Editor's Note: Good Evening. Today's price action was bearish as the SPX formed a bearish engulfing candlestick pattern and also turned down at its 50% retracement from the April highs to May lows at 1,130. The 61.8% retracement is at 1,150 and there is also the 50-day, 100-day, and 20-week SMA's all in the 1,130 to 1,140 area. I still anticipate all of these levels holding as resistance if there are any bounces higher from here. Our model portfolio is now firmly biased to the short side. We still need to stay nimble and protect profits on short positions as there appears to be no immediate end in sight for decreased volatility. Please email me with any questions.

Current Portfolio:


CALL Play Updates

Cisco Systems - CSCO - close 23.34 change -0.15 stop 22.20

Target(s): 23.65, 24.20
Key Support/Resistance Areas: 23.65, 22.55
Time Frame: 1 to 2 weeks

Comments:
My comments from the weekend remain the same except I am adjusting the position to August $22.00 calls as opposed to July. I think we will see our trigger to enter long positions this week so I'll wait for $22.85. If there is a pullback in the market this is a stock I feel comfortable owning and will be looking for a bounce. Hopefully we can get filled this week so let's see what the market gives us. The stock hit a low of $23.05 on Thursday which was another entry for more aggressive traders. CSCO remains in the base it has built for the past 3 to 4 weeks and is trading in a $1 range (4.5%) between $22.55 and $23.55. $22.50 is key pivot level for the stock dating back to 2006. If the stock trades up to $23.80 and breaks higher out of the base that could also be used a trigger to enter for aggressive traders, but until that happens we are playing for a pullback. The remainder of my comments remain the same from the play release. CSCO looks stable here with a lot of support and I suggest we take advantage of the reliable price pattern that is being built. I would like to use $22.85 as a trigger to enter long positions. If triggered readers should be able to purchase August $22.00 calls for about $1.63 (current ask is $1.98). If CSCO then proceeds to rally to the top of its base at $23.65 we should make about 55 cents on the position for a +35% gain. If CSCO breaks out it could rally to fill a gap which is up near our more aggressive 2nd target of $24.20 and below the stock's 200-day SMA. Another entry could be considered at $23.05. Our stop will be $22.20. NOTE: I view this trade as potentially being quick once it is opening.

Suggested Position: Buy August $22.00 CALL if CSCO trades down near $22.85, current ask $1.98, estimated ask at entry $1.68

Entry on June xx
Earnings Date 8/5/10 (unconfirmed)
Average Daily Volume: 69 million
Listed on 6/16/10


Express Scripts, Inc - ESRX - close 51.71 change -0.31 stop 50.90

Target(s): 52.70, 53.25, 54.75
Key Support/Resistance Areas: 54.00, 51.25, 50.00
Current Gain/Loss: -7.8%
Time Frame: Several weeks
New Positions: No

Comments:
In the weekend updates I provided adjusted targets for ESRX on the stock chart, however, I did not list the adjustments in the list above. The adjusted targets were $52.70 and $53.25. I apologize for the error as the adjusted target of $52.70 proved to be the proper exit for this position. The reason I chose this target was because it was a gap fill from Friday and near recent closing highs which I suspected would get sold into as the stock approached these levels. In lieu of Friday's news on ESRX and today's failure of the S&P 500 at the 50% retracement from the April highs to June lows, I am suggesting readers sell this position at the open tomorrow. If you have the ability to trade intraday I would place a stop below the opening range to see if ESRX can bounce. If the stock doesn't bounce I would get out of the way and protect your capital. From a technical perspective ESRX remains above its 20-day and 50-day SMA's which should provide support. But I feel like there will be more pressure coming in the broader market and ESRX could make a trip down to the lower end of its trading range which is almost $2 below current levels. If readers remain bullish on the position a tighter stop could be placed at $50.90 which is below the aforementioned SMA's.

Current Position: August $52.50 CALL, entry was at $2.55

Annotated Chart:

Entry on June 18, 2010
Earnings Date 7/29/10 (unconfirmed)
Average Daily Volume: 5.5 million
Listed on 6/17/10


PUT Play Updates

NetApp, Inc. - NTAP - close 40.53 change -0.69 stop 42.72

Target(s): 39.45, 39.05, 37.00, 35.25
Key Support/Resistance Areas: 41.84, 40.00, 39.00, 36.50, 35.00
Current Gain/Loss: +35%
Time Frame: 1 week
New Positions: Yes

Comments:
NTAP July $41.00 PUTS were initiated at the open at $1.30. The stock closed -3% off of its highs and our position has already gained +35%. Since we entered at a good price I'm going to list another target of $39.45 which is just above a double top high on 6/3 and 6/4. If NTAP trades down there our options should be worth about $2.30 which would equal a +56% gain. I don't want to get too cute with such a strong stock so fiercely protecting profits is highly recommended. A decline to this level would also represent a -5.7% decline from the stock's highs which is in the range of what I expected in the play release. At a minimum this is an area to tighten stops to see if we can get more out of the position. I'll leave my comments from the play release as they remain valid. NTAP printed a 5 year high this past week which was 28 cents higher than its highs in December 2006. The stock has gone parabolic since its 2008/2009 lows and for good reason. It is in a hot technology sector that is in high demand. However, the stock can not go straight up forever and I believe it is due for a pullback. The highs from 2006 and 2010 should provide enough "double top" resistance for a countertrend trade to the downside. The recent highs also give us a good reference point to place a protective stop just above if NTAP decides to continue its ascent so we can be right out of the trade if we are wrong. The pattern after big advances recently, such as the most recent, is for the stock to give a decent percentage of the gains back. There is typically a 5% to 10% correction so I have placed various targets along the way to help guide readers. In addition, percentage wise NTAP has surged more recently compared to its run up in 2009 which leads me to believe that if the selling gets started it may accelerate quickly as traders do not want to be holding the bag at the top of the range. I suggest readers initiate short positions at current levels with a stop at $42.72. I have provided a weekly chart below. NOTE: I view this trade as potentially being quick.

