Option Investor
Play Updates

Bullish Entry Point!

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Play Editor's Note: There was no follow through on the Wednesday afternoon sell-off. Stocks were acting pretty bullish today. It could just be end-of-year window dressing from some large mutual funds but we're not going to argue with the relative strength. Instead of adding new plays we adjusted our entry points on several bullish candidates in tonight's newsletter.

______________ CALL Play Updates ______________

Burlington Northern - BNI - cls: 86.59 chg: +1.54 stop: 82.45*new*

Lack of any real sell-off following yesterday's late day reversal could empower the bulls tomorrow. We're going to suggest some short-term bullish call positions on BNI right here or on a dip in the $85-84 zone. We'll use a stop loss at $82.45. There is short-term resistance at $90.00 but we're aiming for $94.00. The 100-dma and 200-dma look like big resistance near $95.00. More conservative traders may want to use a slightly tighter stop loss.

chart:
BNI

Picked on October 30 at $ 86.59
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: 45.05 chg: +1.71 stop: 41.75 *new*

The relative strength displayed in CSX today looks convincing. I would suggest new positions right here. We're upping our stop loss to $41.75. More conservative traders, especially if you're jumping in right now, may want to use a stop loss closer to $44.00 or $43.50. Our target remains $49.90.

chart:
CSX

Picked on October 23 at $ 40.41 /gap down entry
Change since picked: + 4.64 /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: 30.02 change: +1.78 stop: 27.45*new*

We're going to alter our strategy on FCX too. Instead of waiting for a dip toward $21.00 the market is telling us that the stock wants to move higher from here. We're going to suggest bullish call positions now with a stop loss under today's low (which was 27.52). We're listing two new targets. Our first target is $34.50. Our second target is just under the top of the October 15th gap down at $38.00.

chart:
FCX

Picked on October 30 at $ 30.02
Change since picked: + 0.00
Earnings Date 10/21/08 (confirmed)
Average Daily Volume = 20 million

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Hansen Natural - HANS - close: 25.45 change: +1.54 stop: 23.45*new*

HANS turned in a very nice day with a 6.4% gain. The MACD on the daily chart appears to have delivered a new buy signal. Please note that we are changing our exit strategy. Our new first target is here, right now! HANS is up more than 18% from our entry point. We want to take some money off the table immediately. We're adjusting our secondary, more aggressive target from $30.00 to $28.00. We're changing the stop loss to $23.45. If you are looking for a new entry point then wait for a dip or a bounce in the $24.50-24.00 zone.

chart:
HANS

Picked on October 23 at $ 21.47 /gap down entry/1st Exit 25.45
Change since picked: + 3.98 /originally listed at 22.88
Earnings Date 11/06/08 (unconfirmed)
Average Daily Volume = 10.6 million

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MasterCard - MA - close: 140.06 chg: + 4.33 stop: 129.90*new*

Shares of MA also showed some intraday strength. I'd be tempted to buy calls again if the newsletter was not already long. If you do decide to buy calls here I'd use a relatively tight stop even on a volatile stock like MA. We're upping our stop loss to $129.90 (new positions probably need a tighter stop). Currently we have two targets. Our first target is $158.00. Our second target is $169.50.

Picked on October 23 at $131.00 *triggered 10/23
Change since picked: + 9.06
Earnings Date 11/03/08 (confirmed)
Average Daily Volume = 3.8 million

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Energy SPDR - XLE - close: 50.35 chg: +2.22 stop: 44.75 *new*

Yesterday I didn't want to give up on buying a dip near $40. Looks like the market and XLE are not going to cooperate so we have to trade what the market provides and not what we want to happen. I'm going to list a bullish entry point right here at $50.35 but if you're patient you might get a better entry point somewhere in the $47.50-46.50 zone. We're adjusting the stop loss to $44.75. Our new target is $56.50.

chart:
XLE

Picked on October 30 at $ 50.35
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 47.7 million

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______________ PUT Play Updates ______________

Volatility Index - VIX - cls: 62.90 chg: - 7.06 stop: n/a

The VIX appears to be in full retreat now.

