Option Investor
Newsletter

Daily Newsletter, Thursday, 9/15/2011

Table of Contents

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

Market Wrap

Stretching Our Luck

by Jim Brown

Click here to email Jim Brown
The markets extended their gains to four consecutive days because the EU applied yet another Band-Aid on the Greek problem. Four positive days may be stretching our luck.

Market Statistics

The news moving the markets today was an announcement by the European Central Bank along with the Federal Reserve, Bank of England, Bank of Japan and Swiss National Bank they were going to make dollar denominated loans to European banks in an effort to improve liquidity. The problem they are addressing is the lack of liquidity caused by a reluctance for banks to loan to other banks because of unknown sovereign debt liabilities.

This is the same thing that happened to our banks during the financial crisis. Banks quit dealing with other banks because they did not know how much exposure the other bank might have had to subprime debt. This nearly brought our banking system to a complete halt until the Treasury and the Fed stepped in with short term loans.

You would think the fact the banks thought it was necessary to take this drastic action would have been a negative event. However the news the ECB was taking action to head off a growing liquidity problem sent the French and German markets up over 3% on Thursday. The euro rallied +1% and the dollar declined sharply by -0.7%.

The European markets had been in a spiral on worries of bank problems as a result of the sovereign debt crisis. The dollar loans did not affect the crisis but it did remove some of the immediate worries over the banks. It was just a Band-Aid to stop the bleeding but the actual debt problem has not changed. It did take the immediate pressure off for the banks and gives the EU a few more weeks to resolve the actual problem.

The loans will be made in October, November and December at fixed interest rates and for "unlimited amounts" as long as the bank has "collateral." That is the key word. Will sovereign bonds from Italy, Portugal and Greece be considered collateral? I doubt it but nobody seemed to worry about that today.

On our side of the pond there was a strong calendar of economic releases. The weekly jobless claims soared to 428,000 from an upwardly revised 417,000 the prior week. The sharp increase was unexpected. Most analysts expected the claims to decline as they normally do the week after Labor Day. I suspect the claims were impacted by Hurricane Irene and the normal seasonal cycle was disrupted. North Carolina and New Jersey led the list of new claims with more than 1,000 each. If the claims continue to rise next week this could be a serious problem for the economic outlook.

Weekly Jobless Claims Chart

The Consumer Price Index (CPI) rose unexpectedly by +0.4% when expectations were for a decline to +0.1%. The headline number was only slightly below the +0.5% from July. The Fed keeps telling us inflation is easing but numbers like we have seen over the last two months suggest otherwise.

Energy was the biggest addition with a +1.2% hike. The core rate, excluding food and energy, rose +0.2% and the same rate of increase seen in July.

The lack of a decline in the CPI is going to be troubling for the FOMC when they meet next Tuesday. This is not enough of a gain to prevent them from adding additional stimulus but it will give the hawks more ammunition to lobby against a strong stimulus program. There are some factors that could give the Fed a greater comfort factor. Grain prices have surged due to droughts and floods and that is a temporary spike. Energy prices declined sharply in August and those declines have not yet been fully priced into the economy. That takes 30-60 days for the impact to be felt.

Consumer Price Index Chart

Industrial Production for August rose +0.2% but that was significantly below the +0.9% in July. The spike in July was related to the rebound in auto production as the supply chain recovered. In August the gains were the strongest in transportation where production increased +1.6% so that sector is still in rebound mode.

The annualized rate of production growth is +4.2% and that is significantly better than what you would expect based on the other economic reports. It is also below the Q1 rate of +7.1% but well above the nearly zero rate of Q2.

The regional manufacturing reports continued to show declined but not significantly lower than the prior month. The NY Empire Manufacturing Survey for September came in a -8.8 compared to -7.7 in August. This was a decline but it was minimal. That is somewhat encouraging that conditions did not continue to deteriorate at a rapid pace.

