Editor's Note:

The weekend is almost here and I'm filling in for Scott tonight and tomorrow. Hopefully this pullback in the market continues and we get a chance to buy the dip. I look forward to adding some new candidates to the newsletter on Saturday.

-James

Current Portfolio:


CALL Play Updates

Dresser-Rand Group - DRC - close 38.23 change -0.42 stop 36.15

Target(s): 39.00, 39.95, 41.40
Key Support/Resistance Areas: 42.00, 40.00, 39.15, 37.50, 36.30
Current Option Gain/Loss: +7.1%
Time Frame: 2 to 3 weeks
New Positions: Yes

Comments:
10/14: Profit taking was pretty mild on Thursday. Traders bought the dip near prior resistance at $38.00. If the market cooperates (i.e. doesn't tank lower on us) then shares of DRC look poised to move higher. A breakout past resistance near $39.00 would be pretty bullish given the positive trend of higher lows.

10/12: DRC is finding resistance at $38.25 but it appears it only a matter of time before this is broken to the upside. I'm looking for DRC to move to our first target of $39.00 in the coming days and if the market remains strong we should see $39.95, perhaps next week. I suggest traders use strength to begin to exit positions or tighten stops to protect profits. A move to $39 should produce a +55% gain while a move to $39.95 should produce a +90% gain.

Current Position: Long November $40.00 CALL, entry was at $0.70

Entry on October 6, 2010
Earnings 10/28/2010 (unconfirmed)
Average Daily Volume: 570,000
Listed on October 5, 2010


Genco Shipping & Trading, LTD - GNK - close 16.39 change -0.27 stop 15.50

Target(s): 17.70, 18.05, 18.50
Key Support/Resistance Areas: 18.25, 17.75, 16.90, 15.75
Current Option Gain/Loss: -25.0%
Time Frame: 1 to 3 weeks
New Positions: Yes

Comments:
10/14: Hmm... I am definitely seeing some mixed signals on GNK. The trend from late September is up with traders buying the dips, like they did today. However, on a very short-term basis, GNK has produced a bearish double top at $17.10. At the same time short-term support near $16.20 held up today. I do think GNK offers a lot of potential. The most recent data lists short interest in this stock at more than 18% of the very small float (27.7 million shares). That is a recipe for a short squeeze if GNK can show any strength. If the market pulls back again I would look for a potential entry point on a bounce from what should be support near $16.00 and its 50-dma.

10/12: GNK traded right down to our trigger to enter positions at $16.55 and bounced. Our first target is near the July/August highs at $17.70, which should produce a gain of +65%. Our second target is below the February lows at $18.05 (adjusted) which should produce a +90% gain. Use strength to consider to exiting positions or tightening stops.

10/11: Basic materials have been exploding as investors are flocking to hard assets and the stocks that mine and produce them. However, the shippers haven't fared as well and I believe they are due for a run higher as these materials need to be stored and shipped around the world. GNK has been forming an ascending triangle over the past six weeks and closed near the top of its base today. I would prefer to catch a pullback in the stock but a breakout play is also a good set-up. I suggest we enter long positions if GNK trades to $17.15 (a breakout) or $16.55 (a pullback). Our stop is below the stock's 20 and 50-day SMA's and an ascending trend line and will be adjusted as the trade develops.

Current Position: Long November $17.00 CALL, entry was at $0.80

Note: Readers who want to give this more time to work may want to consider buying the JAN 2011 $17.50 CALLS

Entry on October 12, 2010
Earnings 11/1/2010 (unconfirmed)
Average Daily Volume: 1.2 million
Listed on October 11, 2010


Thompson Creek Metals - TC - close 11.68 change +0.12 stop 10.45

Target(s): 11.75, 12.40
Key Support/Resistance Areas: 12.60, 11.80, 11.00, 10.55
Current Gain/Loss: +5%
Time Frame: 1 to 3 weeks
New Positions: Yes, on pullbacks

Comments:
10/14: The rally continues for metal stocks and TC outperformed the S&P 500 with a +1% gain on Thursday. Traders bought the dip in TC this afternoon but I wouldn't chase it here. A dip or bounce in the 11.00-11.15 zone could be a new entry point to buy calls.

