Option Investor
Newsletter

Daily Newsletter, Thursday, 1/27/2011

Table of Contents

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

Market Wrap

Amazon Hammered After Disappointing Earnings

by Jim Brown

Click here to email Jim Brown
Business may be good at Amazon but it was not good enough to prevent a -$16 drop in afterhours trading.

Market Statistics

The story for Thursday was one of winners and sinners with some stocks exploding higher on good earnings and the sinners imploding on weaker than expected results. It was a typical earnings day with the exception of the additional volatility caused by the markets straining to extend their gains over critical resistance levels. Investors have no confidence in the market rally and the slightest weakness in any earnings report is met with heavy selling. This is a symptom of many traders expecting a correction and maintaining a hair trigger on the sell button.

It was also a busy day for economics and the morning started off in the hole after the weekly jobless claims spiked unexpectedly by 50,000 to 454,000. This was the largest weekly jump since September 2005. Analysts were quick to blame the back-to-back snowstorms but claims have now risen in three of the last four weeks. This is a quick reminder and confirmation of what the Fed said on Wednesday about the weak job market and not yet self-sustaining recovery. Continuing claims rose by a larger +94,000 to 3.991 million. There are millions more who have already run out of benefits and are no longer carried on the government roles. The four-week moving average rose to 428,750 and the highest level since November.

The Mass Layoff report showed a continuing decline in layoff events but this is a lagging report for the December period. New layoffs fell from 148,800 in November to 137,992 in December. Manufacturing continues to be a drag with 22% of all layoffs and 26% of initial claims.

Pending home sales actually rose in December with the index at 93.7% compared to 92.2% in November. The pace of buying is increasing but rising very slowly. Since this period on the calendar is normally stagnant this is increasing optimism for the coming spring sales season. Sales have now increased in five of the last six months. Tight credit continues to plague the sector. With rates starting to inch back up we should see a strong surge in the spring as the remaining buyers try to beat the rate hikes.

The Chicago Fed National Activity Index broke into positive territory at +0.03 for December after being in negative territory for the prior four months. The housing sector continued to be a drag on the index. Despite the drag the indexes rebounded from -0.40 to +0.03. I know these small decimal numbers don't attract much interest but that was a big jump in the index.

On the flip side the Kansas Fed Manufacturing Survey headline number for January declined to 11 from 21 in December. The new orders component dropped from 16 to zero for the second consecutive monthly decline. Backorders declined from 9 to 2 and the average workweek fell from 10 to 6. This was not a good report. January slowdowns are common but this one was pretty steep.

The calendar for Friday is pretty skinny but the Q4 GDP report will be the highlight. Estimates are for +3.6% growth. A significant miss on those estimates could provide some significant market volatility since the rally is built on improving expectations.

Economic Calendar

The big news for the day was of course the barrage of earnings reports. The biggest news came after the close when Amazon failed to inspire allegiance from investors and the stock was crushed. Amazon reported earnings of 91-cents and that beat estimates of 88-cents. The problem came in the revenue at $12.95 billion compared to estimates of $13.01 billion. Remember, this was the holiday quarter when Amazon posts its best numbers. Missing estimates for that quarter when they normally greatly exceed the goals is a serious miss. That miss may not be much in terms of dollars but it is damaging to sentiment. Amazon provided guidance of $12.0-$13.3 billion in October. Their actual revenue was well inline with their forecasts but investors were still unhappy.

Amazon had a very small gross margin of 3.8% so changes in revenue are critical. Analysts were expecting margins of 4%. Unfortunately for Q1 they are only projecting operating income of $260-$350 million, which implies a margin range of 2.9% to 3.9%. Analysts were expecting a 5% margin for Q1.