We're not suggesting readers buy puts at this time. With the VIX this high if you want to bet on its going lower the better bet would be to sell calls instead.

If the VIX is under your call's strike price at expiration (11/19/08) 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: +32.60
Picked again Sept. 29 at = 46.72 second position
Changed since picked: +16.18
Picked again Octo. 08 at = 57.53 third position
Changed since picked: + 5.37
Earnings Date 00/00/00
Average Daily Volume = --- million

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__________ Strangle & Spread Play Updates __________

CBOE Volatility Index - VIX - cls: 62.90 chg: - 7.06 stop: n/a

The recent action in the VIX is suggesting the top is finally in place. The index acted weak with a failed rally and a close at its lows. Readers may want to consider new positions now but I'd probably sell the November 40s or 45s and buy the 65s or 70s.

We don't see any changes from our prior comments on the VIX spread plays listed below.

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
Update 10/28/08 open 29.00, high 29.00, closed 23.70bid
Update 10/29/08 open 25.60, high 25.60, closed 26.20bid
Update 10/30/08 open 24.06, high 27.32, closed 25.20bid

-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
Update 10/28/08 open 11.00, high 13.30, closed 9.40ask
Update 10/29/08 open 9.23, high 10.70, closed 11.00ask
Update 10/30/08 open 8.69, high 10.90, closed 10.00ask

Picked on October 12 at $ 69.95
Change since picked: - 7.05

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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
Update 10/28/08 open 22.93, high 24.70, closed 18.60bid
Update 10/29/08 open 19.59, high 21.13, closed 20.90bid
Update 10/30/08 open 18.50, high 22.00, closed 20.30bid

-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
Update 10/28/08 open 7.60, high 8.60, closed 5.50ask
Update 10/29/08 open 5.40, high 6.30, closed 6.50ask
Update 10/30/08 open 4.90, high 6.20, closed 5.80ask

Picked on October 12 at $ 69.65
Change since picked: - 6.75

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______________ CLOSED PLAYS ______________

iShares Russell 2000 - IWM - close: 51.43 chg: +2.73 stop: 50.75

There was no follow through on yesterday's late day reversal lower. Quite the opposite. The IWM actually gapped open higher at $50.41 and quickly hit our stop loss at $50.75 ending the play in moments. The IWM's performance looks pretty bullish and the MACD on the daily chart has now produced a new buy signal.

Chart:
IWM

Picked on October 29 at $ 50.41 *gap open entry/stopped 50.75
Change since picked: + 1.02 /originally listed at 48.70
Earnings Date 00/00/00
Average Daily Volume = 6.1 million

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Lockheed Martin - LMT - close: 82.18 change: +3.57 stop: 82.55

Shares of LMT also gapped open higher. The stock did trade back toward $78.81 before bouncing back into a gain. Our first opportunity to open positions was at $80.71 and LMT hit our stop loss at $82.55.

Chart:
LMT

Picked on October 29 at $ 80.71 *gap open entry/stopped 82.55
Change since picked: + 1.47 /originally listed at $78.61
Earnings Date 10/21/08 (confirmed)
Average Daily Volume = 3.8 million

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PetroChina - PTR - close: 75.90 change: +8.05 stop: 71.25

Our bearish failed-rally play in PTR was over before it even started. Oil was trading above $68.00 a barrel this morning and last night we said not to open bearish positions on PTR if oil was above $67.00/bbl. Shares of PTR reacted sharply as the stock gapped open higher at $74.95, well above our stop loss at $71.25. Effectively the play never opened. Now that PTR is above resistance near $70.00 a dip or a bounce near $70.00 might be a new bullish entry point.

Chart:
PTR

Picked on October 29 at $ xx.xx <-- never opened!
Change since picked: + 0.00 /originally listed at $67.85
Earnings Date 03/06/09 (unconfirmed)
Average Daily Volume = 1.0 million

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