Editor's Note:

I'm filling in for Scott tonight. We are closing our open positions and closing STEC and ADM a little early. Meanwhile, I believe the VXX and DIA plays have a lot of potential on a market pull back.

Current Portfolio:


CALL Play Updates

Petroleo Brasileiro - PBR - close 36.46 change +0.19 stop 33.70

Target(s): 37.40, 38.65
Key Support/Resistance Areas: 39.00, 37.50, 36.60, 34.00
Current Option Gain/Loss: +9.6%
Time Frame: 1 to 2 weeks
New Positions: Yes

Comments:
10/02 (James): PBR is holding up relatively well. While everyone was impressed with the size of the company's recent secondary offering many analysts were worried it would depress the stock going forward. So far those worries seem to be unfounded. I agree with Scott that the broader market is overdue for a correction and PBR will likely trade lower if the market does pull back. More conservative traders may want to consider a tighter stop loss (maybe closer to $35.00). PBR looks poised to move higher but given my expectation for a market dip I would keep bullish positions very small. The Nov. $37 call closed with a bid at $1.37 on Friday.

9/30: PBR gapped higher, sold off, and surged higher into the close as the broader market headed lower. The stock has now broken and closed above its primary downtrend line from its December highs and is above all of its moving averages. Today's rally off of the stock's lows is encouraging but I am concerned of a broader market correction. The remainder of my comments below remain the same.

9/29: PBR is hanging tough but I am concerned of a broader market pullback, which readers may want to consider as a buying opportunity. I believe our stop is in the right place but we may have to exhibit some patience if there is a pullback. Tighter stops could be considered in the $34.35 to $34.65 area.

9/25: PBR gapped lower on Friday which improved our entry price into the position. All reports indicate the secondary offering was a success and was priced near the market. We are looking for the short interest to unwind which should cause a quick pop in the stock. Our stop is in place if we are wrong.

Suggested Position: Long November $37.00 CALL, entry was at $1.25

Annotated Chart:

Entry on September 25, 2010
Earnings 11/11/2010 (unconfirmed)
Average Daily Volume: 13 million
Listed on September 23, 2010


iPath S&P 500 VIX ST Futures - VXX - close 17.04 change -0.25 stop 16.23

Target(s): 17.55, 18.45, 19.25
Key Support/Resistance Areas: 17.50, 19.75, 20.60
Current Gain/Loss: -8%
Time Frame: 1 to 2 weeks
New positions: Yes

Comments:
NOTE: I view this as an aggressive trade so small position size is recommended. Long VXX is a bearish play on equities, however, it is listed as long play because we are long the underlying instrument.

10/02 (James): After September's huge gains in the stock market and a week of moving sideways, odds are pretty good the market will see a correction soon. That means the VXX has a lot of potential here. It is an aggressive trade but personally I would adjust the targets higher and plan to take profits near $18.75 and $19.90. FYI: The Nov. $18 call closed with a bid of $1.15.

9/30: As the market spiked higher this morning volatility never really budged which was a signal the spike could fail, and it did. The question now is whether or not there will be follow through lower in the coming days. I believe there will be but I also think trading could be choppy which may fake traders out of positions. If we are patient our targets should be reached as the market is need of healthy correction. I suggest readers use further spikes in VXX as opportunities to take profits or tighten stops to protect them. My primary targets are $18.45 and $19.25. Our stop is in place.

9/28: Volatility carried into this morning but reversed lower as the bulls stepped in pushing stocks back toward their highs. I want to add a target of $17.55 which should be considered as a place to take profits or tighten stops to protect them. We have a tight stop which will most likely get hit if the broader market continues higher in the coming days.

Current Position: Long November $18.00 CALL, entry was at $1.25

Annotated Chart:

Entry on September 22, 2010
Earnings N/A (unconfirmed)
Average Daily Volume: 21 million
Listed on September 21, 2010


PUT Play Updates

SPDR DJIA ETF - DIA - close 108.32 change +0.41 stop 110.55

Target(s): 106.55, 105.40
Key Support/Resistance Areas: 112.00, 110.00, 107.30, 106.40, 105.00
Current Gain/Loss: +5.7%

Time Frame: 1 to 3 weeks
New Positions: Yes

Comments:
10/02 (James): Upward momentum in the market has clearly stalled. Stocks have been trading sideways for a week. Thursday's action looks like a bearish reversal but Friday did not confirm the signal. Instead Friday produced an inside day. While I remain bearish here more cautious traders may want to look for a move under Thursday's low (107.47) before initiating positions. Personally, I would target a correction toward $105.25 but keep an eye on the rising 50-dma, which could be support (currently $104.81). FYI: The November $105 put closed with a bid of $1.85.

9/28: Stocks have been flowing into large caps and I believe they are due for a decline after the quarter ends which is Thursday. I also think the broader markets may see a false breakout tomorrow which will head fake late comers to the party into long positions. I suggest readers enter long positions if DIA trades to $108.85 (updated), which is near the highs DIA printed after the flash crash before the DJIA plunged more than -1,000 points. If triggered, our profit targets on options positions are +50% to +75%.

Current Position: Long November $105.00 PUT, entry was at $1.75.

