Isilon Systems, Inc - ISLN - close 23.88 change -2.00 stop NONE

Company Description:
Isilon Systems, Inc.(Isilon Systems) is engaged in providing scale-out Network Attached Storage (NAS) systems, combining the Company's OneFS operating system software and clustered architecture for file based data, including video, audio, digital images, computer models, portable document format (PDF) files, scanned images, reference information, test and simulation data and other file-based information. The Company sells its products directly through its field sales force and indirectly through a channel partner program that includes more than 210 resellers and distributors.

Target(s): 21.50, 20.50, 19.25
Key Support/Resistance Areas: 26.35, 25.00, 21.40, 20.40, 19.00
Time Frame: 1 to 2 weeks

Why We Like It:
ISLN, along with many other data networking stocks, has surged over the past 3 months on takeover speculation. Stocks in this sector are trading at ridiculously high multiples and are massively over inflated. Earnings are starting to be released and as investors begin to realize they bought on hope, they are running for the exits. The trade started to unwind today and I do not believe this is a one day event. Let's use a bounce to $24.10 or a breakdown to $22.95 to enter short positions. I have chosen a further out of the money option than normal to limit losses if we are wrong. Let's enter the position with no stop initially to account for volatility. If I were to place a stop $25.25 is a logical area. If the market finally has a meaningful correction ISLN could get hit hard.

Trigger: $24.10 or $22.95

Suggested Position: Buy November $20.00 PUT, current ask $0.75

Annotated chart:

Entry on October xx
Earnings: 10/21/2010 (unconfirmed)
Average Daily Volume: 1.2 million
Listed on October 6, 2010