New orders barely worsened at -8.0 compared to -7.8 the prior month. Backorders were still in contraction territory at -7.6 but that was a significant improvement from the -15.2 in August. Employment did fall into negative territory at -5.4 from +3.3 the prior month. On the positive side expectation component for new orders, shipments, capital spending and tech spending all improved. Inventories are expected to decline, prices move higher and employment to remain level.

NY Empire Manufacturing Survey

There was better news from the Philly Fed survey. The headline number for September was still negative at -17.5 but that was significantly better than the -30.7 in the prior month. New orders improved to -11.3 from -26.8 and backorders improved to -10.4 from -20.9. While those were significant improvements they still represent a continued contraction in the sector. It just means the rate of contraction slowed. A very positive indicator was the employment component, which rose to +5.8 from -5.2. Companies would not be increasing employment if they did not expect conditions to improve soon.

Inventories rose to +10.2 from -9.8 but that implies slower sales or possibly just increases ahead of the holiday shopping season. That will also support GDP as a positive data point. On the negative side the shipments component fell to -22.8 from -13.9 and that is the lowest level since 2009.

The Philly Fed has a high correlation to the national ISM due out the first week in October. Today's report suggests the ISM should improve slightly.

Philly Fed Chart

Lastly the SEMI book-to-bill for August declined to 0.80 from 0.85. That means they only received $80 in orders for every $100 in orders shipped. Equipment orders declined -8.8% and shipments declined -3%. The weakness in the semiconductor sector has been known for some time. If you are not building parts for iPhones, iPads and Android compatibles it has been a tough summer. They are also fighting a declining price point. If your chip costs 75-cents today, down from 95-cents six months ago then you have to sell 25% more in order to keep the book-to-bill above 1.00. Obviously that is not happening and the declining price of chips is weighing on the sector.

For Friday the only material reports are the Regional Employment and Consumer Sentiment.

The stock news was headlined by NetFlix (NFLX). They previously projected an increase in subscribers to 25 million by the end of Q3. The company warned today that prediction was too high. They now expect 24 million. That will breakdown to 21.8 million streaming accounts and 14.2 million DVD accounts with 12 million signed up for both. The headlines screamed "NetFlix loses one million customers" but that is not exactly the case. We won't know exactly if they gained or lost until the end of the quarter. What they said was they lowered their forecast of total subscribers for the end of the quarter.

Streaming subscribers are expected to be 9.8 million compared to previous forecasts of 10.0 million. DVD only projections will decline to 2.2 million from 3.0 million. However, they expect 12 million subscribers to both. That means 12 million subscribers will now be paying almost twice as much as they were last quarter. NetFlix just changed the model to individual payment for each method instead of a single rate for both. This effectively doubles the revenue NetFlix receives for those 12 million subscribers. That could be seen as the equivalent of gaining 12 million subs.

I have no opinion on NetFlix but plenty of analysts believe the model is broken. They have spent roughly $1.6 billion on content and some of their major content lines just canceled. Analysts believe the future is going to be a fight between Hulu, Amazon and NetFlix and NetFlix is going to lose. I know several people who have canceled their subscriptions but not specifically because of price. The availability of streaming content is too limited. Personally 14 of the last 16 movies I tried to download were only available on DVD. That will frustrate subscribers far more than the price in the long run.

NetFLix shares were crushed by the headline and the negative publicity as the bearish analysts flocked to the microphones and keyboards. There was a serious lack of bullish analysts to offset the negativity. JP Morgan cut their price target to $245 from $340. The stock lost -19% or -$39.46 for the day.

NetFlix Chart

After the bell a prior tech titan moved closer to being a small cap. Research in Motion (RIMM) reported earnings that fell -47% to $419 million at 80-cents on revenue of $4.2 billion. Analysts expected 87-cents. Cash on hand declined more than half to $1.4 billion. However, $780 million of that came from buying Nortel's patents.

