Option Investor
Newsletter

Daily Newsletter, Wednesday, 11/30/2011

Table of Contents

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

Market Wrap

Bear Fry

by Keene Little

Click here to email Keene Little
Market Stats

Bank downgrades followed by a downgrade of France's debt didn't mean a hill of beans this morning -- the market got all excited by the announcement by the global central banks, including the Federal Reserve, England, ECB, Canada, Japan and Switzerland, that they were acting together to strengthen the existing swap lines to allow them to provide dollars to domestic banks as needed. The agreement included a reduction of the swap rate by 50 basis points on borrowing the dollar.

So the announcement was made to let everyone know there would be more money at lower cost, just what the overleveraged banks need. The bilateral swap line agreement has been extended to 2013. The Fed declared itself today to be the global lender of last resort. Bernanke will do what the ECB refuses to do -- print more money and as much as is needed. Must be nice to print all the money that's unfit to print.

The danger here for bulls is that this announcement was made not to stimulate economic growth but instead to thwart a liquidity crunch. Bank credit it locking up and a credit freeze between institutions is what helped cause the big collapse in 2008. The last time the Fed made an announcement to reduce swap rates was at the end of June this year (another attempt to save the month and quarter). It helped SPX rally about 60 points up to the 1350 area. Within a week all those gains were given back and SPX proceeded to drop to the 1100 area by the first week of August. The Fed's announcement is a desperate attempt to solve the banking liquidity squeeze, nothing more. It's why it's actually a dangerous sign for the stock market. How long the stock market will keep whistling past the graveyard is anyone's guess.

The central banks are all together in doing whatever is necessary to save the banks. How else can the poor bank heads pay themselves millions in bonuses for doing such a good job? Poor things. Trillions more are going to be handed out to the banks so that they can then leverage that up as well. Where this nonsense will stop is anyone's guess but I strongly suspect it will only stop with a crash in the financial system. Throwing more debt after bad debt has never worked in the past, never. I guess we have some idiots running the central banks who think it will be different this time. We have group think in all the central bankers now, all having been educated together and in the same philosophies.

On the announcement the dollar spiked down and gold spiked up, both indicating worries about devaluation of the dollar as the Fed has effectively announced they'll print all the money they need to in order to take care of the banks. The Fed is clearly more worried about their banking buddies than inflation or the average American (the 99%). I want off this circus ride but it just spinning faster and faster.

The announcement from the Fed included "U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets. However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses." What the Fed just announced is QE3.

The central bank announcement happened at 8:00 AM EDT but the futures started a strong rally at 6:00 AM consolidated for a bit and took off to the upside at 8:00 AM. It sure looked like someone got the announcement early. Do you suppose some big hedge funds and bankers got the word early? Nah, that would be like trading insider information. Only Congress is able to legally do that.

Helping today's rally, or at least not taking away from it, were some good economic reports this morning. The market didn't react much to the reports, which has been the ongoing theme here as it only seems to be reacting to what's being done to help the European debt issue, but the positive numbers give the bulls more reason to look for a higher rally.

The ADP report showed 206K jobs added in November, a nice climb from the downwardly revised (is there any other kind?) 110K last month (revised down 20K from the originally reported 130K). How much of this hiring is temporary for the holidays is not known but at least it's a positive change. It bodes well for Friday's payrolls report.

Along with the additional hiring, the other good news for companies is that productivity continues to improve, even if a little less -- 2.3% for Q3 vs. 3.1% in Q2. Unit labor costs continue to drop (good for companies but probably not so good for wages), down -2.5% for Q3 vs. -2.4% in Q2.

The Chicago PMI took a nice jump up to 62.6 from October's 58.4, better than the 57.5 that the market expected. Rounding out the reports, even pending home sales improved -- up +10.4% vs. the downwardly revised (is there any other kind?) -4.6% in September.

