Option Investor
Newsletter

Daily Newsletter, Tuesday, 2/19/2013

Table of Contents

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

Market Wrap

Finally Some Traction

by Jim Brown

Click here to email Jim Brown

The major indexes finally broke above recent resistance and moved further into new high territory.

Market Statistics

Despite some negative economic news this morning traders came back from the long weekend in a buying mood. This may have been a residual effect from the February option expiration on Friday but we won't question any move that accelerates the breakout.

The negative news came from the NAHB Housing market Index for February, which fell rather than advance as analysts had expected. The headline number declined from 47 to 46 and analysts were expecting a further rise to 48.

There were several declining components. The traffic of potential buyers component declined from 36 to 32 and the lowest level since September. Builders can't blame it on Sandy because the sub index rose from 36 to 41 in the Northeast. Business improved in that region. However, in the South the sub index declined from 51 to 44. Sales declined in the south and increased in the Northeast so it was not a storm related problem. Sentiment in the Midwest and West were basically unchanged.

Available homes declined to a 4.4 month supply and the lowest level since 2005. One problem remains the lack qualified buyers. Equifax reported that 82% of mortgage applications were from borrowers with credit scores over 700. The Senior Loan Officer Survey showed the requirements for borrowers with high scores actually eased slightly but tightened even further for those under 700.

Builders also complained about rising costs for building materials as their most significant problem. More than 75% stated that was a problem. More than 42% complained about the impact from Obamacare and expected insurance costs to rise this year and next.

NAHB Chart

The calendar for Wednesday has the Producer Price Index, New Residential Construction and FOMC minutes as the highlights. The Producer Price Index is likely to show increasing costs at the producer level. At least that is what we hope to see. The Fed is worried about falling prices and a return of deflationary pressures.

The residential construction report should show a decline in the rate of building and you can blame that on the various winter storms.

The big news will be the FOMC minutes at 2:PM. These will be scrutinized for signs of weakness in the Fed's resolve to keep the $85 billion a month in QE purchases flowing. The various Fed governors seem to be having a war in the press on their views towards keeping the QE in force as the official FOMC statements have said.

This is the real stumbling point for Wednesday. However, even if there are signs of active dissension among the Fed members it may only generate a temporary dip in the markets. Traders are in buy the dip mode and at this point they are hoping for dips to buy.

Economic Calendar

In earnings news Dell reported after the bell and beat estimates slightly. Dell reported earnings of 40 cents compared to estimates of 39 cents. Revenue was $14.31 billion compared to estimates of $14.12 billion. Nobody really expected Dell to post any results that were much different than estimates because of the battle over the LBO transaction. If the numbers had been worse there would have been a suspicion Dell was trying to make things look worse to increase the prospects of the deal being accepted. If they had reported strong numbers then shareholders would have pressed for an even higher price.

Dell said it was not giving future guidance because of the LBO transaction. Dell said the majority of sales came from the enterprise group with the consumer sector falling to less than 20% of sales. Sales overseas were terrible. Sales in Europe, the Middle East and Africa fell -14% and the Asia Pacific region declined by -9%. The America's saw sales decline -10%.

More than 20% of shareholders not in the Michael Dell LBO group have come out against the transaction. The terms of the deal require more than 50% of the non Dell Group shareholders to vote for the deal. Most analysts now expect the price to rise into the mid $14 range in order to get the deal done and they expect that to happen. The shares are already up +40% since the deal rumors began at $10.

Dell Chart

Herbalife (HLF) reported earnings of $1.05 compared to estimates of $1.03. Revenue was $1.06 billion compared to estimates of $1.05 billion. However, if that is the only headline you read you missed the real news. Herbalife bought back four million shares of stock in the quarter or 4% of the outstanding shares. That is why HLF was able to beat the street earnings estimates. This is a tactic IBM made famous years ago. The analysts base their estimates on the outstanding shares at the end of the prior quarter or in this case 108 million. Herbalife ended the quarter with 104 million and that increased their earnings per share by +4 cents. Without the buybacks the earnings would have been $1.01 and -2 cents below estimates.

