Good evening traders. I anticipated volatility this past week and that is exactly what we got. My guess is that the volatility will continue this week. We will probably see another bounce early next week before a bigger drop comes later. I would be tightening stops on long positions if the market shows strength early in the week.
All of our positions are moving in the right direction. Our portfolio has stocks from defensive sectors on the long side and short trades to take advantage of any significant market correction. We have a good balance are well positioned to take profits in an up or down market. This week will probably be choppy again so stay on your toes.
CALL Play Updates
Gold Fields Ltd - GFI - close 13.44 change +0.18 stop 12.79 *NEW*
GFI had its best closing high since January 13. The stock closed +1.36% higher and also closed above $13.36 resistance from the past three weeks. GFI almost closed higher than yesterday's high but ended up just 1 penny lower. I expect GFI to continue breaking out and to retest its YTD highs near $13.95. Gold Miners were one of the strongest sectors on Friday while the market was under severe pressure, probably because the yellow metal has continued its rally. Our calls are worth about 70 cents which is an unrealized gain of +16%. The delta on our call position is .66. If GFI can rally to our target of $13.95 our calls should be worth $1.0 which is a +66% gain. I am also eyeing $13.75 as a potential exit because it is just below the lowest YTD closing high (as opposed to intraday high). If GFI rallies to this level the calls should be worth $.90 which is a +50% gain. These are the targets I suggest readers begin to exit positions or tighten stops. Our official target is $13.75. Trying to squeeze out an additional 10 cents is not the right thing to do. GFI reports earnings on Thursday, May 6th so I plan to be out of this trade before their report, regardless of whether or not the above targets are hit. I would like to move up our stop to $12.79 which is just below the low from April 28th and the 20-day SMA. Our time frame is 1 to 3 days. I am not suggesting new positions at this time. *NOTE: Please use small position size to limit risk as gold stocks tend to be volatile.*
Current Position: Long MAY $13.00 CALL, entry at $0.60
Entry on April 29 at $0.60
Earnings Date May 6, 2010 (unconfirmed)
Average Daily Volume: 5.3 million
Listed on April 28, 2010
Research In Motion - RIMM - close 71.19 change -0.90 stop 69.29 *NEW*
As RIMM faded toward $71.00 today our positions were initiated in the model portfolio. We are now long JUNE $75 CALLS at $2.15. RIMM closed above its lows from the past two days and just below its 20-day SMA. I am expecting RIMM to make a run at its recent highs near $74.80, and maybe even $76.40. The delta on our position is .37 but should go up if RIMM rallies. If we can get a $3.00 rally in the price of the stock (up to $74.19, which is near the highs from Tuesday 4/27) our calls should be worth about $3.30, or a +50% gain. I suggest readers take profits or tighten stops at this level, especially since the overall market looks vulnerable from here. Readers can initiate positions at this time. I'll leave my comments from the new play release as they are still valid. RIMM has been in an uptrend since November and has been consolidating between $68.00 and $76.00 since mid February. The stock trades at a low 16 PE ratio when compared to its peers. The company has also been on the rumor block as a potential takeover target. The buzz has been that MSFT needs to get into the smart phone space and considering that both companies are heavily involved in the corporate market it seems like a good fit. The price tag for RIMM may be a little high though unless there is stock involved. Regardless of whether this happens or not, I believe RIMM is poised to move higher. The stock has been coiling and it double bottomed on Wednesday and Thursday this past week. I am going to move our stop up about $1 to $69.29. This is just below a swing low on March 5th and also below the 200-day SMA. I've seen RIMM buck the overall market direction many times but if a significant sell-off occurs I suggest readers step aside and protect capital if the stock trades to this level. Our time frame is a couple of weeks.