This week's rally changed the charts significantly and most importantly the impulsive bearish wave counts no longer work. This week's rally overlapped the previous 1st waves in the move down. That leaves us with two options at the moment: one, we're going to get the year-end rally and complete a larger A-B-C rally off the October 4th low; or two, were stuck with corrective counts up and down and the choppy whippy market could continue for a long time (heading lower, higher or flat). Let's review where we are.

The first thing that jumps out at me about this week's candle (other than the size of it) is that it's a bullish engulfing candlestick. There are still two trading days to the week so we'll have to see how it closes on Friday. Assuming the bounce off the October 4th low is only a correction of the May-October decline, I see the potential for a rally above the October 27th high but short of the May/July highs. Another test of the broken H&S neckline, near 1293, or the downtrend line from May-July, near 1320-1325, is the bullish possibility from here. Otherwise there is risk that this week's 3-wave rally was an end-of-month move that will see no follow through and be reversed lower in the coming month. One thing is certain, the size of the weekly candles since the May high, as compared to the 2010-2011 rally, shows you the extreme volatility that we're currently experiencing. Both bulls and bears have been getting whipped badly.

S&P 500, SPX, Weekly chart

The apex of the previous sideways triangle off the October high, which most viewed as a bullish continuation pattern, is near 1250 and is often support/resistance when tested, as SPX is about to do. I see the possibility for a quick test tomorrow morning and then at least a pullback. If the pullback is choppy then we can expect higher over the next week or two. I'm showing a rally up to the downtrend line from July, near 1272 (if it can get above its 200-dma near 1266), a pullback and then a rally up to a Fib target near 1293. That's where the 2nd leg of the bounce off the October low would achieve 62% of the 1st leg up (considered the normal minimum for wave C of an A-B-C bounce). A higher target is at the May-July downtrend line, near 1320-1325 mentioned for the weekly chart. Much above that would be pointing to a challenge of the May high.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1250
- bearish below 1192

A closer view of the previous sideways triangle pattern shows how close SPX came to the apex today. If it pulls back a little tomorrow but finds support at or above 1235, look for another leg up to the 1272 area, as mentioned for the daily chart. From there a deeper pullback should be expected even if it will lead to more highs in December. A break back below 1195 would leave a confirmed 3-wave bounce and suggest either lower or chop sideways for the rest of the year.

S&P 500, SPX, 120-min chart

To put some icing on today's cake, the last hour shoved the DOW another 100 points higher, nearly achieving a 500-point day. But it had to settle for "only" +490 points. Tch, tch. Relative to SPX the DOW is a little stronger. It rallied above its 200-dma at 11949 and slightly above the bottom of its previous sideways triangle, near 12K. A little higher is its downtrend line from July, near 12125. Above that should lead to a move up to the Fib projection at 12393, where wave C would equal 62% of wave A for the A-B-C bounce off the October low and where it would test the downtrend line from May.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 12,130
- bearish below 11,517

NDX has rallied up into a strong nest of moving averages that's going to be tough to break through, at least on its first try, although it nearly did so with the final push into today's close. Its 20, 50 and 200-dma's are located at 2282-2292. Not shown is its 100-dma at 2264, which was the day's low. As with the other indexes, the wave count has become corrective in both directions and therefore can't be used right now to help predict where price is headed next. We'll have to see if the next pullback becomes impulsive (bearish) or stays corrective (potentially bullish for a move higher into year-end).

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 2295
- bearish below 2205

The RUT managed a +5.9% rally today, handily beating the other indexes' "miserly" gains of only about +3.8% (NDX) to 4.3% (SPX). Thanks to a late-day push it made it back up through its previous sideways triangle off the October high) and its apex near 734. If the bulls can still push it higher, it will run into its downtrend line from July, near 742, and any higher would give it a clear shot to its Fib target near 770 (wave C = 62% of wave A in it’s a-B-C bounce off the October low), which is also where its 200-dma is located. It would also be a test of its October high. It will be tough resistance if tested in the next week or so.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 742
- bearish below 692

The RUT's 120-min chart below shows a little closer view of the trend lines that it's dealing with. After pushing through the previous triangle lines, it's close to testing its downtrend line from July, near 743 early tomorrow. If we're going to get just a pullback before pressing higher again, the apex of the triangle, near 731.60, could offer support and be followed by a break above its longer-term downtrend line.