They shipped 10.6 million BlackBerry phones and 200,000 PlayBook tablets for the three months ending in August. Those were well below forecasts of 11.8 million phones and 562,000 tablets. Guidance for the current quarter was also light. They projected $1.20-$1.40 per share and analysts were looking for $1.37. Participants on the conference call said the co-CEO seemed to be in a reality distortion machine and spent his time talking up the next version of the BlackBerry and ignoring the sharp drop in sales.

RIMM shares declined -18% in after hours to close at $24.25.

RIMM Chart

UBS, Switzerland's largest bank, reported a $2 billion loss from unauthorized trading at its investment bank. London police arrested Kweku Adoboli, a UBS employee, in connection with the loss. The 31-year old employee was charged with "suspicion of fraud by abuse of position." He was a director in Delta1 Trading at UBS. That is a division that trades in ETFs. Reportedly he got into trouble in his trading and used his computer knowledge to get around the banks risk controls to increase trades in an effort to recover his losses. There have been two other rogue traders in recent memory with losses of more than $1 billion. The first one, Nick Leeson, bankrupted Barings and forced its sale for £1 to Dutch bank ING. Ironically Leeson's trading jacket, worn while trading on SIMEX in Singapore, sold for £21,000 on Ebay.

UBS shares declined -10% on the news.

UBS Chart

Today was simply a short covering day on the banking news out of Europe. Volume was very light at only 6.3 billion shares and many of the prior leadership stocks were laggards today.

The problem in Europe did not go away. Today's Band-Aid is only temporary BUT there are plenty of rumors of a potential shock and awe move over the weekend to hopefully put an end to the slow spiral down. What that might be is of course unknown but officials are in constant high level meetings.

The G7 is considering something like the TALF program the U.S. put in place during the financial crisis. The TALF program (Term Asset-Backed Securities Loan Facility) was an attempt to improve liquidity in the Asset Backed Securities market. These securities were being quoted at fire sale prices and far below their realistic values because nobody was confident in the collateral.

If the ECB creates a TALF program you would expect them to provide non-recourse loans to third parties enabling them to purchase sovereign debt. Why the ECB would want to loan to third parties to buy the debt when the ECB won't/can't buy it outright is unknown. It is just another trial balloon floated by finance ministers who don't want to bite the bullet themselves to fix the problem. Everybody wants it fixed but they don't want to put their country at risk to do it.

The bank announcement caused those short the banks to bail on their positions and that caused a positive uptick in the overall market. With everyone leaning short after three days of gains the market bounce caught them off guard and the short covering began.

I am sure there was some stock chasing by funds adding to that rally since most of them were heavily into cash and they can't afford to be on the sidelines if the market really takes off.

The low volume is the key. There was no conviction. With option expiration on Friday this was just another cleanup day triggered by some unexpected news.

The S&P has now gained +6.3% since the Monday low at 1136. That is impressive but until today it was still below strong resistance. The S&P battled resistance at 1204 until 2:PM when a buying spurt finally pushed it over that level. That became support for the rest of the day to close at nearly 1209. This is a major accomplishment even on low volume.

The close today was a higher high over the last two weeks but we still need to move over 1220 before the majority of investors will come off the sidelines. I believe the 6% rally is overdone BUT there are rallies in bear markets and every bull market begins with an unexpected bear market rally.

I am far from claiming this is the start of any longer term rally. I think the last three days has been an option expiration short squeeze, a denial rally of sorts. Until we move over 1220 we are still in a six week trading range.

The potential for action at the FOMC meeting next week has declined. Traders still anticipating a big stimulus announcement may be disappointed. Inflation is higher than expected. Europe is starting to take some bigger steps. If there is a big announcement this weekend it could take the Fed out of the picture all together.

I view dependence on Fed action as a liability at this point. We could be setting up for the mother of all sell the news events. I am encouraged by the close over 1204 but I am not convinced it has any staying power.

The $64 question today is what will traders do about the weekend? Do they take profits to avoid event risk or do they remain long in hopes of the shock and awe trade on Monday. If they hold over they could end up with an "aw s--t" trade.

