Option Investor
Newsletter

Daily Newsletter, Tuesday, 12/3/2013

Table of Contents

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

Market Wrap

Another Taper Tantrum

by Jim Brown

Click here to email Jim Brown

Positive economics for the second consecutive day caused fund managers to fear an early taper announcement.

Market Statistics

The markets declined at the open with the Dow falling nearly -150 points at the lows before buyers showed up. The biggest decliner today was the Dow after the Russell 2000 headlined the biggest losers list on Monday. The biggest Dow losers were Visa, Boeing, Goldman, IBM, DuPont, 3M and Disney.

The data causing the taper tantrum today started with the ISM - New York, which rose from 598.7 to 608.5 and the fastest growth rate in three years. The current conditions index rose more than 10 points to 69.5 and the six-month outlook rose to 69.6 and the highest level in a year. Employment was the laggard with only a +0.6 rise to 50.8 and barely over contraction territory. The employment component has been lackluster for the last year.

The Intuit Small Business Employment Index for November rose +0.6 after declining -0.6 in October. That is the first time in four months the index has been positive. This is a positive sign for the ADP and Nonfarm Payroll numbers later this week. Average worker hours rose +0.6% to 25.1 hours. Average monthly compensation rose +0.4% to $2,710 or $32,500 per year.

This was the first time in four months small businesses added jobs and that speaks to a potential improvement in sentiment. However, this is the holiday season so any gains have to be questioned and could be erased in January as workers are cut and hours shortened.

There was a surprise in the weekly chain store sales. We have heard about the large crowds on Thanksgiving and Black Friday but the weekly sales actually declined -2.8%. If it were not for the Black Friday sales spike the number would have been much worse. The NRF said shopper traffic declined -4% for the weekend.

The most bullish report for the day was the surge in auto sales. The AutoData report showed the annualized rate of sales in November soared to 16.4 million compared to the 15.2 million rate in October. This was the fastest pace of sales since February 2007. Analysts believe the government shutdown in October may have pushed some sales into November but October was flat with September so I am not convinced.

Light trucks accounted for 8.3 million units and autos 8.1 million. Domestic sales were 12.5 million and imported 3.9 million. Ford was on pace for 2.6 million units, Chrysler 1.8 million, GM 2.8 million, Honda 1.6 million, Toyota 2.3 million and Nissan 1.4 million. U.S. brands fell to 44.1% market share due to strong sales for the Japanese manufacturers.

We are heading into a heavy economic schedule the rest of the week with several high profile events. The first major payroll report is the ADP Employment at 8:30 Wednesday. That will color the market expectations for the Nonfarm Payrolls on Friday. The employment component of the ISM Manufacturing report on Monday rose from 53.2 to 56.5 and suggests we could have an upside surprise to the Nonfarm Payrolls. That would be Fed negative.

The GDP revision is due out on Thursday and there are rumors it could be over 3.0% and that would also be Fed negative. Continued positive economic news would give the Fed cover to announce an earlier QE taper. However, while investors appear to be concerned about that this week I still believe they will wait until March because of the potential disruption from Washington in January and early February.

The rate decisions from the Bank of England and ECB on Thursday will also have a bearing on what the Fed does and how the market perceives the potential for a taper announcement.


It was a low volume news day. The market seemed oblivious to lower than expected retail sales numbers although several stocks did see some attention. Walmart said yesterday was the best Cyber Monday in company history. The five days starting with Thanksgiving were also the best online sales in company history with more than one billion page views on Walmart.com during that period. Walmart has been offering 200 online specials per day starting on Thanksgiving and continuing until next Friday. They are offering free shipping on all orders over $35 with 99% of Walmart items eligible. Online orders can also be picked up at a local Walmart on the same day in most cases. Normal brick and mortar retailers are seeing weak sales and weaker margins as a result of Walmart and online sales at Amazon and Ebay.

Walmart said the largest selling items on Cyber Monday were the LG 50" 1080P LED HDTV and the Apple iPad 2 with 16GB and Wi-Fi. Walmart sold 1.4 million tablets over the five day period. At one point Amazon was selling 300 tablets a minute. iPads were hot at Walmart, iPad minis were preferred at Target and surprisingly the Windows Surface was the top selling tablet at Best Buy. Walmart shares closed at a new high despite the negative market.


