Editor's Note:

The news on Sunday night and Monday morning was all about the debt ceiling deal reached by Democrats and Republicans. As expected the stock market gapped open higher on this news. Unfortunately there was no follow through. Stocks immediately reversed lower thanks to some bearish economic data and the fact that this new debt deal still has to be voted on and passed. The lack of follow through higher across the broader market is very bearish and definitely a warning signal.

Looking at our market neutral plays you'll notice that the premiums on the call options fell a lot more than the rise in the puts. Overall it was a negative day for these trades.

-James

Current Portfolio:


CALL Play Updates

Alliance Data Systems - ADS - close: 97.74 change: -0.60

Stop Loss: 95.75
Target(s): 104.50. 107.00
Current Option Gain/Loss: -42.8% & -40.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/01 update: Waiting for both the S&P 500 and ADS to open higher backfired on us given the stock market's bearish reversal from its opening highs this morning. ADS gapped open at $99.56 and then slipped back under the $98 level. Our trade was opened this morning. Unfortunately the lack of follow through higher is caution signal. If you're looking for a new position today I'd wait for another bounce from the $96.00 level. Keep in mind we have a stop loss at $95.75.

- Suggested Positions -

Long AUG $105 call (ADS1120H105) Entry $0.35

- or -

Long SEP $105 call (ADS1117I105) Entry $1.50*

08/01 Our trade is opened. ADS opened higher at $99.56
08/01 *entry price is an estimate. option did not trade today.
07/30 Try again.
07/27 Try again. buy calls if ADS and S&P 500 open positive on Friday. New stop loss at $95.75
07/27 Our trade was not opened. I am removing our entry point (no trade) until Thursday night and we'll re-evaluate.

Entry on August 01 at $99.56
Earnings Date 07/21/11
Average Daily Volume = 825 thousand
Listed on July 26, 2011


Caterpillar Inc. - CAT - close: 100.72 change: +1.93

Stop Loss: 96.45
Target(s): 104.00, 109.00
Current Option Gain/Loss: +24.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/01 update: As expected we saw some big moves in CAT. Shares gapped open higher at $102.43 and almost hit $103 before paring its gains. Shares actually dipped all the way back to its 200-dma before rebounding higher into the closing bell. The stock settled with a +1.9% gain on the session.

The lack of follow through higher in the broader market is a big concern. I would hesitate to launch new positions in CAT at this time.

- Suggested (SMALL) Positions -

Long AUG $100 call (CAT1120H100) entry @ $2.90

Entry on July 29 at $98.79
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 8.7 million
Listed on July 28, 2011


Noble Energy, Inc. - NBL - close: 99.62 change: -0.06

Stop Loss: 94.25
Target(s): 104.50, 109.00
Current Option Gain/Loss: + 1.4% & -22.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/01 update: NBL weathered the volatility today pretty well. Our trade has been opened. The stock gapped open higher at $101.04. The strength didn't last and NBL dipped to $98.28 before bouncing again. My comments in our CAT trade apply here as well. The lack of follow through higher across the broader market is a caution sign. Readers may want to wait for a new most past $101.00 or a close above the $100.00 level before considering new bullish positions. Cautious traders may want to raise their stop loss as well since our stop is a little wide here, especially given our entry point this morning.

Earlier Comments:
FYI: The Point & Figure chart for NBL is bullish with a $111 target. NOTE: August options expire in three weeks.

- Suggested Positions -

Long AUG $105 call (NBL1120H105) Entry $0.69

- or -

Long SEP $105 call (NBL1117I105) Entry $2.50*
08/01 *entry price is an estimate. option did not trade today

Entry on August 1 at $101.04
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 1.3 million
Listed on July 30, 2011


PowerShares QQQ - QQQ - close: 57.73 change: -0.27

Stop Loss: 56.75
Target(s): 62.50, 64.75
Current Option Gain/Loss: -46.1% & -69.2%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
08/01 update: The Qs gapped open at $58.67 but the rally didn't last long. Shares quickly faded and slipped to short-term support near $57.00 before rebounding. The lack of follow through on news of a debt ceiling deal is very worrisome. Maybe investors are just being cautious since the deal has not been voted on yet. Plus, we had another day of bearish economic data. I am not suggesting new bullish positions at this time. We have a stop loss at $56.75, under the 50-dma.