Current resistance it 1220 and support 1190.

S&P Chart

The Dow is not quite as bullish as the S&P but all 30 Dow components were positive at day's end. The Dow still has strong resistance at 11,500 and it may take another news event to propel us higher. However, there is still a heavy short component and when the breakout over secondary resistance at 11,600 comes it could be dramatic.

The 11,500 level provides the perfect target for longs to take profits on Friday.

Dow Chart

The Nasdaq had a serious headwind with NetFlix down nearly 40 points but it still managed to close over solid resistance at 2600. I view this as very positive. The RIMM earnings after the close will have some impact but that should be offset by gains in Apple on RIMM's retail misfortune. However, Apple and Google both stalled at near term resistance late in the afternoon. Traders may be contemplating a bailout of their own before the close on Friday.

If the Nasdaq does open positive and can maintain a positive gain in early trading it could trigger additional buying because a break of resistance at 2600 would be bullish. Weekend event risk "should" weigh on tech stocks but in this market we have switched to the bad news is good news mode and that can be contagious.

Nasdaq Chart

Russell Chart

I would be cautious on Friday. The potential for profit taking ahead of the weekend event risk is pretty strong. However, news from the G7 or some other headline news from Europe could juice the shorts once again and push the indexes farther over resistance and trigger another short squeeze.

This is an option expiration Friday so volume should be higher. If we move higher I would tag along with a short term trade but I am not counting on it. I would rather wait to create positions after the Fed meeting next week. The event risk on both sides of the pond is huge.

Jim Brown

Send Jim an email


New Option Plays

Up +6.4% from Monday's Low

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market has staged an impressive rebound. The S&P 500 index is up +6.4% from its Monday lows (near 1136). The small cap Russell 2000 index is up +7.3% from its Monday lows (near 665).

Today's S&P 500 breakout past 1205 is certainly bullish but stocks look short-term overbought. Of course that doesn't mean they can't get more overbought. It will be interesting to see if stocks retreat lower on Friday like they have done the past two weeks.

Next week will be interesting. Will investors continue to bid up stocks in anticipation of the Fed's announcement the middle of next week? What if the Federal Reserve disappoints with not enough stimulus?

We are not adding any new trades tonight. Personally, if you have gains I would be tempted to take money off the table here. The S&P 500 is still trading inside the bear-flag pattern.

Chart of the S&P 500 index:

NOTE: Yesterday I mentioned using a straddle or a strangle on RIMM to profit from any post-earnings volatility. Tonight RIMM reported earnings that missed estimates and revenues. The stock is down -18% in afterhours trading.

- James


In Play Updates and Reviews

Targets Hit

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market extended its gains to four days in a row. We had two bullish plays (DLTR and IR) hit our profit targets.

-James

Current Portfolio:


CALL Play Updates

Dollar Tree, Inc. - DLTR - close: 75.27 change: +0.51

Stop Loss: 71.45
Target(s): 76.00, 79.00
Current Option Gain/Loss: Sep$75: +30.0% & Oct$75: +36.1%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
09/15 update: Target achieved. The action in DLTR was a bit disappointing actually. The stock garnered some bullish analyst comments. Yet DLTR only closed up +0.6% versus +1.3% in the NASDAQ. The intraday high was $76.19 and our first target to take profits was hit at $76.00. The plan was to exit our September $75 calls this morning. The bid was $0.65 (+30.0%). Our October $75 calls had a bid of $3.20 (+36.1%) when DLTR hit our target at $76.00.

I am concerned that DLTR is poised to contract and will dip back toward the $74-72 zone. I am not suggesting new positions at this time. We will raise our stop loss to $71.45.

No new positions today.

