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Play Updates

Education & Oil stocks triggered, the rest mirror the markets

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Play Editor's Note: I would be cautious here. A large number of stocks and indices produced bearish engulfing candlesticks after Friday's inside day. The afternoon bounce was encouraging but overall Monday has painted a bearish shadow on the week.


CALL Play Updates

Apollo Group Inc. - APOL - close: 69.76 change: +0.15 stop: 66.45

APOL continues to out perform the broader market. The stock gapped open higher at $70.50 and traded to $71.39 before paring its gains. While closing back under $70.00 may be a disappointment for the bulls APOL still ended the day with a gain. The intraday action continues to look bullish for the stock. Our suggested entry point to buy calls was at $70.55. The play is open. We would still consider new positions on another rise over $70.50.

Our target is $79.90. The stock's chart has resistance in the $80-81 zone. The Point & Figure chart is bullish with an $80 target.

Chart:
APOL

Picked on November 10 at $ 70.55 *triggered     
Change since picked:      - 0.79
Earnings Date           10/28/08 (confirmed)
Average Daily Volume =       4.0 million  


Becton, Dickinson & Co. - BDX - close: 70.77 change: +0.04 stop: 67.45

The pattern in BDX mirrored the action in the S&P 500 but BDX still managed to close with a gain. If you didn't buy the open this morning we got a chance to jump in on a test of $70.00 this afternoon. If you want to see confirmation then wait for a new rise over $71.25 or $71.75 before initiating positions.

Our target is the $74.95-76.00 zone or the simple 50-dma, whichever one BDX hits first.

Picked on November 09 at $ 70.73
Change since picked:      + 0.04
Earnings Date           11/05/08 (confirmed)
Average Daily Volume =       1.9 million  


Bunge Ltd. - BG - close: 44.22 change: +0.00 stop: 40.49

They say that 80% of a stock's movement is directly related to the market's movement. Shares of BG definitely mirrored the market today although the stock managed to close unchanged instead of in the red.

The big news today was BG's announcement that it would drop its merger plans with CPO. Last week CPO's Board of Directors announced their decision to withdraw support for the merger.

We don't see any changes from our previous comments although readers may want to wait for a new move over $48.00 or $48.50 before initiating positions.

We're setting two targets. Our first target is $49.50. Our second target is $54.75. More aggressive traders may want to try for a rise toward $59.

FYI: The latest data listed short interest at 13% of BG's 133.8 million-share float. That is an above average amount of short interest. If BG continues to rally short-covering could give the stock a boost. Plus, it's worth noting that the P&F chart for BG is very bullish with an $86 target.

Picked on November 09 at $ 44.22
Change since picked:      + 0.00
Earnings Date           10/23/08 (confirmed)
Average Daily Volume =       3.7 million  


Compass Minerals Intl. - CMP - close: 57.68 change: -0.51 stop: 52.35

Hmmm... the general trend in CMP is unchanged but Monday's intraday movement is short-term bearish. The stock rallied to its 100-dma early this morning and then gave it all back. We warned readers that the 100-dma might be overhead resistance. At this time we would stop and wait for a dip into the $55.50-54.00 zone before considering new bullish entry points.

We're starting the play with a stop loss 10% under current levels. Our first target is $63.50. Our second target is $69.00.

FYI: The most recent data listed short interest at 7% of the very small 31.7 million-share float. That could be an additional catalyst for sharp moves higher if bears decide to cover. Plus, the P&F chart is bullish with a $93 target.

Picked on November 09 at $ 58.19
Change since picked:      - 0.51
Earnings Date           10/28/08 (confirmed)
Average Daily Volume =       982 thousand 


ITT Educ. Services - ESI - close: 87.14 change: +0.94 stop: 82.85

ESI, like its rival APOL, out performed the broader market today. The stock gapped higher this morning and then retraced the move before settling with a 1% gain. We do not see any changes from our previous comments. However, if you were looking for alternative entry points consider a dip in the $85.50-85.00 zone or a new high over $90.00.

Our target will be $94.50. There is some resistance just above $95 (see chart). FYI: The Point & Figure chart is bullish with a $108 target.

Picked on November 09 at $ 86.20
Change since picked:      + 0.94
Earnings Date           10/23/08 (confirmed)
Average Daily Volume =       1.4 million  


FedEx Corp. - FDX - close: 66.29 change: +1.71 stop: 61.95

Shares of FDX and rival UPS both traded higher on Monday. The gains were fueled by news that their smaller rival DHL was folding up shop. German-owned DHL announced it would close down its U.S. air and ground shipping businesses, lay-off about 9,500 jobs in the U.S. and focus on its international deliveries. News that competition was quitting helped FDX end the day up 2.6%.

