Editor's Note:

SHW and SMH hit our new stop losses during the market's widespread sell-off on Friday. Both were strong performers for us.

HAIN wasn't quite so strong and also hit our stop on Friday.

We are updating our strategy on the DIN trade.

Don't forget that normal December options expire in five days.


Current Portfolio:


CALL Play Updates

DineEquity, Inc. - DIN - close: 99.82 change: -0.11

Stop Loss: 97.35
Target(s): To Be Determined
Current Option Gain/Loss: +275.0%
Average Daily Volume = 154 thousand
Entry on November 05 at $91.55
Listed on November 04, 2014
Time Frame: Exit PRIOR to December 20th option expiration
New Positions: see below

Comments:
12/13/14: DIN continues to hold up really well in spite of the market's worst week in years. The stock looks poised to breakout higher but it's been stuck at the $100 mark. We are starting to worry that further market weakness might finally drag DIN lower. Therefore we will boost our gains by selling the December $100 call, which currently has a bid/ask of $1.00/1.30. We'll collect an extra $1.00 on this trade and reduce our risk.

If DIN hits our stop loss (currently $97.35) then we want to exit both positions. We'll also need to close both call positions on Friday, December 19th, since these options will expire on the 20th.

Trading note: You will want to "sell to open" the DEC. $100 call. Once filled we will be short the DEC. $100 call and long the DEC. $ 95 call. This will cap our potential gains but also reduce our risk by reducing the cost of our initial trade.

Earlier Comments: November 4, 2014:
Restaurant stocks were showing relative strength today. Better than expected earnings results from the likes of Red Robin (RRGB) and Bloomin Brands (BLMN) helped buoy the group. Additional stocks in this industry showing relative strength on Tuesday are: BWLD, PNRA, JACK, EAT, SONC, TXRH, KKD, DNKN, CAKE, DRI, and PBP. The one we like tonight is DIN.

According to a company press release, "Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee's Neighborhood Grill & Bar and IHOP brands. With more than 3,600 restaurants combined in 19 countries, over 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), DineEquity is one of the largest full-service restaurant companies in the world."

The company has seen success with a steady improvement in earnings. DIN has beaten Wall Street's estimates on both the top and bottom line three quarters in a row. Their most recent report was October 28th. Analysts were looking for a profit of $1.05 a share on revenues of $157.2 million. DIN served up $1.14 per share with revenues climbing to $162.85 million.

The company saw domestic system-wide same-store sales up +2.4% at IHOP and +1.7% at Applebee's. Management then raised their sales guidance on both Applebee's and IHOP. DIN also raised its dividend by 17% to $0.875 per share and they boosted their stock buyback program from $40 million to $100 million.

The restaurant industry should be a major beneficiary of the drop in oil prices. Lower gasoline prices at the pump mean consumers have more spending money and will likely burn a lot of that cash eating at restaurants.

Shares broke out to new highs on this earnings report and bullish guidance. Today the stock is at all-time highs. The point & figure chart is bullish and forecasting a long-term target at $118.00.

Tonight we are suggesting a trigger to launch bullish positions at $91.55.

- Suggested Positions -

Long DEC $95 call (DIN141220c95) entry $1.20

Also consider selling the December $100 call (expires Dec. 20th)
Short DEC $100 call (DIN141220c100) current bid/ask $1.00/1.30

12/13/14 Sell the Dec. $100 call on Monday, Dec. 15th
12/10/14 new stop @ 97.35
12/06/14 only two weeks left on our December options
11/29/14 new stop @ 96.85
11/26/14 new stop @ 94.85, traders may want to take profits here!
11/22/14 new stop @ 93.85
11/19/14 new stop @ 92.75
11/13/14 new stop @ 92.25
11/12/14 new stop @ 91.45
11/08/14 new stop @ 89.65
11/05/14 triggered @ 91.55
Option Format: symbol-year-month-day-call-strike

chart:


F5 Networks - FFIV - close: $130.55 change: -1.84

Stop Loss: 129.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 965 thousand
Entry on December -- at $---.--
Listed on December 11, 2014
Time Frame: Exit PRIOR to earnings on January 21st, 2015
New Positions: Yes, see below

Comments:
12/13/14: The stock market's pullback accelerated again on Friday. Shares of FFIV followed the market lower with a -1.3% decline. The stock did find some support near $130 but FFIV is in jeopardy of breaking down under its trend of higher lows if the market continues to sink.

Currently we are on the sidelines. Our suggested entry point to buy calls is at $133.80.