Russell-2000, RUT, 120-min chart

Considering the strength in the stock market I would have expected a bigger move in the bond market. The selling in the bonds stopped after the morning gap, which supports the idea that the stock market was on a mission for month-end and might not see much if any follow through tomorrow.

The banks were the big beneficiary of today's largess by the central banks. They're one of the more heavily shorted sectors as well so a big short-covering rally usually finds the banks rallying even stronger, up about +7%. Not too much short covering in there (wink). The BIX nearly tagged its downtrend line from February 2011, about another 50 cents higher than today's close. The big question here is whether or not it will have any better luck breaking out of its down-channel, which would obviously be bullish. But it's in a bearish down-channel until proven otherwise and look at the current bounce as a shorting opportunity.

S&P Banking index, BIX, Daily chart

As with the broader market indexes, the TRAN's high bounce now leaves the door open to a move above the October high near 5070. An A-B-C bounce off the October low, with wave C = 62% of wave A, targets 5222 (potentially higher) but a bearish corrective wave count says the rally could fail at any time and start back down. A break below 4712 would put the bears back in control. For now, watch for resistance at its downtrend line from October 27th, near 4960, and its 200-dma at 4990, both of which are only marginally above today's high.

Transportation Index, TRAN, Daily chart

With today's dollar-devaluing announcement by the Fed, the dollar spiked down and broke its uptrend line from October 27th. It found support at its 20 and 50-dma's, located at 78.11 and 77.93, respectively. By breaking its uptrend line from October 27th it opens the door to a further decline in the dollar, one that could take it back down to the 74 area for another test of the August lows. But first it needs to drop out the bottom of a parallel up-channel created off the trend line along the highs since November 1st and a parallel line attached to the October 27th low. Based on this I'd say a break below 77.75 is needed to support the more bearish wave count calling for a drop to 74. In the meantime, the choppy price pattern could literally go anywhere from here and the updated wave count is just one idea (corrective wave counts must be constantly changed to match the current price action and are therefore unreliable predictors).

U.S. Dollar contract, DX, Daily chart

A rally in the dollar to above 82 is still a strong possibility, especially if the market starts to believe that no amount of money printing will be able to overcome the debt destruction that will happen in Europe (which is deflationary vs. what the Fed is attempting to do with money printing). Flocking to the dollar could still cause it to rise vs. the other currencies.

But one thing in favor of dollar bears and euro bulls is what we see from the COT report, which shows a large net long position in the euro by the commercial traders (the smart money). Either a lot of commercial traders are going to get burned by a drop in the euro or else we're going to see a rally in the euro (and a decline in the dollar). You can see by the inverse correlation that the commercial traders are most often correct with their bets.

Euro vs. Commercial traders (COT report), chart courtesy Tom McClellan

While the U.S. dollar spiked lower on the central banks' announcement, fears of inflation (the Fed clearly wants inflation right now as a way to fight the deflationary forces of debt destruction) drove gold higher and gold's pattern looks a lot like the stock market's now. The bounce off its November 21st low has now overlapped the low on November 10th, leaving a 3-wave decline from the November 8th high. This turns the pattern corrective in both directions and the next move is anyone's guess. It could chop sideways or a while but if continues higher and get above 1800 it should be able to make it to about 1850 before running into trouble. A drop back below 1670 and its uptrend line from October 2008 would be trouble for the gold bulls.

Gold continuous contract, GC, Daily chart

Crude inventories took a big jump last week, up +3.9M barrels vs. -6.2M barrels the previous week. But it didn't stop oil from rallying with the stock market, just happy to be going along for the ride. It made it back up to its broken uptrend line from February 2009 and dropped back down. If oil keeps rallying in the next day or two it could make it up to the 105 area for a retest of its broken uptrend line from October 4th. But it's a good setup for a reversal back down from here.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports include unemployment claims, ISM index and Construction spending in the morning and then auto/truck sales in the afternoon. They're not likely to be market moving, especially if there's bigger news from overseas. Friday is a big day with the payrolls report and the unemployment rate (not that many believe the unemployment rate).

