Option Investor
Newsletter

Daily Newsletter, Tuesday, 4/17/2012

Table of Contents

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

Market Wrap

Short Squeeze Deja Vu

by Jim Brown

Click here to email Jim Brown

After a week of selling on worries over Spain and earnings the shorts were surprised again on unexpected good news.

Market Statistics

A short term bond auction in Spain went better than expected and European markets closed on their highs. That juiced U.S. markets already positive on an upgrade to Citigroup and some positive earnings reports. The multiple data points combined to reverse the selling from the last week sent the shorts running for cover.

The Spanish bond auction netted 3.2 billion euros in 12 and 18-month debt sales at 2.6% and 3.1% yields. This compares to 1.4% and 1.7% last month. While the auctions were heavily bid this is NOT a turnaround for the Spanish problem. The short term securities are being bought by banks flush with 3-year cash from the January LTRO offering from the ECB. Those banks borrowed this money at 1% for three years. They are using it to buy short term sovereign debt from countries like Spain at 2.6% to 3.1% yields and making a nice profit.

However, the real challenge will be the 10-year bond auction on Thursday. Those banks can't use their LTRO funds to buy the longer term debt. That means a probably lack of buyers for the 10-year debt and much higher yields. Thursday is the key day for Spain, not today. U.S. investors clearly don't understand the problem if they thought today's news was the all clear for risk on positions.

Helping to push European markets higher and spike our futures was a surprise 50 point rate cut by India. That lowers their prime rate to 8%. That was their first rate cut in three years and was totally unexpected. Analysts were expecting possibly a quarter point cut. This suggests their stalled reforms are failing and they are looking for other ways to boost the world's third largest economy. The central bank said it decided to cut rates because economic growth had slowed to levels below its long term trend and excess slack was contributing to a moderation in core inflation. The bank blamed supply bottlenecks in infrastructure, energy, minerals and labor for the diminished potential and said removing those restraints was "imperative." India posted a +7.0% GDP in the year ended in March and they expect that to rise to 7.3% for 2012. Inflation declined to 6.9% in March and is expected to slow to 6.5% over the coming year.

In the U.S. the economic reports were not positive. Every report was lower than expected. The weekly chain store sales declined by -1.0% after a +0.5% gain the prior week. This report is mostly noise and was undoubtedly impacted by the Easter holiday. Sales still declined.

New residential construction showed housing starts declined for the second month to 654,000 in March from 694,000. That was a decline of -5.8%. The high for this cycle was 714,000 in January. Despite the two month decline starts are still running +10% over Q1-2011 and +10% over Q4. The headline number was negative but overall the trend is still positive.

The pace of completions rose +4.2% to 600,000 units. Housing permits rose +4.5% to a pace of 747,000. That is a whopping +30% over the same period in 2011. Hopefully the decline in starts was due to a pull forward of starts earlier into the quarter due to the warmer winter weather and not due to worries over gas prices or other economic worries.

Housing Starts Chart

Industrial production for March came in flat a zero for the second consecutive month. This the lowest level of production since April 2011. Momentum is definitely slowing in the manufacturing sector. Factors other than manufacturing impacted these numbers. Mining output for Q1 declined -5.4% and the largest quarterly decline since 2009-Q1. This is directly related to the warmer weather and the low demand for coal.

Industrial Production Chart

The Risk of Recession rose in March to 25% from 22% in February. This is the first rise since September. This represents the potential risk of falling back into recession within the next six months. This is probably due as a result of the weakness in the labor market in March and the slow uptick in jobless claims.

Moody's Risk of Recession Chart

The economic calendar for the rest of the week is highlighted by the Philly Fed Survey and the Spanish 10-year bond auction on Thursday. Negative news from either or both of those events could adversely impact the market.

