Option Investor
Newsletter

Daily Newsletter, Monday, 2/6/2012

Table of Contents

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

Market Wrap

Greek Tragedy Still Not Over

by Todd Shriber

Click here to email Todd Shriber
Just when it appeared safe to start wading back into the water Greece had to go and remind investors that it is still a hurdle to overcome. Monday's losses, while nothing to get too worked up about, serve as a stark reminder that default for Greece is still a realistic option and the country is quite reluctant to go along with any of the solutions to its sovereign debt mess proposed by European policymakers. That about sums up the day as the three major U.S. suffered small losses and traded in fairly narrow ranges for most of the day.

Stats Table

Greek politicians were scheduled to meet today, but that meeting has been pushed back to Tuesday. Speaking of pushing, that is exactly what the Euro Zone’s big wigs such as France and Germany are doing with Greece. As in their pushing Greece to its end of the bargain on a $171 billion bailout fund. The problem with all of this is that the market has heard this noise before. One day it looks like there will be salvation for Greece, the next day, it is being pushed back and usually because Greece itself does not want to agree to whatever proposal is being set forth.

It is all very 2011 and just when it looked like the past of least resistance was higher, problems from across the Atlantic would provide the perfect excuse for some profit-taking in near-term. There was kind of sort of some good news regarding Portugal today. Press reports there picked up on a Goldman Sachs report that said the country could get another 30 billion to 50 billion euros in bailout funds that could help it stay out of the long-term bond market until the end of 2014.

Be advised, Portugal is no peach. When Moody's downgraded the country's credit rating to A1, it cited the government’s weakening financial strength while saying the ''Portuguese economy's growth prospects are likely to remain relatively weak unless recent structural reforms bear fruit over the medium to longer term.''

Portugal Debt To GDP Chart

In stock-specific news, biotech firm Dendreon (DNDN), one of the more volatile names in a sector known for its volatility, surged almost 17% on volume that was better than triple the daily average after the FDA published a not too kind review of rival Amgen's (AMGN) drug for prostate cancer. Amgen is seeking approval for its injectable drug Xgev as a preventive measure for men with recurring prostate cancer, according to the Associated Press.

The FDA did not seem impressed, noting Xgev did not extend life. Bad news for Amgen, good news for Dendreon, which makes Provenge, a drug designed to bolster a patient's immune system against prostate cancer. Even with today’s big gain, Dendreon still has a long way to go to fill in that huge down gap that occurred last August.

Dendreon Chart

Shares of health insurance provider Humana (HUM, $xx) slipped 5.4% despite the fact that the company raised its full-year 2012 outlook to $7.50-$7.70 a share from $7.40-$7.60. Analysts are expecting $7.99 a share. Humana’s fourth-quarter profit rose to $199 million, or $1.20 per share, from $107 million, or 63 cents per share, a year earlier. Revenue climbed 9% to $9.06 billion. EPS was in line with estimates, but analysts expected $9.24 billion in revenue.

Humana Chart

Despite a day that had risk off way about it, beleaguered coal miner Alpha Natural Resources (ANR) enjoyed a strong volume gain of 3.3% and that came on news of production cuts announced last Friday. The company said it will halt production at four mines immediately and two more in 2013. Slack demand from electric utilities was the primary reason given for the output reductions.

Standard & Poor's Ratings Services said today that its 'BB' rating on Alpha Natural Resources would not be affected at the moment by the announcement. S&P said it expects Alpha Natural to to ''sell about 120 million tons of coal in 2012, including slightly more than 20 million tons of metallurgical coal, which is at the lower end of company-provided guidance of 119 million tons to 132 million tons.''

Alpha Natural Chart

After the bell, Anadarko Petroleum (APC), the largest U.S. independent oil and natural gas producer, reported a fourth-quarter loss of $358 million, or 72 cents a share.

