NEW DIRECTIONAL CALL PLAYS

NetApp, Inc. - NTAP - close: 35.72 change: +1.47

Stop Loss: 33.95
Target(s): 39.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 5 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Last week while the market was plunging lower, shares of NTAP consolidated sideways. That might be due to the fact that NTAP was hammered lower the prior week on its earnings news and guidance. It certainly looks like the bad news has been priced in and NTAP may have found a bottom.

Today's widespread market surge higher produced some short covering in NTAP and the stock rallied +4.2%. If the market continues higher we could see NTAP try and fill the gap.

I am suggesting we open small bullish positions in NTAP tomorrow morning but only if both NTAP and the S&P 500 index open positive. If the S&P opens flat then the determining factor will be NTAP's open. I do consider a more aggressive trade. We want to keep our position size small to limit risk.

FYI: Readers should note that there is a risk that NTAP might make an acquisition soon. There are rumors floating around that NTAP could buy Quantum (QTM) or CommVault (CVLT) in an effort to better compete with rival EMC. If NTAP does make a bid for either company typically shares of the buyer go down while shares of the target go up.

*See Entry Details Above*

- Suggested Positions -

buy the JAN $35 call (NTAP1221A35) current ask $2.61

Annotated Chart:

Entry on November xx at $ xx.xx
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 9.2 million
Listed on November 28, 2011


NEW DIRECTIONAL PUT PLAYS

iShares Russell 2000 ETF - IWM - close: 69.79 change: +3.17

Stop Loss: 72.05
Target(s): 65.50
Current Option Gain/Loss: +0.0%
Time Frame: 2 to 3 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
After a very sharp two-week decline the market finally produces an oversold bounce. Today's move looks a lot like short covering. The small cap Russell 2000 index was down -7% just last week. Today the IWM surged +4.75%. Yet it stalled at resistance near 70.00 and its 50-dma.

We are not convinced this rally has legs so we're listing a bearish put position on the IWM to speculate on the bounce rolling over. I do consider this a more aggressive trade. We want to keep our position size small to limit our risk. The plan is to buy puts at the open tomorrow morning. More nimble traders could wait to see if the IWM can rally into the $71.00-71.50 zone first before initiating positions.

Make sure you're buying the normal December puts that expire on the 17th and not the one-week puts.

(Small Positions)

- Suggested Positions -

buy the Dec $69 PUT (IWM1117x69) current ask $2.11

Annotated Chart:

Entry on November xx at $ xx.xx
Earnings Date --/--/--
Average Daily Volume = 66.2 million
Listed on November 28, 2011