG, GMCR, HANS, and LULU). We're also taking an early exit on DIA and the SPY to lock in gains.

I've updated multiple stop losses.

-James

Current Portfolio:


CALL Play Updates

CR Bard Inc. - BCR - close: 94.16 change: +0.77

Stop Loss: 89.90
Target(s): 94.75, 98.25
Current Option Gain/Loss: Sep.$85: +8.1% & Oct. $95: +11.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/30 update: BCR hit our first target at $94.75 late this afternoon. The intraday high was actually $94.76. You could argue shares are a little bit short-term overbought here so I would not open new positions at this time. The stock should find support in the $92-90 zone. We will raise our stop loss to $89.90.

- Suggested (small) Positions -

Long SEP $95 call (BCR1117I95) Entry $1.85*

- or -

Long OCT $95 call (BCR1122J95) Entry $3.40*

08/30 new stop loss @ 89.90
08/30 1st target hit at $94.75
Sep. $95 call bid at $2.25* (+21.6%)
Oct. $95 call bid at $4.00* (+17.6%)
*these are estimates. options did not trade today
08/29 play opened. BCR gap open entry at $92.11
* these are estimates. options did not trade today
08/27 Adjusted back to old strategy. Buy calls now if both BCR and S&P500 open positive on Monday.
08/27 move stop loss to $87.40 and adjusted strikes to $95
08/25 New strategy. Buy the dip at $86.50, new stop 84.85

chart:

Entry on August 29 at $92.11
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 1.25 million
Listed on August 23, 2011


Caterpillar Inc. - CAT - close: 89.83 change: +1.68

Stop Loss: 84.75
Target(s): --.--, 94.50
Current Option Gain/Loss: Sep.$90: +32.6% & Oct. $90: +21.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/30 update: CAT has rallied to potential resistance at the $90.00 level. Cautious traders may want to take profits early right now. If the market sees a pull back then CAT could easily retrace back down toward the $86-85 zone, which would crush our September options.

I am not suggesting new positions at this time. We will raise our stop loss to $84.75.

Earlier Comments:
We want to keep our position size small.

- Suggested Positions -

Long SEP $90 call (CAT1117I90) Entry $2.30

- or -

Long OCT $90 call (CAT1122J90) Entry $4.35

08/30 new stop loss @ 84.75, consider taking profits early now.
08/29 trade opened. CAT gapped open at $87.11
08/27 buy-the-dip trigger not hit. We will switch back to buying calls now if both CAT and S&P500 open positive on Monday.
08/27 new stop loss at $79.49
08/24 play was not triggered. New strategy to buy the dip at $80.50 with a stop at $78.75.

Entry on August 29 at $87.11
Earnings Date 10/24/11 (unconfirmed)
Average Daily Volume = 13.9 million
Listed on August 23, 2011


Cabot Oil & Gas - COG - close: 76.67 change: +2.69

Stop Loss: 69.75
Target(s): --.--, 78.85
Current Option Gain/Loss: Sep.$75: +46.4% & Oct.$75: +37.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/30 update: Our first target has been hit. COG delivered another strong session with a +3.6% gain and a breakout past resistance at the $75.00 mark. Shares hit our first profit target at $76.85 this afternoon. The bid on the September $75 call was near $3.70 (+32.1%) and the bid on the October $75 call was at $6.20 (+29.1%).

Please note that we are raising our stop loss up to $69.75. More conservative traders may want to use a stop loss higher (maybe the $72.50 area). I would not launch new positions at this time. The July high of $78.94 could be resistance. I am adjusting our final target down to $78.85. More aggressive traders could aim higher.