Amazon has been spending on building out its distribution system and that lowers profits. They announced last year they were building 13 new distribution centers plus they acquired Diapers.com and Quidsi.com. To physically be able to ship millions of packages per day during the holiday season they have to build these monster distribution centers. You have to pay before you can pay. Obviously having these cents in operation in the future will be good for profits long term. The short term results in lower profits. Amazon has never shied away from investing for the future and long-term investors should be prepared to buy the dip. At least one analyst believes the stock could decline to $150 before it moves higher again.

Amazon shares rose +9.40 in regular trading before it was slammed for a -$16 drop in afterhours.

Amazon Chart

On the flipside NetFlix spiked +28 on earnings and news it surpassed 20 million subscribers. NetFlix reported a +52% rise in Q4 earnings on Wednesday. Earnings were 87-cents compared to estimates of 71-cents. As more people subscribe the company said it was becoming easier to obtain rights from Hollywood studios and add online content to reduce the cost of mailing DVDs. The company said it expected to end Q1 with more than 22 million subscribers and end 2011 with more than 27 million. NetFlix said it added 3.8 million subscribers in Q4 alone. NetFlix projected Q1 earnings from 90-cents to $1.13 per share compared to analyst estimates of 87-cents. Many analysts had been expecting NetFlix to begin losing subscribers and profits as more competitors emerge. Evidently there are no serious competitors large enough to dent the gains from the market leader. Shorts were crushed by the strong earnings leading to a +28 gain.

Netflix Chart

Caterpillar (CAT) reported earnings of $1.47 per share compared to estimates of $1.27. The 20-cents beat was enough to overcome some market weakness and push the stock up about a buck but nowhere near the moves of NetFlix. There was some concern because the margins shrank but analysts expect business to remain strong because miners are getting more for their ores and they can afford to spend on equipment. CAT said it was spending money on new capacity and new product development as well as considering some strategic acquisitions. Revenue for 2011 is expected to exceed $50 billion and potentially break the record set in 2008.

Microsoft earnings were released at 2:50 PM when a data-mining firm found a rough draft on the Internet and started tweeting the details. Microsoft apologized for the error and promised it would not happen again. The software giant posted earnings of 77-cents and barely over the 74-cents this time last year. The drag came from the Windows division where Windows Seven has begun to fade as a top revenue generator. The earnings were a strong beat of estimates at 68-cents and revenue also beat. The year ago quarter had a one time contribution of $2 billion in revenue from advance sales of Windows Seven. Microsoft has sold over 300 million copies of Seven and 20% of Internet connected PCs now use that operating system.

Microsoft said it had already sold 8 million units of the Kinect motion-sensor videogame device that connects to the Xbox console. That boosted revenue in the Entertainment and Devices group by 55%. Microsoft said revenue in that division would continue to grow at a 50% clip. Sales of Office 2010 are 50% ahead of Office 2007 at the same point in the launch cycle. Office 2010 is the most successful consumer version they have ever shipped. This is surprising since Sun Micro (now Apple) and Google both offer competing versions of Office type products.

Shares of Microsoft spiked when the news broke during market hours but returned to the flat line almost immediately and continued flat after hours.

Microsoft Chart

Motorola (MMI) posted gains in revenue and earnings in Q4 but the company predicted a net loss of $26 to $62 million in Q1. The company warned that Verizon's competitive actions in Q1 surrounding the iPhone launch could have a negative impact on Android phones. "We are already seeing a slowdown in sales." Apparently the impending availability of the iPhone at Verizon will take away the competitive edge the Android had with the carrier. However, AT&T in retaliation for losing their exclusivity with Apple said they would be heavily marketing the Android phones in Q1 to make up for the lost business from the iPhone. Shares of MMI dropped -12% on the news.

Motorola Chart

Murphy Oil (MUR) was the worst performing S&P stock during the regular session after the company reported earnings of 90-cents that missed the 92-cent analyst estimate. Some estimates were as high as 97-cents. The company said production fell due to lower volumes at an offshore Malaysian field where maintenance issues and bad weather slowed installation of drilling equipment. Overall production fell -15.3% year over year and that is what killed Murphy's share price. The lower production drew multiple analyst downgrades. Shares declined $7.50 or -10% on the news.