JC Penny's reported after the bell that same store sales for November rose +10.1%. The surprising jump in sales carried over into their online sales as well. The company said it hoped the momentum held throughout the holiday season. The company is facing some really easy comps so beating December 2012 should be easy. Shares of JCP rose +.51 cents in afterhours to $10.62.


Apple (AAPL) was upgraded by UBS from neutral to buy. They raised the target price from $540 to $650. The analyst cited the potential for an iPhone deal with China Mobile as the main selling point. A Chinese website related to China Mobile had a page up for a while advertising preorders for iPhones. It was taken down almost immediately and China Mobile denied the rumor. However, it is only a matter of time before they do a deal with Apple. China Mobile has more than 700 million subscribers. If only 15% converted to the iPhone that would be 105 million additional phones sold by Apple. Another broker raised his price target to $777.


Research firm IDC said tablets were taking over the PC space. They are projecting total shipments of 221.3 million units in 2013. That is an increase of 53% from 2012 or roughly 110 million additional units. They are projecting sales of 270.5 million in 2014 and peaking at 386.3 million in 2017. That is down slightly from prior estimates of 407 million in 2017. The slightly lower estimates are based on the new trend of users going to larger screen phones called "phablets" instead of a full size tablet.

Yesterday IDC said PC sales for 2013 would decline by -10.1% and the largest drop on record. Total shipments are expected to decline another -3.8% in 2014 before turning positive again. PC sales are currently running at 2008 levels. IDC said the emergence of 2-in-1 devices capable of working in both notebook and tablet configurations would provide boost for the Windows based platform sales. Apple currently owns 35% of the tablet market but share is continuing to drop with Android now claiming 60.8% of the market. That compares to 45.6% Apple in 2012 and 52% Android. IDC believes Windows tablets could rise from the 3.4% today to 10% by 2017. Applebee's said they were putting a tablet on every table in their restaurant chain by the end of 2014.

PC Sales Trends

2013 - 314 million -10.1%
2012 - 349 million -4.0%
2011 - 364 million +1.7%
2010 - 346 million +13.6%

2017 - 305 million estimate

Tesla Motors rallied +$20 today after the German equivalent of the NHTSA in the U.S. gave the company a clean bill of health on the Model S. The German consumer agency had requested information from Tesla on the three Model S fires. After reviewing the data the agency said they could find no evidence of a manufacturing defect and closed the file.

Two of the Model S fires were the result of a high speed impact with metal road debris that punctured the battery compartment from underneath the car. The third car caught on fire after crashing through two concrete and steel barriers and coming to rest against a third. The car was going at 3 times the speed where occupants were expected to survive yet all occupants walked away from the crash. There has never been a serious injury or death in a Tesla vehicle.

Shares spiked $20 to close at $144.67 after Morgan Stanley reiterated the overweight rating saying the selloff as a result of the fires gave investors a reason to buy the automaker. The analyst named Tesla his top pick in the automotive sector. Last week Deutsche Bank also reiterated their buy recommendation based on a series of positive catalysts in the months ahead. Those include news of sales in China, higher production rates, gross margin improvement and the resolution of the NHTSA inquiry.

Shares of TSLA had built a base at $120 after a two month decline on profit taking and the news of the fires. The stock was primed for a short squeeze.


Krispy Kreme Doughnuts (KKD) hit a slick spot and the share price was creamed today. Investors were not left with a sweet aftertaste as a result of lowered guidance. Consumers went on a diet with same store sales increasing only 3.7%. Revenue rose +7% to $114.2 million but missed forecasts slightly. Earnings of 16 cents beat estimates by a penny. The bad news came from the guidance. The company said full year earnings would be 60-63 cents compared to analyst estimates of 63 cents. Full year 2015 guidance was 71-76 cents compared to estimates of 77 cents. KKD said same store sales growth would be in the low single digits with international stores declining in single digits.