The company also revealed the SEC had begun an inquiry into its "business and financial operations" in December after Ackman went public with his claims the company was a major pyramid scheme.

There was no conference call today. That call will be held at 11:00 on Wednesday and you can bet there will be a lot of very pointed questions.

Herbalife Chart

Red Robin (RRGB) reported GAAP earnings that more than doubled to 45 cents compared to 20 cents in the year ago quarter. Adjusted earnings rose to 59 cents compared to analyst estimates of 46 cents. The restaurant said more people visited the restaurants and they spent more than the prior quarters. Same store sales rose +1.4% at its 339 stores. The company said it expects this to rise to 2.5-3.0% in 2013 and it expects to open 20 more stores.

Red Robin Chart

Some healthcare companies plunged today after the Centers for Medicare and Medicaid said new reimbursement rates would be lower than expected. Humana (HUM) receives nearly two-thirds of its revenue from Medicare Advantage. A comment period lasts until March 1st with the final decision due out on April 1st. Humana said in a SEC filing that payments would be flat to slightly down. "The company believes the base rates would result in a mid-single-digit decline in its benchmark payment rates."

Other companies including Universal American (UAM) fell -6% because it received 75% of its revenue from government programs. UNH, AET, CI and HNT each lost more than 1%. eHealth (EHTH) continued its plunge from Friday with another -17% drop to close at $16 after missing on earnings and guidance. Analysts are concerned the company may not survive the coming changes in the sector as a result of Obamacare.

eHealth Chart

Humana Chart

Need staples and printer paper? Office supply giants Office Depot (ODP) and OfficeMax (OMX) are discussing a possible merger with an announcement later this week. The companies are discussing a stock swap that would combine the companies and allow them to compete with Staples (SPLS).

OfficeMax and Office Depot both have a market cap of $1 billion each and Staples sports a $10 billion cap. The merger came from talks begun after activist fund Starboard Value LP became the largest shareholder in Office Depot. The merged company would have about $18 billion in revenue compared with $25 billion for staples. The merged company would see as much as $580 million in savings by combining the warehousing operations and closing duplicate stores. OfficeMax rose +21%, Office Depot +9% and oddly enough Staples rose +13%. I am assuming that is because there would be fewer competitive locations.

OfficeMax Chart

Michael Kors (KORS) announced a secondary offering of 25 million shares after the close. Michael Kors will sell 3.0 million of the shares he owns personally as part of that offering. That will reduce his stake to 4.8 million shares. The announcement came after the shares hit a new historic high at $64.84 at the close. That is a 300% gain since it IPOed in 2011. The company reported blowout earnings last week including a +41% rise in sales in North America. Sportswear Holdings Limited, a private equity firm and KORS largest investor will sell 19.7 million shares or 62.9% of its stake. A children's trust for CEO Jim Idol will sell two million shares. The company itself will receive no proceeds from the offering since all shares are being sold by individual owners. Shares of KORS declined about $1.50 in afterhours.

KORS Chart

The market rally seemed to find some traction today but that may run into trouble soon as a result of gasoline prices. Retail gasoline prices have risen for 33 consecutive days gaining +45 cents over the last month and +15 cents in the last week to hit $3.75 today. Gasoline is now over $5 at some stations in California and over $4 in a lot of stations on both coasts. The rise in prices is the result of refinery closures amounting to about 500,000 bpd. Several refineries have closed over the last year after the owners were unable to sell them. Hess was the latest to close its refinery in New Jersey and announce it was going to sell the rest of its refining network. The refinery incurred operating losses in two of the last three years.

Refineries are struggling with new environmental regulations and a weak forecast for gasoline refining profitability. Refineries forced to use water borne crude index to Brent prices, primarily costal refineries, are at a disadvantage to refineries able to access WTI crude or the cheaper Bakken crude.