Earlier Comments:
This is an aggressive entry point. We wanted to keep our position size small to limit our risk.

- Suggested Positions - (SMALL POSITIONS)

Long AUG $60 call (QQQ1120H60) entry @ $0.52

- or -

Long AUG $62 call (QQQ1120H62) entry @ $0.13

07/29 Trade opened with QQQ closing at $58.00
07/28 New strategy: buy calls on Friday at the closing bell
07/27 We are removing our entry point for Thursday. We'll re-evaluate our strategy on Thursday night.

Entry on July 29 at $58.00
Earnings Date --/--/--
Average Daily Volume = 61.7 million
Listed on July 23, 2011


Quality Systems, Inc. - QSII - close: 90.71 change: -0.65

Stop Loss: 87.40
Target(s): 99.50
Current Option Gain/Loss: -53.3% & -33.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/01 update: QSII set new all-time highs this morning with the gap open higher at $92.25 and its short-term spike to $93.64. Sadly the rally didn't last and QSII plunged back toward $89.50 before paring its intraday lows. Given the market's performance today I would be very cautious on launching new positions. Readers may want to wait for a new close over $92.00 before initiating trades.

Earlier Comments:
If QSII can rally past resistance at $92.00 there is a very good chance the stock will see a short squeeze. Traders will be interested to note that the most recent data listed short interest at 22.5% of the very small 19.4 million-share float. If triggered I'm suggesting a target at $99.50. More aggressive trades may want to aim higher. FYI: The Point & Figure chart for QSII is bullish with a $123 target. NOTE: August options expire in three weeks.

- Suggested Positions -

Long AUG $95 call (QSII1120H95) Entry $1.50*

- or -

Long SEP $95 call (QSII1117I95) Entry $2.70
08/01 *entry price is an estimate. option did not trade today

Entry on August 1 at $92.25
Earnings Date 10/31/11 (unconfirmed)
Average Daily Volume = 235 thousand
Listed on July 30, 2011


Market Neutral Play Updates

SPDR Dow Jones Industrial Average (ETF) - DIA - cls: 121.11 chg: -0.02

Stop Loss: n/a
Target(s): -----
Option Straddle Gain/Loss: - 8.9%
Option Strangle Gain/Loss: -18.2%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/01 update: After all the volatility today the DIA closed virtually unchanged for the session. If the debt deal doesn't pass the vote tomorrow we can expect a lot more weakness. I am not suggesting new positions at this time.

Earlier Comments:
I'm listing both a straddle and a strangle. We're using August options that expire in less than four weeks. Readers may want to consider September options instead.

Trade #1. Option Straddle (cost: $4.49, current: $4.09)

Long AUG $123 call (DIA1120H123) Entry @ $2.33, current bid $1.09
- and also buy -
Long AUG $122 put (DIA1120T122) Entry @ $2.16, current bid $3.00

- or -

Trade #2. Option Strangle (cost: $1.64, current: $1.34)

Long AUG $127 call (DIA1120H127) Entry @ $0.64, current bid $0.14
- and also buy -
Long AUG $117 PUT (DIA1120T117) Entry @ $1.00*, current bid $1.20

07/30 No new positions at this time
07/28 we got much better prices than expected on the entry this morning.
07/28 *entry price is an estimate. option did not trade today
07/27 NOTE: you may want to buy three calls for every two puts if you're trading the strangle due to the price difference.

Entry on July 28 at $122.82
Earnings Date --/--/--
Average Daily Volume = 6.6 million
Listed on July 27, 2011


iShares Russell 2000 Index - IWM - close: 79.22 change: -0.52

Stop Loss: n/a
Target(s): --
Option Straddle Gain/Loss: -15.1%
Option Strangle Gain/Loss: -23.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/01 update: News of a debt deal had the IWM gap open higher at $80.69 but the rally failed near $81.00. This small cap ETF closed under its simple 200-dma. We could see the IWM breakdown to new relative lows soon if the debt deal doesn't pass the vote tomorrow. I am not suggesting new positions at this time.