Murphy Oil Chart

The commodity sector is getting pummeled after weeks of solid gains. The price of oil declined to just over $85 after inventories began rebuilding over the last two weeks and Saudi Arabia started talking about higher oil production. Add in the sharply higher jobless claims and support began dissolving. Oil prices are in free fall now and should find support in the $83.50 range. The dollar is expected to improve over the next four weeks and that will keep pressure on crude prices.

Chart of Crude Oil

Gold suffered its biggest one-day loss in three weeks with a -2% drop to 1310. Investors feel less insecure about the situation in Europe and about the U.S. recovery so they are moving into higher risk investments like equities. The S&P traded at 1300 today for the first time since September 2008. That is drawing money off the sidelines and forcing former gold bulls to take profits. Comex gold futures traded 370,000 contracts and about 65% more than normal. Open interest in gold futures has declined -17% in the last week. Several analysts have echoed my thoughts from last week that support should be in the $1280-1282. Gartman is looking for support in the $1307 range.

Chart of Gold

The S&P is drawn to the 1300 level like a moth to a flame but we all know what happens when the moth actually meets the flame. The S&P 1300, Dow 12000 levels have been drawing investors interest for a couple weeks now and both traded over those levels today for a very short period. At the risk of sounding like a bear I would be really concerned if we did not trade over those levels on Friday. Traders can only stand just so much foreplay before they grow worried and abandon the attempt.

Earnings like Amazon's could weigh on sentiment now that the earnings cycle is about to wind down. Most of the big companies have now reported and we are heading into the second and third tier companies where earnings quality will not be as strong. Next week is normally where the post earnings depression appears.

If the S&P is successful in pushing through 1300 the next resistance level is 1310 and the 71% Fib retracement of the 2009 dip. The S&P has not had a decent bout of profit taking since early November.

S&P-500 Chart

The Dow is having the same problem with 12,000 as the S&P is having with 1300. Twice it has punched through only to be dragged back below that level before the close. The bears are doing their best to keep the pressure on. This is psychological resistance more than technical but it is still resistance. Initial support has risen to 11975 and does not leave much room for the Dow to maneuver. That means there are a lot of stop losses waiting very close to the current price. However, EVERY dip has been bought for weeks so traders will expect the next dip to be bought as well. That plan works until suddenly it doesn't.

Dow Chart

The Nasdaq, unlike the Dow and S&P, actually had a decent bout of profit taking last week. There is nothing to keep traders from buying techs except for monster single stock declines like Amazon that destroy sentiment. Futures are negative overnight as you would expect. The Nasdaq has managed to claw its way back to resistance over 2760 and buying interest is pretty strong thanks to last week's dip. I am not going to forecast a direction for the Nasdaq on Friday because it all depends on how long term investors react to the Amazon earnings and plans for the future.

Nasdaq Chart

In summary I believe the market is struggling. Yes, it is making new highs but only barely. It is over extended and needs to rest. However, we all know it can remain irrational and over extended far longer than the bears can remain solvent if that is what it wants to do. I think Friday will be a coin toss but if pressed for a direction I would expect a minor decline. The bulls are still in charge but they are facing mounting pressure from the bears that have taken up residence at 12000/1300. If we can push through those levels they will again be forced to cover and the battle will begin anew at a higher level. Eventually the remaining bears are going to be forced to capitulate and go long and that is when we need to start seriously worrying about a decline.

Jim Brown

Send Jim an email


New Plays

Market At Resistance

by James Brown

Click here to email James Brown

Editor's Note:

The market continues to inch higher but some of the major averages are hitting resistance. The Dow Jones Industrials has been stuck at the 12,000 level for three days now. The S&P 500 just hit potential resistance at the 1300 mark. The NASDAQ composite, which saw a strong bounce in the last four days, is now nearing its January highs near the 2765 level. Meanwhile the small cap Russell 2000 index is bouncing but its broken trendline of support is now overhead resistance.