BP's Whiting Indiana refinery went down in November for a $4 billion upgrade and should have been back up by now but BP is now saying it will be offline until July or later. BP is upgrading the plant to refine the cheap Canadian oil sands crude. It currently has the capacity to process 80,000 bpd of Canadian crude and that will increase to 350,000 bpd while the total capacity will remain 405,000 bpd. The loss of that much refining capacity is producing a shortage of gasoline.

Gasoline prices are at the highest ever for this time of year with crude prices just under $97 for WTI and $117 for Brent. Bank America said today that Brent could rise to $140 in 2013 and average $100-$130 a barrel through 2015. Technicians claim Brent could be setting up for a sprint higher after trading volume declined to 23% below the 100-day average. The spread between Brent and WTI increased to $23.18 on February 8th and declined today to $20.82. This premium to WTI is what causes the gasoline prices on the coasts to be significantly higher because the coastal refineries are forced to buy crude indexed to Brent.

Historically every $10 rise in oil prices reduced GDP by 0.2 points because higher gasoline prices reduce consumer spending. The Wal-Mart email last Friday claiming sales were off to the worst start in February in the last seven years was one sign the rising gasoline prices are already hurting consumers. There are other factors like the resumption of the payroll taxes but higher gasoline prices are a bigger drag. With prices up 45 cents a gallon over the last month the normal tank of gas is costing $10 more and two car families this could be $120 to $150 a month in additional expenses. This may be a temporary ceiling but prices will rise again when driving season begins this summer.

Gasoline Futures Chart

The VIX hit a new six year low at 12.03 intraday. There is a complete lack of fear as evidenced by the VIX. Last week the speculative longs in the VIX futures fell by -16,222 contracts to 104,284 according to the Commitment of Traders weekly update. At the same time the speculative contracts in the Russell 2000 futures hit an all time high.

As I have shown many times in the past the VIX can remain low for a very long time. The VIX spent the majority of 2005-2006 well under 13 with the last quarter of 2006 seeing a dip under 10.

VIX Chart

There is no fear in the market. The last thee week average intraday range in the Dow was the smallest since 1986. Despite the sequester deadline on March 1st and the expiring budget resolution on March 27th we are seeing no fear over those issues by traders. Even permanent bears like Nouriel Roubini have given up on calling for a bear market. More than $37 billion in new cash flowed into the stock funds over the first six weeks of 2013.

The average daily price move for the S&P-500 has fallen to 0.43% in 2013. That is down from an average of 1.08% over the last five years. That is the steepest decline since the 1930s according to Bloomberg. The last time the average was this low was 1995 at 0.38% when the S&P gained +34%. Bloomberg research shows stocks gain an average of 17% during years when the gyrations are so small. The data goes back to 1928.

The largest contributions to mutual funds in nine years are powering these gains. Analysts now believe it is not a rotation out of bonds but a transfer of funds out of money market accounts.

We are living in a goldilocks market. The economic data is just right to keep the Fed writing $85 billion in QE checks every month and there does not seem to be any end in sight. The negative GDP in Q4 could be followed by another negative quarter in Q1 but nobody seems to care.

Europe is in recession but the euro is near seven-month highs. Despite the Fed's massive QE program and marginal economics the U.S. Dollar is at two month highs.

Traders have been conditioned by the various political events over the last two years to expect a solution. Political crisis after crisis in the U.S., Europe and China have gone from "pending disaster" to just another speed bump in the road. Greece was going to leave the eurozone. Spain was going to fail. Italy was on the verge of collapse. China was headed for a hard landing. The U.S. was going to default on payments as a result of the debt ceiling. None of these things happened and that has made traders immune to the headlines.

Traders may not believe the markets are going to shoot higher and funds are reluctant to go all in with bets on equities but there is no alternative. Bonds don't work for returns and Treasury yields are at 10 month highs as selling increased in the bond market.

