Editor's Note:

The market's sell-off is looking over done. The S&P 500 is down more than -10% in less than two weeks.

The action in the market today, a gap down and a sprint lower, is a perfect example of why we have been using the conditional entry points. We're going to use them again tonight.

We also want to go ahead and take profits in our FDS put play.

FYI: It looks like we closed our market neutral straddles and strangles just one day too early. All of those trades are significantly profitable tonight. Just in case you were curious, here's the current values for those market neutral trades:

DIA - Diamonds
Trade #1. Option Straddle (cost: $4.49, current: $8.38 = +86.6%
Trade #2. Option Strangle (cost: $1.64, current: $4.45 = +171.3%

IWM - small cap ETF
Trade #1. Option Straddle (cost: $4.43, current: $7.42 = +67.4%
Trade #2. Option Strangle (cost: $1.50, current: $4.04 = +169.3%

SPY - S&P500 SPDRs
Trade #1. Option Straddle (cost: $5.61, current: $9.70 = +72.9%)
Trade #2. Option Strangle (cost: $2.69, current: $7.13 = +165.0%)

-James

Current Portfolio:


CALL Play Updates

Core Labs - CLB - close: 106.93 change: +0.10

Stop Loss: 95.80
Target(s): 104.90, 109.75
Current Option Gain/Loss: + 0.0%
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
08/04 update: CLB gapped open lower and then plunged almost -7% to actually close under what should have been support at the $100 mark. Our play did not open today because the conditions to buy calls were not met. We will use the same condition tonight. I am suggesting we take advantage of this sell-off and buy calls now. However, we only want to buy calls if both CLB and the S&P 500 open positive tomorrow morning.

Now there is a risk that a bearish jobs number prompts the market to open lower and then stocks reverse higher later. In this situation our trade would not open. Nimble traders could go ahead and buy calls when the market turns positive.

If our play is opened tomorrow morning we'll use a stop loss at $95.80, which is just under the simple 200-dma. Our new targets are $104.90 and $109.75. I have listed new option strikes below.

August options expire in about two weeks.

buy calls if CLB and S&P 500 open positive tomorrow.

- Suggested (SMALL) Positions -

buy the AUG $105 call (CLB1120H105)

- or -

buy the SEP $105 call (CLB1117I105)
08/04 Adjusted our strategy for the decline. New stop loss @ 95.80. New targets are $104.90 and $109.75. Buy calls if both CLB and S&P 500 are positive at the open tomorrow.

Annotated Chart:

Entry on August at $ xx.xx
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 526 thousand
Listed on August 2, 2011


Range Resources Corp. - RRC - close: 59.48 change: -4.92

Stop Loss: 61.90
Target(s): 68.00, 69.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
08/04 update: We have the same situation in RRC. Our trade did not open this morning because RRC gapped open lower. The sell-off is overdone both in the market and in RRC. Shares of this stock have fallen toward prior resistance and what should be new support. We want to take advantage of the drop and buy calls now but only if RRC and the S&P 500 open positive tomorrow morning.

Now there is a risk that a bearish jobs number prompts the market to open lower and then stocks reverse higher later. In this situation our trade would not open. Nimble traders could go ahead and buy calls when the market turns positive.

We will set our stop loss in RRC at $56.40. Our targets are $63.90 and $66.25. I have listed new option strikes below.

FYI: August options expire in about two weeks.

buy calls if RRC and S&P 500 open positive tomorrow.

- Suggested Positions -

buy the AUG $60 call (RRC1120H60)

- or -

buy the SEP $62.50 call (RRC1117I62.5)

Annotated Chart:

Entry on August xx at $ xx.xx
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 3.1 million
Listed on August 3, 2011


PUT Play Updates

None. No active put plays.


CLOSED BEARISH PLAYS

FactSet Research - FDS - close: 86.44 change: -3.31

Stop Loss: 94.25
Target(s): 90.50, 86.00
Current Option Gain/Loss: +80.0% & + 100%
2nd Position Gain/Loss: +117.2% Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
08/04 update: The U.S. stock market just delivered its worst one day loss in about two years. This fueled a -3.6% drop in FDS. I'm concerned the market could see another sharp oversold bounce so I am suggesting an early exit now. More aggressive traders could let this trade run since the next level of support looks like the $85-84 zone and below that the $80 area.

We will not play FDS again. The option spreads are too wide. The August $95 put has a bid of $6.30 and an ask of $10.80. The bid should be significantly higher!

Remember that the options are not very liquid (another reason we won't play FDS again). You have to decide if you'll place a market order or a limit order. Keep in mind that tomorrow will probably be a "fast" market and market orders could be dangerous given the terrible spreads but limit orders may not get filled.

- Suggested (SMALL) Positions -

AUG $95 PUT (FDS1120T95) Entry @ $3.50, exit $6.30 (+80%)

- or -

SEP $90 PUT (FDS1117U90) Entry @ $2.40, exit $4.80 (+100%)

- 2nd Position, listed 7/26 -

Aug $95 PUT (FDS1120T95) Entry @ $2.90*, exit $6.30 (+117.2%)

08/04 exit early now.
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

chart:

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