- Suggested Positions -

SEP $75 call (DLTR1117I75) Entry $0.50, exit $0.65 (+30.0%)

- or -

Long OCT $75 call (DLTR1122J75) Entry $2.35

09/15 new stop loss @ 71.45
09/15 1st Target hit at $76.00. Oct $75 call bid @ 3.20 (+36.1%)
09/15 planned exit for Sep. $75 call. bid $0.65 (+30%)
09/14 exit the September $75 calls ASAP (tomorrow morning)
09/07 trade is open. DLTR gapped open at $72.97
09/06 trade not open. Adjusted entry point strategy, stop loss, and targets.

chart:

Entry on September 7 at $72.97
Earnings Date 11/17/11 (unconfirmed)
Average Daily Volume = 2.2 million
Listed on September 3, 2011


Ingersoll-Rand Plc. - IR - close: 34.89 change: +1.24

Stop Loss: 31.25
Target(s): 34.75, 37.25
Current Option Gain/Loss: Sep$33: -37.0% & Oct$35: + 5.4%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
09/15 update: Target achieved. IR managed to rally to a multi-week high and hit $34.92 this afternoon. Our first target was hit at $34.75. The bid on our October $35 calls were trading at $1.90 (+ 2.7%). We had already planned to exit our September $33 calls at the open this morning. They opened at $0.85 (-37.0%).

IR has rallied to resistance near $35.00 and its 50-dma. I am not suggesting new positions at this time. We will adjust our secondary exit target from $36.75 to $37.25.

- Suggested Positions -

SEP $33 call (IR1117I33) Entry $1.35*, exit $0.85 (-37.0%)

- or -

Long OCT $35 call (IR1122J35) Entry $1.85

09/15 1st target hit @ 34.75. Oct. $35 call @ 1.90 (+2.7%)
09/15 planned exit on Sep$33 call. bid $0.85 (-37%)
09/14 exit Sep. $33 calls tomorrow morning at the open
09/07 trade opened. IR gapped higher at $33.39
*price is an estimate. option did not trade today
09/06 play not open. try again. new stop loss $31.25

chart:

Entry on September 7 at $33.39
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 8.0 million
Listed on September 3, 2011


Mead Johnson Nutrition - MJN - close: 75.27 change: +0.02

Stop Loss: 69.90
Target(s): 77.00, 79.50
Current Option Gain/Loss: Oct$70: +17.3% & Oct$75: - 3.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/15 update: After yesterday's bullish breakout the action in MJN today was downright disappointing. Shares bounced around the $74-76 zone and closed virtually unchanged on the session. I do not see any changes from my prior comments. Broken resistance in the $72-73 area should be new support.

I would not open positions at current levels. Look for another bounce from the $73-72 area.

Earlier Comments:
NOTE: The spreads on the Oct. $75 calls are a lot wider than the spreads on the $70s. Buying the $75s would be a riskier bet.

- Suggested Positions -

Long OCT $70 call (MJN1122J70) Entry $5.20*

- or -

Long OCT $75 call (MJN1122J75) Entry $3.15

09/14 new stop loss @ 69.90
*09/14 entry price is an estimate

Entry on September 14 at $73.22
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 1.6 million
Listed on September 13, 2011


PriceSmart Inc. - PSMT - close: 72.74 change: +0.10

Stop Loss: 67.25
Target(s): 74.00
Current Option Gain/Loss: +55.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/15 update: Sadly the action in PSMT was also disappointing. After yesterday's bullish breakout past the $70.00 level the stock closed virtually unchanged today. Traders did buy the dip this morning at $71.24. Please note that the 10-dma has risen to $67.38 and we will raise our stop loss to $67.25. If we're lucky, PSMT will see a morning rally to $74.00 and we'll exit this trade.

NOTE: Cautious trades will want to consider exiting now since the stock market might see another Friday sell-off.