10/13: The stock gapped higher but drifted lower the entire day. TC could head lower to fill today's gap prior to moving higher.

10/9: It seems there is no stopping the basic materials sector as the lackluster employment report is sure to be followed by additional stimulus. Molybdenum is high strength metal and is used to make aircraft parts, electrical contacts, industrial motors and filaments to name a few. Technically, TC broke through resistance near $11.00 and touched its 200-day SMA on Friday. I would like to see the stock retrace some of those gains and suggest we enter long positions with a trigger of $11.10 which is -18 cents lower than Friday's close. Our targets are about +6% and +11.5% higher than our trigger.

Current Position: Long November $11.00 CALL, entry was at $0.90

Entry on October 12
Earnings 10/4/2010 (unconfirmed)
Average Daily Volume: 1.7 million
Listed on October 9, 2010


PUT Play Updates

Alliant Techsystems - ATK - close 73.77 change -0.99 stop 76.25

Target(s): 72.25, 71.50, 70.50
Key Support/Resistance Areas: 76.00, 74.00, 72.00, 71.25, 70.00
Current Gain/Loss: -34%
Time Frame: 1 to 2 weeks
New Positions: Yes, with tight stops

Comments:
10/14: I can certainly see why Scott picked ATK as a bearish play. The rally has stalled at significant resistance near $75.00, which just happens to include resistance at the 68.2% Fib retracement of the summer sell-off. This same level is now seeing additional resistance with the simple 200-dma overhead. ATK produced a failed rally on Oct. 1st and it appears the stock just did it again today with a miniature bearish engulfing candlestick pattern. Now usually these patterns need to see confirmation. Readers may want to wait for a move under $73.25 before launching new positions. I wouldn't be surprised to see ATK retest $70 over the next few weeks.

10/13: The stock remains below its 200-day SMA while the bearish head and shoulders formation still remains. Now we need follow through lower.

10/12: Not much has changed from my comments from previous days. ATK has been drifting lower and consolidating below its 200-day SMA the past several days, but is still holding onto its 20-day SMA. My primary target is a move to the 50-day SMA which is rising so I've raised the target to $71.50. A move to this level should produce a +20% gain, while a move to our first target will get us out of the trade with a small profit. Use weakness to consider closing positions or tightening stops.

10/9: ATK formed a perfect bearish head and shoulders pattern on its hourly chart turned lower right where it should have. Now we follow through to the downside. The stock remains below its 200-day SMA and I am ultimately looking for a move towards its 50-day SMA and our second target of $71.25. I do think a sell-off will likely get bought so be prepared to take profits or tighten stops to protect them.

Current Position: Long November $70.00 PUT, entry was at $1.45

Entry on October 4, 2010
Earnings: 11/11/2010 (unconfirmed)
Average Daily Volume: 310,000
Listed on October 2, 2010


PNC Financial - PNC - close 51.75 change -1.17 stop 54.92

Target(s): 51.05, 50.35, 49.50, 48.75
Key Support/Resistance Areas: 54.50, 53.50, 50.50, 49.50, 48.75, 47.00
Current Gain/Loss: -23%
Time Frame: 1 to 2 weeks
New Positions: Yes

Comments:
10/14: Bingo! PNC has started to breakdown again. Financials were the market laggards today as investors worried about the state of foreclosures in this country. Shares of PNC lost -2.2% and broke down under a short-term bullish trend of higher lows. It looks like our first target was hit $51.05 this afternoon (the option was trading near $1.10 at the time). Personally I would aim for the August lows and beyond.