Economic reports, summary and Key Trading Levels

The market has once again gone too far too fast and finished at its highs today. That leaves it vulnerable to a reversal tomorrow if today's final hour jam into the close, for month-end, was capitulation by more shorts. It could leave the market vulnerable to no follow through tomorrow morning and at least a pullback. These bear market rallies tend to much stronger than normal rallies and that's one of the telltale signs to be careful to not chase it higher.

The stock market can certainly go higher but it's a healthier rally if it does it without huge gaps to the upside and these 400-500 point moves in the DOW, especially at month end. The short interest was not that high before this rally started and now it's probably a lot lower, which makes the market more vulnerable to a big downside move. Tomorrow is the 1st of December so there could be some new money coming in to help hold it up but then be careful of a possible reversal right back down again.

If we see corrective pullbacks (choppy sideways/down bull flag kind of pullback) it will look good for pressing higher at least into the middle of the month. Minor new highs above the October 27th highs would satisfy 3-wave correction off the October lows and set up the next bear market leg down. We should have a better idea of that next Wednesday when I'll be back with you.

In the meantime, good luck with this bipolar market. Trade small and carefully until the bigger picture clears up.

Key Levels for SPX:
- bullish above 1250
- bearish below 1192

Key Levels for DOW:
- bullish above 12,130
- bearish below 11,517

Key Levels for NDX:
- bullish above 2295
- bearish below 2205

Key Levels for RUT:
- bullish above 742
- bearish below 692

Keene H. Little, CMT

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New Option Plays

Moving Too Fast

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

SPDR S&P 500 ETF - SPY - close: 124.99 change: +4.94

Stop Loss: 127.55
Target(s): 120.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The stock market is moving way too fast. In the last three days the S&P 500 has rallied +7.6%, the NASDAQ composite +7.3%, and the small cap Russell 2000 index +10.6%. There is a good chance this rally continues tomorrow but the S&P 500 has significant resistance overhead near 1265 and its simple 200-dma. We are suggesting a short-term put play on the SPY to capture any pull back in the market after such a big move but we want to wait for the index to near the next level of resistance.

I am suggesting a trigger to open small bearish put positions at $126.00 on the SPY with a stop loss at $127.55. Our target is $120.50. We want to keep our position size small to limit our risk.

Trigger @ 126.00

- Suggested Positions -

buy the 2012Jan $120 PUT (SPY1221M120) current ask $3.19

S&P 500 index Chart:

S&P 500 ETF (SPY) Chart:

Entry on December xx at $ xx.xx
Earnings Date --/--/--
Average Daily Volume = 224 million
Listed on November 30, 2011



In Play Updates and Reviews

Coordinated Central Banks Catapult Stocks

by James Brown

Click here to email James Brown

Editor's Note:

There was a parade of positive news this morning and short panicked, running for cover. The market saw its best one-day gain in months. All of our active put plays have been stopped out. I have updated stop losses on some of our call trades.

-James

Current Portfolio:


CALL Play Updates

Donaldson Company - DCI - close: 68.35 change: +3.68

Stop Loss: 63.80
Target(s): 69.50
Current Option Gain/Loss: + 2.2%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/30 update: The stock market's huge rally on Wednesday pushed DCI to gap open higher at $66.15. The stock surged to $68.64 intraday and settled with a +5.6% gain. Since our trigger to buy calls was at $65.55 the trade was opened first thing this morning. Our target to exit is $69.50. More aggressive traders may want to aim higher.

We are raising our stop loss to $63.80.

(small positions) - Suggested Positions -

Long JAN $65 call (DCI1221A65) Entry $4.50*

11/30/11 new stop loss @ 63.80
11/30/11 DCI gapped higher at $66.15. Our trigger was $65.55.
*entry price is an estimate. Option did not trade on Wednesday morning.