- Suggested Positions -

Long OCT $70 call (PSMT1122J70) Entry $3.40

09/15 new stop loss @ 67.25
09/14 new stop loss @ 66.60

Entry on September 13 at $68.25
Earnings Date 11/10/11 (unconfirmed)
Average Daily Volume = 307 thousand
Listed on September 12, 2011


Range Resources Corp. - RRC - close: 63.27 change: +1.02

Stop Loss: 59.90
Target(s): 69.75, 72.50
Current Option Gain/Loss: Oct$65: -18.5% & Oct$70: -17.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
09/15 update: Just looking at the chart it seems like RRC didn't move much today but shares added +1.6% by the closing bell. The rally struggled this morning near $64 and the simple 10-dma. If you're looking for a new entry point I'd probably wait for another dip or bounce near the 50-dma around $61.15ish.

Conservative traders may want to take profits near $66.50 instead.

- Suggested Positions -

Long OCT $65 call (RRC1122J65) Entry $3.50

- or -

Long OCT $70 call (RRC1122J70) Entry $1.45

09/13 trade opened. RRC @ 63.12

Entry on September 13 at $63.12
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 2.3 million
Listed on September 8, 2011


Sina Corp. - SINA - close: 110.15 change: -2.26

Target(s): 124.00
Entry #1) Current Option Gain/Loss: -30.0%
Stop Loss: 104.75
Entry #2) Current Option Gain/Loss: -13.3%
Stop Loss: 101.70
Time Frame: 4 to 6 weeks
New Positions: see trigger

Comments:
09/15 update: Yesterday I suggested readers look for a bounce from the $110 level as a new entry point. SINA provided a dip to $110 today. Actually the intraday low was $108.55. Technically I see this pull back as a potential entry point but the relative weakness today, while the rest of the market was moving higher, is a warning signal.

Earlier Comments:
We do want to keep our position size small because SINA can be a volatile stock and we have a wide stop loss. I am setting our target at $124.00. More aggressive traders could aim higher. The inverse H&S pattern would suggest a target in the $150 area.

FYI: The Point & Figure chart for SINA has recently broken through resistance and is bullish with a $146 target.

Entry #1) Triggered @ 112.55, stop: 104.75 (SMALL positions!)

Long OCT $125 call (SINA1122J125) Entry $ 5.15

Entry #2) Entry @ 107.29, stop: 101.70 (SMALL positions!)

Long OCT $120 call (SINA1122J120) Entry $ 6.00

09/13 trade opened. both entry points hit.

Entry #1) Entry on September 13 at $112.55
Entry #2) Entry on September 13 at $107.29
Earnings Date 11/15/11 (unconfirmed)
Average Daily Volume = 6.0 million
Listed on September 8, 2011


PUT Play Updates

Credit Suisse Group - CS - close: 25.49 change: +1.75

Stop Loss: n/a
Target(s): 19.00, 16.00
Current Option Gain/Loss: -50.0%
Time Frame: 4 to 10 weeks
New Positions: see below

Comments:
09/15 update: Yesterday the big news was a conference call between German, French and Greek leaders, which was supposed to be a show of support to keep Greece in the EU. Today the big headline was news that a coordinated effort between the U.S. Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan, and the Swiss National Bank all extended three-month loans to EU banks to provide liquidity throughout the rest of this year. This fueled more optimism that authorities were making some sort of progress on the EU debt crisis. Naturally, European banks rallied. Shares of CS surged +7.3% and closed over what should have been resistance at $25.00.

We knew this was an aggressive, speculative trade. Yet cautious traders may want to exit now anyway. If we see CS post more gains tomorrow then we will most likely drop it from the newsletter.

Remember, this is a lottery ticket style of trade. European banks could see a lot of volatility on back and forth headlines regarding the fate of the PIIGS countries and their debt woes.

Earlier Comments:
The credit markets are telling investors that a Greek default is almost guaranteed but no one knows the actual date. It could be this month or it could be six months from now. Therefore, we need to label this CS put play as a speculative, aggressive bet. Greece and the EU do not want the country to default so CS could see a lot of volatility with sharp rebounds on positive headlines but these will be temporary.

With so much potential for volatility I am not listing a stop loss on this trade. Limit your risk by using small positions.