Economic Calendar

The Q1 earnings cycle shifted into high gear today with numerous high profile companies reporting. IBM reported after the bell with earnings that rose +7% to $2.78 per share. However, revenue was flat at $24.7 billion and slightly below estimates at $24.8 billion. Estimates for earnings per share were $2.66 so a solid beat. IBM also raised estimates for the full year to $15 compared to analyst estimates of $14.93.

However, shares fell sharply in afterhours trading. Only two of the five units posted a revenue increase. Expenses rose by +3.4%. The earnings beat did not come from improving operations but because of a falling tax rate to 20.1% compared to 25% in the year ago quarter. Investors are never impressed by flat revenue and earnings from lower tax rates. Shares declined from the $20.722 close to $202.50 in afterhours. That will be a major drag on the Dow on Wednesday.

IBM Chart

Intel (INTC) reported earnings of 56-cents per share compared to analyst estimates of 50-cents. Revenue was $12.91 billion compared to estimates of $12.85 billon. Intel guided analysts to revenue of $13.6 billion for the current quarter and analysts were expecting $13.45 billion. Intel guided to margins of 62% compared to 64% for Q1. Analysts said the weaker margins suggested Intel was actually expecting some sell through pressures in Q2.

Intel CEO, Paul Otellini, said there was "ongoing strong demand in emerging markets and the enterprise sector but that was offset by continuing softness in the mature market consumer segment." That translates into "people are buying fewer PCs and more tablets" but he did not want to say that.

Intel does have some wind it its sales. Otellini said, "In the second quarter we’ll see the first Intel-based smartphones in the market, ship products based on 22nm technology in high volume and accelerate the ramp of our best server product ever, providing a tremendous foundation for growth in 2012 and beyond."

Intel shares lost a buck in late trading.

Intel Chart

Yahoo (YHOO) reported earnings of 24-cents and that was well above the 17-cents analysts expected. The CFO said better than expected pricing in search ads helped increase the quarterly revenue for the first time since 2008-Q3. However, display advertising declined -4% for the quarter. Investors were probably less enamored with the earnings than the comments that Yahoo was again trying to structure a "simpler" deal with Alibaba for the 40% stake that Yahoo owns. This deal has been on and off every quarter for a couple years but maybe this time it will happen. Yahoo shares rose 50-cents after the close.

Yahoo Chart

Coca-Cola (KO) reported earnings that beat estimates thanks to strong sales overseas. Volume grew by 9% in emerging markets compared to only 2% in the USA. Global volume for bottled water rose by 15% and energy drinks rose by 25%. Nearly all of the volume gains in the USA came from the Powerade sports drinks and bottled water. Total revenue rose +6% to $11.14 billion. Analysts were expecting $10.82 billion. Coke is adding to profits by offering drinks in smaller packages making them costlier by the ounce. Coke is now offering 16oz, 14oz, 12oz and 7.5oz packages. The CEO said the smaller packages increased revenue by +3%. Earnings were 89-cents compared to estimates of 82-cents. Coke shares rallied +2% on the news and helped push the Dow higher.

Coke Chart

US Bank (USB) reported earnings of 67-cents compared to estimates of 64-cents. Shares rose +1.2% on the news. Mortgage banking revenue more than doubled to $452 million. USB expects to move up from sixth in the U.S. in mortgages to fourth in 2012. Wells Fargo is the current leader and does more than six times USB's volume. Overall net revenue rose +9.1% to $4.9 billion.

USB Chart

Goldman Sachs (GS) reported a -23% decline in profits as it reduced its risk exposure in volatile markets. Goldman also said clients were also cutting back on risk positions in anticipation of possible weakness ahead. Goldman said it reduced risk by -29% over Q4 and -16% from Q1-2011. The CFO said, "We have been cautious on risk and we remain cautious on risk given the environment ahead." Goldman's average risk over 95% of the trading days in the quarter was only $95 million. For Goldman Sachs that is chump change and clearly shows their risk off mode. Goldman earned $2.07 billion or $4.38 per share on an operating basis. Goldman shares declined slightly for the day.