Entry on November 30 at $66.15
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 306 thousand
Listed on November 29, 2011


Edwards Lifesciences - EW - close: 66.03 change: +2.50

Stop Loss: 61.95
Target(s): 69.50
Current Option Gain/Loss: Dec$65c: +35.8% & Jan$70c: +14.3%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/30 update: Good news! EW broke through short-term resistance near $65.00. The stock gapped open higher at $65.22 and closed up +3.9%. I am raising our stop loss to $61.95.

- Suggested Positions -

Long DEC $65 call (EW1117L65) Entry $1.95

- or -

Long 2012Jan $70 call (EW1221A70) Entry $1.70

11/30 new stop loss @ 61.95
11/28 trade opened. EW gapped higher at $63.97
11/26 trade still not open. Adjusting stop loss to $59.90
11/23 still not open
11/22 not open yet

Entry on November 28 at $63.97
Earnings Date 02/02/12 (unconfirmed)
Average Daily Volume = 1.2 million
Listed on November 21, 2011


Family Dollar Stores - FDO - close: 59.42 change: +2.37

Stop Loss: 56.45
Target(s): 64.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
11/30 update: The stock market's super strong gains on Wednesday were enough to push FDO out of its trading range and consolidation pattern. Aggressive traders may want to buy calls now. I am suggesting we buy calls on a dip at $58.50 and we'll use a stop loss at $56.45. (NOTE: In previous updates I suggested buying calls on a breakout at $58.50 as an alternative)

We are adjusting our target to $64.00. I've adjusted our option strikes below.

Earlier Comments:
We want to keep our position size small because the spreads on the options below are getting wide, making this trade more risky.

buy the dip Trigger @ 58.50 (small positions)

- Suggested Positions -

buy the DEC $60 call (FDO1117L60)

- or -

buy the JAN $60 call (FDO1221A60)

11/30 New strategy to account for FDO's bullish breakout higher. We want to use a trigger at $58.50 to open bullish positions with a stop at $56.45. New target is $64.00. I've updated our option strikes.
11/26 new strategy. buy a dip at $54.50, stop loss @ 53.75. Keep positions small because option spreads are wide.
11/22 not open yet

Entry on November xx at $ xx.xx
Earnings Date 01/04/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on November 21, 2011


JB Hunt Transport Services - JBHT - close: 45.72 change: +1.20

Stop Loss: 42.45
Target(s): 48.25
Current Option Gain/Loss: +21.9%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
11/30 update: After outperforming yesterday shares of JBHT failed to keep up with the rally in the transportation average. The DJ transport average rallied +4.7% today. JBHT only gained +2.7%. The stock did clear potential resistance near $45.00. I am not suggesting new positions at current levels. We will raise our stop loss to $42.45.

Earlier Comments:
Our multi-week target is $48.25. JBHT doesn't move super fast so give yourself time for the trade to work. FYI: The Point & Figure chart for JBHT is bullish with a $63 target.

- Suggested Positions -

Long 2012JAN $45 call (JBHT1221A45) Entry $2.05

11/30/11 new stop loss @ 42.45
11/29/11 triggered at $44.35

Entry on November 29 at $44.35
Earnings Date 01/30/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on November 22, 2011


NetApp, Inc. - NTAP - close: 36.83 change: +1.20

Stop Loss: 33.95
Target(s): 39.50
Current Option Gain/Loss: +25.4%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
11/30 update: NTAP gapped higher and rallied to a +3.3% gain. Yet shares have not yet broken into the big gap down. At the moment the bottom of the gap near $36.90 remains short-term resistance. Readers may want to wait for a dip into the $36.00-35.00 zone before considering new positions.

Earlier Comments:
I do consider a more aggressive trade. We want to keep our position size small to limit risk. FYI: Readers should note that there is a risk that NTAP might make an acquisition soon. There are rumors floating around that NTAP could buy Quantum (QTM) or CommVault (CVLT) in an effort to better compete with rival EMC. If NTAP does make a bid for either company typically shares of the buyer go down while shares of the target go up.