Current Position: Long JUNE $75.00 CALL, entry at $2.15
Entry on April 30 at $2.15
Earnings Date June 18, 2010 (unconfirmed)
Average Daily Volume: 15.3 million
Listed on April 29, 2010
Weatherford International - WFT - close 18.11 change -0.37 stop 16.55 *NEW*
WFT gave back some of the gains from the past 5 days on Friday, but still closed higher on the week. The $17.80 and $17.30 level are very interesting support levels to be aware of if WFT retreats next week. All of the news about the Gulf of Mexico oil disaster has taken its toll on oil stocks this week. In my opinion the damage should be limited to the companies that are involved in the crisis, not necessarily the entire oil services sector. I suppose traders could argue that the oil companies may face tougher regulations or that their production may be limited as a result of the crises, but who really knows. At the end of the day my opinion doesn't matter so we must be cognizant of the sector's (and market's) overall direction as we manage this trade. WFT looks very bullish and it is forming a bull flag. But this could fall apart at any moment as news develops and overall market direction unfolds. Our $1.58 calls are now worth about $1.78 for an unrealized gain of +13%. As I ponder the smartest way to manage this trade it becomes clearer. I have identified $18.60 on the chart as a logical target, which is just below Friday's highs. If WFT trades to this level I would be looking to take profits, especially if the overall market is showing weakness. A move to $18.60 is not too far from our original target ($18.95) and should garner a +34% profit. I suggest traders sell half of their position if the $18.60 level is reached. I also suggest conservative traders tighten stops here just in case everything falls apart, including the market. A second more aggressive target is $20.45. If the $20.45 target is reached our calls should be worth about $2.90 for a +85% gain. Longer term I think WFT can easily test $20.45 but I do not suggest hanging on to call options waiting for this target as time decay could end up hurting you. Obviously if WFT and the market are ripping higher we could get lucky and hit the higher target, but more often than not when traders become complacent by waiting they end up losing in the long run. A strategy readers may consider is to take profits if the first target is hit and then buy further dated options. The August $19.00 calls are going for about $1.37 as of the close Friday. Earning two small gains can add up to one big gain so keep that in mind as you manage the position. Readers who haven't initiated positions may consider doing so on weakness in the stock. Our time frame is 1 to 2 weeks. Conservative traders may want to place a stop at $17.45 while more aggressive traders can place a stop at 16.55.
Current Position: JUNE $17.00 CALL, entry at $1.58
Entry on April 28 at $ 1.58
Earnings Date Over 2 months
Average Daily Volume = 14.9 million
Listed on April 24 2010
PUT Play Updates
iShares Dow Transports - IYT - close 84.36 change -1.47 stop 87.10
IYT certainly tested our will on Friday. The stocked gapped up higher and rallied to new 52-week highs in the first 30 minutes of trading. But then the selling set-in and IYT gave back almost $2.50, closing at the lows of the day down -1.71%. The ETF formed a bearish engulfing candlestick and looks poised to head lower, but ot still holding an upward trend line from the February 5 lows. Our $2.00 PUTS are now worth about $2.30 for an unrealized gain of +15%. I am expecting a move down to its 20-day SMA which is increasing (currently $83.13). Conservative traders may want to tighten stops at this level or simply exit to take profits. A second more aggressive target is $81.50. If the market extends losses into this week IYT should easily trade to this level. There is plenty of trend line resistance overhead as well as a congestion area from 2008 to keep IYT in check. If the selling starts to accelerate IYT may even visit the bottom of the upward channel that started in July 2009. Many of the technical indicators have remained overbought for sometime and I think IYT is vulnerable here. However, if the market continues to rip higher we will honor our stop at $87.10. Our time frame is 1 to 2 weeks but will have no issues exiting sooner if there is a correction to the aforementioned targets or if our stop takes us out. Readers who haven't initiated positions may do so at current levels. *NOTE: Some of the strike prices in IYT have wider than normal bid/ask spreads. Use a limit order in the middle of the spread and you should get filled.
Current Position: JUNE $83.00 PUT, entry at $2.00
Entry on April 29 at $2.00
Earnings Date N/A
Average Daily Volume = 1.0 million
Listed on April 28, 2010
Toll Brothers - TOL - close 22.57 change -0.32 stop 24.25
Our will was also tested on Friday with our TOL position. The stock gapped up higher and made a run at new highs but sellers showed up and TOL closed near its lows of the day, down -1.40%. We are about breakeven in the position and I still like the trade set-up. TOL feels like it is ready to fall off of a cliff. The recent bounce looks like it is trying to form a lower high on the daily chart, but now we need follow through. A break $22.00 should see sellers step in and push TOL down to its breakout level near $21.50. I have identified three targets on the chart: $21.80, $21.50, and $20.60. These are the levels that I suggest traders tighten stops or simply take profits. There are a lot of upper wicks on TOL's daily candlesticks which indicates weakness. The $22.00 to $22.25 area should act as support this week. Aggressive traders can enter the position at this time. Our stop remains at $24.25 and our time frame is about 1 week.
Current Position: JUNE $23.00 PUT, entry @ $1.40
Entry on April 27 at $ 1.40
Earnings Date Over 2 months
Average Daily Volume = 3.2 million
Listed on April 26, 2010