They are going to open 10-15 company stores and 20-25 franchise stores and 85 international stores in the current fiscal year. The company talked about cannibalization of market share with new stores in the same area and the honeymoon effect. That honeymoon effect refers to the surge in business when a new store opens followed by a decline in sales as the newness wears off. Investors don't want to hear that the company is opening too many stores too close together and that 85 new international stores will open when same store sales are already declining internationally.


YUM Brands (YUM) finally reported positive same store sales in China. Last year they were plagued by problems resulting from a supplier using higher than legal levels of antibiotics in their chickens and by an outbreak of bird flu that turned people off from chicken meals. Sales were down in double digits for several quarters. While the November results were not outstanding they were positive at +1.0%. Analysts were projecting a -1.2% decline. Same store sales were flat at KFC but rose +7% at Pizza Hut. YUM reiterated they expect a 20% increase in profits in 2014. They have more than 6,000 stores in China and will open more than 700 additional stores this year. Shares declined $2 on the news after a +$14 rally over the last six week.


The markets sold off on low volume on worries of taper possibilities. At least that was the official excuse. Remember, historically the Dow normally declines on the first two days of December. That can be blamed on portfolio restructuring and tax selling but I think that is also just an excuse.

If you are a fund manager and your fund is up 25% to 35% for the year you are now faced with making decisions ahead of year end. With the normal December market gain of 1.5% to 2% you have to weigh the potential for adding another 2% with the possibility of losing 10% to 15% if the market suddenly decides to correct. Do you take profits and lock in your gains or do you roll the dice and try to squeeze another 2% out of the market? I am sure there are quite a few managers thinking about locking in those profits.

Historically when the market is up big for the year the gains continue through December as managers behind the curve try to chase performance right up until the last minute.

Obviously the difference between those two types of managers is what will drive the market over the next month. Complicating the picture is the budget deadline in Washington on the 13th and the worry that stronger than expected economics will cause the Fed to taper early. What is a trader to do?

In a situation like this we have to depend on the charts for guidance. The S&P declined to support at 1,790 intraday and closed back over 1,795 although just barely. Since October every minor dip like we have seen this week was bought. There were two of them in November. On the surface if would appear to be another buying opportunity. The S&P rebounded from support after a two day decline.

I think it is more important that this was a day where the markets rallied into the close rather than declined. Four out of the prior five days the markets sold off into the close. The reversal of that trend could be significant when coupled with the bounce off support.

I would recommend we use Tuesday's selloff as our trading plan for the rest of the week. I would buy the dip but if support at 1,790 breaks I would be a seller. We could easily see a return to 1,750 or even lower if fund managers suddenly begin to feel their gains are threatened.

On the upside the resistance is still 1,810-1,812 and it has been rock solid. If we test that level again and fail again I would be a seller. Obviously on a breakout I would add to positions.

As traders we tend to over analyze situations or ignore the obvious. We either jump the gun on a whim or enter what we call the paralysis of analysis. If we try to take and analyze all the factors impacting this market over the next three weeks we will be too conflicted to trade. Good analysts fail all the time because they get locked into one mindset where they have analyzed all the options and come to a firm conclusion. When that conclusion turns out to be wrong they try to justify their position and wait, sometimes for weeks or months, for the market to reflect their belief. This is silly but we all do it at one time or another.

Trading should be simple. If the market is going up, buy something. If it is going down, sell something. Markets and stocks making new highs tend to keep making new highs and the reverse is true on the downside.

For the rest of this week focus on the 1,790 level. Buy a bounce from that level and sell a break below that level.



The Dow did exactly what it should have done if a chartist had written the script. The Dow declined to support at 15,900 and held. It was not pretty with a -40 point drop below that level intraday but in the end it closed over 15,900 and that is all that mattered.

The Dow was very overextended and could easily pull back even further to as much as 15,600 and still retain its uptrend. However, I suspect the trend changed at the close today, and assuming the ADP Employment report on Wednesday is not a blowout, it should move higher. While I am not expecting a dip like we saw in June, August and September that is always possible.

The key level to watch on the Dow would be the intraday support at 15,875. A breakdown there would be a strong warning signal that 15,600 is going to be revisited. On the upside the 16,100 level is strong resistance.


