Option Investor
Newsletter

Daily Newsletter, Tuesday, 9/6/2011

Table of Contents

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

Market Wrap

Friday Drop Explained

by Jim Brown

Click here to email Jim Brown
The market drop today on major problem in Europe is exactly why Friday's market failed to rebound. Nobody wanted to go long over the weekend when faced with Europe risk.

Market Statistics

The sudden downturn in Europe produced significant declines on Monday and that carried over into our markets on Tuesday. This is exactly what traders were trying to avoid when they avoided buying the dip on Friday. There were simply too many risks in multiple countries plus the worries over the bank lawsuits. The overhang from Europe knocked the Dow to a -307 point at the open. That is not the kind of gap open the bulls wanted to fight.

The opening drop came despite the better than expected economics in the USA. The ISM Nonmanufacturing Index actually ROSE to 53.3 for August compared to an expected decline to 51.1 compared to the 52.7 reading in July. This was a major shock for analysts and suggests the soft patch was just temporary.

The internal components showed only a slight improvement but it was an improvement. New orders rose +1.1 points to 52.8. Imports rose from 47.5 to 53.5 and exports from 49.0 to 56.5. Employment declined to 51.6 from 52.5 but anything over 50 is still in expansion territory. Unfortunately backorders, a sentiment indicator of future activity, rose to 47.5 from 44.0 but remains in contraction territory.

The headline number averaged about 53.1 for the quarter and that is still growth even if it is very slow. The average for Q2 was 53.6 so there has not been a significant decline in activity. Consumer spending remains unexpectedly high and that suggests consumer attitudes in the confidence/sentiment surveys is not translating to a decline in activity.

ISM Nonmanufacturing Chart

The economic calendar for the rest of the week is highlighted by the Fed Beige Book on Wednesday and the president's job speech on Thursday. The Beige Book is the most important report for the week. It is the summary of financial conditions in each the regional Fed regions. It would be nice to see them say something good but just not saying anything negative would also be market positive.

Economic Calendar

In stock news the foul mouthed CEO of Yahoo, Carol Bartz, is no longer CEO according to reports on the web. She has been replaced by Yahoo CFO Tim Morse as interim CEO. Chairman Roy Bostock called Bartz on the phone and told her she had been replaced. Bartz was brought in to turn the company around in January 2009 with the share price at $12.50. That is exactly where it was trading today then the news was released.

Yahoo Chart

Bargain dealer Groupon put its $750 million IPO on hold for multiple reasons. Several high profile companies including Zynga and Facebook have put IPO plans on hold until the market improves. Groupon has another reason. Since they filed for their IPO the SEC and others have questioned its accounting practices that exclude marketing and other expenses from its profit calculations. There are also worries that the daily deal market has suddenly been saturated. Several companies have either narrowed their focus or reduced their number of deals and some have even cancelled their services. Facebook ended its Deals business after only four months and Yelp's CEO said this week that some local businesses think the daily deals are "uneconomic" and raising questions about the sustainability of the model. There are worries that Groupon has also seen business shrink as a result.

Sprint (S) sued AT&T (T) to halt the acquisition of T-Mobile. Sprint said the combination would lead to higher prices for consumers and create a duopoly between AT&T and Verizon. Sprint called the potential acquisition "brazenly anticompetitive." The suit was assigned to the same judge currently handling the Justice Department's suit to block the merger. If AT&T can't get approval for the merger they will have to pay a $6 billion breakup fee to T-Mobile parent Deutsche Telekom. Whoever agreed to that fee at AT&T needs to be institutionalized since there was always a good chance the antitrust concerns could block the deal.

AT&T Chart

The Nvidia (NVDA) CEO shook up things this afternoon when he raised guidance sales and profits for years into the future. CEO Jen-Hsun Huang said Android tablets running quad-core processors will be available later this year. Since this year only has a little less than four months remaining that is a big claim. He expects the company to expand its smart phone processor capability into regular phones with sales of one billion by 2015. Today Nvidia has sales of $4.5 billion in its GPU business and $2 billion in mobile processors. By 2015 he expects that to reverse to a whopping $20 billion in mobile processors and $7 billion in GPUs. The stock rallied to $14 in after hours.

