Option Investor
Play Updates

As stocks fall they're moving closer to our entry points

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---------------------- CALL Play Updates ----------------------

Burlington Northern - BNI - cls: 78.67 chg: -1.33 stop: 73.85

Traders should note that even during the market's best levels of the day that shares of BNI failed to climb over Friday's high. The short-term bearish trend of lower highs prevail. We don't see any changes from our previous comments.

We want to buy calls on another dip near support. Our suggested entry zone is the $75.50-74.00 region with a stop loss at $73.85. If triggered our first target is the $79.95 mark. We unload most of our position there. We are listing a secondary, more aggressive target at $84.00. Note: BNI is also a short-term put play as we try to catch the drop to $75.

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/23/08 (confirmed)
Average Daily Volume = 5.1 million

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CSX Corp. - CSX - close: 40.66 chg: -1.72 stop: 38.90

CSX delivered another gap down this morning but it wasn't as bad as Friday's. The trend remains lower as CSX nears support near $40.00. Over the weekend we suggested that readers wait for another dip before considering new bullish positions. I want to repeat that more conservative traders will want to consider a tighter stop in the $39.50-39.95 zone.

A breakdown under $40 or $39.00 would be extremely bearish and I would look for an immediate drop to the $37.50-37.00 zone.

At the moment it looks like readers could wait for a dip into the $40.25-40.00 zone to open bullish positions as CSX closed at its lows for the day, which is a bearish sign for tomorrow morning.

Our target on CSX is $49.90.

Picked on October 23 at $ 40.41 /gap down entry
Change since picked: + 0.25 /originally listed at $43.74
Earnings Date 10/14/08 (confirmed)
Average Daily Volume = 6.5 million

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Freeport McMoran - FCX - close: 23.75 change: -1.11 stop: 18.45

There were no surprises here. FCX attempted to rally and rolled over. Nimble traders might want to consider short-term bearish trades with a stop above today's high and a $20.50 target. We are currently suggesting readers buy calls on FCX on a dip into the $21.00-20.00 zone. We'll use a stop loss at $18.45. Our first target is $29.00. Our secondary target is $37.50.

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/21/08 (confirmed)
Average Daily Volume = 20 million

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Hansen Natural - HANS - close: 21.00 change: -0.12 stop: 19.95

I have to say it's not looking well for HANS if you're a bull. The stock only lost 12 cents but the intraday movement was very bearish with another failed rally attempt. I would expect a dip toward $20.00 soon. If you are willing to buy a bounce then wait for a dip near $20.00 and a rebound over $21.00 before jumping into a position. We have two targets. Our first target is $26.85. Our secondary target is $30.00.

Note: If HANS breaks down under $20.00 it would be very bearish. We're suggesting readers buy November puts on HANS if the stock trades under $19.50 and target the $15.50-15.00 zone.

Picked on October 23 at $ 21.47 /gap down entry
Change since picked: - 0.47 /originally listed at 22.88
Earnings Date 11/06/08 (unconfirmed)
Average Daily Volume = 10.6 million

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MasterCard - MA - close: 126.35 chg: - 4.27 stop: 118.99

It's the same story but with a different stock here. The intraday rebound failed and MA closed near its lows for the session, which is bearish for tomorrow. I would expect a retest of the $121-120 zone soon. I'd also be tempted to buy calls on a dip to the $120 region. However, at this point, with the lack of follow through on the bounces, it doesn't look good for the bulls and we're just speculating on a bottom. Historical support levels don't seem to mean much in this market.

We have two targets. Our first target is $158.00. Our second target is $169.50. If we get stopped out at $118.99 I would be looking for another bullish entry point near the $100 zone.

Picked on October 23 at $131.00 *triggered 10/23
Change since picked: - 4.65
Earnings Date 11/03/08 (confirmed)
Average Daily Volume = 3.8 million

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Energy SPDR - XLE - close: 40.86 chg: -2.79 stop: 37.45

The energy sector got crushed today as crude oil slipped to new relative lows. The XLE gave up more than 6%. This energy ETF should hit our suggested trigger to buy calls very soon. Currently our entry point is the $40.50-39.00 zone. More conservative traders will want to consider a tighter stop loss near the October 2008 low of 38.84.

If triggered we're setting two targets. Our first target is $45.00. Our second target is $49.75.

Picked on October xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 47.7 million

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---------------------- PUT Play Updates ----------------------

Burlington Northern - BNI - cls: 78.67 chg: -1.33 stop: 82.35

BNI tried to rally intraday but couldn't get over its trend of lower highs. This sort of action increases the odds that BNI will indeed retest support near $75. Our target to exit is $75.50. This is where we would switch directions and buy calls.

Picked on October 26 at $ 80.00
Change since picked: - 1.33
Earnings Date 10/23/08 (confirmed)
Average Daily Volume = 5.1 million

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Chattem Inc. - CHTT - close: 68.63 chg: +0.90 stop: 70.75

CHTT bucked the trend in the markets most of the day and actually closed in the green. Shares traded above their simple 200-dma for a few moments this afternoon. If there is a continuation of the bounce tomorrow watch for resistance near $70.00 and its 20-dma. We remain bearish and would still open new put positions here.

We're setting two targets. Our first target is $61.50 near the October 2008 lows. Our secondary, more aggressive target is the 58.00 level near its summer 2008 lows. FYI: I would consider this a more aggressive play because CHTT doesn't have a lot of volume and the option spreads are a little wide!

Picked on October 26 at $ 67.73
Change since picked: + 0.90
Earnings Date 09/25/08 (confirmed)
Average Daily Volume = 400 thousand

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Volatility Index - VIX - cls: 80.06 chg: + 0.93 stop: n/a

The VIX continues to see big intraday swings. It spiked to 81.65 this morning, dipped to 71.29 and then back to 80.00 before the closing bell. We don't see any changes from our weekend comments. At these levels we'd rather be selling volatility not buying it. We're not suggesting new directional put positions at this time.