The Nasdaq gave back only 8 points today and remains well above prior resistance at 4,000. This is bullish given the -180 point decline in the Dow over the last three days. The Nasdaq is susceptible to a larger decline if events warrant. Strong support is well below at 3,895. I sure don't want to see that level again but it is possible.

As long as the Nasdaq remains the stronger of the three major indexes we should continue to move higher. Tech stocks and small caps are generally favored in December so as long as that historical trend holds the market should do fine.


The Russell is also a picture perfect chart. Resistance held at exactly where I drew the line two weeks ago. In theory the Russell should be headed back to support at 1,100 after failing at that uptrend resistance but this is small cap month. That would be a disruption of historical cycles. Obviously there is nothing preventing a further decline so we need to be aware of the risk.

The 1,120 level was light support and it did hold and produced a minor rebound. Let's hope this was a sign of better things ahead.


Merrill Lynch released a survey this week showing that stock ownership by individual investors is only around 53% and a 15 year low. Normal is between 60-65%. Stocks are not "over owned" and there are still a lot of people in denial over the 2013 rally.

Fund managers are probably sitting on pins and needles this week. They don't want to make any changes but they know it is their responsibility to protect investor money if the market begins to weaken. They will be watching critical support levels even closer than individual investors. Not only does their fund performance depend on it but so does their bonuses.

We have had a very nice year in the markets. Most of the indexes are near new highs and the outlook for the future is improving. If we can just keep the Fed from rocking the boat we could have a good 2014 as well. Analyst estimates are ranging from 2050 to 2200 for the S&P by year end 2014. Don't go through 2014 alone. Take advantage of the 15th annual End of Year Renewal Special today. Don't wait until the last minute.

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Enter passively, exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Relative Strength In Healthcare

by James Brown

Click here to email James Brown

Editor's Note:

We were tempted to buy calls on the small cap Russell 2000 ETF (symbol: IWM) tonight. The three-day dip stalled as traders bought the decline near the IWM's prior highs from October. If you are looking for an alternative bullish candidate then consider buying a bounce in the IWM. The $116 area would be a good short-term target.



NEW DIRECTIONAL CALL PLAYS

Universal Health Services - UHS - close: 83.09 change: +0.81

Stop Loss: 80.75
Target(s): 88.50
Current Option Gain/Loss: Unopened
Time Frame: 4 to 5 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
UHS is in the healthcare sector. The company operates a number of hospitals, surgery centers, and health centers. The stock has been showing relative strength. The U.S. market has been sinking the last three days. UHS has been consolidating sideways until today where shares outperformed the market with a +0.9% gain. This is a new all-time, closing high for UHS stock.

Tonight we are suggesting a trigger to buy calls at $83.60. If triggered our target is $88.50.

Trigger @ 83.60

- Suggested Positions -

buy the 2014 Jan $85 call (UHS1418a85) current ask $1.75

Annotated Chart:

Entry on December -- at $---.--
Average Daily Volume = 912 thousand
Listed on December 03, 2013



In Play Updates and Reviews

Three-Day Decline

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market continued to see profit taking with its third decline in a row.

LMT was closed as planned. IBM hit our entry trigger.


Current Portfolio:


CALL Play Updates

Aon Plc. - AON - close: 81.88 change: +0.02

Stop Loss: 79.85
Target(s): 85.00
Current Option Gain/Loss: - 2.9%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/03/13: Today's move in AON looks a lot like yesterday. Traders bought the morning dip but the bounce failed near resistance in the $82.50 area. Shares spent the rest of the session drifting sideways. I am not suggesting new positions at this time.

- Suggested Positions -

Long 2014 Jan $82.50 call (AON1418a82.5) entry $1.70

11/23/13 new stop loss @ 79.85
11/18/13 new stop loss @ 79.45
11/13/13 new stop loss @ 78.75

Entry on November 08 at $80.50
Average Daily Volume = 2.3 million
Listed on November 06, 2013


Alliant Techsystems Inc. - ATK - close: 120.39 change: -2.05

Stop Loss: 118.40
Target(s): 124.00
Current Option Gain/Loss: +25.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/03/13: ATK finally succumbed to a little profit taking. Traders started buying the dip near round-number support at $120.00. I am not suggesting new positions at this time.