Goldman Chart

TD Ameritrade (AMTD) reported a -20% decline in profits to $137 million or 25-cents per share. That was in line with estimates. However, the average number of daily client trades declined by 50,000 to 388,000 per day. Commissions fell by $46 million. They did add $10.8 billion in new client assets to $452 billion. Interest rates near zero continues to hamper earnings since they can't earn any material interest on money deposited in customer accounts. The continued decline in trading volume is being seen in the markets every day as volume continues to decrease.

Ameritrade Chart

Seagate Technologies (STX) reported earnings of $2.64 compared to analyst estimates of $2.10. That was a monster beat. Revenue was $4.45 billion compared to estimates of $4.37 billion. The CEO said Seagate benefitted from the recovery in the hard drive market after the flood wiped out major portions of the manufacturing in Thailand. Seagate raise prices to compensate for the supply shortage and that boosted margins. Shares rose over $1 in afterhours trading.

Seagate Chart

Earnings for the rest of the week include Ebay, Microsoft, GE, Bank America and American Express.

Earnings Calendar

Apple shares drove the rebound in the Nasdaq with a whopping $29 point gain. It started out with an opening dip to $571 but the buyers showed up instantly and the five day decline was halted right at last ditch support. The drop from $644 to $571 totaled -$73 and just because there was a major rebound today it does not mean that decline is over. This was a monster short squeeze along with a lot of investor buying. I am sure there were a lot of investors who thought a drop to support at $575 would be a great entry point and that buying helped fuel the short squeeze. Time will tell if those buyers were right.

Apple Chart

The S&P rebounded +21 points to close right on prior support at 1390. If the market was going to fail this would be a perfect spot at resistance from prior support. With the Dow likely to start out negative on Wednesday thanks to declines in IBM and Intel it will be interesting to see if traders continue buying the dips or we return to the selling we saw over the last week.

Remember, the third week of April is historically the best week of the quarter. Option expiration coupled with a strong calendar of earnings reports gives traders something to do and retail investors misinterpret that as bullishness. All but one of the remaining weeks in the quarter are historically lower. Past performance is no guarantee of future results but the trend bears watching.

If the S&P does move higher then 1420 is the next resistance target. If the selling returns then 1340 is the next support level if the 1360 dip low from last week fails.

S&P Chart - 120 Min

S&P Chart - Daily

The Dow rebounded back above 13,000 and the 50-day average thanks to a very strong gain by IBM, which will be erased on Wednesday if the -$5 drop after earnings holds at the open. Oil prices were also up and that helped Chevron and Exxon.

Dow Stocks

If the Dow can maintain its momentum then the next resistance level is the highs at 13,275. Should it fall back into decline I would expect the 12,750 support level to fail on the second test.

Dow Chart

The Nasdaq benefitted from the $29 point rebound in Apple. If the short squeeze in Apple shares is over then the Nasdaq rebound could be in trouble. The decline in Intel after earnings could pressure the Nasdaq slightly but the Seagate earnings could provide offsetting lift. Ebay and Qualcomm are the big Nasdaq earnings reports for Wednesday and there should not be much residual drag on the index from either one. Intel and IBM were the 800 pound gorillas.

The 3050 level will continue to be the challenge for the Nasdaq Composite and Nasdaq futures are up slightly by +4 points at 8:PM despite the afterhours earnings reports. Anything is possible for Wednesday.

Nasdaq Chart - 120 Min

Nasdaq Chart - Daily

The Russell 2000 is no help tonight. The Russell rebounded over resistance at 810 but fell back to that level at the close. Percentage wise it was one of the smallest gainers at +1.5%. Resistance at 810 should still be a problem but a move higher could create some more short covering.

Russell Chart - Daily

In theory I would expect to see some weakness on Wednesday but the futures are not showing that tonight. We will be impacted by the European markets overnight and unless India cuts another 50 points I doubt we will see continued gains. Fear of Spain's 10-year auction on Thursday is likely to weigh on those markets.

