Editor's Note:

The market's trend is still arguably pointing upward but it definitely looks like we could be witnessing a reversal. I'm suggesting an early exit in our CAT, IBM, and SPW plays. I'm moving CTSH from the calls section to the puts section. Our GOOG strangle with January calls was a bust.

Whether or not the market will correct is up for debate but I strongly suspect the market could get frothy. We can expect lots of sharp reversals both up and down that will frustrate both the bulls and the bears. Trading becomes a lot more challenging. We need to shorten our time frames on our trades. Use smaller position sizes to limit our risk. Tighten our stops and be quicker to take a profit and exit positions.

-James

Current Portfolio:


CALL Play Updates

Cognizant Technology Solutions - CTSH - close: 73.05 change: -0.56

Stop Loss: 73.90
Target(s): 79.90, 83.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see trigger

STRATEGY CHANGE:
01/22 update: The stock is still consolidating lower and has definitely broken down from its recent trading range. Previously we were looking to buy calls on a breakout with a trigger at $76.65. Today I am adjusting our strategy to buy some short-term puts.

Look for the rest of this update in the PUTS section below. Our call trade never opened.

Entry on January xxth at $ xx.xx (CALL TRADE NEVER OPENED)
Earnings Date 02/09/11 (unconfirmed)
Average Daily Volume = 1.8 million
Listed on January 18th, 2010


FedEx Corp. - FDX - close: 93.34 change: -0.17

Stop Loss: 91.75
Target(s): 99.90, 104.75
Current Option Gain/Loss: -100% and -40.5%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/22 update: It was a disappointing end to January option expiration. Shares of FDX tried to rally Friday morning and failed, not that it mattered for our January calls, which expired worthless. The larger trend for FDX is still up but momentum has stopped with the sideways trading in December and the most recent action in January is looking like another top!

I am not suggesting new bullish positions and more conservative traders may want to exit their April positions early right here. Currently our stop loss is at $91.75.

- Suggested Positions (only small positions so far) -

2011 January $100 call (FDX1122A100) Entry @ $0.80, expired @ $0.00 (-100%)

- or

Buy the 2011 April $100 call (FDX1116D100) Entry @ $2.96

01/22: January options have expired (-100%)
01/13: New targets for the April calls (99.90 and 104.75)
01/12: New stop loss @ 91.75
01/08: New exit strategy for January calls. Try to exit at 40 cents or more.
12/17: FDX opens at $94.23 - our entry point.
12/16: Adjusted Entry - initiate small positions now (@ Friday's open)

chart:

Entry on December 17th at $94.23
Earnings Date 12/16/10 (confirmed)
Average Daily Volume = 2.1 million
Listed on November 29th, 2010


NetApp, Inc. - NTAP - close: 55.77 change: -0.45

Stop Loss: 54.90
Target(s): 62.25, 64.50
Current Option Gain/Loss: -63.2%
Time Frame: 4 to 5 weeks
New Positions: see below

Comments:
01/22 update: I remain very worried about NTAP and seriously debated closing the play right here. Tech stocks have seen some of the strongest sell-offs thus far and the correction may not be over yet. NTAP is holding above support near $55 and its 50-dma but I am reluctant to consider new positions here.

Cautious traders will want to seriously consider an early exit. I am not suggesting new positions. Our stop loss is at $54.90.

- Suggested Positions (small positions only) -

Long the 2011 February $60 calls (NTAP1119B60) Entry @ $2.50

chart:

Entry on January 12th at $59.04
Earnings Date 02/16/11 (unconfirmed)
Average Daily Volume = 3.8 million
Listed on January 11th, 2010


Research In Motion - RIMM - close: 61.55 change: -0.85

Stop Loss: 59.90
Target(s): 64.75, 67.50
Current Option Gain/Loss: -28.3%, and -20.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/22 update: The correction in RIMM continues with the stock down a third day in a row. Shares are nearing what should be support near $60 and its 50-dma. Nimble traders could look at buying calls on a dip or a bounce in the $60.50-60.00 zone but I'm growing more and more cautious here. Conservative traders might want to exit early. I am not suggesting new bullish positions. Our final target remains $67.50.