- Suggested Positions -

Long DEC $120 call (ATK1322L120) entry $1.80

12/01/13 new stop loss @ 118.40
11/30/13 new stop loss @ 116.75
11/26/13 new stop loss @ 115.75
11/23/13 new stop loss @ 114.90
11/21/13 new exit target @ 124.00 (was $120.00)
11/14/13 trade opened on gap higher at $116.80. trigger was 116.55

Entry on November 14 at $116.80
Average Daily Volume = 321 thousand
Listed on November 13, 2013


The Chubb Corp. - CB - close: 95.40 change: -0.05

Stop Loss: 94.90
Target(s): 99.75
Current Option Gain/Loss: - 1.6%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/03/13: CB flirted with a breakdown below support at $95.00. Shares almost hit our stop loss. A bounce from current levels could be used as a new bullish entry point.

- Suggested Positions -

Long 2014 Jan $95 call (CB1418a95) entry $1.85*

12/02/13 CB is underperforming and traders may want to exit early now
11/27/13 new stop loss @ 94.90
11/23/13 new stop loss @ 94.40

Entry on November 21 at $95.25
Average Daily Volume = 967 thousand
Listed on November 18, 2013


The Walt Disney Co. - DIS - close: 69.90 change: -1.01

Stop Loss: 68.45
Target(s): 77.50
Current Option Gain/Loss: -16.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/03/13: DIS underperformed today with a -1.4% decline thanks to an analyst downgrade. Shares were downgraded to a "neutral" because the firm believe DIS shares were fully valued at current levels. I remain bullish but look for a new rally above $70.25 before considering new positions.

Our multi-week target is $77.50. More aggressive investors could aim higher. The Point & Figure chart for DIS is bullish with an $83 target.

- Suggested Positions -

Long 2014 Jan $70 call (DIS1418a70) entry $1.66

11/30/13 new stop loss @ 68.45
11/26/13 new stop loss @ 67.95

Entry on November 22 at $70.25
Average Daily Volume = 6.6 million
Listed on November 14, 2013


Endo Health Solutions - ENDP - close: 66.75 change: -0.21

Stop Loss: 64.45
Target(s): 74.00
Current Option Gain/Loss: -25.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/03/13: It was another quiet day for shares of ENDP. Nimble traders may want to look for another bounce from the $66.00 level before considering new positions.

Earlier Comments:
This is a momentum play. Our target is $74.00. Can the $70.00 level be overhead, round-number resistance? Yes, it could so traders may want to limit their position size.

- Suggested Positions -

Long 2014 Jan $70 call (ENDP1418a70) entry $2.40

Entry on November 27 at $67.35
Average Daily Volume = 4.6 million
Listed on November 26, 2013


FleetCor Technologies - FLT - close: 122.05 change: -0.65

Stop Loss: 119.70
Target(s): 128.50
Current Option Gain/Loss: - 13.6%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/03/13: FLT gave back about two-thirds of yesterday's gains. IF the dip continues we can look for likely support near the $120.00 mark and its simple 10-dma.

Earlier Comments:
Our target is $128.50. More aggressive traders may want to aim higher since the Point & Figure chart for FLT is bullish with a $145 target.

- Suggested Positions -

Long 2014 Jan $125 call (FLT1418a125) entry $3.30*

*option entry price is an estimate since the option did not trade at the time our play was opened.

Entry on November 29 at $122.50
Average Daily Volume = 936 thousand
Listed on November 27, 2013


Hanesbrands Inc. - HBI - close: 70.12 change: -0.08

Stop Loss: 68.90
Target(s): 74.75
Current Option Gain/Loss: -23.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/03/13: HBI continues to churn sideways on either side of the $70.00 level. Traders may want to wait for a new rally past $70.80 before considering new positions.

Earlier Comments:
Our target is $74.75. More aggressive traders may want to aim a lot higher since the Point & Figure chart for HBI is bullish with a long-term $95 target.