Nvidia Chart

The banks did not do as bad today as I expected after the bombshell FHFA lawsuit was announced last Friday. There were some extreme analysts worried over some future bank bankruptcies but I doubt anyone gave them any credibility. Most believe the suits will be settled before they every go to trial simply because the burden of proof for Fannie and Freddie is so high. This is a hail Mary pass by the FHFA in hopes of recovering some of its losses. JPM, the second highest suit at $33 billion only declined -1.19. BAC lost -0.26 and MS -0.63. The European banks were hit harder but some of that decline was due to events in Europe over the weekend. Deutsche Bank (DB) lost -2.69 and Credit Suisse (CS) -3.54. Overall the U.S. banks are very well capitalized today and the suits, if they make it to court, will take years and could end with minor settlements because of the high burden of proof. The fact they sued 17 banks suggests the case has weakness. There is no way 17 global banks falsified documents and committed fraud on this scale. One or two banks maybe but not 17. The KBW Banking Index only lost -1.7%. Time to buy banks?

KBW Banking Index Chart

The northeast is still cleaning up after hurricane Irene and it looks like they might have dodged a bullet with Katia. The storm dropped back from a category three to a category two and the new storm track is showing a sharp turn northeastward and it is now expected to miss land altogether. Unfortunately there are three more storms developing in the south. It will be days before any develop into problems but this is the heart of the hurricane season.

Katia Storm Track

Gulf Storm Chart

Crude prices were extremely erratic with WTI crude falling to $82. In theory this was due to the economic weakness in Europe but WTI does not go to Europe. This was really just traders raising cash to cover margin calls on equities.

In Europe the price of Brent rallied +3.27 so obviously there were no worries over lack of demand. The daily news out of Libya continues to push back the dates when any material production will be resumed. This is a daily news cycle and multiple people making unrelated statements to the press in an effort to increase their stature in the new Libyan political order. Expect continued volatility but also expect the price to continue to rise. In the last IEA/OPEC reports they estimated a continued 688,000 bpd shortfall in light crude for Q3. The shortfall is being made up by depleting existing supplies in Europe an Asia.

There was also news of some delayed tanker loadings in the North Sea. Brent is short and the price will continue to show that.

This has led to a new historical high on the spread between WTI and Brent at nearly $30 today.

U.S. WTI Crude Chart

Brent Crude Oil Chart

Without going into too much detail over Europe let's just say conditions are continuing to worsen. German Chancellor Merkel had some problems over the weekend with some local elections that did not turn out well for her party. Holding together the country with fragmenting support because of the bailouts could be a challenge.

The German court is supposed to rule on the constitutionality of the bailouts and it could happen on Wednesday. Chancellor Merkel is expected to address Parliament on Wednesday, also before our open.

There are many conflicting views on whether the constitutional vote will pass and if it does pass it will still have to be voted on by the parliament. With Merkel's political fortunes declining she may not be able to get it passed in parliament.

Greece and Italy were in the news all weekend with more analysts predicting a Greek default. Some European finance ministers were quoted as saying they may need to let some countries leave the union. Others were quoted as saying you should not rule out sovereign debt defaults despite the bailouts. Southerners in Italy are striking to protest austerity.

There are so many events and complexities swirling in Europe there is no way to predict the outcome other than the odds are good the problems will not go away. This will keep the region under economic stress and could lead to a global recession.

These problems in Europe make the U.S. markets the safe haven for investors. The ten-year Treasury note yields declined to another new low at 1.979% after dipping to an intraday low of 1.929%.

Gold prices set a new intraday high at $1923 before settling back to close at $1872 on some serious intraday volatility. Is this a double top? Most analysts believe we will still see a further rally to $2000-$2100 simply because of the economic and geopolitical instability. With central banks trying to find some way to diversify their reserves without currency risk, adding gold appears to be the answer. The Swiss National Bank set a ceiling on the franc today and the currency crashed. Traders long the franc were crushed. The Euro spiked nearly 10% against the franc and the dollar gained nearly 8%.