The earnings calendar for Wednesday is not very crowded but there are some noteworthy events. Within a day or two we should begin to see the post earnings fatigue begin to settle in. Option positions for this week's earnings will be closed and traders will be trying to decide which way the market will head next week.

I would be very cautious about adding long positions on any stocks with strong gains for the quarter. I would rather look for those beaten down stocks that could find favor when investors begin to cut the winners and start looking for undervalued, low volatility positions for summer.

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You will get nine months of:

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Jim Brown

Send Jim an email


New Option Plays

Industrial Goods & Chinese Internet

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Esterline Technologies - ESL - close: 69.72 change: +1.67

Stop Loss: 67.75
Target(s): 75.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
ESL manufacturers parts for the aerospace and defense industries. The big spike higher in late March was due to rumors the company might be a takeover target. The stock has slowly consolidated lower until now it has formed a new base in the $66.50-70.00 zone.

I am suggesting a trigger to launch small bullish positions at $70.55. Out target is $75.75. We want to keep our position size small because the option spreads are just a little wide.

Trigger @ $70.55 (small positions)

- Suggested Positions -

Buy the May $75 call (ESL1219E75) current ask $1.25

Annotated Chart:

Entry on April xx at $ xx.xx
Earnings Date 05/31/12 (unconfirmed)
Average Daily Volume = 361 thousand
Listed on April 17, 2012


NEW DIRECTIONAL PUT PLAYS

SINA Corp. - SINA - close: 60.96 change: -0.61

Stop Loss: 62.75
Target(s): 51.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
SINA is a Chinese Internet company. They recently made a splash with their Weibo service, which is similar to Twitter. The stock has been struggling for the last few weeks. Last week's oversold bounce has already reversed and the stock did not participate in the market-wide rally today.

There is support near $60.00. Last week's low was $59.50. I am suggesting a trigger to buy puts at $59.40. We'll use a stop loss at $62.75 to start since SINA can be a volatile stock we want to keep our position size small. Our exit target is $51.00 but we should expect some support in the $57.00-56.50 zone.

Trigger @ 59.40 (small positions)

- Suggested Positions -

buy the May $55 PUT (SINA1219Q55) current ask $2.11

Annotated Chart:

Entry on April xx at $ xx.xx
Earnings Date 05/09/12 (unconfirmed)
Average Daily Volume = 4.8 million
Listed on April 17, 2012



In Play Updates and Reviews

Stocks Surge With A Widespread Bounce

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. markets delivered a very widespread rebound similar to the short squeeze we saw last Thursday. Today's move was enough to hit our stop loss on DIA and FDX.

Current Portfolio:


CALL Play Updates

Cigna Corp. - CI - close: 47.68 change: -0.63

Stop Loss: 46.95
Target(s): 52.25
Current Option Gain/Loss: Unopened
Time Frame: up to the May 3rd earnings report.
New Positions: Yes, see below

Comments:
04/17 update: The action in CI today was a little bit disappointing. Shares rallied +1.1% versus a +1.5% gain in the S&P 500. The stock has yet to breakout to new relative highs. We are still waiting for CI to hit our entry point.

I am suggesting a trigger at $48.75 as our entry. We'll start with a stop at $46.95. The $50.00 level is short-term resistance but we're aiming for $52.50. FYI: The Point & Figure chart for CI is bullish with a $60 target.

Trigger @ $48.75

- Suggested Positions -

buy the May $50 call (CI1219E50)

Entry on April xx at $ xx.xx
Earnings Date 05/03/12 (confirmed)
Average Daily Volume = 3.0 million
Listed on April 12, 2012


Family Dollar Stores - FDO - close: 64.70 change: +0.07

Stop Loss: 62.90
Target(s): 69.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
04/17 update: Trading in FDO was also disappointing. The stock churned sideways in a narrow range. The intraday high was only $65.20.