Fund managers and retail traders may not be irrationally exuberant but they are definitely buying the dips. Every minor bit of volatility that causes a dip is being instantly bought. The Wal-Mart email on Friday caused a -67 point dip in the Dow but traders instantly jumped into the gap and the Dow recovered to close positive for the day.

That Wal-Mart dip failed to raise the premium on WMT options. At the money march calls are only 84 cents and puts are 94 cents. There is no volatility in the market and premium sellers are seriously challenged to find any options worth the risk.

Energy has been volatile with crude prices fluctuating $3 over the last week but options on energy stocks are very cheap. With OXY at $84.71 on Friday the March $85 in the money put was only 97 cents. The same is true in the banking sector. JP Morgan was up +57 cents today at $49.46 but the March $50 calls are only 70 cents. This is very cheap for an at the money call option.

Options on ETFs are even cheaper. The Financial ETF (XLF) at $17.92 is showing a March $18 call for 20 cents and the $17 put is 6 cents. Granted the XLF is not a fast mover but at these prices this is the equivalent of a free trade.

Something will appear in the future to upset this applecart but as is the case with most corrections there will be no advance warning. Traders will seize on one headline and it will become the excuse to sell and the house of cards will come tumbling down. Today I don't know that that headline might be. The FOMC minutes on Wednesday could be a bump in the road but traders have shown they are suddenly immune to shocks.

The S&P spiked suddenly higher today after being stuck at 1520-1525 for the last week. This breakout over what had become strong resistance is very positive. That is a new five year high and it is only 35 points below a historic high. Support is now well back at 1515. This was a bullish event.

S&P Chart - Daily

The Dow gained +53 points to close at 14,035 and that was the high level seen back on February 12th. This is not a breakout by the Dow but it appears to be a nice setup for a breakout this week. If the S&P and Nasdaq continue their run the Dow will catch fire as well. Support is back at 13,950.

Dow Chart - Daily

The Nasdaq finally caught up with the other indexes and broke out over strong resistance at 3200 to a new 12 year high. This is a major event for the Nasdaq and should draw new cash into the market. It was helped by a +$14 gain by Google and a new all time high at $806. Apple was not a drag but also not a help with a fractional 17 cent loss to close at $460. ISRG, AMZN, NFLX, FSLR and RRGB were big gainers that helped Google support the Nasdaq.

I view the Nasdaq breakout as VERY bullish and especially so if the tech index can post back to back gains.

Nasdaq Winners and Sinners

Nasdaq Chart - Daily

The Russell 2000 Small Cap Index sprinted higher with a +9 point gain. This continues to be the sentiment indicator for fund managers and it is very bullish but definitely over extended.

Russell 2000 Chart - Daily

For weeks analysts have been waiting for a 3-5% pullback for profit taking so the markets could begin a new leg higher. That dip never came. Many investors forget that profit taking can also come in the form of a period of consolidation as well. The market does not have to sell off for traders to exit old positions and enter new ones. When there is a strong underlying bid the selling is met with buying and the indexes move sideways until the stock available for sale is exhausted.

I believe that is what we saw in early February. The major indexes stalled and went sideways for three weeks and every intraday dip was immediately bought. When the dips ended on the 8th the volume slowed and the intraday ranges shrank to almost nothing. This was the final equalization between buyers and sellers and Friday's Wal-Mart dip was the last straw. Having the Dow recover 75 points in only a few minutes on a Friday afternoon was evidence the buyers were out in force.

Today's breakout on the Nasdaq, S&P, Transports, S&P-400 and Russell should be a signal to those still on the sidelines to jump on the train or get left at the station. OR, it could have been the climax spike that signals the start of a significant correction. I believe it is the former and not the latter. I hear that train whistle blowing.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Transports & Financials

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

FedEx Corp. - FDX - close: 107.33 change: +0.91

Stop Loss: 105.75
Target(s): 112.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
This is a bullish momentum trade. The transportation average continues to defy gravity and hit another new all-time high today. Shares of FDX are following the sector high and closed at new five-year highs. The stock looks poised to breakout from its recent sideways consolidation.