Annotated Chart:

Entry on September 30, 2010
Earnings: N/A (unconfirmed)
Average Daily Volume: 6.5 million
Listed on September 25, 2010


PNC Financial - PNC - close 52.84 change +0.93 stop 54.62

Target(s): 49.50, 48.75, 47.25
Key Support/Resistance Areas: 54.50, 53.50, 50.50, 49.50, 48.75, 47.00
Current Gain/Loss: -18%
Time Frame: 1 to 2 weeks
new Positions: Yes

Comments:
10/02 (James): Financial stocks have been a drag on the market of late and the path of least resistance seems to be down. Yet Friday's action in PNC was uncomfortably bullish. Shares posted a +1.79% gain and closed above the simple 10-dma. I'm not saying we should panic yet but the relative strength is a warning sign. Look for short-term overhead resistance near $54.00. I would prefer to see a failed rally under $54.00 or a new close under $51.50 before launching new positions.

9/30: We are long November $48 PUTS as of today's open. We are looking for a $2 to $3 move lower in the stock. Our stop is above resistance in the $53 to $54 level. My comments below have not changed.

9/29: Financials continue to trade terrible and PNC looks ready for quick spike lower as the broader market pulls back. The stock has formed a bear flag over the past 5 days and is trading below its 20-day SMA. I suggest readers initiate short positions at current levels. The primary target is $48.75 which is a $3 move lower. If reached, the profit target on our option position is approximately +65%. I suggest keeping a loose initial stop on the position to account for volatility as the quarter winds down.

Current Position: Long November $48.00 PUT, entry was at $1.26

Annotated Chart:

Entry on September 30, 2010
Earnings: 10/20/2010 (unconfirmed)
Average Daily Volume: 5 million
Listed on September 29, 2010


Charles Schwab - SCHW - close 14.13 change +0.23 stop 14.42

Target(s): 13.45, 13.10, 12.85
Key Support/Resistance Areas: 14.10, 13.35, 13.05, 12.65
Current Gain: -50%
Time Frame: 1 to 3 weeks
New Positions: Maybe

Comments:
10/02 (James): I am somewhat surprised by the strength in shares of SCHW the last few days. I use the term strength somewhat loosely but you can see a trend of higher lows. Thus far the stock has been unable to breakout past technical resistance at its 50-dma. The third quarter has seen terribly low trading volumes and investors have been pulling money out of stock funds for weeks. It should not be a good quarter for the likes of SCHW so odds favor this oversold bounce in the stock rolling over. Personally, I would consider giving SCHW a little bit more room and placing the stop loss above $14.50 (maybe $14.51 or $14.55). I would prefer to see a drop or a close under $13.80 before launching new positions.

9/29: SCHW backed off of its 50-day SMA and closed down -1.70% on the day. The stock now needs break down through its 20-day SMA which should catapult the stock towards our first target. If the broader market corrects it should easily happen. There were also more than 5,000 March 2011 puts purchased at the $13 strike today so it appears someone with deep pockets thinks the stock is due for a decline. We just need it to happen sooner rather than later.

Current Position: Long November $13.00 PUT, entry was at $0.50

Annotated Chart:

Entry on September 23, 2010
Earnings: 10/14/2010 (unconfirmed)
Average Daily Volume: 11 million
Listed on September 22, 2010


CLOSED BULLISH PLAYS

STEC, Inc. - STEC - close 12.31 change -0.14 stop 12.05

Target(s): 14.15, 14.65
Key Support/Resistance Areas: 14.80, 14.15, 13.45, 12.15
Current Gain/Loss: -45%
Time Frame: 1 to 2 weeks
New Positions: no

Comments:
10/02 (James): STEC continues to look weak. I am suggesting we go ahead and cut our losses now so we can look for new positions elsewhere. Readers may want to keep STEC on their watch list for a new test or bounce from support near $11.00.

Closed Early: We were Long November $14.00 calls, entry: $0.96
Exit: $0.52 (-45.8%)

Annotated Chart:

Entry on September XX
Earnings 11/03/2010 (unconfirmed)
Average Daily Volume: 1.8 million
Listed on September 25, 2010


CLOSED BEARISH PLAYS

Archer Daniels Midland - ADM - close 31.92 change -0.00 stop 33.20

Target(s): 32.20 (hit), 31.50, 31.00
Key Support/Resistance Areas: 33.50, 31.00, 29.80
Current Gain/Loss: depends on your exit, see below
Time Frame: 1 to 2 weeks
New Positions: Yes

Comments:
10/02 (James): ADM tagged our second target at $31.50 on Friday. Shares dipped to $31.36 but managed to rebound back to unchanged by the closing bell. If you did not take profits midday on the decline I am suggesting we go ahead and close positions now. The sharp rebound intraday is worrisome and while I'm not convinced the correction in ADM is over we don't want to hold puts on it at the moment. More aggressive traders may want to ignore this suggestion and aim for the $31.00 level or the rising 50-dma.

The October $32 put was trading near $1.00 when it hit our second target at $31.50 (option @ $1.00 (+21.9%)). However, it closed with a bid at $0.78 (-4.8%).

Closed Position: Long October $32.00 PUT, entry was at $0.82

Annotated Chart:

Entry on September 20, 2010
Earnings: 11/2/2010 (unconfirmed)
Average Daily Volume: 6 million
Listed on September 18, 2010