Current Position: July $41.00 PUTS, entry was at $1.30

Entry on June 21, 2010
Earnings 8/19/2010 (unconfirmed)
Average Daily Volume: 9.1 million
Listed on June 19, 2010


International Game Technology - IGT - close 18.11 change -0.24 stop 19.10 *NEW*

Target(s): 17.80, 17.30, 16.80
Key Support/Resistance Areas: 19.00, 18.75, 18.09, 17.55, 17.25, 16.60
Current Gain/Loss: +21%
Time Frame: 1 week
New Positions: Yes

Comments:
IGT opened at $18.62 which was near our trigger of $18.50 to enter short positions. The stock proceeded to make a new low and closing low and sits at it lowest closing price since late March. I've adjusted our first target up to $17.80 (+10 cents) which is near the early March closing prices that provided resistance. For options traders, the July $19 puts should be worth $1.35 if this target is hit which would give readers a +42% gain. This is definitely a place to consider taking profits or tightening stops to protect profits. I'm going to move the stop down to $19.10 which is above the 20-day SMA and the 6/16 high. My comments from the play release remain mostly the same. IGT is in a solid downtrend and I expect it to continue. The stock is making lower highs and lower lows. The stock is below all its SMA's and a downtrend line that it recently touched on Tuesday 6/15 before a big gap down. All of this should provide plenty of resistance and if the overall market reverses lower anytime in the coming days IGT will be one of the first stocks to go. Ideally I would like to see IGT test $18.75 before initiating short positions which is Friday's highs and within the prior three day's trading range. But I'm not so sure we will see a bounce this high. I suggest we use a trigger of $18.50 to initiate short positions. I've provided three targets which are good places to tighten stops if IGT continues lower from our entry.

Current Position: July $19.00 PUTS, entry was at $0.95

Entry on June 21, 2010
Earnings 7/22/2010 (unconfirmed)
Average Daily Volume: 4.8 million
Listed on June 19, 2010


CLOSED BULLISH PLAYS


Ormat Technologies - ORA - close 29.54 change -0.13 stop 27.25

Target(s): 30.37 (hit), 30.95, 31.80
Key Support/Resistance Areas: 32.00, 30.60, 29.00, 27.50
Current Gain/Loss: +5%
Time Frame: Several weeks
New Positions: Closed

Comments:
ORA rallied up to our lowered target of $30.37 this morning so we are flat the position for a small gain. The stock remains above its 50-day SMA but retreated from its 100-day SMA this morning which was our lowered target $30.37. ORA remains in a bull flag and I am still bullish on the stock. But if it fails it could go down to retest its 20-day SMA just above $28.00, which would catastrophic to the price of our options. Today's price action is yet another example of how protecting capital is paramount in this volatile market. I'm disappointed with the option pricing as it did not give us the gains we anticipated. It appears that the volatility has been sucked out of the premium we paid for the options. If readers still have option positions I suggest one of two things: 1) placing a GTC sell limit order and try to unwind your positions on any strength in the stock (if there is any bounce in the stock from here you should be able to get $0.90 to $1.00), or 2) if you remain bullish on the stock consider rolling the option position to a later month so that time decay does not eat away at your premium. Regardless, if the market heads lower ORA probably will as well so be careful hanging on to option positions hoping the stock will rally higher. I'll leave my comments from the weekend. I am looking for a move to $30.37 (adjusted first target) this week which is just below the 100-day SMA. This is an area where I suggest tightening stops to see if we can get more out of the stock, or simply taking profits. We should be able to get about $1.30 for the CALLS at this level. If it breaks through the 100-day SMA there is little resistance until our next two targets. Ultimately, I think ORA can make it up to the $31.80 area but it may take some time depending on the overall strength or weakness in the broader market. I suggest readers take advantage of any spikes and take profits on the trade. A strategy to consider would be placing a GTC sell limit order on your option at $1.25, for example, and see if you get filled. ORA has been stubborn to pullback so I wouldn't be surprised to see some sort of retracement before proceeding higher. We are keeping a wide stop to account for volatility and will adjust it this week. If readers want to keep a tighter leash on the trade a stop could be placed below the 20-day SMA or just below our entry price if you want it really tight.

Closed Position: July $30.00 CALL at $1.05, entry was at $1.00

Annotated Chart:

Entry on June 16, 2010
Earnings Date 8/4/10 (unconfirmed)
Average Daily Volume: 345,000
Listed on 6/15/10