- Suggested Positions -

Long SEP $75 call (COG1117I75) Entry $2.80

- or -

Long OCT $75 call (COG1122J75) Entry $4.80

08/30 new stop loss @ 69.75, adjust final target to $78.85
08/30 1st target hit at $75.85.
Sep. $75 call bid @ 3.70 (+32.1%)
Oct. $75 call bid @ 6.20*(+29.1%)
*option did not trade today. this is an estimate. 08/29 COG gapped open higher at $72.79

chart:

Entry on August 29 at $72.79
Earnings Date 10/25/11 (unconfirmed)
Average Daily Volume = 2.1 million
Listed on August 27, 2011


Deckers Outdoor - DECK - close: 88.94 change: +0.54

Stop Loss: 84.40
Target(s): 93.50, 97.00
Current Option Gain/Loss: -23.4%
Time Frame: 1 to 3 weeks
New Positions: see below

Comments:
08/30 update: DECK did not make much progress today. The stock stalled at round-number resistance near $90.00. More conservative traders may want to exit early now and cut their losses with the Sept. $90 call (bid) at $3.60 (-23.4%). If the DECK does see another sharp pull back these options will get crushed lower again.

I am not suggesting new positions at this time. Please note our new stop loss at $84.40.

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.

- Suggested (SMALL) Positions -

Long SEP $90 call (DECK1117I90) Entry $4.70

08/30 Readers may want to cut losses now (at -23.4%).
New stop loss @ $84.40
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


Energy XXI Ltd. - EXXI - close: 26.39 change: +0.15

Stop Loss: 23.40
Target(s): 27.50, 29.75
Current Option Gain/Loss: + 69.2%
Time Frame: 6 to 12 weeks
New Positions: see below

Comments:
08/30 update: EXXI spent the day consolidating sideways above the $26.00 level. Volume is fading fast. It might be time for a pull back. I am not suggesting new positions at this time. We will move our stop loss up to $23.40. More conservative traders will want to lock in a gain right now.

- Suggested Positions -

Long DEC $25 call (EXXI1117L25) Entry $2.60

08/30 new stop loss @ 23.40
08/29 new stop loss @ 21.90
08/27 new stop loss @ 20.90

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


Hansen Natural Corp. - HANS - close: 89.58 change: +0.55

Stop Loss: 83.40
Target(s): 89.75, 94.50
Current Option Gain/Loss: Sep.90: +46.3% & Oct.90: +20.4%
Time Frame: 2 to 6 weeks
New Positions: see below

Comments:
08/30 update: HANS has already hit our first target at $89.75. Shares rallied to $90.24 intraday. The $90 level could be round-number resistance so I would not open new positions at this time. There is a good chance HANS could pull back toward the $86-84 zone or tag its 10-dma. I'd rather wait for the next bounce before considering new positions. We will raise our stop loss to $83.40. More conservative traders may want to risk a higher stop loss.

- Suggested Positions -

Long SEP $90 call (HANS1117I90) Entry $2.05

- or -

Long OCT $90 call (HANS1122J90) Entry $4.40

08/30 1st target hit at $89.75
Sep $90 call bid @ $3.10 (+51.2%)
Oct $90 call bid @ $5.40 (+22.7%)
08/30 new stop loss @ 83.40
08/29 HANS gapped open at $86.00

chart:

Entry on August 29 at $86.00
Earnings Date 11/03/11 (unconfirmed)
Average Daily Volume = 1.4 million
Listed on August 27, 2011


Lululemon Athletica - LULU - close: 52.31 change: +3.19

Stop Loss: 49.75
Target(s): 56.00, 59.50
Current Option Gain/Loss: + 28.1%
Time Frame: up to September 9th
New Positions: see below

Comments:
08/30 update: LULU has also hit our first target. Unfortunately the rally to $56.00 has not been that impressive since the gap open higher on Monday morning impacted our entry point and lowered our potential gains. I am not suggesting new positions at this time with LULU sitting just under technical resistance at its 50-dma. We will raise our stop loss to $49.75. More conservative traders may want to raise their stop loss even higher.

NOTE: This is a short-term trade. We do not want to hold over the Sept. 9th earnings report.