- Suggested Positions -

Long 2014 Jan $70 call (HBI1418a70) entry $2.74

11/25/13 adjust the stop loss from $69.25 to $68.90

Entry on November 25 at $70.65
Average Daily Volume = 681 thousand
Listed on November 23, 2013


Michael Kors - KORS - close: 80.39 change: -1.37

Stop Loss: 77.75
Target(s): 89.00
Current Option Gain/Loss: -24.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
12/03/13: KORS displayed some relative weakness today but it should have been stronger. New data came out for the Black Friday four-day weekend. Overall retail traffic was down -4% from last year. Yet apparel and accessories stores saw traffic up +9.4%. That should be bullish for a company like KORS.

More conservative traders may want to raise their stop closer to the $80.00 level.

- Suggested Positions -

Long 2014 Jan $85 call (KORS1418a85) entry $1.85

11/22/13 trigger hit at $81.05
11/21/13 adjust entry strategy. Instead of buying a dip at $76.50, move the entry trigger to $81.05. Adjust the stop loss to $77.75. Adjust the option strike to 2014 Jan. $85 call.

Entry on November 22 at $81.05
Average Daily Volume = 7.2 million
Listed on November 20, 2013


Starbucks Corp. - SBUX - close: 80.55 change: -0.52

Stop Loss: 79.75
Target(s): 87.50
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/03/13: SBUX continues to slowly retreat lower toward $80.00. Currently we are waiting on a breakout but more nimble traders may want to consider buying a dip near $80.00 or its 50-dma near $79.30.

Earlier Comments:
The long-term trend is up and SBUX appears to be ready for a bullish breakout into the next leg higher. I am suggesting a trigger to buy calls at $82.75. If triggered our multi-week target is $87.50. However, that might be a little bit optimistic so we'll need to be nimble with our exit strategy. We may end up exiting near SBUX's trend line of higher highs (see chart).

Trigger @ 82.75

- Suggested Positions -

Buy the 2014 Jan $85 call (SBUX1418a85)

Entry on November -- at $---.--
Average Daily Volume = 4.5 million
Listed on November 30, 2013


Constellation Brands Inc. - STZ - close: 71.19 change: +0.47

Stop Loss: 69.40
Target(s): 74.75
Current Option Gain/Loss: + 5.7%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/03/13: STZ displayed relative strength with a +0.66% gain. This is also a new closing high for the stock. I am raising our stop loss to $69.40.

Earlier Comments:
Our plan was to limit our risk by using small positions.

*small positions* - Suggested Positions -

Long 2014 Jan $72.50 call (STZ1418a72.5) entry $1.75

12/03/13 new stop loss at $69.40

Entry on November 25 at $70.55
Average Daily Volume = 1.3 million
Listed on November 23, 2013


United Parcel Service - UPS - close: 101.90 change: -0.43

Stop Loss: 99.75
Target(s): 108.00
Current Option Gain/Loss: -18.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
12/03/13: Amazon.com made headlines with a big surprise on the 60 minutes TV show that the company was experimenting with unmanned drones to deliver packages to your doorstep. This would cut out the deliveryman, like UPS. Believe it or not but UPS is also experimenting with drones. At least that's the chatter. UPS would not officially say they're experimenting with drones for delivery but they did say they spend more money on R&D than any of its competitors in the delivery business.

Shares of UPS tested short-term technical support at the rising 10-dma today. More conservative traders might want to raise their stop loss.

- Suggested Positions -

Long 2014 Jan $105 call (UPS1418a105) entry $0.98

11/23/13 new stop loss @ 99.75
11/20/13 new stop loss @ 98.95

Entry on November 14 at $101.25
Average Daily Volume = 3.8 million
Listed on November 13, 2013


Western Digital Corp. - WDC - close: 75.53 change: +0.09

Stop Loss: 73.40
Target(s): 79.75
Current Option Gain/Loss: -11.6%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
12/03/13: It was a relatively mild session for WDC but shares did eke out a gain. More conservative traders may want to adjust their stops higher.

Our target is $79.75 but more aggressive traders may want to aim higher. The Point & Figure chart for WDC is bullish with a $91 target.