- Suggested Positions -

Long the 2011 February $62.50 calls (RIMM1119B62.5) Entry @ $2.47

- or -

Long the 2011 March $65.00 calls (RIMM1119C65) Entry @ $2.35

01/13: New stop @ 59.90
01/13: 1st Target Hit @ 64.75. Feb. call @ $4.00 (+61.9%) Mar. call @ $3.75 (+59.5%)
01/12: New stop loss @ 58.45

chart:

Entry on January 6th at $61.00
Earnings Date 03/31/11 (unconfirmed)
Average Daily Volume = 9.9 million
Listed on January 5th, 2010


PUT Play Updates

Cognizant Technology Solutions - CTSH - close: 73.05 change: -0.56

Stop Loss: 75.25
Target(s): 70.25, 68.00
Current Option Gain/Loss: + 0.0%
Time Frame: exit ahead of earnings
New Positions: Yes, see below

Comments:
01/22 update: CTSH was recently a call candidate but tonight we're switching directions. Shares are breaking down from their $73.50-76.50 trading range. The next level of support is the $70 and $67.50 areas.

I am suggesting some very short-term puts to try and capture part of the correction. We'll buy puts now (small positions only) with a stop loss at $75.25. Our first target is $70.25. Our secondary target is $68.00. We still want to avoid holding over earnings. That gives us about 12 trading days.

- Suggested Positions (very small positions only!) -

Buy the 2011 February $70.00 PUT (CTSH1119N70) current ask $1.50

01/22 Moved from call candidate to put play.

chart:

Entry on January 24th at $ xx.xx
Earnings Date 02/09/11 (unconfirmed)
Average Daily Volume = 1.8 million
Listed as a PUT on January 22nd, 2010


Decker's Outdoor Corp. - DECK - close: 74.91 change: -2.23

Stop Loss: 80.25
Target(s): 70.50, 65.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see Trigger

Comments:
01/22 update: DECK is still dropping, which is unfortunate since we wanted to buy put options on a bounce. Right now our plan is to launch small bearish put positions on a bounce at the $77.00 mark. We may need to adjust our entry point toward the $76.00 level instead.

If we are triggered at $77.00 I'm suggesting a stop loss at $80.25. Bear in mind that DECK can be somewhat volatile and readers may want to keep their position size small. Our targets are $70.50 and $65.50.
The Point & Figure chart for DECK is bearish with a $65 target.

Trigger @ $77.00

- Suggested Positions -

Buy the 2011 February $75.00 PUTS (DECK1119N75) current ask $4.00

- or -

Buy the 2011 March $75.00 PUTS (DECK1119O75) current ask $6.00

Chart:

Entry on January xxth at $ xx.xx
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume = 1.5 million
Listed on January 20th, 2010


Google Inc. - GOOG - close: 611.83 change: -14.94

Stop Loss: n/a
Target(s): n/a
Current Option Gain/Loss: see below
Time Frame: 1 Day or 1 month
New Positions: No

THIS IS A STRANGLE TRADE (not a simple put play)

Comments:
01/22 update: Google's earnings results were good but investors are worried about the management change at the top. It doesn't help that Mr. Schmidt, who is leaving the CEO position, just filed to sell almost 6% of his GOOG stock position (about $326 million worth). Shares of GOOG opened at $639.58 but couldn't get past the recent highs and reversed hard. The stock gave back all of its gains and plunged to a -2.3% loss to close at its lows for the day. All in all it was a very bearish session and doesn't bode well for the future. That's good news for our February strangle since stocks (even GOOG) tend to fall faster than they climb.

EXIT PLAN:
It was our plan to exit the January strangle position at the opening bell on Friday. We will keep the February strangle position for a few more days and re-evaluate our exit strategy.

The speculative January gamble was a bust. The lack of real movement in the stock price doomed the January options to a quick death. The $680 call opened at 5 cents. The $580 put also opened at 5 cents. In the past we have seen GOOG gap open $50 but Friday did not see that sort of volatility.