I am suggesting a trigger to buy calls at $65.35 with a stop loss at $62.90. Our multi-week target is $69.75. FYI: The Point & Figure chart for FDO is bullish with an $88 target.

Trigger @ $65.35

- Suggested Positions -

buy the May $65 call (FDO1219E65)

Entry on April xx at $ xx.xx
Earnings Date 06/27/12 (unconfirmed)
Average Daily Volume = 2.0 million
Listed on April 16, 2012


NetEase.com - NTES - close: 57.84 change: +1.89

Stop Loss: 55.80
Target(s): see play details
Current Option Gain/Loss: Apr55c: + 1.7% & Apr60c: - 85.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/17 update: The trading gods were kind to us with a +3.3% rally in NTES today. We only have three days left on our April calls. Please note I am suggesting we exit the rest of our April $55 calls when NTES hits $59.00. We'll exit the rest of our April $60 calls when NTES hits $59.50. I am not suggesting new positions at this time. I am raising the stop loss to $55.80.

FYI: I'd keep an eye on NTES. A breakout past $60.00 could be a new entry point (for May calls).

- Suggested (Small) Positions -

Long Apr $55 call (NTES1221D55) Entry $2.80

- or -

Long Apr $60 call (NTES1221D60) Entry $0.70

04/17/12 new stop loss @ 55.80
04/14/12 new stop loss @ 54.90
03/26/12 sold half at the open.
exit bid on Apr. $55 call @ $0.00 (+67.8%)
exit bid on Apr. $60 call @ $1.95 (+178.5%)
03/24/12 new stop loss @ 54.45.
03/24/12 Prepare to sell half of our positions on Monday to lock in a gain.
Apr $55 call bid currently @ $5.20 (+85.7%)
Apr $60 call bid currently @ $1.95 (+178.5%)
03/22/12 readers may want to go ahead and take profits now
Apr $55 call (+50%), Apr $60 call (+100%)

Entry on March 20 at $56.11
Earnings Date 05/16/12 (unconfirmed)
Average Daily Volume = 584 thousand
Listed on March 19, 2012


O'Reilly Automotive - ORLY - close: 94.76 change: +0.41

Stop Loss: 91.95
Target(s): 98.50
Current Option Gain/Loss: (Apr90c: +76.0%) & May$90c: +67.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
04/17 update: ORLY hit a new record high but today's +0.8% gain underperformed the broader market's bounce. Our April position is closed. All we have left are May $90 calls. I am raising our stop loss to $91.95.

I am not suggesting new positions at current levels.

- Suggested Positions -

Apr $90 call (ORLY1221D90) Entry $2.50 exit $4.40 (+76.0%)

- or -

Long May $90 call (ORLY1219E95) Entry $3.95

04/17/12 new stop loss @ 91.95
04/16/12 planned exit for Apr $90 call at the open.
option bid was $4.40 (+76.0%)
04/14/12 plan to exit our April calls at the open on Monday
04/14/12 new stop loss @ 89.90
04/07/12 moved exit target to $98.50
04/03/12 new stop loss @ 89.45
03/26/12 triggered at $91.25

Entry on March 26 at $91.25
Earnings Date 04/25/12 (confirmed)
Average Daily Volume = 887 thousand
Listed on March 24, 2012


Ulta Salon, Cosmetics - ULTA - close: 94.46 change: +1.31

Stop Loss: 91.49
Target(s): 98.50
Current Option Gain/Loss: -60.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/17 update: Thankfully there was no follow through on yesterday's bearish reversal candlestick in ULTA. The stock remains in a sideways trading range and we're running out of time. We're going to need ULTA to rally into the $96.50 area if we want to breakeven on this trade and we've only got three days left.

I am not suggesting new positions at this time.