Gold Chart

In theory this flight to safety should benefit U.S. equities but we need to get past the current rough patch before investors will have the confidence to buy stocks. So far the three-day decline in September is the worst start on record since WWII.

The S&P dipped to 1140 intraday (-33) before it rebounded +25 points to close with only a minor eight-point loss. When you consider the ugly news on Friday and the turmoil in Europe this was a very positive rebound. The events in Germany overnight tonight probably kept the markets from rebounding to positive territory. Like Friday, investors did not want to be heavily long as those critical events occurred.

The S&P rebound back above prior support at 1160 was a strong plus when it could have just as easily fallen to 1120 or even lower. This is a bullish sign assuming no German problems tomorrow.

S&P Chart

The Dow rebounded from its -308 point loss to end only down -100. Yes, there is a positive spin to only a 100-point loss. Only three Dow components were positive, JNJ, CAT, PFE, but the losses on the majority were less than 50-cents each. Technology and banking led the losers list.

The Dow closed well above 11,000 after a dip to 10,932 and that should attract new buyers on Wednesday.

Dow Chart

The Nasdaq closed +60 points off its lows. Also, it had a good opportunity to test support at 2400 and failed to reach that level. The Nvidia news should be a positive boost to the market on Wednesday even though the semiconductor industry lowered expectations today. This is normally a weak month for tech stocks but they are already seriously oversold.

The rebound before testing support today was bullish. If tech stocks can post a rally on Wednesday back over 2500 it should attract new buyers.

Nasdaq Chart

Russell Chart

Where to from here? The late August rally was almost completely erased. Conditions reversed from overbought to oversold and after three consecutive days of triple digit declines it is time for a bounce.

The governing factor for Wednesday is Europe and we can't do anything but watch but I believe further dips will be bought. Europe will get worse before it gets better but that is quickly being priced into the market.

The Fed is more than likely going to take action on September 20th. It may not be QE3 but they can't afford to stand by and wait to see if the economy is going to crash and burn or just limp forward for money to come. They need to act now to prevent a future collapse. Unfortunately their actions will be more psychologically than physically stimulative but any stimulation will help.

The president's speech may provide a boost to sentiment but it is not likely to provide any real impact since anything he proposes has to be passed by Congress. Still the speech could be market positive unless it is full of partisan attacks.

Why buy? September is normally ugly and there are definitely plenty of roadblocks in the global path. At least 75% of the analysts on TV are now calling for lower lows before the end of October. With that much bearish sentiment it may be a challenge to put money to work. Fortunately fund managers look for exactly that kind of sentiment as a buy signal.

I can't tell you September will finish higher than it is today but I do think we are long term oversold. The August volatility should have shaken out those investors who were on the fence with no clear expectations.

Fund managers need to make up lost ground. They have had a rough year with some high profile hedge funds down more than 25%. Bonuses are at risk and that calls for aggressive action. I think they will buy the dips with increasing bullishness. I could be completely wrong. Europe could spiral down the drain and take our markets with it. That is a chance we have to take. That is why they made stop losses.

If you want to nibble on the dips please do so with smaller positions and please use stops. I could be right about the direction but wrong about the timing. Please use stops.

In the "you can't make this stuff up" department the state of Michigan is now offering food stamps and government assistance in three languages. English, Spanish and … drum roll please… Arabic. It seem there is such a large number of Arabic speaking people asking for government assistance in Michigan they had to include it as an official language on the state's website. There are so many ways I could rail on this but in the interest of time I will just post the links.

Notification of calendar changes
Food Stamps Overview

Coming soon: "Hello, welcome to (Your Government Agency Here). For assistance in English press 1, for assistance in Spanish press 2, for assistance in Arabic press 3, Chinese press 4, Korean press 5, Russian 6, etc." Your visit to the local fast food drive in is about to become more complicated as well. Now they can only mess up your order in two languages. What happens when it spreads to 5 or 6 more? Why can't learning the English language be a prerequisite for immigration? Secondly, why can't the ability to pay for your own food and housing also be a requirement?