''These results include certain items typically excluded by the investment community in published estimates. In total, these items decreased net income by approximately $781 million, or $1.57 per share (diluted) on an after-tax basis.Cash flow from operating activities in the fourth quarter of 2011 includes a $4 billion payment to settle the BP dispute. This resulted in negative cash flow from operating activities for the fourth quarter of $2.087 billion. Discretionary cash flow for the quarter totaled $1.752 billion,'' Anadarko said in a statement. The company added it replaced 159% of production and that it achieved an 80% success rate in offshore exploration and appraisal drilling programs.

Shares of Anadarko were higher by 1.5% as of this writing in the after-hours session.

Anadarko Chart

Looking at the charts, I have to apologize in advance because as was the case last Monday, the closing tallies today were so small that I cannot offer many new technical revelations compared to what Jim discussed over the weekend. Hopefully that will change and change for the better over the next week. A close at 1344 puts the S&P 500 well above support at 1325 and from here, the 1345-1350 range needs to be taken out before we can start having a conversation about resistance at 1370.

S&P 500 Chart

The Dow is still holding well above 12,800 with support being 12,700. There will probably be some round number resistance at 13,000, but more material resistance shows up around 14,000-14,100. Believe it or not, there are still a couple of earnings reports for the Dow to deal with as Coca-Cola (KO) reports before the bell tomorrow and Walt Disney (DIS) reports after. Good news from either might be an excuse to buy, but it probably will not ignite a huge Dow rally.

Dow Chart

There are still some Nasdaq stocks left to report, but forgive me if I am not excited about Cisco Systems (CSCO) after the close Wednesday. I am willing to bet that any news tied to the Facebook IPO, whatever it may be, will move the Nasdaq more than Cisco's earnings and that is without knowing for certain that Facebook will even trade on the Nasdaq. Nasdaq support is 2800.

Nasdaq Chart

Obviously everyone knows that the Super Bowl was played yesterday and that the New York Giants won. Even if you are a Patriots fan, there is good news and it comes in the form of the S&P 500’s performance following a Super Bowl won by an NFC team. I will let this chart from Bespoke Investment Group do the talking.

Super Bowl Chart

Todd Shriber


New Option Plays

Business Software

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Citrix Systems - CTXS - close: 69.44 change: +0.67

Stop Loss: 67.45
Target(s): Feb calls: $74.75, Mar calls: $76.50
Current Option Gain/Loss: Unopened
Time Frame: 2 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
CTXS is a business software company. The stock has bounced back toward key resistance near $70 and its simple 200-dma. If you look at the weekly chart you can see that shares are in a wide pennant formation.

I am suggesting a trigger to open small bullish call positions at $70.50 with a stop loss at $67.45. Our target is $74.75 for the February calls and $76.50 for the March calls. There are less than two weeks left for February calls.

(buy calls) Trigger @ 70.50 (small positions!)

- Suggested Positions -

buy the Feb $70 calls (CTXS1218B70)

- or -

buy the Mar $70 calls (CTXS1217C70)

Annotated Chart:

Weekly Chart:

Entry on February xx at $ xx.xx
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 2.4 million
Listed on February 06, 2012



In Play Updates and Reviews

A Mild Super Bowl Hangover

by James Brown

Click here to email James Brown

Editor's Note:

Looks like stocks suffered a little Super Bowl hangover on Monday. Energy stocks showed relative strength but most of the market felt some profit taking.

LNN was stopped out thanks to a downgrade. WCG was stopped out. We closed the MON trade as planned. XES was triggered.

Current Portfolio:


CALL Play Updates

Chicago Bridge & Iron - CBI - close: 44.40 change: -0.50

Stop Loss: 43.25
Target(s): 49.25
Current Option Gain/Loss: Unopened
Time Frame: up to the Feb. 23rd earnings report
New Positions: Yes, see below

Comments:
02/06 update: CBI tried to rally this morning but failed at the $45.00 level thanks to a lackluster day in the market. Shares faded lower throughout the session. We are waiting for a breakout.

I am suggesting a trigger to open bullish positions at $45.25. If triggered we'll use a stop at $43.25. Our exit target is $49.25. We do not want to hold over the Feb 23rd earnings report. FYI: The Point & Figure chart for CBI is bullish with a long-term $70 target.