We have two targets. Our first target is $68.85. Our second target is 73.00 or its 50-dma, whichever one FDX hits first. FYI: The Point & Figure chart is bullish with a $100 target.

Picked on November 09 at $ 64.58
Change since picked:      + 1.71
Earnings Date           12/18/08 (unconfirmed)
Average Daily Volume =       4.0 million  


Hess Corp. - HES - close: 62.32 change: +1.09 stop: 56.95

You might say we got a "bad fill" with our play on HES. The stock gapped open much higher at $64.25, hit $64.75, and then gave it all back. The intraday low was $59.64 but HES managed to recover at the end of the day for a 1.7% gain.

Our plan was to buy calls on a breakout over $62.00 with a trigger at $62.25. This morning's gap higher would have triggered the play with a much worse entry point than planned. If you waited and bought the dip or bounce near $60.00 then you're in much better shape.

Crude oil was all over the map today, which is why shares of HES were so volatile. Oil gapped higher as investors reacted to the China stimulus news thinking Chinese demand for oil might go up. The stimulus news faded and oil actually hit a new relative low before rebounding sharply into the green.

If you missed all the excitement today we would still buy calls on HES right here. Our target is the $68.00-70.00 zone.

Chart:
HES

Picked on November 10 at $ 64.25 *trigger/gap open entry
Change since picked:      - 1.93
Earnings Date           10/29/08 (confirmed)
Average Daily Volume =       6.5 million  


PUT Play Updates

Volatility Index - VIX - cls: 59.98 chg: + 3.88 stop: n/a

When Monday's early morning rally began to fade the Volatility index quickly began to climb. It was a slow and steady gain that ended with the VIX up 6.9% on the session. Depending on your perspective the recent action is either part of a bull-flag in the VIX, which is bearish for stocks. Or this is part of another failed rally pattern as the VIX failed to clear Friday's high and thus it's bullish for stocks.

We don't see any changes from our weekend comments. If you want to sell calls then consider a stop loss to buy them back over last week's highs.

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.

Overall we are not suggesting readers buy new put positions.

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:       +29.68
Picked again Sept. 29 at =  46.72 second position
Changed since picked:      +13.26
Picked again Octo. 08 at =  57.53 third position
Changed since picked:      + 2.45
Earnings Date            00/00/00
Average Daily Volume =        --- million  


Strangle & Spread Play Updates

SPDR GOLD Trust - GLD - close: 73.58 change: +1.08 stop: n/a

The GLD gold ETF posted a gain but it remains inside its three-wee consolidation pattern. GLD actually gapped open higher at $74.80 but dipped back to $72.96 giving us a chance to open positions. We would still consider positions in the $74-71 zone although you may want to make slight adjustments to your straddle and pick different strikes. Our preferred entry point would be as close to $72.50 as possible.

We are listing two strangles to take advantage of what appears to be an imminent breakout, up or down, in gold prices.

The first strangle uses November options, which expire in two weeks. Thus it's much more risky. The second strangle uses December options.

What is a strangle?
A strangle involves buying both an out-of-the-money call and an out-of-the-money put. We don't care what direction the stock goes as long as it moves one direction. If the stock moves far enough one side of our trade will rise in value and pay for the entire trade and make a profit.

-November Strangle-

Summary:
We suggested readers buy the November $75 call (GVD-KW) and the November $70 puts (GVD-WR). Our estimated cost was $3.10. We want to sell if either option hits $5.25. There are only two weeks left before November options expire.

-December Strangle-

Summary:
We suggested readers buy the December $75 call (GVD-LW) and the December $70 puts (GVD-XR). Our estimated cost was $6.30. We want to sell if either option hits $12.00.

Picked on November 09 at $ 72.50
Change since picked:      + 1.08
Earnings Date           00/00/00
Average Daily Volume =      19.3 million  


CBOE Volatility Index - VIX - cls: 59.98 chg: + 3.88 stop: n/a

The VIX climbed steadily higher throughout the session but it failed to break above last week's or even Friday's high. Last week's bearish reversal in the VIX is still intact for now. We do not see any changes from our previous comments.

Don't forget that VIX option expiration is next week.

Please see the CBOE website 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.

Position Summary:

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.

Hypothetically we have sold the November 30 calls at $8.60 (credit). We bought the Nov. 50 calls for $1.61 (debit). Based on these numbers we would need the VIX to close under 37.00 for us to be profitable. If it closes higher than 37.00 then the intrinsic value of the Nov. 30 calls will be higher than what we paid for it and we'll have to come up with the difference. Example: if the VIX is at 40.00 another $1.40 will be taken out of our accounts when the VIX options are settled because the Nov. 30 call will be worth $10.00.