*Small Positions*

- Suggested Positions -

Long DEC $20 PUT (CS1117X20) Entry $2.00*

*09/12 option did not trade today but the $ASK did not move and remained at $2.00 (bid is $1.80)

Entry on September 12 at $22.48
Earnings Date --/--/-- (unconfirmed)
Average Daily Volume = 2.3 million
Listed on September 10, 2011


iShares Russell 2000 ETF - close: 71.41 change: +0.99

Stop Loss: n/a
Target(s): see below
Current Option Gain/Loss: -77.1%
Time Frame: 1 or 2 days
New Positions: see below

Comments:
09/15 update: Our new put play on the IWM is not off to the best start. This ETF opened at $71.07, dipped toward $70.00 early on, and then reversed higher. Our put opened at 35 cents, traded to a high of 40 cents, and then collapsed as stocks rallied.

The IWM ended the day up +1.4% but it is still stuck in the $71.30-72.00 zone of potential resistance. Currently the IWM is up +7.5% from its Monday morning low. What are the odds that stocks will see some profit taking as we head into another weekend?

You could wait for the failed rally pattern of you could buy puts at the open tomorrow. Of course if you do, don't buy Septembers. We bought the September $69 puts and need to sell them at the closing bell tomorrow. If the IWM is not trading under $69.00 then these puts will have no value and we'll have nothing to sell.

- Suggested Positions -

Long SEP $69 PUT (IWM1117U69) Entry $0.35, current bid at $0.08

Entry on September 15 at $71.07
Earnings Date --/--/--
Average Daily Volume = 80 million
Listed on September 14, 2011


Stanley Black & Decker - SWK - close: 57.02 change: +0.14

Stop Loss: 58.05
Target(s): 50.25, 46.00
Current Option Gain/Loss: Oct$50: -50.0%, & Oct$55: -43.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
09/15 update: There was very little follow through on yesterday's breakout above the $56.00 level. SWK spent most of the day churning sideways. There is no change from my prior comments.

I would wait for a new drop under $56.00 before considering new positions.

Earlier Comments:
Conservative traders could use a stop closer to $56.50-56.00. Our first target is $50.25. The $50-49 area might be support. Yet I'm setting a secondary target at $46.00. FYI: SWK recently produced a new quadruple bottom breakdown sell signal on its Point & Figure chart, which currently points to a $46 target.

- Suggested Positions -

Long OCT $50 put (SWK1122V50) Entry $1.90

- or -

Long OCT $55 put (SWK1122V55) Entry $3.90

Entry on September 12 at $54.78
Earnings Date 10/18/11 (unconfirmed)
Average Daily Volume = 1.8 million
Listed on September 10, 2011


CBOE Volatility Index - VIX - close: 32.05 change: - 2.63

Stop Loss: n/a
Target(s): 26.00, 22.50
Current Option Gain/Loss: -100.0%
Second Position Gain/Loss: -100.0%
Third Position Gain/Loss: -95.6%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
09/15 update: The VIX is down sharply from its Monday afternoon highs near 43.00. Yet the "fear gauge" is still trading above the 30.00 level. Today saw a -7.6% drop to a new two-week low. There is no change from my prior comments.

We have less than two weeks left before September VIX options expire on Wednesday, Sep. 21. 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

SPDR S&P500 ETF - SPY - close: 121.43 change: +2.06

Stop Loss: 109.90
Target(s): 119.00, 122.00
Current Option Gain/Loss: Unopened
Time Frame: 4 weeks
New Positions: see below

Comments:
09/15 update: The S&P 500 index is up four days in a row and up +6.4% from its Monday intraday low of $114.05. If you took my suggestion on Monday night to buy the bounce with a stop under $114.00 you're looking pretty good and I would take profits now.

Our official trade to buy the dip at $112.50 was never opened. I'm dropping the SPY as a candidate tonight.

Trade never Opened.

Entry on September xx at $ xx.xx
Earnings Date --/--/--
Average Daily Volume = 293 million
Listed on September 10, 2011