Editor's Note:

Stocks surge higher on Friday. A few market pundits were calling it a short squeeze. We saw BBBY tag new record highs. The IYT broke out and hit our trigger. SPW is improving. Our new market neutral trade on the IWM is open.

-James

Current Portfolio:


CALL Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 61.81 change: +2.10

Stop Loss: 58.90
Target(s): 64.75
Current Option Gain/Loss: + 5.3%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
10/22 update: It would seem that traders are not concerned with news out Thursday night that a couple of BBBY insiders sold one million shares for about $61 million. Normally word that corporate insiders are selling stock with the stock at all-time highs would be considered a bearish signal. Instead BBBY gapped open higher on Friday morning and soared to a +3.5% gain and another new high.

I am a little hesitant to chase the move but BBBY definitely looks poised for more gains next week.

*Small Positions*- Suggested Positions -

Long NOV $62.50 call (BBBY1119K62.5) Entry $1.50

chart:

Entry on October 14 at $61.00
Earnings Date 12/21/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on October 12, 2011


iShares Transportation ETF - IYT - close: 86.22 change: +1.83

Stop Loss: 82.45
Target(s): 90.00
Current Option Gain/Loss: +11.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
10/22 update: Our new trade on the IYT has been opened. Transportation stocks were off to an early lead and the IYT gapped open higher on Friday at $85.33. Since our trigger to buy calls was at $85.25 the trade was opened immediately. The IYT closed up +2.1% and closed at new multi-week highs. The close above resistance at $85.00 is bullish but I will point out that this ETF closed exactly at the late August peak at $86.22. I would not be surprised to see the IYT retrace back toward the $85 level. Nimble traders may want to look for a dip back to $84.75 as their next entry point.

Our target is $90.00 but the exponential 200-dma and the 100-dma near $87 could be technical resistance.

Please note we are moving our stop loss higher to $82.45.

Earlier Comments:
Readers will want to keep our position size small since the transports are short-term overbought given the huge bounce from its October lows.

(small positions)

- Suggested Positions -

Long NOV $87 call (IYT1119K87) Entry $2.15

10/22 new stop loss @ 82.45
10/21 Gap higher entry @ 85.33

chart:

Entry on October 21 at $85.33
Earnings Date --/--/--
Average Daily Volume = 662 thousand
Listed on October 18, 2011


SPX Corp. - SPW - close: 52.79 change: +0.56

Stop Loss: 49.15
Target(s): 57.75
Current Option Gain/Loss: +11.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
10/22 update: SPW's +1% gain on Friday underperformed the major indices. The stock briefly traded above resistance near $53.55 before pulling back toward the $52 area gain. The overall trend would suggest SPW is coiling for a breakout from its two-week trading range. Readers might want to wait for a new move past $53.75 before initiating new positions. Cautious traders might want to up their stop loss closer to the $50.00 mark.

In the news on Friday SPW announced it was buying a German food-technology firm but financial details were not disclosed.

Earlier Comments:
This is an aggressive trade so we want to keep our position size small. FYI: The Point & Figure chart for SPW is bullish with a $78 target.

(Small Positions)- Suggested Positions -

Long NOV $55 call (SPW1119K55) Entry $1.80

10/20 trade opened.
10/19 Trade still not open. Try again.
10/18 New entry point on this bounce. See entry details above
10/17 Trade not open. Remove entry point for 24 hours, then re-evaluate.

10/20 trade opened at $51.80

chart:

Entry on October 20 at $51.80
Earnings Date 11/02/11 (confirmed)
Average Daily Volume = 701 thousand
Listed on October 15, 2011


PUT Play Updates

Currently we do not have any active put trades.


Market Neutral Play Updates

iShares Russell 2000 ETF - IWM - close: 71.13 change: +1.51

Stop Loss: n/a
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
10/22 update: There were many traders that felt Friday's rally was nothing more than a short squeeze. Why market participants felt that the headlines coming out of Europe on Friday were bullish is a little bit of a mystery. The small caps gapped open higher. The IWM opened at $70.57, dipped back to $70.00, and then rebounded again.

Our plan was to launch our market neutral trade at the open on Friday morning. We are not suggesting new positions at this time.

FYI: A strangle involves buying both an out of the money call (OTM call) and an out of the money put (OTM put). The expectation is that the underlying equity (IWM in this case) will move enough to make one side profitable and cover the entire position and then some.

- Strangle Position cost: 4.55 current value: 4.37 (-3.9%)

Out-of-the-Money Call option:
Long NOV $72 call (IWM1119K72) Entry $2.30, current bid $2.50

- and -

Out-of-the-Money Put option:
Long NOV $68 put (IWM1119W68) Entry $2.25, current bid $1.87

chart:

Entry on October 21 at $ xx.xx
Earnings Date --/--/--
Average Daily Volume = 89 million
Listed on October 20, 2011