- Suggested Positions - (small positions)

Long JAN $35 call (NTAP1221A35) Entry $2.51

Entry on November 29 at $35.82
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 9.2 million
Listed on November 28, 2011


O'Reilly Automotive - ORLY - close: 77.24 change: +1.32

Stop Loss: 73.85
Target(s): 82.50
Current Option Gain/Loss: Dec$75c: - 3.5% & Jan$80c: -20.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/30 update: ORLY posted a +1.7% gain but the action today was kind of rocky. The stock was underperforming early afternoon before turning higher in the last hour. More conservative traders might want to inch up their stop loss.

Earlier Comments:
Our target is $82.50 but more conservative traders may want to exit in the $79.50-80.00 zone instead. FYI: The Point & Figure chart for ORLY is bullish with a $103 target.

- Suggested Positions -

Long DEC $75 call (ORLY1117L75) Entry $2.80

- or -

Long JAN $80 call (ORLY1221A80) Entry $1.50*

11/28/11 ORLY gapped open higher at $76.96, which was above our trigger to buy calls at $76.15.
*Jan $80 call did not trade today. Entry price is an estimate.

Entry on November 28 at $76.96
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on November 26, 2011


Phillip Morris Intl. - PM - close: 76.24 change: +1.78

Stop Loss: 71.40
Target(s): 78.50
Current Option Gain/Loss: +136.6%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
11/30 update: Our call option has more than doubled thanks to PM's surge higher this week. The stock hit another new all-time high with today's +2.3% gain. I am not suggesting new positions at this time. We will raise our stop loss to $71.40.

Earlier Comments:
Our multi-week target is $78.50. FYI: The Point & Figure chart for PM is bullish with a $95 target.

- Suggested Positions -

Long 2012 Jan $75 call (PM1221A75) Entry $1.12

11/30 new stop loss @ 71.40
11/23 adjusted stop loss to $69.49
11/22 trade opened. PM opened at $72.11

Entry on November 22 at $72.11
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 7.3 million
Listed on November 19, 2011


PUT Play Updates

Alliance Resource Partners - ARLP - close: 71.45 chg: +0.32

Stop Loss: 72.55
Target(s): 60.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
11/30 update: Hmm... after all the hype about strength in material names and energy-related stocks today I was expecting a bigger pop for shares of ARLP. Instead this stock underperformed the market with a +0.4% gain versus +4.3% in the S&P 500. We are going to leave ARLP on our play list with a trigger to open bearish positions at $68.45. More aggressive traders may want to consider bearish positions now with a tight stop above $73.00.

Earlier Comments:
I am suggesting we use a trigger at $68.45 to buy puts and we'll use a stop loss at $72.55. It's a bit wide for a stop but ARLP can be a volatile stock. Our target is $60.50. FYI: The Point & Figure chart for ARLP is bearish with a $62 target.

NOTE: Previously I did not list the January puts because they spreads were too wide. They have come in a bit. They're still uncomfortably wide but we'll list them as a potential trade.

Trigger @ 68.45 (small positions)

- Suggested Positions -

buy the DEC $65 PUT (ARLP1117X65)

- or -

buy the JAN $65 PUT (ARLP1221M65) bid $1.05/ask $1.75

Entry on November xx at $ xx.xx
Earnings Date 01/30/12 (unconfirmed)
Average Daily Volume = 45 thousand
Listed on November 26, 2011


CLOSED BEARISH PLAYS

Deutsche Bank - DB - close: 39.28 change: +3.74

Stop Loss: 36.55
Target(s): 30.50
Current Option Gain/Loss: Dec$35p: -59.6% & Jan$30p: -28.2%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/30 update: Coordinated action by several central banks to provide more liquidity to European banks helped fuel the European and American stock market rallies. Shares of DB soared with a +10.5% gain. The stock gapped higher at $38.30 this morning. Since our stop loss was at $36.55 the trade was closed immediately.

Earlier Comments:
Keep position size small to limit risk. This is going to be a volatile trade.