Instead I would consider selling November calls. It's up to you if you want to sell in-the-money, at-the-money or out-of-the-money calls.

If the VIX is under your call's strike price at expiration they'll expire at zero ($0.00) and you keep all the premium you sold it for.

Note: The VIX options, which are European style options, have a unique expiration date. November VIX options expire on November 19th, 2008. The last day of trading for these options is the Tuesday before expiration. For more information check this link: http://www.cboe.com/Products/indexopts/vixoptions_spec.aspx

Our September 16th put position (suggested entry at 30.30) has a 25.50 target. In all honesty this position may be dead. We still have plenty of time with these next two. The September 29th position (suggested entry at 46.72) has two targets at 36.00 and 31.00. Our October 8th position (entry 57.53) has two targets at 40.00 and 35.00.

Picked on September 16 at = 30.30 first position
Change since picked: +49.76
Picked again Sept. 29 at = 46.72 second position
Changed since picked: +33.34
Picked again Octo. 08 at = 57.53 third position
Changed since picked: +22.53
Earnings Date 00/00/00
Average Daily Volume = --- million

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---------------------- Strangle & Spread Play Updates ----------------------

CBOE Volatility Index - VIX - cls: 80.06 chg: + 0.93 stop: n/a

The VIX remains extremely elevated. We don't see any changes from our weekend comments. If you're launching new spreads now consider adjusting your strike prices higher than the ones we have listed.

Trading Note: Here's a thought... if you think the VIX is topping out here near 80 then consider the following. What if you sold your calls that we bought here with the VIX at 80 or on another spike into the 85-90 zone. This way we capture a maximum amount of appreciation in the higher-strike call because when the VIX finally does reverse these calls will evaporate the fastest.

This would leave us short the lower-strike call position. This move only makes sense if you think the VIX has reached its peak. If you think the market is going to see another dramatic plunge then the VIX might spike past 90, which would be an even more opportune time to sell the calls you own but you'll need to be paying attention since such a move might not last very long.

Summary:

Please see the CBOE website or our Sunday, October 12th play description for details on margin requirements for selling VIX options. Link: http://www.cboe.com/Products/indexopts/vixoptions_spec.aspx

Note: VIX options are European style options that settle for cash at expiration. Furthermore VIX options have unique expiration dates. November options expire on Wednesday, November 19, 2008 and will stop trading on Tuesday, November 18th.

VIX spread #1 has been completed.

VIX spread #2 with November options (date Oct. 12th):

We wanted to SELL the November 30 calls (opening price 10/13/08 was $ 8.60) and BUY the November 50 (opening price was $1.61) as a hedge against the VIX remaining elevated.

In a different format the play is:

SELL CALL NOV 30.00 VIX-KF.
Monday 10/13/08 open 8.60, high 9.80, closed 8.40
Update 10/15/08 open 10.00, high 13.00, closed 13.00
Update 10/16/08 open 13.70, high 16.20, closed 13.25
Update 10/17/08 open 15.55, high 17.70, closed 17.50bid
Update 10/20/08 open 16.30, high 17.20, closed 15.00bid
Update 10/21/08 open -----, high 15.50, closed 14.40bid
Update 10/22/08 open 16.40, high 19.20, closed 18.10bid
Update 10/23/08 open 17.50, high 21.40, closed 20.30bid
Update 10/24/08 open 25.00, high 26.50, closed 25.80bid
Update 10/27/08 open 26.32, high 26.45, closed 29.30bid

-and-
BUY CALL NOV 50.00 VIX-KJ.
Monday 10/13/08 open 1.61, high 2.10, closed 1.50
Update 10/15/08 open 2.00, high 3.60, closed 3.60
Update 10/16/08 open 3.70, high 5.50, closed 3.65
Update 10/17/08 open 4.50, high 5.30, closed 5.50ask
Update 10/20/08 open 3.90, high 5.30, closed 4.40ask
Update 10/21/08 open ----, high 4.70, closed 3.80ask
Update 10/22/08 open 4.30, high 6.60, closed 6.40ask
Update 10/23/08 open 5.70, high 7.70, closed 7.30ask
Update 10/24/08 open 10.10, high 11.00, closed 11.00ask
Update 10/27/08 open 11.43, high 13.80, closed 14.20ask

Picked on October 12 at $ 69.95
Change since picked: +10.11

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VIX spread #3 with November options (published 10/22/08):

We wanted to SELL the November 35 calls (10/23/08 opening price was $ 14.00) and BUY the November 60 (10/23/08 opening price was $3.00) as a hedge against the VIX remaining elevated. We'll fill in the prices Thursday morning. Our account will be credited with the amount for selling the November 35 calls, while it the price paid for the 60 calls will be deducted.

In a different format the play is:

SELL CALL NOV 35.00 VIX-KI
Wednesday 10/22/08 closed at 14.00 bid
Update 10/23/08 open 14.00, high 17.00, closed 15.30bid
Update 10/24/08 open 19.40, high 21.50, closed 20.60bid
Update 10/27/08 open 23.00, high 23.00, closed 23.90bid

-and- BUY CALL NOV 60.00 VIX-KN
Wednesday 10/22/08 closed at 3.70 ask
Update 10/23/08 open 3.00, high 4.50, closed 4.10ask
Update 10/24/08 open 7.00, high 7.00, closed 6.90ask
Update 10/27/08 open 6.91, high 8.80, closed 9.00ask

Picked on October 12 at $ 69.65
Change since picked: +10.41

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