- Suggested Positions -

Long SEP $55 call (LULU1117I55) Entry $3.20

08/30 new stop loss at $49.75
08/30 1st target hit @ $56.00, option bid @ $4.05 (+26.5%)

chart:

Entry on August 29 at $54.05
Earnings Date 09/09/11 (confirmed)
Average Daily Volume = 4.2 million
Listed on August 27, 2011


O'Reilly Automotive - ORLY - close: 65.15 change: -0.09

Stop Loss: 61.75
Target(s): 63.75, 66.00
Current Option Gain/Loss: + 89.4%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
08/30 update: Hmm... ORLY did not participate in the market's rally today. Is the stock just pausing at round-number resistance near $65.00? Or is the rally running out of steam? The high today was $65.47. We've been aiming for our final target at $66.00.

I want to take a cautious approach here. We want to exit early. I am suggesting we exit our call options at the open tomorrow!

NOTE: I can not explain why there is suddenly a HUGE spread in the Sept. $60 option price. Yesterday the bid was $5.20. Today the bid $3.60 with an ask of $6.50. You may want to use a limit order to exit instead of a market order. Depending on how the market looks posed to open I'd consider a limit order around $5.00, maybe $5.50ish. The newsletter will have to take whatever the opening bid is.

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

- Suggested (small) Positions -

SEP $60 call (ORLY1117I60) entry $1.90

08/30 prepare to exit tomorrow morning
08/24 new stop loss @ 61.75
08/24 1st target hit @ 63.75, option @ $4.00 (+110.5%)
08/23 new stop loss @ 59.40
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


Stericycle Inc. - SRCL - close: 87.40 change: +0.04

Stop Loss: 83.75
Target(s): --.--. 88.50
Current Option Gain/Loss: +111.4%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
08/30 update: SRCL did not participate in the market's rally on Tuesday. Shares are stuck at their 100-dma. Cautious traders may want to exit immediately. I am not suggesting new positions at this time. We will raise our stop loss to $83.75. At the moment our final target is $88.50. Aggressive traders might want to aim higher.

- Suggested (small) Positions -

Long SEP $85 call (SRCL1117I85) Entry $1.75

08/30 new stop loss @ 83.75
Consider an early exit now
08/29 consider exiting now since the option is up +105%
08/27 new stop loss @ 81.25
08/25 new stop loss @ 79.75
08/25 1st target hit @ 84.90, option @ $2.75* (+57.1%)
*this is an estimate. the option did not trade today.

Entry on August 23 at $81.29
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 858 thousand
Listed on August 22, 2011


Tractor Supply Co. - TSCO - close: 60.82 change: -0.14

Stop Loss: 58.75
Target(s): 64.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
08/30 update: TSCO underperformed the market today. Shares gapped open lower at $60.50 and eventually tested the $60.00 level again before paring its losses. The gap down aborted our entry point. We will try again. I am suggesting small bullish positions now but only if TSCO and the S&P500 both open positive tomorrow morning.

NOTE: The September options expire in less than three weeks. If TSCO does not see any follow through higher these will evaporate fast. The spread is a larger percentage of the overall trade with the Septembers.

*See Entry Details Above*

- Suggested Positions -

buy the SEP $65 call (TSCO1117I65) current ask $0.65

- or -

buy the OCT $65 call (TSCO1122J65) current ask $2.15

Entry on August xx at $ xx.xx
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 858 thousand
Listed on August 29, 2011


U.S. Oil Fund - USO - close: 34.44 change: +0.48

Stop Loss: 31.90
Target(s): $37.50, 40.00
Current Option Gain/Loss: +38.0%
Time Frame: 2 to 3 months
New Positions: see below

Comments:
08/30 update: The USO delivered a +1.4% gain but it is struggling to breakout past the August 17th high. This ETF could have additional resistance near $35.00. I am not suggesting new bullish positions at this time.

Earlier Comments:
Keep your position size small! This is a lottery-ticket style of play.

- Suggested Positions -

Long NOV $34 call (USO1119K34) Entry $2.05

08/27 new stop loss @ $31.90
08/27 removing 2nd trigger to add another 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: 73.76 change: -0.11

Stop Loss: 68.75
Target(s): 76.40, 79.75
Current Option Gain/Loss: (Sep. - 30.0%)
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
08/30 update: UTX underperformed the market's major indices on Tuesday. This stock is also struggling with its mid August highs. More conservative traders will want to seriously consider cutting their losses now. I am not suggesting new positions at this time.