Earlier Comments: December 11, 2014:
It has become a hostile world for corporations and their biggest weakness is online security. It feels like every day we hear about another company getting hacked. Last year the big story was Target (TGT). This year there were several companies, including Home Depot (HD). Just recently the current story is the terrible hacking incident at Sony, specifically their Sony movie studio. Fortunately for FFIV all of this plays to their strength as more corporations seek to beef up their cyber security.

According to company marketing, "F5 provides solutions for an application world. F5 helps organizations seamlessly scale cloud, data center, and software defined networking (SDN) deployments to successfully deliver applications to anyone, anywhere, at any time. F5 solutions broaden the reach of IT through an open, extensible framework and a rich partner ecosystem of leading technology and data center orchestration vendors. This approach lets customers pursue the infrastructure model that best fits their needs over time. The world's largest businesses, service providers, government entities, and consumer brands rely on F5 to stay ahead of cloud, security, and mobility trends."

FFIV introduced a host of new products late last year and they have been knocking it out of the park with their "good, better, best" pricing strategy. Earnings this year have been consistently strong. Their report in January 2014 beat earnings on both the top and bottom line and FFIV raised guidance. The company did it again in April and July by beating Wall Street's estimates on both the top and bottom line and raising guidance.

Their most recent earnings report was October 29th, which was the company's fiscal year 2014 Q4 results. GAAP earnings came in at $1.26 a share. That's up 18% sequentially and up +23% from a year ago. Non-GAAP net income was $1.57 a share versus $1.26 a year ago. Their quarterly revenues rose +6% sequentially and +17.8% year over year to $465.3 million. Their fiscal year 2014 saw total revenues up +17% to $1.73 billion.

John McAdam, FFIV's president and chief executive officer, commented on their results saying,

"The fourth quarter of fiscal 2014 was a solid finish to a year characterized by positive customer and partner response to our Synthesis architecture, the array of new products we rolled out in fiscal 2013, our Good Better Best pricing strategy, and the enhanced capabilities of our BIG-IQ management platform... During the quarter, product revenue grew 20 percent from the fourth quarter of 2013, driven by strong sequential growth of Enterprise sales in the Americas and solid year-over-year growth in EMEA and APAC. Contributing to that growth, rising concern over the increasing number and variety of security threats helped stimulate demand for our security solutions and drive sales of our Better and Best software bundles, which include our most popular security products. This quarter, we will expand our portfolio of security offerings with the launch of our WebSafe and MobileSafe anti-malware solutions, available as software modules on TMOS, and Defense.Net, cloud-based DDoS protection that complements our on-premise DDoS solution."

FFIV management issued guidance that was in-line with Wall Street who had finally raised their estimates on the company. Speaking of Wall Street, analysts are bullish on the stock. FFIV has seen several price target upgrades in recent months with numbers like $136, $140, $150, and $151 a share. The point & figure chart is even more bullish with a long-term target of $182.00.

Investors have been consistently buying the dips and FFIV has a bullish trend of higher lows. Today shares are consolidating sideways beneath short-term resistance in the $133.50-133.75 area. Tonight we are suggesting a trigger to buy calls at $133.80.

Earnings are expected on January 21, 2015, so we'll plan on exiting ahead of the report. I don't see any February options available so we'll use the normal January calls that expire on the 17th.

Trigger @ $133.80

- Suggested Positions -

Buy the Jan $135 CALL (FFIV150117C135)

Option Format: symbol-year-month-day-call-strike

chart:


The Home Depot - HD - close: 99.78 change: -0.49

Stop Loss: 97.25
Target(s): To Be Determined
Current Option Gain/Loss: +28.1%
Average Daily Volume = 6.4 million
Entry on December 08 at $100.25
Listed on December 06, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
12/13/14: HD actually ended the week with a gain in spite of the market's poor performance. It's worth noting that shares have been struggling with resistance in the $101.00-101.40 area.

Investors may want to wait fro a close above $101.40 before considering new bullish positions.

Earlier Comments: December 6, 2014:
Shares of HD ended the week at an all-time closing high, just below the $100 mark. The company had a bit of a rough start to 2014. They missed estimates on both the top and bottom line when they reported back in February and management lowered their forward guidance. They missed estimates again in May. Momentum changed with their August earnings report as HD beat Wall Street's bottom line estimate and raised their 2015 guidance.

HD appears to be benefitting from the growing U.S. economy. Falling unemployment means more people are working. Homebuilders are feeling confidence. The U.S. is seeing strong housing starts. Consumers are remodeling their homes. The do-it-yourself trend remains strong. HD is starting to see growth in the "connected home" concept, which is part of the Internet of Things (IoT) with remote control garage doors, home monitoring, thermostats, and light fixtures.