I am suggesting we open small bullish positions if FDX can trade at $107.75 or higher. If triggered our target is $112.50 but there is a possibility that the $110 level will be resistance.

NOTE: After the closing bell tonight FDX announced it will take a cash charge in the $550 million to $650 million over the next two quarters to account for U.S. employees accepting a voluntary buyout offer that expires in May.

Trigger @ 107.75

- Suggested Positions -

buy the Mar $110 call (FDX1316c110) current ask $0.78

Annotated Chart:

Entry on February -- at $---.--
Average Daily Volume = 2.2 million
Listed on February 19, 2012


NEW DIRECTIONAL PUT PLAYS

Capital One Financial - COF - close: 53.12 change: -0.91

Stop Loss: 54.55
Target(s): 48.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
It has been a rough February for shares of COF. The stock reversed under the $58 level several days ago. Since then COF has sliced through potential support. On Friday the stock underperformed after the company released its monthly credit card metrics. COF saw an unexpected drop in the size of its credit card loan portfolio and a higher month over month delinquency rate in January. Then today the market was not happy with the news that COF was selling off its Best Buy private label and co-branded credit division to Citigroup (C) for $7 billion.

Shares are arguably short-term oversold already but the trend is definitely down. I am suggesting small bearish put positions now at the open tomorrow. We'll use a stop loss at $54.55. Our target is $48.50 but watch out for potential round-number support at the $50.00 mark.

- Suggested Positions - *Small Positions*

buy the Mar $52.50 PUT (COF1316o52.5) current ask $0.95

Annotated Chart:

Entry on February 20 at $---.--
Average Daily Volume = 5.9 million
Listed on February 19, 2012



In Play Updates and Reviews

The Market Hits New Highs

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market's major stock indices rallied to new highs on Monday. Unfortunately it seems like leadership is narrowing.

We closed our LL trade today. I am suggesting we close our MHK trade tomorrow. ALXN was triggered this morning.


Current Portfolio:


CALL Play Updates

AMC Networks Inc. - AMCX - close: 58.99 change: -0.69

Stop Loss: 57.90
Target(s): 64.75
Current Option Gain/Loss: Unopened
Time Frame: Exit prior to earnings on Feb. 26th
New Positions: Yes, see below

Comments:
02/19/13: AMCX dipped to its simple 10-dma and bounced. The stock remains below resistance at the $60.00 level. I am suggesting a trigger to buy calls at $60.25. More conservative traders may want to wait for a rally past $61.00 before initiating positions because twice in January AMCX found resistance near the $61.00 level.

Please note this is a short-term trade. We do not want to hold over the company's earnings report on Feb. 26th. FYI: The Point & Figure chart for AMCX is bullish with an $86 target.

Trigger @ 60.25

- Suggested Positions -

buy the Mar $60 call (AMCX1316c60)

Entry on February -- at $---.--
Average Daily Volume = 486 thousand
Listed on February 13, 2012


BP Prudhoe Bay Royalty Trust - BPT - close: 80.44 change: +0.87

Stop Loss: 78.25
Target(s): 87.50
Current Option Gain/Loss: -25.0%
Time Frame: Exit prior to earnings in early March
New Positions: see below

Comments:
02/19/13: Oil prices managed a bounce today and that helped shares of BPT produce a +1.0% gain. The stock is back above the $80.00 mark. Traders may want to wait for a rally past Friday's high at $80.75 before initiating new positions.

FYI: The Point & Figure chart for BPT is bullish with a $110 target.

*Small Positions* - Suggested Positions -

Long Mar $80 call (BPT1316c80) entry $2.00

Entry on February 13 at $80.25
Average Daily Volume = 131 thousand
Listed on February 07, 2012


Cameron Intl. - CAM - close: 65.95 change: +1.37

Stop Loss: 64.75
Target(s): 69.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
02/19/13: There was no follow through on last Friday's bearish reversal at the $66 level. Shares of CAM spiked higher at the open and rallied back toward the $66.00 mark. The intraday high was $66.13. I am suggesting a trigger to buy calls at $66.25. If triggered our short-term target is $69.75. More aggressive traders could definitely aim higher.