Overall I am reluctantly bullish but I'm a little hesitant to open new positions with the market stalling at resistance. Let's wait and see what happens tomorrow. No new plays tonight.

- James


In Play Updates and Reviews

Upgrades Making Moves

by James Brown

Click here to email James Brown

Editor's Note:
ANN and SXCI were both upgraded today. The move in SXCI was substantial and we want to go ahead and exit our call options for a gain. We had planned to exit our MSFT and INFA trades at the close today. Meanwhile ENDP hit our trigger to open bearish positions.

-James

Current Portfolio:


BULLISH Play Updates

Ann Taylor Stores Corp. - ANN - close: 22.30 change: +0.24

Stop Loss: 20.80
Target(s): 24.00, 25.00
Current Gain/Loss: - 1.8%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
01/27 update: Love them or hate them the timing of Wall Street's upgrades and downgrades can either be a boon or a curse. This morning ANN was upgraded from a "hold" to a "buy". Unfortunately that sent the stock gapping open higher. Our entry point was the morning print at $22.73. Shares faded from their morning gains. I would still consider new positions here or on dips near $21.00. Remember, this is a higher-risk trade. Our first target is $24.00. Keep your position size small to limit our risk.

Small Bullish Positions

Current Position: ANN stock @ $22.73

- or -

Long the 2011 February $24 calls (ANN1119B24) Entry @ $0.50

01/27 Entry point at $22.73, gap open on broker upgrade.

Entry on January 27 at $22.73
Earnings Date 03/11/11 (unconfirmed)
Average Daily Volume: 2.5 million
Listed on January 26th, 2010


BE Aerospace Inc. - BEAV - close: 39.70 change: +0.15

Stop Loss: 37.75
Target(s): 43.40
Current Gain/Loss: + 2.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/27 update: Hmmm... BEAV failed at the $40.25 area for the second day in a row. I would expect a pull back toward the $39 or $38 level soon. No new positions at this time.

- (small positions to limit risk) -

Current Position: BEAV stock @ $38.89

- or -

Long the 2011 February $40.00 calls (BEAV1119B40) Entry @ $1.35

01/15: new stop loss @ 37.75

Entry on January 11 at $38.89
Earnings Date 02/01/11 (unconfirmed)
Average Daily Volume: 542 thousand
Listed on January 10th, 2010


Walt Disney Co. - DIS - close: 39.46 change: +0.02

Stop Loss: 37.85
Target(s): 39.90, 42.50
Current Gain/Loss: + 3.1%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/27 update: Thursday was a quiet day for DIS with the stock trading sideways in a narrow range. I am not suggesting new positions at this time.

Our first target has already been hit. We're currently aiming for $42.50.

- Current Positions -

Long DIS stock @ 38.25

- or -

Long the 2011 February $40.00 calls (DIS1119B40) Entry @ $0.45

- or -

Long the 2011 April $40.00 calls (DIS1116D40) Entry @ $1.10

01/19: Consider an early exit from the option positions.
01/15: New stop loss @ 37.85
01/05: 1st Target Hit. Stock @ 39.90 (+4.3%)
01/05: 1st Target Hit. Feb. call @ $1.20 (+166%). April call @ 1.80 (+63.6%)
01/05: new stop loss @ 37.49
01/04: Play triggered @ 38.25

Entry on January 4 at $38.25
Earnings Date 02/08/11 (confirmed)
Average Daily Volume: 8.6 million
Listed on December 25th, 2010


FLIR Systems Inc. - FLIR - close: 30.64 change: +0.14

Stop Loss: 28.90
Target(s): 30.90, 33.00
Current Option Gain/Loss: + 5.2%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/27 update: FLIR almost hit our first target today with a rise to $30.88. Broken resistance near $30.00 should now act as new short-term support. I am reluctant to open new positions. (FYI: The April $30 call hit $1.85 intraday)