HD is in the services sector. According to the company website, "The Home Depot is the world's largest home improvement specialty retailer, with 2,269 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. In fiscal 2013, The Home Depot had sales of $78.8 billion and earnings of $5.4 billion. The Company employs more than 300,000 associates."

Investors were keenly focused on the company's latest earnings report, HD's Q3 report, which came out on November 18th. Analysts wanted to know if the massive data breach reported by HD in September would negatively impact sales. It looks like the data breach has been overlooked by most if HD's customers.

Wall Street was looking for Q3 results of $1.14 per share on revenues of $20.47 billion. HD said their earnings per share rose +21% to $1.15 (up from $0.95 a year ago). Revenues improved +5.4% to $20.52 billion. The company said their overall comparable store sales were up +5.2% while inside the U.S. comps were up +5.8%. Online sales surged +40%.

HD gave relatively bullish guidance. They still expect +21% earnings growth in 2015. However, they noted that current guidance does not include any probable losses from the data breach. Last year Target (TGT) was a high-profile company that confessed to a huge data breach where millions of customer credit card data was stolen. This year Home Depot has been another high-profile company targeted by hackers.

HD said approximately 56 million cards may have been compromised. They have since plugged the hole in their cyber security. HD did confess in a recent SEC filing that they are facing 44 civil lawsuits in U.S. and Canada in response to the data breach. In spite of all the bad news investors continue to bid the stock higher.

Since HD's earnings report in November the stock has received several price target upgrades. The point & figure chart is also bullish and forecasting at $110 target.

Friday's November jobs report shows that the U.S. economy could be picking up speed, which would be bullish for HD. It looks like shares are going to breakout past significant round-number, psychological resistance at the $100 level.

Tonight we are suggesting a trigger to buy calls at $100.25.

Interesting factoid: HD's last stock split was a 3-for-2 split back in 1999 in the $90-100 range. I'm not predicting they will announce a new split but you never know.

- Suggested Positions -

Long FEB $105 CALL (HD150220C105) entry $1.21

12/08/14 triggered @ 100.25
Option Format: symbol-year-month-day-call-strike

chart:


iShares Russell 2000 ETF - IWM - close: 114.71 change: -1.41

Stop Loss: 113.75
Target(s): To Be Determined
Current Option Gain/Loss: -11.8%
Average Daily Volume = 40 million
Entry on December 12 at $114.78
Listed on December 10, 2014
Time Frame: exit prior to January option expiration
New Positions: see below

Comments:
12/13/14: We were expecting the IWM to decline toward support in the $114.35-115.00 area. The plan was to buy calls on a dip at $115.00. Friday provided an even better entry point with the gap open lower at $114.78. Although it looks like the IWM still has further to fall. This ETF closed near its lows for the session on Friday. That could mean we see the IWM dip toward its 200-dma and the $114.00 level. Should it fall any farther we'll likely be stopped out at $113.75.

Earlier Comments: December 10, 2014:
The IWM is the exchange traded fund (ETF) that mimics the performance of the small cap Russell 2000 index.

Wednesday proved to be a rough day for U.S. equities. The Dow Jones Industrials were off as much as -285 points near its lows for the session. It closed down -268 (-1.5%). The S&P 500 and the NASDAQ composite also dropped with -1.6% and -1.7% declines, respectively. Small caps tend to be more volatile so it's not surprising that the Russell 2000 index dropped -2.1% on the session.

So why are we adding a bullish trade on the IWM if they underperformed today? Just as the small caps tend to underperform on the way down they also tend to outperform on the way up. We are speculating that the market's current pullback will be over soon. Let me repeat this is a speculative bet that dip buyers are still out there. The average hedge fund manager has drastically underperformed the market this year and is desperate to generate some last minute gains before the year is over. Therefore they are likely to use this market pullback as an entry point for bullish positions.

Tonight we are suggesting a buy-the-dip trigger on the IWM at $115.00. This ETF has found support in the $114.35-115.00 area multiple times in the last few weeks. I would keep positions small to limit risk.

*small positions* - Suggested Positions -

Long Jan $115 CALL (IWM150117C115) entry $2.72

12/12/14 triggered on gap down at $114.78, suggested trigger was $115.00
Option Format: symbol-year-month-day-call-strike

chart:


Starbucks Corp. - SBUX - close: 83.25 change: +0.13

Stop Loss: 79.90
Target(s): To Be Determined
Current Option Gain/Loss: + 3.1%
Average Daily Volume = 4.0 million
Entry on December 10 at $83.55
Listed on December 09, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
12/13/14: SBUX has been pretty resilient this past week. While the broader market was sinking shares of SBUX managed to just hover at all-time highs in the $82-84 zone.