Jim Brown

Send Jim an email


New Option Plays

Time to Reload

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Cabot Oil & Gas - COG - close: 75.10 change: +0.86

Stop Loss: 69.90
Target(s): 82.00, 84.75
Current Option Gain/Loss: Oct.$80: + 0.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Company Description

Why We Like It:
COG continues to outperform its peers in the oil sector. That's one reason we want to reload our call trade. The stock has been an active trade on our newsletter but the market's spike lower this morning stopped us out. COG managed a strong bounce from the $70.50 area in what looks like a bullish engulfing candlestick pattern.

I am suggesting bullish call positions now but only if both COG and the S&P 500 index both open positive tomorrow morning. If triggered we'll put our stop under today's low. There is resistance at the $78.50 level. Conservative traders may want to take some money off the table near $78.50. I am setting our targets at $82.00 and $84.75.

- Suggested Positions -

buy calls if COG & S&P500 index both open positive tomorrow morning.

buy the OCT $80 call (COG1122J80) current ask $3.80

09/06 original trade stopped out. Try again tomorrow with new stop and targets

chart:

Entry on September xx at $--.--
Earnings Date 10/25/11 (unconfirmed)
Average Daily Volume = 2.1 million
Listed on September 6, 2011


Energy XXI Ltd. - EXXI - close: 25.08 change: -0.12

Stop Loss: 23.49
Target(s): 27.90, 29.75
Current Option Gain/Loss: + 00.0%
Time Frame: 6 to 12 weeks
New Positions: see below

Company Description

Why We Like It:
EXXI has been an active bullish candidate on the newsletter but the market's sharp spike lower this morning stopped us out. We want to take advantage of the intraday bounce from the $24.00 area as a new bullish entry point to buy calls.

I am suggesting we buy calls now but only if EXXI and the S&P500 index both open higher tomorrow morning. We'll use a stop loss at $23.49, just under today's low. The next level of resistance is $27.00 and then $28.00.

Readers may want to keep their position size small because EXXI can be a volatile stock! Plus, I want to point out that technically EXXI is in a neutral trading pattern of higher lows and lower highs (pennant formation).

- Suggested Positions -

buy calls if EXXI & S&P500 index both open positive tomorrow morning.

buy the OCT $27 call (EXXI1122J27) current ask $1.75

- or -

buy the DEC $30 call (EXXI1117L30) Current ask $1.80

09/06 original trade stopped out. Try again tomorrow with new stop and targets

chart:

Entry on September xx at $--.--
Earnings Date 10/25/11 (unconfirmed)
Average Daily Volume = 1.4 million
Listed on September 6, 2011



In Play Updates and Reviews

Intraday Rebound Higher

by James Brown

Click here to email James Brown

Editor's Note:

Stocks plunged at the open. The major indices closed negative but saw a sharp rebound off its morning lows. This intraday reversal higher could be a new entry point.

We had several stocks get stopped out this morning (COG, DECK, EXXI, LULU, and TSCO). We are still bullish on COG, EXXI and LULU but LULU is out of time with earnings on September 9th. We will reload the call plays on COG and EXXI in tonight's new trades.

-James

Current Portfolio:


CALL Play Updates

Dollar Tree, Inc. - DLTR - close: 71.21 change: -0.57

Stop Loss: 68.95
Target(s): 76.00, 79.00
Current Option Gain/Loss: Unopened
Time Frame: 2 to 4 weeks
New Positions: Yes, see below

Comments:
09/06 update: Our bullish trade on DLTR is not open. The market's gap down at the open aborted our play. DLTR opened at $69.65, dipped to $69.25, and then soared back into positive territory. We will try again. I am suggesting we buy calls now on DLTR but only if both the stock and the S&P 500 index both open positive tomorrow morning. We will move our stop loss to $68.95, which is 30 cents under today's low. Please note I am adjusting our price targets to $76.00 and $79.00.

We will list both September and October calls but bear in mind that Septembers will expire in less than two weeks. I prefer the Octobers!

*See Entry Details in Play Description*

- Suggested Positions -

buy the SEP $75 call (DLTR1117I75) current ask $0.80

- or -

buy the OCT $75 call (DLTR1122J75) current ask $2.40

09/06 trade not open. Adjusted entry point strategy, stop loss, and targets.