Trigger @ 66.25

- Suggested Positions -

buy the MAR $65 call (CAM1316c65)

Entry on February -- at $---.--
Average Daily Volume = 3.0 million
Listed on February 14, 2012


Check Point Software Tech. - CHKP - close: 51.88 change: +0.52

Stop Loss: 49.90
Target(s): 54.50
Current Option Gain/Loss: +21.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
02/19/13: Traders bought the dip in CHKP this morning near its simple 10-dma. The stock bounced back toward recent resistance at the $52.00 level. The stock looks poised to breakout higher here. I am not suggesting new positions at this time.

*Small Positions* - Suggested Positions -

Long Mar $50 call (CHKP1316c50) entry $1.90

02/16/13 CHKP looks poised to dip back toward support at $50.00
02/13/13 new stop loss @ 49.90
02/06/13 new stop loss @ 49.40

Entry on February 01 at $50.25
Average Daily Volume = 2.7 million
Listed on January 31, 2012


The Cooper Companies - COO - close: 104.66 change: +0.65

Stop Loss: 101.75
Target(s): 107.50
Current Option Gain/Loss: + 3.7%
Time Frame: Exit prior to earnings on Mar. 7th
New Positions: see below

Comments:
02/19/13: COO also saw a rebound off its rising 10-dma. Shares ended the session with a +0.6% gain. I am not suggesting new positions at this time.

Earlier Comments:
Please note that we do want to keep our position size small because the option spreads are a little bit wide. COO is scheduled to report earnings on March 7th. We do not want to hold over the report. FYI: The Point & Figure chart for COO is bullish with a $125 target.

*Small Positions* - Suggested Positions -

Long Mar $105 call (COO1316c105) entry $2.70

02/16/13 new stop loss @ 101.75

Entry on February 06 at $102.60
Average Daily Volume = 303 thousand
Listed on February 02, 2012


The Home Depot - HD - close: 67.55 change: +0.03

Stop Loss: 66.40
Target(s): 69.90
Current Option Gain/Loss: -25.7%
Time Frame: Exit prior to earnings on Feb. 26th
New Positions: see below

Comments:
02/19/13: HD underperformed the market the first half of the session but shares produced a midday bounce at its converging 10-dma and 20-dma. The stock looks poised to breakout past the $68.00 level soon.

Earlier Comments:
We plan to exit prior to the company's earnings report on Feb. 26th.

- Suggested Positions -

Long Mar $70 call (HD1316c70) entry $0.66

02/16/13 new stop loss @ 66.40

Entry on February 13 at $67.52
Average Daily Volume = 5.9 million
Listed on February 12, 2012


Kimberly-Clark Corp. - KMB - close: 92.21 change: +1.01

Stop Loss: 89.25
Target(s): 94.75
Current Option Gain/Loss: Mar$90c: +30.3% & Apr95.5c: +22.7%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/19/13: Our new play on KMB is off to a strong start. Shares opened at $91.33 and rallied to a +1.1% gain. This is a new all-time high for KMB.

The plan was to keep our position size small to limit our risk. Our target is $94.75. More aggressive traders could aim higher.

- Suggested Positions -

Long Mar $90 call (KMB1316c90) entry $1.88

- or -

Long Apr $92.50 call (KMB1320c92.5) entry $1.10

Entry on February 18 at $91.33
Average Daily Volume = 2.2 million
Listed on February 16, 2012


Mohawk Industries - MHK - close: 108.78 change: +0.98

Stop Loss: 105.85
Target(s): 109.75
Current Option Gain/Loss: +42.4%
Time Frame: Exit PRIOR to earnings on Feb. 21st
New Positions: see below

Comments:
02/19/13: MHK spiked to a new high this morning at $109.30 before profit taking pulled it down to $106.92 intraday. Shares recovered to close up +0.9%. We are almost out of time. MHK is due to report earnings on Feb. 21st.