Current Position: Long FLIR stock @ $29.10

- or -

Long the 2011 April $30.00 calls (FLIR1116D30) Entry @ $1.60

01/25: New stop @ 28.90
01/19: Consider an early exit from the option position (bid $1.30)
01/15: New stop loss @ 28.49
01/10: FLIR provided another entry point near $28.50
01/08: New stop loss @ 27.90

Entry on December 22 at $29.10
Earnings Date 02/09/11 (confirmed)
Average Daily Volume: 1.6 million
Listed on December 18th, 2010


Hansen Natural Corp. - HANS - close: 55.65 change: -0.35

Stop Loss: 53.40
Target(s): 59.50
Current Gain/Loss: + 0.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/27 update: HANS delivered a quiet session. I strongly suspect that if we're patient we'll see another entry point on a dip near $54.50 soon. Our target is $59.50. Small positions only to limit our risk.

- Small Positions to limit our risk -

Current Position: HANS stock @ $55.54

- or -

Long the March $60 calls (HANS1119C60) Entry @ $1.50

01/26 the CBOE listed the MAR $60 call's open @ $1.50

Entry on January 26 at $55.54
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume: 654 thousand
Listed on January 25th, 2010


Microchip Technology - MCHP - close: 37.89 change: +0.46

Stop Loss: 35.95
Target(s): 39.95
Current Gain/Loss: +2.4%
Time Frame: 2 weeks
New Positions: see below

Comments:
01/27 update: Our trade in MCHP suddenly got a lot more exciting but more on that in a moment. The SOX semiconductor index outperformed the market with a +1.8% gain. MCHP tried to keep up but only rose +1.2%. This is a new two-year high but I want to point out that MCHP has potential resistance in the $38.25 area.

Now to the exciting part. Previously we thought MCHP was going to report earnings in early February. Unfortunately that date was unconfirmed. MCHP actually reported earnings tonight, Jan. 27th, after the closing bell. Wall Street was expecting a profit of 57 cents a share. The company delivered 58 cents on revenues that also beat the street's expectations. Guidance was only inline with consensus.

At the moment I am not seeing any after hours action in MCHP. However, just meeting or slightly beating earnings estimates has not been good enough lately. I would expect MCHP to see some profit taking tomorrow. The question is will this profit taking breakdown through support near $36.00? I am not suggesting new positions at this time.

small bullish positions

Current Position: MCHP stock @ $37.00

- or -

Long the 2011 February $38 call (MCHP1119B38) Entry @ $0.55

01/27 MCHP unexpectedly reports earnings
01/25 The CBOE listed the call option's open at $0.55

Entry on January 25 at $37.00
Earnings Date 01/27/11 (confirmed)
Average Daily Volume: 1.6 million
Listed on January 24th, 2010


NASDAQ OMX Group - NDAQ - close: 25.21 change: +0.70

Stop Loss: 23.85
Target(s): 26.50
Current Gain/Loss: + 5.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/27 update: NDAQ surged +2.8% to new 52-week highs on above average volume. I couldn't find any news to account for this relative strength. Currently our target to exit is $26.50 but readers may want to adjust that target down to $26.00. I am moving our stop loss higher to $23.85. It was our plan to keep positions very small to limit our risk.

Current Position: Long NDAQ stock @ $24.00

01/27: New stop loss @ 23.85
01/22: New stop loss @ 23.49

Entry on January 19 at $24.00
Earnings Date 02/02/11 (confirmed)
Average Daily Volume: 1.5 million
Listed on January 18th, 2010


Oracle Corp. - ORCL - close: 32.92 change: +0.36

Stop Loss: 31.40
Target(s): 34.90
Current Gain/Loss: + 0.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/27 update: So far so good. ORCL opened at $32.62 and posted a +1.1% gain to set new multi-year highs. Nimble traders could have bought the dip at $32.16. I would still consider new bullish positions in the $32-33 zone.