Entry on September xx at $ xx.xx
Earnings Date 11/17/11 (unconfirmed)
Average Daily Volume = 2.2 million
Listed on September 3, 2011


Ingersoll-Rand Plc. - IR - close: 32.85 change: +0.47

Stop Loss: 31.25
Target(s): 34.75, 36.75
Current Option Gain/Loss: Unopened
Time Frame: 2 to 4 weeks
New Positions: Yes, see below

Comments:
09/06 update: Our trade on IR is not open yet. The gap down this morning negated our entry point. Shares dipped toward Friday's low and its simple 10-dma before recovering. IR actually displayed some relative strength with a +1.4% gain today.

I am suggesting we try again. Buy calls on IR now but only if this stock and the S&P 500 index can both open positive tomorrow. We will raise our stop loss to $31.25. Today's low was $31.43.

We will list both September and October calls but bear in mind that Septembers will expire in less than two weeks. I prefer the Octobers!

*See Entry Details in Play Description*

- Suggested Positions -

buy the SEP $33 call (IR1117I33) current ask $1.10 - new strike -

- or -

buy the OCT $35 call (IR1122J35) current ask $1.35

09/06 play not open. try again. new stop loss $31.25

Entry on September xx at $ xx.xx
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 8.0 million
Listed on September 3, 2011


U.S. Oil Fund - USO - close: 33.59 change: -0.05

Stop Loss: 31.90
Target(s): $37.50, 40.00
Current Option Gain/Loss: +14.1%
Time Frame: 2 to 3 months
New Positions: see below

Comments:
09/06 update: The USO gapped open lower at $32.62 but quickly found a bid. The low was $32.60 and this oil ETF nearly closed the gap before trading ended. Readers can choose to buy this bounce or wait for a dip closer to $32.00 instead.

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


PUT Play Updates

Moody's Corp. - MCO - close: 29.05 change: -0.29

Stop Loss: 31.60
Target(s): 26.50 , 25.25
Current Option Gain/Loss: Sep$30: -22.0% & Oct$27: -20.5%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
09/06 update: A big gap down at the open is not a great way to launch new put positions. The market's widespread weakness this morning pushed MCO to open lower at $28.06. Shares rallied off the $28.00 level and narrowed its losses to -0.98%. We're still bearish here but readers may want to wait for the bounce to stall or reverse near the $30.00 level before initiating new positions.

Earlier Comments:
FYI: There are plenty of investors who are bearish on MCO. The most recent data listed short interest at almost 15% of the 183 million-share float. That does raise the risk of a short squeeze. We want to keep our position size small.

The Point & Figure chart for MCO is bearish with a $19 target.

We will list both September and October calls but bear in mind that Septembers will expire in less than two weeks. I prefer the Octobers!

* Small Positions * - Suggested Positions -

Long SEP $30 PUT (MCO1117U30) Entry $2.00*

- or -

Long OCT $27 PUT (MCO1122V27) Entry $1.80*

09/06 *Entry price on these options are estimates. Options did not trade today.

Entry on September 06 at $28.06
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 4.5 million
Listed on September 3, 2011


CBOE Volatility Index - VIX - close: 37.00 change: + 3.08

Stop Loss: n/a
Target(s): 26.00, 22.50
Current Option Gain/Loss: -98.7%
Second Position Gain/Loss: - 98.0%
Third Position Gain/Loss: -91.2%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
09/06 update: The sharp spike lower in stocks this morning gave the VIX is big push higher. This index gapped open higher at $39.84 (a +17% move) but immediately began to contract as stocks rebounded off their lows. It looks like the VIX Is building a pattern of lower highs, which would normally be bearish (a.k.a. forecasting lower values for the VIX).

We are not suggesting new positions at this time.

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.

NOTE: These VIX options expire on Wednesday, September 21st.