(Buy Calls) Trigger @ $45.25

- Suggested Positions -

buy the MAR $45 call (CBI1217C45)

Entry on February xx at $ xx.xx
Earnings Date 02/23/12 (unconfirmed)
Average Daily Volume = 852 thousand
Listed on February 04, 2012


Cognizant Technology - CTSH - close: 72.37 change: -0.98

Stop Loss: 71.45
Target(s): 76.50
Current Option Gain/Loss: -17.6%
Time Frame: exit prior to the Feb. 8th earnings
New Positions: see below

Comments:
02/06 update: After big gains last week CTSH hit some profit taking today with a -1.3% decline. The stock found support near $72.00. Tomorrow is our last day. We plan to exit Tuesday at the closing bell to avoid holding over earnings.

- Suggested Positions -

Long Feb $75 call (CTSH1218B75) Entry $0.85

02/04/12 new stop loss @ 71.45
02/01/12 new stop loss @ 69.75
01/24/12 trade opened at $71.05

Entry on January 24 at $71.05
Earnings Date 02/08/12 (confirmed)
Average Daily Volume = 2.3 million
Listed on January 21, 2012


Dollar Tree - DLTR - close: 85.83 change: +0.18

Stop Loss: 84.75
Target(s): 89.75 & 92.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
02/06 update: DLTR rebounded off its Monday morning lows near $85.00 but didn't have enough fuel to get past the $86.00 level. We are still waiting for a breakout to new highs. I am suggesting we only open small positions if DLTR hits our trigger at $86.75.

Earlier Comments:
I am setting individual targets for our options below. Keep a wary eye on the $90.00 level since it might be round-number resistance. FYI: The Point & Figure chart for DLTR is bullish with a long-term $113 target.

(Buy Calls) Trigger @ 86.75 (small positions)

- Suggested Positions -

buy the Feb $87.50 call (DLTR1218B87.5)
exit target: 89.75

- or -

buy the Mar $87.50 call (DLTR1217C87.5)
exit target: 92.50

02/04/12 Only open small (half-sized) positions if DLTR hits our entry point at $86.75

Entry on February xx at $ xx.xx
Earnings Date 02/22/12 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on February 02, 2012


Flowserve Corp. - FLS - close: 114.95 change: +0.52

Stop Loss: 109.45
Target(s): 114.50 for Feb call & 118.00 for April call
Current Option Gain/Loss: (Feb $110c: +48.2%) & Apr$115c: +47.5%.
Time Frame: 3 to 4 weeks
New Positions: , see below

Comments:
02/06 update: FLS continues to show relative strength. Traders bought the dip this morning and FLS rallied to a +0.4% gain and a new relative high.

I am not suggesting new positions at this time. Readers may want to raise their stop higher but I wouldn't be surprised to see a dip back toward the 10-dma. FYI: The Point & Figure chart for FLS is bullish with a $139 target.

- Suggested Positions -

Long APR $115 call (FLS1221D115) Entry $4.00
exit target: $118.00

02/04/12 new stop loss @ 109.45
02/03/12 exit target hit at $114.50 for Feb. $110 calls. exit $5.00 (+48.2%)
02/02/12 new stop loss @ 107.95
02/01/12 new stop loss @ 106.95
02/01/12 adjusted exit targets: $114.50 for Feb call, $118.00 for Apr call
01/30/12 new stop loss at $105.75
01/26/12 trade opened on FLS' gap open higher at $109.21.
01/25/12 adjusted entry point strategy to buy calls when FLS hits $109.05, and use a stop loss at $105.45

Entry on January 26 at $109.21
Earnings Date 02/23/12 (unconfirmed)
Average Daily Volume = 400 thousand
Listed on January 21, 2012


iShares Transportation - IYT - close: 95.19 change: -0.63

Stop Loss: 93.40
Target(s): 98.50
Current Option Gain/Loss:(Jan$95c: -100%) Feb$95c: -10.3%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
02/06 update: The IYT saw some minor profit taking on Monday but it still underperformed the S&P 500. Look for short-term support near $94.00.

I am not suggesting new positions at this time.