- Suggested Positions -

Long 2014 Jan $80 call (WDC1418a80) entry $1.46

11/27/13 new stop loss @ 73.40

Entry on November 22 at $75.25
Average Daily Volume = 2.4 million
Listed on November 21, 2013


WellPoint Inc. - WLP - close: 92.56 change: -1.36

Stop Loss: 89.75
Target(s): 99.00
Current Option Gain/Loss: +36.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/03/13: Ouch! WLP completely erased yesterday's bounce. I didn't see any company-specific news to account for the morning weakness. It looks like the entire healthcare sector, especially the managed healthcare names, all turned lower this morning. WLP did bounce off its morning lows but it still underperformed the market with a -1.4% decline. I am not suggesting new positions.

FYI: The Point & Figure chart for WLP is bullish with a $103 target.

- Suggested Positions -

Long 2014 Jan $95 call (WLP1418a95) entry $1.15

11/23/13 new stop loss @ 89.75

Entry on November 18 at $90.50
Average Daily Volume = 2.6 million
Listed on November 16, 2013


PUT Play Updates

Ctrip.com Intl. - CTRP - close: 47.49 change: +0.21

Stop Loss: 49.25
Target(s): 42.00
Current Option Gain/Loss: -11.9%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/03/13: CTRP spent most of today's session drifting sideways in a very narrow range. However, by the closing bell the stock was up +0.4%. Readers might want to wait for a new drop below $46.00 before initiating positions.

Earlier Comments:
If triggered we'll start with a stop loss at $49.25. More aggressive traders may want to use a stop above the $50.00 level instead since $50 should be round-number resistance. Our target is $42.00 near its August 2013 lows. More aggressive traders could aim lower since the Point & Figure chart for CTRP is bearish with a $40 target.

- Suggested Positions -

Long 2014 Jan $45 PUT (CTRP1418m45) entry $2.10

12/02/13 triggered @ 47.25

Entry on December 02 at $47.25
Average Daily Volume = 3.7 million
Listed on November 30, 2013


SPDR Gold ETF - GLD - close: 117.58 change: -3.12

Stop Loss: 122.55
Target(s): 115.50
Current Option Gain/Loss: + 7.2%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/03/13: The GLD saw a small bounce this morning but gains faded and shares spent most of the day meandering sideways.

Earlier Comments:
Traders may want to limit their position size to limit risk.

Our target is $115.50. More aggressive traders may want to aim lower since the Point & Figure chart for GLD is bearish with a $110 target.

- Suggested Positions -

Long 2014 Jan $115 PUT (GLD1418m115) entry $1.80

11/30/13 new stop loss @ 122.55

Entry on November 20 at $121.00
Average Daily Volume = 7.0 million
Listed on November 12, 2013


Intl. Business Machines - IBM - close: 176.08 change: -1.40

Stop Loss: 181.25
Target(s): 170.25
Current Option Gain/Loss: +12.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/03/13: Our new IBM trade is off to a good start. Shares gapped open lower at $177.00 and then fell to a new four-week low with today's -0.78% decline. Our suggested entry point to buy puts was hit at $176.90.

Earlier Comments:
Our target is $170.25, a new lower low. However, more conservative traders may want to exit near the October lows near $172.50 since they could be potential support.

- Suggested Positions -

Long 2014 Jan $175 PUT (IBM1418m175) entry $3.15

Entry on December 03 at $176.90
Average Daily Volume = 5.1 million
Listed on December 02, 2013


The St. Joe Company - JOE - close: 17.97 change: +0.15

Stop Loss: n/a *use small positions*
Target(s): $11.00-13.00 range
Current Option Gain/Loss: -51.9%
Time Frame: 2 to 3 months
New Positions: see below

Comments:
12/03/13: Hmm... today is the second day in the last three sessions that traders have bought the dip near $17.50 in shares of JOE. The stock is clearly not cooperating with a four-day bounce. Yet the larger trend remains bearish.

Remember, this is a lottery ticket style of trade.

I don't see any changes from last weekend's new play description.