- Suggested Positions - (small positions)

DEC $35 PUT (DB1117x35) Entry $2.60 exit 1.05 (-59.6%)

- or -

JAN $30 PUT (DB1221m30) Entry $2.09 exit 1.50 (-28.2%)

11/30 Coordinated action by central banks send stocks higher. DB soars, gaps higher at $38.30. We are stopped out immediate.
11/28 planned exit to sell half of our puts at the open.
Dec $35 put @ $2.40 (- 7.6%)
Jan $30 put @ $2.00 (- 4.3%)
Both of these puts positions were up about +60% at Friday's close
11/26 new stop loss @ 36.55
11/26 Sell half at the open on Monday morning to lock in a gain.
11/23 new stop loss @ 37.55
11/23 more conservative traders may want to take profits now. The Dec $35 put (+61.5%) and the Jan $30 put (+62.6%)
11/21 new stop loss @ 38.75
11/12 new stop loss @ 41.55
11/11 DB gapped open higher at $39.00

chart:

Entry on November 11 at $39.00
Earnings Date 02/02/12 (unconfirmed)
Average Daily Volume = 4.3 million
Listed on November 10, 2011


Green Mountain Coffee Roasters - GMCR - cls: 52.43 change: +3.51

Stop Loss: 52.15
Target(s): 41.00
Current Option Gain/Loss: Dec$45p: -39.3% & Jan$45p: -24.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/30 update: When the NASDAQ composite is up more than +100 points in one day you can bet shares of a volatile stock like GMCR are going to move. The stock opened at $50.55 and rallied to $52.82 before settling at $52.43 (+7.1%). Our stop loss was hit at $52.15.

Earlier Comments:
Keep in mind that GMCR is a volatile stock and there is always the risk of another short squeeze. That's why we want to keep our position size small to limit our risk.

(Small Positions) - Suggested Positions -

DEC $45 PUT (GMCR1117X45) Entry $1.50 exit 0.91 (-39.3%)

- or -

JAN2012 $45 PUT (GMCR1221M45) Entry $3.75 exit 2.82 (-24.8%)

11/30 trade opened on gap higher at $50.55, stopped out at $52.15 thanks to the market's widespread, violent surge higher.

chart:

Entry on November 30 at $50.55
Earnings Date 02/01/12 (unconfirmed)
Average Daily Volume = 11.7 million
Listed on November 29, 2011


iShares Russell 2000 ETF - IWM - close: 73.73 change: +4.07

Stop Loss: 72.05
Target(s): 65.50
Current Option Gain/Loss: -59.0%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
11/30 update: Our speculative put play on the IWM did not work. After yesterday's failure to move it looked like the market might roll over. Then today's parade of good news powered stocks higher. The IWM gapped open at $72.56. We had a stop loss at $72.05 so the trade was closed immediately.

(Small Positions) - Suggested Positions -

Dec $69 PUT (IWM1117x69) Entry $2.15, exit $0.88 (-59.0%)

11/30/11 stopped out. IWM gapped higher at $72.56. Our stop was $72.05

chart:

Entry on November 29 at $69.84
Earnings Date --/--/--
Average Daily Volume = 66.2 million
Listed on November 28, 2011


PACCAR Inc. - PCAR - close: 40.57 change: +2.25

Stop Loss: 40.25
Target(s): 35.50
Current Option Gain/Loss: -62.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/30 update: The NASDAQ rallied +4.1% but PCAR managed to outperform with a +5.8% gain. A lot of that gain was produced with the stock's gap open higher at $39.76. We were quickly stopped out at $40.25.

- Suggested (Small) Positions -

DEC $39 PUT (PCAR1117X39) Entry $1.75 exit $0.65 (-62.8%)

11/30 stopped out at $40.25
11/23 new stop loss @ 40.25
11/21 new stop loss @ 41.50

chart:

Entry on November 18 at $39.42
Earnings Date 02/01/12 (unconfirmed)
Average Daily Volume = 3.7 million
Listed on November 17, 2011