Our target on ORCL is the $34.90 mark since $35.00 looks like the next level of resistance.

small positions

Current Position: ORCL stock @ $32.62

- or -

Long the 2011 March $33 calls (ORCL1119C33) Entry @ $0.80

01/27 The CBOE listed the open for our calls at $0.80

Entry on January 27 at $32.62
Earnings Date 03/24/11 (unconfirmed)
Average Daily Volume: 27 million
Listed on January 26th, 2010


SXC Health Solutions - SXCI - close: 48.54 change: +1.92

Stop Loss: 43.40
Target(s): 49.00
Current Gain/Loss: + 9.5%
Time Frame: 8 to 9 weeks
New Positions: see below

Comments:
01/27 update: SXCI surged to new highs with a +4.1% gain thanks to an upgrade this morning. I blame a small float (60 million shares) for exaggerating the move. SXCI hit $48.93 intraday and our exit target has been $49.00. Please note that I am raising our stop loss to $44.90. Plus, I am suggesting we go ahead and exit our call position now! We will update them at tomorrow's open. I'm not suggesting new bullish positions at this time.

NOTE: Buying the options is a higher-risk trade. The calls on SXCI have wider than normal spreads put option traders at a disadvantage here.

Suggested Positions: Long SXCI stock @ $44.31

- or -

Long the 2011 February $45.00 calls (SXCI1119B45) Entry @ $1.44

01/27: Exit Calls Now! Currently bid @ $3.50 (+143%)
01/27: New stop loss @ 44.90
01/22: New stop loss @ 43.40, Consider an early exit.
01/19: New stop loss @ 42.65

chart:

Entry on January 10 at $44.31
Earnings Date 03/03/11 (unconfirmed)
Average Daily Volume: 292 thousand
Listed on January 8th, 2010


UnitedHealth Group - UNH - close: 42.29 change: +2.04

Stop Loss: 40.45
Target(s): 44.75
Current Gain/Loss: unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see trigger

Comments:
01/27 update: It's days like today I'm tempted to use foul language when I see a move like UNH when we've been waiting for an entry point. Shares rallied +5% after breaking out past resistance near the $41.00 level.

I am suggesting we adjust our strategy. Buy a dip at $41.15. Use a stop loss at $40.45. Our target is $44.75.

Buy-the-Dip Trigger @ $41.15

Suggested Position: Buy UNH stock @ $41.15

- or -

Buy the 2011 March $42 calls (UNH1119C42)

Entry on January xx at $xx.xx
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume: 5.9 million
Listed on January 20th, 2010


WellCare Health Plans, Inc. - WCG - close: 31.24 change: +0.49

Stop Loss: 29.85
Target(s): 33.75, 37.75
Current Gain/Loss: + 1.5%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/27 update: Strength in the healthcare sector helped WCG post a +1.5% gain. I would still be tempted to launch small positions here. Readers could inch up their stops closer to the $30.00 mark.

Keep in mind that investors will have to decide whether or not they are willing to take the risk of holding over WCG's earnings report in late February.

Current Position: WCG stock @ $30.75

- or -

Long the 2011 March $35.00 calls (WCG1119C35) Entry @ $0.60

01/15: new stop loss @ 29.85
01/06: Play triggered @ 30.75.

Entry on January 6 at $30.75
Earnings Date 02/17/11 (unconfirmed)
Average Daily Volume: 410 thousand
Listed on January 4th, 2010


BEARISH Play Updates

Endo Pharmaceuticals - ENDP - close: 34.32 change: +0.32

Stop Loss: 35.75
Target(s): 31.00
Current Gain/Loss: - 0.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/27 update: Our bearish play on ENDP is now open. Shares rallied to $34.54 late this afternoon. Our trigger to launch positions was hit at $34.50. I would still consider new positions right now. We'll try and limit our risk with a stop loss at $35.75. Our first target is $31.00.