Now, if you sold the higher-strike call (Nov.50) when we discussed it a couple of weeks ago you could have gotten $9.00-11.00 for it. Let's say you got $10.00 for it. Now our "credit" to our account is $8.60 for the Nov. 30 calls and $8.39 ($10.00 for selling Nov. 50 call minus the $1.61 we paid for it) for a total income of $16.99. This gives us a much wider margin for error. With this scenario, the VIX would have to close over 47.00 before we lost any money.

Alternatively if you sold the Nov. 50 call around $5.00 then our breakeven point is a VIX settling at 42.00.

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<-high
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
Update 10/31/08 open 25.20, high 25.20, closed 24.30bid
Update 11/03/08 open 24.50, high 24.50, closed 21.50bid
Update 11/04/08 open 19.00, high 19.00, closed 16.80bid
Update 11/05/08 open 17.56, high 20.60, closed 20.20bid
Update 11/06/08 open 26.90, high 28.00, closed 27.50bid
Update 11/07/08 open 26.30, high 27.00, closed 24.70bid
Update 11/10/08 open 23.30, high 27.00, closed 25.70bid

-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<-high/suggested sell
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
Update 10/31/08 open 10.30, high 10.30, closed  9.00ask
Update 11/03/08 open  8.34, high 8.34, closed 7.00ask
Update 11/04/08 open  3.50, high 3.70, closed 4.00ask
Update 11/05/08 open  4.20, high 5.90, closed 5.60ask
Update 11/06/08 open  6.00, high 12.00, closed 11.20ask
Update 11/07/08 open  9.80, high 9.80, closed 8.00ask
Update 11/10/08 open 6.00, high 9.25, closed 8.50ask

Picked on October 12 at $ 69.95
Change since picked:     - 9.97 
 

-

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.

Hypothetically we have sold the November 35 calls at $14.00 (credit). We bought the Nov. 60 calls for $3.00 (debit). Based on these numbers we would need the VIX to close under 46.00 for us to be profitable. If it closes higher than 46.00 then the intrinsic value of the Nov. 35 calls will be higher than what we paid for it and we'll have to come up with the difference. Example: if the VIX is at 50.00 at settlement another $6.00 because the Nov. 35 call will be worth $20.00.

Now, if you sold the higher-strike call (Nov.60) when we discussed it a couple of weeks ago you could have gotten $5.50-6.50 for it. Let's say you got $6.00 for it. Now our "credit" to our account is $14.00 for the Nov. 35 calls and $3.00 ($6.00 for selling the Nov. 60 call minus the $3.00 we paid for it) for a total income of $17.00. This gives us a much wider margin for error. With this scenario, the VIX would have to close over 52.00 before we lost any money.

Alternatively if you sold the Nov. 50 call around $3.00 then our breakeven point is a VIX settling at 49.00.

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 <-high
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
Update 10/31/08 open 21.10, high 21.10, closed 19.20bid
Update 11/03/08 open 19.31, high 19.31, closed 19.10bid
Update 11/04/08 open 14.80, high 14.80, closed 11.80bid
Update 11/05/08 open 13.05, high 14.40, closed 15.30bid
Update 11/06/08 open 17.60, high 23.90, closed 22.00bid
Update 11/07/08 open 21.40, high 21.40, closed 19.30bid
Update 11/10/08 open 17.30, high 21.74, 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 <-high/suggested sell
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
Update 10/31/08 open 5.90, high 6.10, closed 4.90ask
Update 11/03/08 open 4.60, high 4.81, closed 3.50ask
Update 11/04/08 open 1.15, high 1.60, closed 1.75ask
Update 11/05/08 open 1.66, high 2.70, closed 2.45ask
Update 11/06/08 open 2.80, high 6.90, closed 6.30ask
Update 11/07/08 open 5.70, high 5.70, closed 3.30ask
Update 11/10/08 open 2.80, high 4.20, closed 3.70ask

Picked on October 12 at $ 69.65
Change since picked:     - 9.67 
VIX spread #4 with November options (published 11/08/08):

We wanted to SELL the November 50 calls (11/10/08 opening price was $ 6.00) and BUY the November 65 (11/10/08 opening price was $1.75) as a hedge against the VIX remaining elevated. Our account will be credited with the amount for selling the November 50 calls, while the price paid for the 60 calls will be deducted.

In a different format the play is:

SELL CALL NOV 50.00 VIX-KJ
Update 11/10/08 open  6.00, high  9.25, closed 7.90bid
-and-

BUY CALL NOV 65.00 VIX-KO
Update 10/23/08 open 1.75, high 2.65, closed 2.35ask

Picked on November 08 at $ 56.10
Change since picked:      + 3.88


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