- Suggested Positions -

Long Feb $95 call (IYT1218B95) entry $1.45
target 98.50

02/04/12 new stop loss @ 93.40
01/31/12 new stop loss @ 92.45
01/28/12 new stop loss @ 91.75
01/21/12 new stop loss @ 91.40
01/21/12 January $95 calls have expired.
01/12/12 new stop loss @ 89.45
01/07/12 new stop loss @ 88.75
01/03/12 IYT gapped open higher at $91.20, above our trigger at $90.75

Entry on January 03 at $91.20
Earnings Date --/--/--
Average Daily Volume = 582 thousand
Listed on December 22, 2011


Laboratory Corp. - LH - close: 91.00 change: -2.09

Stop Loss: 90.75
Target(s): 94.00
Current Option Gain/Loss: + 50.0%
Time Frame: up to the Feb. 10th earnings report.
New Positions: see below

Comments:
02/06 update: Ouch! LH really underperformed today with a -2.2% drop. I couldn't find any specific news behind today's relative weakness. Probably just profit taking after a strong two-week rally. The low today was $90.79 so our trade is still open. Our new stop is $90.75. More aggressive traders will want to seriously consider keeping their stop under the $90.00 mark, which is probably round-number support. Our call option went from +140% to +50%. Readers may want to exit early now. I am not suggesting new positions at this time. Remember, we plan to exit prior to the Feb. 10th earnings report.

- Suggested Positions -

Long Feb $90 call (LH1218B90) Entry $1.50

02/04/12 new stop loss @ 90.75, adjust target to $94.00
02/01/12 new stop loss @ 89.65
01/31/12 If you haven't done so yet readers may want to take profits now (+80%)
01/28/12 new stop loss @ 88.40
01/26/12 sold half @ the open, bid @ $2.65 (+76.6%)
01/25/12 sell half at the open tomorrow. Bid on the Feb. $90 call is at $3.10 (+106%).
01/25/12 new stop loss @ 87.90
01/24/12 rival DGX delivers a strong earnings report
01/23/12 trade triggered at $89.00
01/21/12 new stop loss at $86.90. Still waiting for LH to hit our entry point at $89.00.

Entry on January 23 at $89.00
Earnings Date 02/10/12 (confirmed)
Average Daily Volume = 564 thousand
Listed on January 10, 2012


Pall Corp. - PLL - close: 62.33 change: +0.14

Stop Loss: 59.45
Target(s): 64.75
Current Option Gain/Loss: Feb$60c: +42.8% & Mar$60c: +20.6%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
02/06 update: PLL rebounded off its morning lows to post another gain. If the market corrects lower I would look for PLL to dip toward the $61-60 zone. Our target is $64.75.

FYI: The Point & Figure chart for PLL is bullish with an $83 target.

- Suggested Positions -

Long FEB $60 call (PLL1218B60) Entry $1.75

- or -

Long MAR $60 call (PLL1217C60) Entry $2.90

02/04/12 new stop loss @ 59.45

Entry on February 02 at $61.00
Earnings Date 03/12/12 (unconfirmed)
Average Daily Volume = 769 thousand
Listed on January 31, 2012


SPX Corp. - SPW - close: 73.42 change: -0.22

Stop Loss: 69.90
Target(s): 74.75
Current Option Gain/Loss: +77.7%
Time Frame: up to the Feb. 16 earnings report
New Positions: see below

Comments:
02/06 update: After Friday's big gain I am surprised that today's profit taking wasn't stronger. I don't see any changes from my prior comments. Our exit target is $74.75 but more conservative traders may want to go ahead and exit early now. I am not suggesting new positions at this time.

Earlier Comments:
Our target is the $74.75 mark but more aggressive traders could aim higher. We do not want to hold over the Feb. 16th earnings report. FYI: The Point & Figure chart for SPW is bullish with an $82 target.

- Suggested Positions -

Long Feb $70 call (SPW1218B70) Entry $2.25

02/04/12 new stop loss @ 69.90, readers may want to exit now to lock in gains.