Earlier Comments:
We want to keep our position size small.

- Suggested Positions -

Long SEP $75 call (UTX1117I75) Entry $1.83

08/30 consider cutting your losses now (-30%)
08/27 Adding a stop loss at $68.75
08/27 We have removed the buy-the-dip entry at $65.00
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


PUT Play Updates

CBOE Volatility Index - VIX - close: 32.28 change: - 3.31

Stop Loss: n/a
Target(s): 26.00, 22.50
Current Option Gain/Loss: -93.7%
Second Position Gain/Loss: - 90.0%
Third Position Gain/Loss: -68.4%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
08/30 update: We have about three weeks left on these VIX September options. Where will the VIX be in the second half of September, one of the weakest months of the year?

I heard one analysts suggesting readers buy VIX calls today because they were expecting the volatility to rise again due to so much uncertainty in the market.

We are not suggesting new positions bullish or bearish on the VIX.

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


CLOSED BULLISH PLAYS

Dow Jones Industrial (ETF) - DIA - close: 115.35 change: +0.21

Stop Loss: 111.25
Target(s): 114.50, 117.50
Current Option Gain/Loss: Sep $110: +80.9% & Sep $112: + 97.7%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
08/30 update: Upon further review we are taking a more cautious approach to the major indices. Tonight we are closing our DIA and SPY trades early to lock in a gain. More aggressive traders may want to let it run with over two weeks left before September options expire. Just bear in mind that any significant downturn is going to really hurt these options! We will exit immediately.

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

- Suggested (small) Positions -

SEP $110 call (DIA1117I110) Entry $3.15, Exit $5.70 (+80.9%)

- or -

SEP $112 call (DIA1117I112) Entry $2.20, Exit $4.35 (+97.7%)

08/30 Early exit now!
08/29 new stop loss @ 111.25
08/29 1st target hit at $114.50
Sept. $110 call bid at $5.95 (+88.8%)
Sept. $112 call bid at $4.30 (+95.4%)
08/27 new stop loss at $108.90
08/27 added 2nd target at $117.50. We still want to take $$ off the table at $114.50
08/20 add a stop loss at $105.70

chart:

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


Green Mountain Coffee Roasters - GMCR - close: 102.91 change: + 4.20

Stop Loss: 89.50
Target(s): 104.00
Current Option Gain/Loss: ---.-- & (+87.6%)
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
08/30 update: Our final target on GMCR has been hit at $104.00. The stock was climbing in choppy trading and managed to hit $104.17 late this afternoon. I would be tempted to keep GMCR on your watch list for another buy-the-dip entry point over the next few weeks.

Earlier Comments:
As a high-risk, speculative play we wanted to keep our position size very small.

- Suggested (SMALL) Positions -

SEP $100 call (GMCR1117I100) Entry $3.65, exit $6.85 (+87.6%)

08/30 final target hit at $104.00
08/27 Strategy Update: Stop loss @ 89.50. New target at $104.00.
08/23 Cautious traders may want to exit now with the bid on our Sep. $100 call at $3.25 (-10.9%)
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

chart:

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


SPDR S&P500 ETF - SPY - close: 121.36 change: +3.39

Stop Loss: n/a
Target(s): ---.--, 122.50
Current Option Gain/Loss: Sep.$120call (+39.6%)
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
08/30 update: The SPY almost hit our final target at $122.50. The high today was $122.43.

Upon further review we are taking a more cautious approach to the major indices. Tonight we are closing our DIA and SPY trades early to lock in a gain. More aggressive traders may want to let it run with over two weeks left before September options expire. Just bear in mind that any significant downturn is going to really hurt these options! We will exit immediately.

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

- Suggested (SMALL) Positions -

Long SEP $120 call (SPY1117I120) Entry $2.55, exit $3.56 (+39.6%)

08/30 exit early now.
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.

chart:

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