Trade #1. Option Straddle (cost: $4.43, current: $3.76)

Long AUG $80 call (IWM1120H80) Entry @ $2.17, current bid $1.40
- and also buy -
Long AUG $80 put (IWM1120T80) Entry @ $2.26, current bid $2.36

- or -

Trade #2. Option Strangle (cost: $1.50, current: $1.15)

Long AUG $84 call (IWM1120H84) Entry @ $0.52, current bid $0.21
- and also buy -
Long AUG $76 PUT (IWM1120T76) Entry @ $0.98, current bid $0.94

07/30 no new positions at this time
07/30 corrected the entry price to reflect the correct Aug. options
07/27 NOTE: you may want to buy three calls for every two puts if you're trading the strangle due to the price difference.

Entry on July 28 at $79.96
Earnings Date --/--/--
Average Daily Volume = 60 million
Listed on July 27, 2011


SPDR S&P 500 ETF - SPY - close: 128.78 change: -0.55

Stop Loss: n/a
Target(s): --
Option Straddle Gain/Loss: -10.5%
Option Strangle Gain/Loss: - 7.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/01 update: The gap higher and morning rally failed under the $131 level. The SPY traded below its simple 200-dma intraday but bounced at its exponential 200-dma instead. I am not suggesting new positions at this time.

Trade #1. Option Straddle (cost: $5.61, current: $5.02)

Long AUG $130 call (SPY1120H130) Entry @ $3.10 current bid $1.76
- and also buy -
Long AUG $130 put (SPY1120T130) Entry @ $2.51, current bid $3.26

- or -

Trade #2. Option Strangle (cost: $2.69, current: $2.50)

Long AUG $134 call (SPY1120H134) Entry @ $1.14, current bid $0.44
- and also buy -
Long AUG $127 PUT (SPY1120T127) Entry @ $1.55, current bid $2.06

07/30 no new positions at this time
07/30 corrected the entry price for August options
07/28 NOTE: you may want to buy three calls for every two puts if you're trading the strangle due to the price difference.

Entry on July 28 at $130.60
Earnings Date --/--/--
Average Daily Volume = xxx million
Listed on July 27, 2011


PUT Play Updates

FactSet Research - FDS - close: 91.43 change: -0.66

Stop Loss: 96.05
Target(s): 90.50, 86.00
Current Option Gain/Loss: -22.8% & -16.6%
2nd Position Gain/Loss: - 6.8% Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
08/01 update: The gap open higher in FDS this morning was lower than I expected. Shares failed under the $93.50 level and then sank to new lows. I am lowering our stop loss down to $96.05. More conservative traders may want to consider a stop loss closer to $95 instead. I am not suggesting new positions at this time. The $90.00 level could be support. Our first target is $90.50. The intraday low this afternoon was $90.69.

NOTE: The spreads on the Aug. $95 puts have widened significantly again. The bid is $2.70 with an ask of $5.20. This is not tradable. You may want to consider a limit order when you exit instead of using a market order. We will not be trading FDS again if the spreads don't improve.

Earlier Comments:
Our targets are $90.50 and $86.00 but the $90.00 level is support and FDS will probably see a bounce from this level. The Point & Figure chart for FDS is bearish with a $64 target.

- Suggested (SMALL) Positions -

Long AUG $95 PUT (FDS1120T95) Entry @ $3.50

- or -

Long SEP $90 PUT (FDS1117U90) Entry @ $2.40

- 2nd Position, listed 7/26 -

Long Aug $95 PUT (FDS1120T95) Entry @ $2.90*

08/01 new stop loss @ 96.05
07/27 new stop loss @ 97.05
07/27 entry on the 2nd position (Aug.95 put) is an estimate
07/26 New stop loss @ 98.25, Adding positions

Entry on July 18 at $94.48
Earnings Date 09/21/11 (unconfirmed)
Average Daily Volume = 363 thousand
Listed on July 16, 2011