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On the "Watch" List - Nautilus (NYSE:NLS)

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A Rough Work-Out!

Shares of Nautilus (NYSE:NLS), the popular maker of fitness equipment, tumbled Friday in conjunction with the broad decline in equity values and the move below a recent support area near $23 suggests the issue is losing (technical) strength just when it is most needed - before the quarterly earnings report. Nautilus is due to announce first quarter results on 4/27 and if the data is less than outstanding, the company's stock will likely endure additional selling pressure in the near term. With that concern in mind, we are going to suggest that traders initiate an "early exit" strategy in the coming week. Some common alternatives, depending on your outlook for the underlying issue, are:

1) Close the short (put) position, hopefully after a brief rebound in the stock price, for a small loss.

2) Place an order to sell (short) shares of NLS to "cover" the sold options in the event of further declines in the stock price.

3) Roll down and forward to a lower strike price (put) with a distant expiration date, thus lowering the cost basis in expectation of a neutral-to-bullish trend in the stock.

4) Purchase a longer-term put to "cover" the sold options and take advantage of premium erosion in a neutral-outlook calendar spread.

Obviously, the simplest method is to repurchase the sold options, accept the loss, and move on to a new position. However, there may be merit to one of the other strategies and we are going to review each of these alternatives over the week-end before making a specific recommendation on Monday morning.

OW Staff

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