STRANGLE TRADE: Buy an out of the money CALL and PUT

STRANGLE #1 (January options) initial cost $3.45, Exit @ 0.10 (-97.1%)

2011 January $680 call (GOOG1122A680) Entry @ $1.65

- AND -

2011 January $580 put (GOOG1122M580) Entry @ $1.80


STRANGLE #2 (February) initial cost $15.10, currently: $6.75 (-55.2%)

2011 February $680 call (GOOG1119B680) Entry @ $6.20

- AND -

2011 February $580 put (GOOG1122N580) Entry @ $8.90

01/22: Exit the January strangle at the open.

chart:

Entry on January 20th at $626.77
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on January 19th, 2010


iShares Russell 2000 Index - IWM - close: 77.19 change: -0.52

Stop Loss: 80.80
Target(s): 75.00
Current Option Gain/Loss: +16.3%
Time Frame: 1 to 2 weeks
New Positions: see below

Comments:
01/22 update: The action in the Russell 2000 index was bearish this past week. Stocks tried to rally this morning but the IWM's early gap higher quickly failed. The $RUT closed at new relative lows. I am not suggesting new positions at this time but a failed rally near $79.00 might change my mind.

Small Position only

Long the 2011 February $77 puts (IWM1119N77) Entry @ $1.65

chart:

Entry on January 20th at $78.14
Earnings Date --/--/--
Average Daily Volume = 38 million
Listed on January 19th, 2010


CLOSED BULLISH PLAYS

Caterpillar - CAT - close: 92.75 change: -0.86

Stop Loss: 92.25
Target(s): 99.80
Current Option Gain/Loss: - 56.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/22 update: I am suggesting we cut our losses and exit our CAT play early. The stock under performed both the S&P 500 and the DJIA on Friday. Shares slipped to $92.37 intraday and the afternoon bounce was pretty anemic. We still have a stop loss at $92.25 but I'm suggesting an early exit now. Readers may want to keep CAT on their watch list since the stock might have support near $90.00 and its 50-dma. If that level fails then look for support near $85 and its 100-dma.

- Suggested Positions -

2011 February $100 calls (CAT1119B100) Entry @ $1.45, exit 0.63 (-56.5%)

01/22 Exit Early @ 92.75, option @ $0.63 (-56.5%)

chart:

Entry on January 18th at $ 95.15
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume = 4.2 million
Listed on January 5th, 2010


International Business Machines - IBM - close: 155.50 change: -0.30

Stop Loss: 147.85
Target(s): 154.50, 159.90
Current Option Gain/Loss: +46.4%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/22 update: We are changing our strategy tonight. IBM tagged another new all-time, record high on Friday with the opening spike to $156.78. Shares were unable to maintain these gains and settled with a minor loss after a daylong churn sideways under $156.00. IBM continues to look short-term overbought and due for some profit taking. I would expect a correction back toward the $150.00-147.50 area, which is where I would reconsider new bullish positions.

In the meantime I am suggesting an early exit now to lock in a gain for our April calls.

- Suggested Positions -

2011 April $155 calls (IBM1116D155) Entry @ $2.25, exit $4.50 (+100%)

01/22: Lock in gains, exit early now. April call @ $4.50 (+100%)
01/19: Target Hit @ 154.50. April call @ $4.20 (+46.4%)
01/18: New stop loss @ 146.40. New targets at $154.50 and $159.90
01/18: As planned, exit the January calls (+87.4%)
01/13: Exit the January calls on Tuesday before the close (& earnings)
01/06: New stop loss @ 144.75
01/03: New targets @ $152.50, and $159.50

chart:

Entry on December 29th at $146.75
Earnings Date 01/18/11 (confirmed)
Average Daily Volume = 4.7 million
Listed on December 14th, 2010


SPX Corp. - SPW - close: 74.29 change: +0.43

Stop Loss: 71.75
Target(s): 77.40, 79.90
Current Option Gain/Loss: - 7.4%
Time Frame: 4 to 6 weeks
New Positions: See below

Comments:
01/22 update: I am calling it quits on our SPW play. The stock produced a bounce and showed some relative strength on Friday with a +0.5% gain. Yet the rally failed intraday. Bigger picture it looks like SPW is due to consolidate sideways for a while. I'd rather exit now and look for new candidates elsewhere. SPW should have short-term support near $72.00 and $70.00 if you want to hang on.

- Suggested Positions -

2011 February 75.00 calls (SPW1119B75) Entry @ $2.16

01/22: Exit early. SPW @ 74.29. Option @ 2.00 (-7.4%)
01/19: 1st Target Hit @ 77.40. Option @ $3.35 (+55%)
01/18: New stop loss @ 71.75

chart:

Entry on January 11th at $73.49
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume = 396 thousand
Listed on January 10th, 2010