If MHK does not hit our exit target at $109.75 tomorrow then I am suggesting we exit positions tomorrow at the closing bell. We will raise our stop loss to $105.85.

- Suggested Positions -

Long Mar $105 call (MHK1316c105) entry $3.65

02/19/13 new stop loss @ 105.85, prepare to exit tomorrow at the closing bell if MHK doesn't hit our exit target
02/16/13 new stop loss @ 104.75

Entry on February 12 at $105.35
Average Daily Volume = 588 thousand
Listed on February 11, 2012


3M Company - MMM - close: 104.18 change: +0.95

Stop Loss: 101.85
Target(s): 104.85
Current Option Gain/Loss: +52.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/19/13: Positive analyst comments helped MMM surge past the $104 level this morning. The stock has closed at a new all-time high. I am adjusting our exit target down to $104.85. MMM is up eight weeks in a row (so far) and hasn't had any sort of significant dip or pullback. The $105 level could be round-number resistance. I am also raising our stop loss to $101.85.

Earlier Comments:
I am suggesting we keep our position size small to limit our risk.

- Suggested Positions - *Small Positions*

long Mar $100 call (MMM1316c100) entry $2.95

02/19/13 new stop loss @ 101.85, adjust exit target to $104.85
02/16/13 new stop loss @ 101.30

Entry on February 06 at $102.25
Average Daily Volume = 3.0 million
Listed on February 05, 2012


Rock-Tenn Company - RKT - close: 82.68 change: -1.01

Stop Loss: 80.75
Target(s): 84.75
Current Option Gain/Loss: +11.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/19/13: RKT hit some profit taking today with a -1.2% pullback. Look for short-term support near the 10-dma at $82.00. I am not suggesting new positions at this time.

Earlier Comments:
FYI: The Point & Figure chart for RKT is bullish with a long-term $117 target.

- Suggested Positions -

Long Mar $80 call (RKT1316c80) entry $3.05

02/16/13 new stop loss @ 80.75, adjust target to $84.75.

Entry on February 06 at $81.05
Average Daily Volume = 743 thousand
Listed on February 02, 2012


CBOE Volatility Index - VIX - close: 12.31 change: -0.15

Stop Loss: 11.45
Target(s): 22.00-25.00 range
Current Option Gain/Loss: -39.4%
Time Frame: 8 to 9 weeks
New Positions: see below

Comments:
02/19/13: Another gain for the S&P 500 has pushed the VIX to another low. Shares hit new multi-year lows this afternoon near the 12.00 mark. This extreme bullishness (or lack of fear) in the market should be a significant caution signal for the market.

I would still buy calls on the VIX now at current levels or you could choose a different entry point like waiting for the S&P 500 to close under its simple 10-dma as your signal.

- Suggested Positions -

Long Apr $16 call (VIX1317D16) entry $1.90

Entry on February -- at $---.--
Average Daily Volume = n/a
Listed on February 09, 2012


WESCO Intl. Inc. - WCC - close: 75.57 change: -0.59

Stop Loss: 73.25
Target(s): 79.75
Current Option Gain/Loss: -14.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
02/19/13: WCC ran into some profit taking today after a multi-day rally last week. Shares did rebound off their simple 10-dma but closed with a -0.7% decline. I am not suggesting new positions at this time.

Earlier Comments:
The breakout past resistance could also spark some short covering. The most recent data listed short interest at 20% of the 41 million-share float.

- Suggested Positions -

Long Mar $75 call (WCC1316c75) entry $2.40

Entry on February 14 at $75.06
Average Daily Volume = 918 thousand
Listed on February 13, 2012


Zimmer Holdings - ZMH - close: 76.11 change: +0.21

Stop Loss: 74.40
Target(s): 79.50
Current Option Gain/Loss: +21.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
02/19/13: Most of the medical device stocks were weak this morning. I couldn't find any headlines to explain the spike down in ZMH. Traders did buy the dip near its rising 20-dma, which was support a couple of weeks ago. ZMH ended the session with a gain. More conservative traders could adjust their stops toward today's low (74.82).