Entry on January 31 at $70.50
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 711 thousand
Listed on January 26, 2012


S&P Oil ETF - XES - close: 38.16 change: +0.61

Stop Loss: 36.45
Target(s): 43.00
Current Option Gain/Loss: Feb37c: -14.8% & Mar36c: + 4.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/06 update: The XES continued to rally on Monday. This oil services ETF outperformed the major indices and hit our trigger to buy calls at $37.75.

The P&F chart now sports a brand new buy signal with a $49 target.

Earlier Comments:
The option spreads on the XES a bit wide, which makes this a higher-risk trade. I am suggesting we keep our position size small to limit our risk. Our multi-week exit target is $43.00. I prefer the March calls but short-term traders can use February options but these expire in two weeks.

(small positions) - Suggested Positions -

Long Feb $37 call (XES1218B37) Entry $1.35

- or -

Long Mar $36 call (XES1217C36) Entry $2.45

Entry on February 06 at $37.75
Earnings Date --/--/--
Average Daily Volume = 177 thousand
Listed on February 04, 2012


PUT Play Updates

Currently we do not have any active put trades.


CLOSED BULLISH PLAYS

Lindsay Corp. - LNN - close: 63.74 change: -1.94

Stop Loss: 61.75
Target(s): 69.75
Current Option Gain/Loss: Feb65c: -22.7% & Mar65c: - 8.0%
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
02/06 update: Shares of LNN were downgraded from a "buy" to a "neutral" this morning. The stock reacted with a gap open lower at $64.36 and a quick plunge to $61.32 (-6.6%) before bouncing back. Our stop loss was hit at $61.75.

The overall trend is still bullish so I'd keep an eye on this stock.

(small positions) - Suggested Positions -

Feb $65 call (LNN1218B65) Entry $1.10 exit $0.85 (-22.7%)

- or -

Mar $65 call (LNN1217C65) Entry $2.50 exit $2.30 (- 8.0%)

02/06/12 stopped out at $61.75 thanks to an analyst downgrade.
02/03/12 LNN gapped open higher at $64.75, above our trigger at $64.50

chart:

Entry on February 03 at $64.75
Earnings Date 03/29/12 (unconfirmed)
Average Daily Volume = 150 thousand
Listed on February 02, 2012


Monsanto - MON - close: 79.65 change: -2.50

Stop Loss: 78.99
Target(s): 86.90
Current Option Gain/Loss: Feb85c: -40.0% & Mar$85c: -18.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/06 update: Over the weekend we were unhappy with the lack of progress in MON and decided to close positions at the opening bell on Monday. Unfortunately shares gapped open lower at $81.33 before falling to a -4% loss intraday.

Earlier Comments:
MON can be somewhat volatile so we want to keep our position size small.

(small positions) - Suggested Positions -

FEB $85 call (MON1218B85) Entry $0.80 exit $0.30 (-62.5%)

- or -

MAR $85 call (MON1217C85) Entry $1.80 exit $1.09 (-39.4%)

02/06/12 planned exit at the open. MON gapped open lower @ 81.33
02/04/12 MON did not participate with the market rally on Friday. Plan to exit early on Monday morning at the open

chart:

Entry on January 31 at $82.75
Earnings Date 01/05/12
Average Daily Volume = 4.8 million
Listed on January 30, 2012


Wellcare Health Plans - WCG - close: 59.96 change: -0.59

Stop Loss: 59.45
Target(s): 64.50
Current Option Gain/Loss: -30.1%
Time Frame: exit prior to earnings on Feb. 15th
New Positions: see below

Comments:
02/06 update: The healthcare sector underperformed today. WCG broke down under what should have been support near $60.00. Shares hit our stop loss at $59.45.

- Suggested Positions -

Feb $60 call (WCG1218B60) Entry $2.79 exit $1.95 (-30.1%)

02/06/12 stopped out at $59.45
02/04/12 new stop loss @ 59.45. Cautious traders may want to exit early now since WCG did not rise with the market on Friday
02/01/12 trade opened on gap higher at $60.28, above our trigger of $60.25

chart:

Entry on February 01 at $60.28
Earnings Date 02/15/12 (confirmed)
Average Daily Volume = 485 thousand
Listed on January 31, 2012