Editor's Note:

Money managers felt the need to do some window undressing before the quarter ended on Friday. The U.S. market suffered widespread losses with the major averages down more than -2%. The volatility index (VIX) surged +10% and set its highest close in weeks.

Traders are cautious. We had CELG and WPI both get stopped out. Meanwhile our put plays are naturally performing well in this market.

-James

Current Portfolio:


CALL Play Updates

Check Point Software - CHKP - close: 52.76 change: -0.65

Stop Loss: 50.80
Target(s): 55.75 , 57.75
Current Option Gain/Loss: -27.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
10/01 update: CHKP tried to rally on Friday but the stock ran out of steam by lunchtime and reversed lower. The $51.00 level and its exponential 200-dma are both still support for the stock but more conservative traders may want to consider an early exit now! I am not suggesting new positions at this time.

- Suggested Positions -

Long OCT $55 call (CHKP1122J55) Entry $1.80

10/01 readers may want to consider an early exit now.
09/26 trade opened.

chart:

Entry on September 26 at $53.00
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 1.6 million
Listed on September 20, 2011


Hewlett Packard - HPQ - close: 22.45 change: -1.33

Stop Loss: 21.45
Target(s): 29.50
Current Option Gain/Loss: - 4.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
10/01 update: One of the big stories for HPQ on Friday was news that Amazon.com (AMZN) might be interested in buying HPQ's webOS business. Another big story was how much HPQ's fired CEO, Mr. Apotheker, would collect in severance pay (about $7.2 million), but I doubt either really were to blame for HPQ's relative weakness on Friday (-5.5%). Fund managers could have done some last minute dumping to get HPQ off their books before the end of the third quarter given HPQ's -38% slide for the quarter.

HPQ should find support at $22.00 and at $21.50 but these levels may not hold up if the S&P 500 breaks down to new lows with any momentum. I am not suggesting new positions at this time.

- Suggested Positions -

Long 2012 Jan. $24 call (HPQ1221A24) Entry $2.14

09/27 new stop loss @ 21.45

chart:

Entry on September 23 at $22.52
Earnings Date 11/21/11 (unconfirmed)
Average Daily Volume = 26.6 million
Listed on September 22, 2011


PUT Play Updates

Caterpillar Inc. - CAT - close: 73.84 change: -1.55

Stop Loss: 77.25
Target(s): 73.50, 70.50
Current Option Gain/Loss: +68.9%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
10/01 update: Traders initially bought the gap down on Friday morning but the intraday rebound ran out of gas. CAT closed near its lows with a -2.0% decline on Friday. Shares are quickly approaching their 2011 lows set a week ago at $72.60. CAT might see an oversold bounce from this level (72.60) but then again both this stock and the market's major indices look poised to breakdown.

We are not suggesting new positions at this time but nimble traders might consider another failed rally near the 10-dma as an entry point. Please note that we're lowering our stop loss to $77.25. Our final target is $70.50. More aggressive traders may want to aim lower (possible the $66-64 zone).

- Suggested Positions -

Long OCT $75 PUT (CAT1122V75) Entry $2.93

10/01 new stop loss @ 77.25
09/29 1st target hit at $73.50. option bid $5.00 (+70.6%)

chart:

Entry on September 28 at $78.13
Earnings Date 10/24/11 (unconfirmed)
Average Daily Volume = 11.2 million
Listed on September 27, 2011


Flowserve Corp. - FLS - close: 74.00 change: -4.60

Stop Loss: 78.25
Target(s): take profits now and exit at $70.25
Current Option Gain/Loss: Oct$75: +92.0% & Nov$70: +75.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
10/01 update: Exit target update!

Many of the industrial stocks underperformed on Friday. Shares of FLS gave up -5.8% and set a new closing low for the year. I am suggesting we go ahead and take profits now (at the open on Monday). The bid on the October $75 put is $4.80 (+92%) and the bid on the November $70 put is $4.90 (+75.0%).

We'll adjust our final target to $70.25. More aggressive traders could still aim for the $65.00 area. We are not suggesting new positions at this time.

Please note our new stop loss at $78.25.

- Suggested Positions -

Long OCT $75 PUT (FLS1122V75) Entry $2.50

- or -

Long NOV $70 PUT (FLS1119W70) Entry $2.80

10/01 Prepare to take profits ASAP, at the open on Monday
10/01 new stop loss @ 78.25

chart:

Entry on September 29 at $80.23
Earnings Date 10/26/11 (unconfirmed)
Average Daily Volume = 721 thousand
Listed on September 28, 2011


Regal-Beloit - RBC - close: 45.38 change: -3.66

Stop Loss: 49.25
Target(s): 43.50, 40.50
Option Gain/Loss: (wide spreads) Oct$45: +75.0% & Nov$45: +17.3%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
10/01 update: An earnings warning from IR rattled the industrial stocks and RBC plunged -7.4% on Friday. Cautious traders may want to think about taking some profits early right now. We are lowering our stop loss to $49.25. I would not launch new positions at this time.

Warning! The option spreads are a little wide. We want to keep our position size small to limit our capital at risk.

- Suggested Positions - (small positions)

Long OCT $45 PUT (RBC1122V45) Entry $1.00

- or -

Long NOV $45 PUT (RBC1119W45) Entry $2.30

10/01 new stop loss @ 49.25

chart:

Entry on September 29 at $49.01
Earnings Date 11/02/11 (unconfirmed)
Average Daily Volume = 456 thousand
Listed on September 28, 2011


CLOSED BULLISH PLAYS

Celgene Corp. - CELG - close: 61.91 change: -1.02

Stop Loss: 61.75
Target(s): 69.00
Current Option Gain/Loss: -37.9%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
10/01 update: The stock market sold off again on Friday afternoon. Yet for CELG the weakness was Friday morning. Shares spiked down to $61.63, and hit our stop loss at $61.75 along the way. I would keep CELG on your watch list as a bullish candidate if the market turns higher.

- Suggested Positions -

OCT $65 call (CELG1122J65) Entry $1.53, exit $0.95 (-37.9%)

09/30 stopped out at $61.75
09/29 new stop loss @ 61.75
09/27 new stop loss @ 61.25

chart:

Entry on September 26 at $63.03
Earnings Date 10/27/11 (unconfirmed)
Average Daily Volume = 4.0 million
Listed on September 22, 2011


Watson Pharmaceuticals - WPI - close: 68.25 change: -2.66

Stop Loss: 69.75
Target(s): 74.75, 78.50
Current Option Gain/Loss: Oct$75: -60.0% & NOV$75: -47.6%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
10/01 update: The late afternoon bounce on Thursday did not last very long. WPI opened weak at $70.10 and quickly hit our stop loss at $69.75 very early Friday morning. Shares eventually settled with a -3.7% loss. I'd keep WPI on your watch list as a bullish candidate should the stock market develop a more bullish posture.

- Suggested Positions -

OCT $75 call (WPI1122J75) Entry $1.00, exit $0.40 (-60.0%)

- or -

NOV $75 call (WPI1119K75) Entry $2.10,exit $1.10 (-47.6%)

09/30 stopped out at $69.75
09/27 new stop loss @ 69.75

chart:

Entry on September 26 at $71.26
Earnings Date 11/01/11 (confirmed)
Average Daily Volume = 1.4 million
Listed on September 24, 2011