- Suggested Positions -

Long Apr $95 call (ULTA1221D95) Entry $1.65

04/03/12 adjusted target to $98.50
03/28/12 new stop loss @ 89.95
03/26/12 new stop loss @ 89.45
03/24/12 adjusted exit target to $97.50
03/21/12 ULTA hit our trigger at $91.25

Entry on March 21 at $91.25
Earnings Date 06/07/12 (unconfirmed)
Average Daily Volume = 759 thousand
Listed on March 20, 2012


PUT Play Updates

BorgWarner - BWA - close: 83.59 change: +0.99

Stop Loss: 84.55
Target(s): 75.50
Current Option Gain/Loss: -92.0%
Time Frame: up to the April 26th earnings report
New Positions: see below

Comments:
04/17 update: BWA is definitely not cooperating. Shares flirted with a breakout past resistance near $84.00 today. The intraday high was $84.40. If BWA continues to climb tomorrow the stock will likely hit our stop loss at $84.55. We only have three days left on our April options. I am not suggesting new positions at this time.

Earlier Comments:
We do want to keep our position size small. The most recent data listed short interest at 16% of the 107 million-share float. That does raise the risk of a short squeeze.

- Suggested (small) Positions -

Long Apr $80 PUT (BWA1221P80) Entry $1.25

04/14/12 Friday's reversal looks like a new entry point
04/10/12 triggered at $81.25

Entry on April 10 at $81.25
Earnings Date 04/26/12 (confirmed)
Average Daily Volume = 1.1 million
Listed on April 09, 2012


Dollar Thrifty Automotive - DTG - close: 79.55 change: +1.63

Stop Loss: 80.55
Target(s): 72.50
Current Option Gain/Loss: Unopened
Time Frame: up to its early May earnings report
New Positions: see below

Comments:
04/17 update: Our new DTG put play is not off to a very good start. A widespread market bounce pushed DTG to a +2.0% gain and a reversal of yesterday's declines. The stock did stall at resistance near $80.00.

I am increasing our risk by moving our stop loss to $80.55. I want to give DTG just a little more room to maneuver. We'd hate to see a little spike to $80.10, hit our stop, and then see shares reverse lower. I'm not suggesting new positions at this time.

- Suggested Positions -

Long May $75 PUT (DTG1219Q75) Entry $1.75

04/17/12 new stop loss @ 80.55
04/17/12 DTG gapped open at $78.36

Entry on April 17 at $78.36
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 247 thousand
Listed on April 16, 2012


EQT Corp. - EQT - close: 46.37 change: +1.04

Stop Loss: 48.25
Target(s): 42.00-40.00
Current Option Gain/Loss: Apr$45P: -80.7% & May45P: -21.8%
Time Frame: up to its April 26th earnings report
New Positions: see below

Comments:
04/17 update: After hitting new relative lows yesterday the market's widespread bounce today helped fuel a +2.2% bounce in EQT. Shares could see an oversold rebound to their 10-dma. I am not suggesting new positions at this time.

Note: we need to exit our April puts before they expire this weekend.

We want to exit all positions prior to the April 26th earnings report.

- Suggested Positions -

Long Apr $45 PUT (EQT1221P45) Entry $0.52

- or -

Long May $45 PUT (EQT1219P45) Entry $1.60

04/16/12 triggered at $45.70

Entry on April 16 at $45.70
Earnings Date 04/26/12 (confirmed)
Average Daily Volume = 1.4 million
Listed on April 11, 2012


Ryder System, Inc. - R - close: 50.27 change: +0.33

Stop Loss: 52.05
Target(s): 45.50
Current Option Gain/Loss: Apr50p: -75.0% & May$50p: - 8.0%
Time Frame: exit before April option expiration
New Positions: see below

Comments:
04/17 update: Thankfully shares of R did not see much of a bounce and the path of least resistance still appears to be down. There is resistance near its 200-dma and near the $51.50 area.

Note: we did launch new May $50 put positions at the open this morning.