- Suggested Positions - *small positions*

Long Mar $75 call (ZMH1316c75) entry $1.60

02/16/13 new stop loss @ 74.40
02/09/13 new stop loss @ 73.40

Entry on February 07 at $75.24
Average Daily Volume = 1.2 million
Listed on February 06, 2012


PUT Play Updates

Alexion Pharma. - ALXN - close: 83.39 change: -2.62

Stop Loss: 87.55
Target(s): 80.25 and 76.00
Current Option Gain/Loss: -28.9%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
02/19/13: While the trend in ALXN is down we were not expecting shares to gap open lower this morning. The stock opened at $82.77. That was below our suggested entry point at $84.50. The trade is opened. Nimble traders got a chance to buy a failed rally near the $85.00 level when ALXN produced an intraday bounce.

The Mar $80 put option opened at $1.90 and is currently trading with a bid/ask spread at $1.35/1.45.

Earlier Comments:
I am setting two targets. Our first target is $80.25. Our second, more aggressive target is $76.00.

- Suggested Positions -

Long Mar $80 PUT (ALXN1316o80) entry $1.90

02/19/13 trade opened on gap down at $82.77, trigger was $84.50

Entry on February 19 at $82.77
Average Daily Volume = 2.2 million
Listed on February 16, 2012


EV Energy Partners - EVEP - close: 54.04 change: -0.13

Stop Loss: 57.25
Target(s): 50.50
Current Option Gain/Loss: - 9.5%
Time Frame: exit prior to earnings on Feb. 27
New Positions: see below

Comments:
02/19/13: EVEP dipped to new relative lows before paring its losses. Shares still underperformed the market with a -0.2% decline.

- Suggested Positions -

Long Mar $55 put (EVEP1316o55) entry $3.65

Entry on February 11 at $54.75
Average Daily Volume = 300 thousand
Listed on February 09, 2012


SBA Communications - SBAC - close: 67.90 change: -0.79

Stop Loss: 70.05
Target(s): 63.50
Current Option Gain/Loss: - 8.3%
Time Frame: Exit prior to earnings on Feb. 21
New Positions: see below

Comments:
02/19/13: Bingo! SBAC failed right where it was supposed on short-term technical resistance at its 10-dma. The stock underperformed the market with a -1.1% decline. Unfortunately we are almost out of time.

We will plan on closing positions on Feb. 21st at the closing bell to avoid holding over the earnings report.

- Suggested Positions -

Long Mar $65 PUT (SBAC1316o65) entry $0.60

02/19/13 prepare to exit on Feb. 21st at the closing bell

Entry on February 13 at $68.21
Average Daily Volume = 131 thousand
Listed on February 12, 2012


CLOSED BULLISH PLAYS

Lumber Liquidators - LL - close: 62.43 change: +0.24

Stop Loss: 59.45
Target(s): 64.85
Current Option Gain/Loss: -0.0%
Time Frame: Exit PRIOR to earnings on Feb. 20th
New Positions: see below

Comments:
02/19/13: LL is due to report earnings tomorrow. Our plan was to exit positions at the opening bell this morning. LL opened at $62.47 before dipping to $60.35 intraday. Thankfully the option opened a little bit higher this morning.

- Suggested Positions -

Long Mar $65 call (LL1316c65) entry $1.55 exit $1.55 (+00.0%, zero)

02/19/13 closed at the open this morning
02/16/13 prepare to exit on Tuesday morning
02/14/13 adjust exit down to $64.85
02/13/13 new stop loss @ 59.45

chart:

Entry on February 12 at $61.36
Average Daily Volume = 568 thousand
Listed on February 11, 2012