10/13: The stock continues to trade terrible and lost 3 cents today while the broader market surged higher. If we get a correction in the coming days our targets should easily be reached. I suggest using those to exit positions or tighten stops to protect profits/capital. $50.35 and $49.50 are the primary targets.

10/12: This morning PNC broke down and out of its bear flag that has been forming since 9/23, but it was one big head fake as the stock bounced and closed back inside of it. The chart continues to look terrible and any meaningful market correction should quickly send this stock down to our targets. The stock remains below its primary downtrend line and has been struggling over the past few days. Now we need follow through to the downside. Use weakness to consider exiting positions or tightening stops.

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

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


CLOSED BEARISH PLAYS

Isilon Systems, Inc - ISLN - close 27.22 change +0.59 stop NONE

Target(s): 23.20, 21.50, 20.50
Key Support/Resistance Areas: 26.35, 25.00, 21.40, 20.40, 19.00
Current Gain/Loss: -43%
Time Frame: 1 to 2 weeks
New Positions: Neutral

Comments:
10/14: All right, I think it's game over for our ISLN puts. This was a very aggressive trade. Sometimes this type of play works and the rewards are big but with that opportunity comes higher risk. I think today's relative strength in ISLN is a signal we were wrong. The stock has been struggling with resistance near $26.00 the last couple of weeks. On Wednesday shares broke out and closed over this level. Today traders bought the morning dip to $26.00 and ISLN surged to another new high. I am suggesting an early exit now to save some capital.

The November $20 puts are still bidding $0.40. Exit now. Closed Position: Long November $20.00 PUT, entry was at $0.70, exit $0.40 (-42.8%)

Annotated Chart:

Entry on October 6, 2010
Earnings: 10/21/2010 (unconfirmed)
Average Daily Volume: 1.2 million
Listed on October 6, 2010


NetApp Inc - NATP - close 50.39 change +0.77 stop 50.50

Target(s): 45.25, 43.75, 42.25
Key Support/Resistance Areas: 51.40, 50.40, 46.90, 45.00, 42.00
Current Gain/Loss: -28.9%
Time Frame: 1 to 2 weeks
New Positions: Yes

Comments:
10/14: Our put play on NTAP didn't last very long. Round-number resistance at $50.00 failed to slow down the bounce in NTAP. The stock hit our trigger to buy puts on Wednesday and the spike to $50.85 this morning stopped us out (stop was $50.50). More aggressive traders may want to watch for a failed rally under resistance near $51.35. However, I'm starting to think that NTAP could be forming another bull-flag type of pattern. If you're feeling really aggressive consider bullish positions on a move over $51.50.   Closed Position:
Long November $47.00 PUT, entry was at $1.90, exit near $1.35 (-28.9%)

Annotated Chart:

Entry on October 13
Earnings: 11/17/2010 (unconfirmed)
Average Daily Volume: 8.5 million
Listed on October 12, 2010


Whole Foods Market - WFMI - close 34.57 change -0.65 stop 37.10

Target(s): 32.85, 31.80, 31.05
Key Support/Resistance Areas: 36.00, 35.00, 34.00, 32.80, 31.00
Current Gain/Loss: -25.5%
Time Frame: 1 to 2 weeks
New Positions: Yes

Comments:
10/14: Hmm...I might be missing something here but it looks like WFMI hit our stop loss at $37.10 on Wednesday afternoon. Today's move higher was just salt in the wound. The super-sharp rebound looks like short covering. It also looks like the bounce might stall near its 100-dma and its trend of lower highs. More aggressive traders may want to seriously consider looking for a new entry point here. I am closing the play per our stop loss at $37.10. FYI: a close over $38.50 would look pretty bullish and break the bearish consolidation over the last six months.

Closed Position:
Long November $33.00 PUT, entry was at $0.90, exit @ 0.67 (-25.5%)

Annotated Chart:

Entry on October 12, 2010
Earnings: 11/3/2010 (unconfirmed)
Average Daily Volume: 2.5 million
Listed on October 9, 2010