Earlier Comments:
I do consider this an aggressive, higher-risk trade. Not everyone agrees with Einhorn. There are some big names in the stock on the bullish side. Plus, there are so many bears that any good news can produce these massive spikes higher. The most recent data listed short interest at 35% of the 92.1 million share float.

I am going to label this one a lottery ticket trade. We'll buy a cheap, out of the money option. If JOE continues to sink like we expect it to then great! We expect to more than double our money. If not, then we did not have that much invested. We definitely want to limit our position size to reduce our risk. I am not listing a stop loss because shares of JOE can be so volatile.

Our long-term target is $11.00 although we'll seriously consider exiting near the 2011 lows around $13.00.

*Small Positions* - Suggested Positions -

Long 2014 March $15 PUT (JOE1422o15) entry $0.52

Entry on November 25 at $17.50
Average Daily Volume = 627 thousand
Listed on November 23, 2013


Twitter, Inc. - TWTR - close: 41.37 change: +0.59

Stop Loss: n/a
Target(s): 35.25
Current Option Gain/Loss: - 83.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/03/13: TWTR is not cooperating with our bearish designs on the stock. There was no follow through lower on yesterday's bearish reversal pattern. The stock outperformed the broader market today with a +1.4% gain. We only have 13 sessions left for our December options.

Earlier Comments: (November 25th)
It looks like the IPO hype is finally wearing off as TWTR underperformed the market today and broke down to a new low. I'm not listing a stop loss because TWTR can be pretty volatile. Therefore you'll need to manage your risk by adjusting your position size. We'll use the December options with just less than four weeks. You may want to buy Januarys instead. Our short-term target is $35.25.

*Small Positions* - Suggested Positions -

Long Dec $35 PUT (TWTR1321x35) entry $0.60

Entry on November 26 at $39.16
Average Daily Volume = 19.7 million
Listed on November 25, 2013



Longer-Term Play Updates



Vanguard FTSE Europe ETF - VGK - close: 56.34 change: -0.50

Stop Loss: 54.90
Target(s): Sell half @ $58.00, sell the rest at $63.00
Current Option Gain/Loss: +38.8%
Time Frame: exit PRIOR to 2014 March option expiration
New Positions: see below

Comments:
12/03/13: It was another down day for European markets and another drop for the U.S. markets. This helped the VGK shave off another half point. This ETF is nearing what should be short-term support near $56.00 and its 50-dma.

Earlier Comments:
Don't forget that we have two exit targets for this trade!

We are taking a multi-month time frame with this trade. FYI: The Point & Figure chart for VGK is bullish with a $63 target.

- Suggested Positions -

Long 2014 Mar $55 call (VGK1422C55) entry $1.80*

11/30/13 new stop loss @ 54.90
10/22/13 Strategy Update: Plan to exit half @ $58.00 and exit the rest at $63.00. New stop loss @ 53.90
10/19/13 new stop loss @ 52.75
09/11/13 trade opens. VGK @ 53.60
*option entry @ 1.80 is an estimate. Ask closed at $1.75 yesterday
09/10/13 entry trigger met. open positions tomorrow.
09/10/13 new stop loss @ 50.95
08/24/13 adjust the option strike from 2013 Dec $55 to $2014 Mar $55.

Entry on September 11 at $---.--
Average Daily Volume = 3.0 million
Listed on August 10, 2013


CLOSED BULLISH PLAYS

Lockheed Martin - LMT - close: 138.77 change: -0.93

Stop Loss: 138.45
Target(s): 148.50
Current Option Gain/Loss: + 40.9%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/03/13: LMT continued to see profit taking on Tuesday. Our plan was to exit positions at the opening bell today. Unfortunately, LMT gapped lower at $139.31.

- Suggested Positions -

2014 Jan $140 call (LMT1418a140) entry $2.20 exit $3.10 (+40.9%)

12/03/13 planned exit
12/02/13 prepare to exit tomorrow morning
11/26/13 new stop loss @ 138.45
11/23/13 new stop loss @ 136.40
11/13/13 new stop loss @ 134.90

chart:

Entry on November 07 at $137.25
Average Daily Volume = 1.5 million
Listed on November 06, 2013