The simple 10-dma (currently $82.25) should be support but if the market sees another spike lower I would not be surprised to see SBUX trade below $82.00. Any dip in SBUX is likely to be a bullish entry point but you may want to wait for a decent bounce first (maybe a +85 cent rebound or +1%) from its intraday low before jumping in.

Earlier Comments: December 9, 2014:
The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results have only been so-so this year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks like it's about to change.

Five-Year Plan

SBUX recently announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company just launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

Wall Street is bullish on the stock. Several firms have upgraded shares recently. Carter Worth, chief market technician at Sterne Agee, thinks SBUX could rally +10% to +15% in the short-term. JP Morgan raised their price target to $89. Goldman Sachs just added SBUX to their conviction buy list with a $95 target. Piper Jaffray has a $100 target. The same analyst at Piper believes SBUX's stock could double in the next four years. The point & figure chart is bullish and forecasting at $105.00 target.

The breakout past its all-time highs set in Q4 of 2014 is very bullish. This pullback is a gift. Tonight we are suggesting a trigger to buy calls at $83.55.

- Suggested Positions -

Long Feb $85 CALL (SBUX150220C85) entry $2.29

12/10/14 triggered @ 83.55
Option Format: symbol-year-month-day-call-strike

chart:




PUT Play Updates


Currently we do not have any active put trades.




CLOSED BULLISH PLAYS

The Hain Celestial Group, Inc. - HAIN - close: 110.26 change: -2.76

Stop Loss: 111.35
Target(s): To Be Determined
Current Option Gain/Loss: -30.6%
Average Daily Volume = 615 thousand
Entry on November 26 at $110.25
Listed on November 25, 2014
Time Frame: Plan on exiting PRIOR to the stock split
New Positions: see below

Comments:
12/13/14: It was bad enough that the stock market produced its worst week all year. The Friday drop in shares of HAIN was exacerbated by an analyst downgrade on Friday morning. Our stop loss was at $111.35 but HAIN gapped down at $109.57. Shares closed near support around the $109-110 zone.

- Suggested Positions -

2015 Jan $115 call (HAIN150117c115) entry $1.80 exit $1.25 (-30.6%)

12/12/14 stopped out on gap down at $109.57
12/09/14 new stop @ 111.35
11/29/14 new stop @ 109.85
11/26/14 triggered @ $110.25
Option Format: symbol-year-month-day-call-strike

chart:


The Sherwin-Williams Co. - SHW - close: 247.24 change: -6.97

Stop Loss: 249.45
Target(s): To Be Determined
Current Option Gain/Loss: +288.7%
Average Daily Volume = 526 thousand
Entry on November 05 at $231.00
Listed on November 01, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
12/13/14: The last couple of days have been pretty volatile for SHW. On Thursday the stock added +7.41 only to lose almost -7.00 on Friday. I'm really glad we raised the stop loss in Thursday's newsletter to $249.45. Friday morning the company lowered its sales outlook. Naturally the stock sold off on this news. SHW gapped down at $250.09 and then dropped to $244.30 before paring its losses.

It's been a great run. We can't complain with SHW's performance.

- Suggested Positions -

2015 Jan $240 call (SHW150117c240) entry $3.37 exit $13.10 (+288.7%)

12/12/14 stopped out
12/11/14 new stop @ 249.45
12/09/14 new stop @ 245.65
11/22/14 new stop @ 238.25
11/15/14 new stop @ 234.45
11/13/14 SHW is hitting potential resistance at $240. Traders may want to take profits now.
11/08/14 new stop @ 229.75
11/05/14 triggered @ 231.00
Option Format: symbol-year-month-day-call-strike

chart:


Semiconductor ETF - SMH - close: 54.21 change: -0.82

Stop Loss: 54.45
Target(s): To Be Determined
Current Option Gain/Loss: +300.0%
Average Daily Volume = 2.4 million
Entry on October 17 at $47.15
Listed on October 16, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
12/13/14: The semiconductor stocks followed the market lower on Friday. The SMH actually underperformed the NASDAQ composite with a -1.49% decline. This ETF has been a terrific performer with gains eight weeks in a row. It was due for a pullback and hit our stop at $54.45.

- Suggested Positions -

2015 Jan $50 call (SMH150117c50) entry $1.10 exit $4.40 (+300.0%)

12/12/14 stopped out
12/11/14 new stop @ 54.45
11/29/14 new stop @ 53.85
11/22/14 new stop @ 52.25
11/20/14 new stop @ 51.40
11/12/14 new stop @ 50.85, readers may want to just take profits now!
11/01/14 new stop @ 48.85
10/25/14 new stop @ 47.85
10/21/14 new stop @ 46.35
10/17/14 triggered @ 47.15
Option Format: symbol-year-month-day-call-strike

chart: