Editor's Note:

The S&P 500's breakdown below its March low and support at 1250 did not last. Stocks saw a significant bounce off its lows to close in positive territory.

This big oversold bounce is not surprising but it puts our market neutral plays in jeopardy. We're electing to close them early.

-James

Current Portfolio:


CALL Play Updates

No call updates tonight


PUT Play Updates

FactSet Research - FDS - close: 89.75 change: +0.69

Stop Loss: 94.25
Target(s): 90.50, 86.00
Current Option Gain/Loss: +37.1% & +29.1%
2nd Position Gain/Loss: +65.5% Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
08/03 update: FDS spiked down under the $88.00 level and then rallied. Yet shares failed to close back above the $90.00 level, which should be new resistance. However, if the market continues to bounce tomorrow I would probably look for FDS to rebound towards the $92 area.

I am not suggesting new positions at this time. We'll wait and watch for another failed rally at prior support (if the spreads aren't too wide).

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*

08/02 new stop loss @ 94.25
08/02 1st target hit @ 90.50. Aug. $95 @ $3.95 (+12.8% & 2nd position +36.2%), Sept. $90 @ $2.85 (+18.7%). These prices are estimates. Neither option traded today.
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


CLOSED BULLISH PLAYS

Energizer Holdings Inc. - ENR - close: 79.11 change: -0.83

Stop Loss: 79.25
Target(s): 84.85, 88.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/03 update: I am going to drop ENR as a bullish candidate tonight. I still think shares could offer some potential. The sell-off this morning wasn't that bad and ENR found support near $78.00. Yet the S&P 500 managed to bounce back into positive territory but ENR did not.

Our trade on ENR never opened so I am removing it from the newsletter and will put it back on my personal watch list.

Trade Never Opened.

chart:

Entry on August xx at $ xx.xx
Earnings Date 11/02/11 (unconfirmed)
Average Daily Volume = 717 thousand
Listed on August 1, 2011


Noble Energy, Inc. - NBL - close: 96.07 change: -0.16

Stop Loss: 94.25
Target(s): 104.50, 109.00
Current Option Gain/Loss: -85.5% & -60.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/03 update: Oil stocks were some of the worst performers today thanks in part to a drop in oil prices. Shares of NBL saw a sharp plunge after the 10 o'clock hour and fell from $96.00 to $93.78 only to bounce back to almost unchanged on the day. Our stop loss was hit at $94.25 closing this trade.

- Suggested Positions -

AUG $105 call (NBL1120H105) Entry $0.69, exit 0.10 (-85.5%)

- or -

SEP $105 call (NBL1117I105) Entry $2.50*, exit 1.00* (-60%)
08/03 stopped out @ 94.25. *Sep.$105 call exit is an estimate. option did not trade today
08/02 cautious traders may want to exit immediately
08/01 *entry price is an estimate. option did not trade today

chart:

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


CLOSED Market Neutral Plays

SPDR Dow Jones Industrial Average (ETF) - DIA - cls: 118.80 chg: +0.34

Stop Loss: n/a
Target(s): -----
Option Straddle Gain/Loss: - 3.1%
Option Strangle Gain/Loss: - 3.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/03 update: The DIA fell to a new four-month low this morning and hit $116.83 before paring its losses and closing in positive territory. This could be a short-term bottom. It's probably time to look for an oversold bounce.

I am concerned that stocks managed to break key support and then reverse higher. Granted you could argue the bounce was fueled by hopes for a new QE3 program but it's still a rally back into positive territory. Personally, I think investors will sell the rally and it will eventually produce a new lower high but there is no telling how big the bounce will be or how long it will last. These market neutral plays are holding August options. My worry here is that stocks bounce +2% to +3% and then just churn sideways. We have less than two and a half weeks before August options expire. A sideways market would be very bad for these trades leaving the option premiums to deteriorate.

We're suggesting an early exit now. Aggressive traders could hold on and see what happens. Odds are the jobs report will not be very good and it could spark another leg lower. If you're holding September options then you probably want to hold on.

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: $4.35)

Long AUG $123 call (DIA1120H123) Entry @ $2.33, current bid $0.30
- and also buy -
Long AUG $122 put (DIA1120T122) Entry @ $2.16, current bid $4.05

- or -

Trade #2. Option Strangle (cost: $1.64, current: $1.59)

Long AUG $127 call (DIA1120H127) Entry @ $0.64, current bid $0.02
- and also buy -
Long AUG $117 PUT (DIA1120T117) Entry @ $1.00*, current bid $1.57

08/03 Exit early now. -3.1% for the Straddle and -3.0% for the Strangle
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.

chart:

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: 77.26 change: +0.51

Stop Loss: n/a
Target(s): --
Option Straddle Gain/Loss: -10.1%
Option Strangle Gain/Loss: - 7.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/03 update: The IWM saw an intraday spike down to $74.88 before reversing higher. The $75.00 level is probably round-number support. It's probably time to look for an oversold bounce.

Duplicate comments from the DIA trade
I am concerned that stocks managed to break key support and then reverse higher. Granted you could argue the bounce was fueled by hopes for a new QE3 program but it's still a rally back into positive territory. Personally, I think investors will sell the rally and it will eventually produce a new lower high but there is no telling how big the bounce will be or how long it will last. These market neutral plays are holding August options. My worry here is that stocks bounce +2% to +3% and then just churn sideways. We have less than two and a half weeks before August options expire. A sideways market would be very bad for these trades leaving the option premiums to deteriorate.

We're suggesting an early exit now. Aggressive traders could hold on and see what happens. Odds are the jobs report will not be very good and it could spark another leg lower. If you're holding September options then you probably want to hold on.

Trade #1. Option Straddle (cost: $4.43, current: $3.98)

Long AUG $80 call (IWM1120H80) Entry @ $2.17, current bid $0.50
- and also buy -
Long AUG $80 put (IWM1120T80) Entry @ $2.26, current bid $3.48

- or -

Trade #2. Option Strangle (cost: $1.50, current: $1.39)

Long AUG $84 call (IWM1120H84) Entry @ $0.52, current bid $0.03
- and also buy -
Long AUG $76 PUT (IWM1120T76) Entry @ $0.98, current bid $1.36

08/03 exit early. -10.1% for the Straddle and -7.3% for the strangle
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.

chart:

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: 126.17 change: +0.68

Stop Loss: n/a
Target(s): --
Option Straddle Gain/Loss: - 9.4%
Option Strangle Gain/Loss: + 5.9%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
08/03 update: It's the same story here. The SPY fell to a new multi-month low and then reversed. This ended a multi-day losing streak for the index. The breakdown under the March low probably hit a lot of stop losses. I would expect an oversold bounce.

Duplicate comments from the DIA trade
I am concerned that stocks managed to break key support and then reverse higher. Granted you could argue the bounce was fueled by hopes for a new QE3 program but it's still a rally back into positive territory. Personally, I think investors will sell the rally and it will eventually produce a new lower high but there is no telling how big the bounce will be or how long it will last. These market neutral plays are holding August options. My worry here is that stocks bounce +2% to +3% and then just churn sideways. We have less than two and a half weeks before August options expire. A sideways market would be very bad for these trades leaving the option premiums to deteriorate.

We're suggesting an early exit now. Aggressive traders could hold on and see what happens. Odds are the jobs report will not be very good and it could spark another leg lower. If you're holding September options then you probably want to hold on.

Trade #1. Option Straddle (cost: $5.61, current: $5.08)

Long AUG $130 call (SPY1120H130) Entry @ $3.10 current bid $0.58
- and also buy -
Long AUG $130 put (SPY1120T130) Entry @ $2.51, current bid $4.50

- or -

Trade #2. Option Strangle (cost: $2.69, current: $2.85)

Long AUG $134 call (SPY1120H134) Entry @ $1.14, current bid $0.08
- and also buy -
Long AUG $127 PUT (SPY1120T127) Entry @ $1.55, current bid $2.77

08/03 exit early. -9.4% for the straddle. +5.9% for the strangle.
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.

chart:

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