- 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 = ---
Listed on August 4, 2011


CLOSED BULLISH PLAYS

Cabot Oil & Gas - COG - close: 75.10 change: +0.86

Stop Loss: 71.45
Target(s): --.--, 79.90
Current Option Gain/Loss: Sep.$75: -46.4% & Oct.$75: -18.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/06 update: The stock market suffered steep losses on Tuesday morning thanks to growing concerns over Europe. The major indices were all down more than -2%. COG gapped open lower at $72.06 and then dipped to $70.47 before bouncing back with a big surge to $75.10 (that's a +6.5% gain off its intraday low). Unfortunately, we were stopped out this morning at $71.45, which is a -9% correction from last week's highs.

We remain short-term and longer-term bullish on COG so we're re-listing it tonight as a new bullish call trade.

- Suggested Positions -

SEP $75 call (COG1117I75) Entry $2.80, exit $1.50 (-46.4%)

- or -

OCT $75 call (COG1122J75) Entry $4.80, exit $3.90 (-18.7%)

09/06 stopped out at $71.45.
08/31 new stop loss @ 71.45. Consider an early exit now!
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: 86.79 change: +0.89

Stop Loss: 84.40
Target(s): 93.50, 97.00
Current Option Gain/Loss: -64.8%
Time Frame: 1 to 3 weeks
New Positions: see below

Comments:
09/06 update: The sharp market-wide declines this morning was too much for DECK. The stock gapped open lower at $82.04, which was underneath our stop loss at $84.40. Our trade was closed immediately. DECK fell to $81.50 near its exponential 200-dma before reversing higher and actually posting a gain.

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 -

SEP $90 call (DECK1117I90) Entry $4.70, exit $1.65 (-64.8%)

09/06 stopped out, gap open lower exit
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%)

chart:

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: 25.08 change: -0.12

Stop Loss: 23.90
Target(s): 27.50, 29.75
Current Option Gain/Loss: + 11.5%
Time Frame: 6 to 12 weeks
New Positions: see below

Comments:
09/06 update: The volatility in this market is hard to trade. Trading a volatile stock like EXXI can be even more challenging. EXXI opened lower at $24.13, dipped to $23.72, and then pared its losses. Our stop loss was hit at $23.90 this morning.

We remain fundamentally bullish on EXXI so we are re-listing it tonight as a new bullish call play.

- Suggested Positions -

DEC $25 call (EXXI1117L25) Entry $2.60, exit $2.90* (+11.5%)

09/06 stopped out at $23.90
*exit price at $2.90 is an estimate. option did not trade today
08/31 new stop loss @ 23.90
08/30 new stop loss @ 23.40
08/29 new stop loss @ 21.90
08/27 new stop loss @ 20.90

chart:

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


Lululemon Athletica - LULU - close: 54.11 change: +0.96

Stop Loss: 51.40
Target(s): 56.00, 59.50
Current Option Gain/Loss: - 40.6%
Time Frame: up to September 9th
New Positions: see below

Comments:
09/06 update: It's the same story with LULU. The market's sharp morning declines were too much. The stock gapped open lower and quickly hit our stop loss at $51.40 before rebounding sharply. In LULU's case the stock bounced at $51.00 and closed up +1.8% on the day.

Traders could buy this bounce but I'd exit at the close on Thursday ro avoid holding over earnings on September 9th.

- Suggested Positions -

SEP $55 call (LULU1117I55) Entry $3.20, exit $1.90 (-40.6%)

09/06 stopped out at $51.40
09/03 only 3 trading days left
08/31 new stop loss @ 51.40
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


Tractor Supply Co. - TSCO - close: 59.86 change: +0.22

Stop Loss: 58.75
Target(s): 64.75
Current Option Gain/Loss: Sep.$65: -85.7% & Oct.$65: -60.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/06 update: Yup! You guessed it. TSCO has the same story. Gap down at the open. A spike lower that hits our stop loss (58.75), and then a very sharp rebound back into positive territory. Readers may want to buy calls on this bounce with a stop loss under today's low.

Earlier Comments:
The September options expire in about two 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.

- Suggested Positions -

SEP $65 call (TSCO1117I65) Entry $0.70, exit $0.10 (-85.7%)

- or -

OCT $65 call (TSCO1122J65) Entry $2.00, exit $0.80 (-60.0%)

09/06 stopped out at $58.75

chart:

Entry on August 31 at $61.15
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 858 thousand
Listed on August 29, 2011