We do not want to hold over the late April earnings report.

Don't forget that April options expire in four trading days.

- Suggested Positions -

Long Apr $50 PUT (R1221P50) Entry $1.00

- or -

Long May $50 PUT (R1218Q50) Entry $1.80

04/17/12 opened the May $50 put position
04/13/12 triggered at $49.75

Entry on April 13 at $49.75
Earnings Date 04/24/12 (unconfirmed)
Average Daily Volume = 567 thousand
Listed on April 10, 2012


Timken Co. - TKR - close: 50.65 change: +0.80

Stop Loss: 51.55
Target(s): 45.50
Current Option Gain/Loss: -78.9%
Time Frame: exit before the April 25th earnings report
New Positions: see below

Comments:
04/17 update: TKR's bounce ran out of steam midday and shares pared their gains to just +1.6%. The stock did manage to close over the $50.00 mark. I am not suggesting new positions at this time. Don't forget that April puts expire in three trading days.

- Suggested (small) Positions -

Long Apr $50 PUT (TKR1221P50) Entry $1.90

04/10/12 triggered at $48.90

Entry on April 10 at $48.90
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 846 thousand
Listed on April 09, 2012


Weight Watchers Intl. - WTW - close: 73.56 change: +0.50

Stop Loss: 77.25
Target(s): 70.50
Current Option Gain/Loss: - 7.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/17 update: WTW produced a meager 50-cent bounce that stalled twice in the $74.30 area. I'm not suggesting new positions. We only have three days left on April options.

Earlier Comments:
The plan was to keep our position size small to limit our risk. I want to warn you that WTW could be prone to short squeezes with short interest at 18.5% of the small 35 million-share float.

- Suggested (small) Positions -

Long Apr $75 PUT (WTW1221P75) Entry $2.05

04/14/12 new stop loss @ 77.25
04/10/12 new stop loss @ 78.25.
04/09/12 WTW gapped open lower at $73.99

Entry on April 09 at $73.99
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on April 07, 2012


CLOSED BEARISH PLAYS

Dow Jones Industrial ETF - DIA - close: 130.94 change: +1.87

Stop Loss: 130.65
Target(s): 125.00 and 122.00
Current Option Gain/Loss: May127p: -23.7% & May124p: -19.8%
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
04/17 update: Hmm... was our stop loss too close? Possibly but today's move is definitely a short-term bullish breakout past several layers of resistance in the $130.00 area. The DIA is now above all of its significant moving averages. Our stop loss was hit at $130.65.

It is worth noting that the DIA will likely trade lower tomorrow morning in reaction to post-earnings declines for some of the DJIA's components tonight (namely IBM and INTC).

- Suggested Positions -

May $127 PUT (DIA1219Q127) Entry $1.77 exit $1.35 (-23.7%)

- or -

May $124 PUT (DIA1219A124) Entry $1.06 exit $0.85 (-19.8%)

04/17/12 stopped out at $130.65

chart:

Entry on April 16 at $129.23
Earnings Date --/--/--
Average Daily Volume = 6.3 million
Listed on April 14, 2012


FedEx Corp. - FDX - close: 90.46 change: +2.28

Stop Loss: 90.55
Target(s): 85.05
Current Option Gain/Loss: -45.0%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
04/17 update: The market seemed to experience another short squeeze just like the one we saw last Thursday. FDX reacted in a similar fashion and the stock saw a +2.5% bounce. It was enough to push shares back above resistance near $90.00. The stock hit our stop loss at $90.55.

I'd keep a wary eye on FDX. I'm not convinced the correction lower is over.

- Suggested Positions -

Long May $85 PUT (FDX1219Q85) Entry $1.51 exit $0.83 (-45.0%)

chart:

Entry on April 16 at $88.57
Earnings Date 06/19/12 (unconfirmed)
Average Daily Volume = 2.5 million
Listed on April 14, 2012