Current Position: Short ENDP stock @ 34.50

- or -

Long the 2011 February $35 PUT (ENDP1119N35) Entry @ $1.30

chart:

Entry on January 27 at $34.50
Earnings Date 02/22/11 (unconfirmed)
Average Daily Volume: 1.3 million
Listed on January 24th, 2010


Reliance Steel - RS - close: 53.40 change: -0.39

Stop Loss: 55.05
Target(s): 45.05
Current Gain/Loss: + 3.8%
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
01/27 update: There was no follow through on yesterday's big bounce but we remain at risk. I am not suggesting new bearish positions at this time. Our stop is at $55.05. There is potential support near $48 but I'm targeting a drop toward the $45 level and its 200-dma. We do not want to hold over the earnings in mid February.

Current Position: Short RS stock @ $51.41

- or -

Long the February $50 PUT (RS1119N50) Entry @ $1.35

01/24 CBOE listed the $50 PUT opening price at $1.35

Entry on January 24 at $51.41
Earnings Date 02/17/11 (unconfirmed)
Average Daily Volume: 654 thousand
Listed on January 22nd, 2010


CLOSED BULLISH PLAYS

Microsoft Corp. - MSFT - close: 28.87 change: +0.09

Stop Loss: 27.85
Target(s): 27.45, 29.75
Current Gain/Loss: +12.99%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/27 update: MSFT was another earnings surprise. The surprise was the company's earnings announcement right before the closing bell. Everyone was expecting the release after the market's close. MSFT delivered a profit of 77 cents a share, which was 9 cents better than expected. Revenues also outpaced estimates at $19.9 billion for the quarter. The stock briefly rallied to $29.46 before reversing and giving back its late day gains.

It was our plan to exit positions tonight at the closing bell.

Closed Position: Long MSFT stock @ 25.55

01/27/11 Exit at the close. MSFT @ 28.87 (+12.99%)
01/26/11 New stop loss @ 27.95, exit tomorrow
01/19/11 New stop loss @ 27.85
01/15/11 New stop loss @ 27.49
01/14/11 Follow up. Exit Jan $25 calls @ 3.25 (+133.9%)
01/13/11 Plan to exit our January calls tomorrow at the close.
01/06/11 raised final exit target to $29.75
01/06/11 new stop loss @ 26.95
12/25/10 new stop @ 25.95
12/18/10 new stop @ 25.70
12/14/10 Target hit @ 27.45 (+7.4%), option @ $2.55 (+83.4%)
12/11/10 New stop @ 25.45
11/29/10 New stop @ 24.70

chart:

Entry on November 17 at $25.55
Earnings Date 01/27/11 (confirmed)
Average Daily Volume: 68.4 million
Listed on November 15th, 2010


CLOSED BEARISH PLAYS

Informatica Corp. - INFA - close: 42.57 change: -1.22

Stop Loss: 44.25
Target(s): 39.00, 36.00
Current Gain/Loss: + 0.8%
Time Frame: 4 trading days
New Positions: see below

Comments:
01/27 update: INFA is seeing some volatility ahead of its earnings report. After yesterday's big bounce the stock immediately reversed after hitting $44.14 this morning. The move looks bearish but we already had plans to exit positions tonight at the closing bell to avoid holding over INFA's earnings announcement. Our plan was to use small positions to limit our risk.

small positions

Closed Position: Short INFA stock @ 42.20, Exit @ 42.57 (+0.8%)

- or -

February $40 PUT (INFA1119N40) Entry @ $0.85, Exit @ $1.00 (+17.6%)

01/27 Planned Exit on Thursday
01/27 Exit INFA @ 42.57 (-0.8%), Exit option @ $1.00 (+17.6%)
01/24 CBOE listed the PUT's opening price at $0.85

chart:

Entry on January 24 at $42.20
Earnings Date 01/27/11 (confirmed)
Average Daily Volume: 907 thousand
Listed on January 22nd, 2010