Editor's Note:

Good evening. We closed MS and HPQ for relatively small losses today as the trades are simply not following through for us. The stocks could surge higher tomorrow or they could surge lower, but I wanted to preserve the time value remaining in the options so the positions were closed when our lowered targets were hit. As a result, our model portfolio has narrowed significantly. In this volatile environment we are releasing trades daily trying make quick profits by picking precise entry and exit points. Cash is also a position and protecting capital is not a bad idea. Please see the update on TEVA as I am recommending we exit this position soon due to today's news about the company. Please email me with any questions.

Current Portfolio:

CALL Play Updates

Teva Pharmaceuticals - TEVA - close 54.30 change -2.10 stop 53.75 *NEW*

Target(s): 54.70, 55.00, 55.30, 56.44 (hit), 57.40, 57.95
Key Support Areas: 54.25, 53.21
Key Resistance Areas: 56.44, 58.00
Current Gain/Loss: -15%
Time Frame: 1 to 2 weeks
New Positions: Yes, if there is a pullback

We need to re-think our TEVA position as news broke today regarding Morgan Stanley removing Israel from its emerging markets index and adding it to its world index. I was surprised TEVA did not follow through higher today and was trying to find out what was going on, but to no avail. Then I heard Jim Cramer on CNBC talking about TEVA. TEVA is based in Israel so this is significant. Here is what he had to say and what is posted on CNBC's Web site: TEVA is "a great opportunity" right now, Cramer said. TEVA, a generic and proprietary drug company, was down about $1.90, or 3.4%, in today's trading session, but not because there's anything wrong with the company. As of Thursday, Morgan Stanley will remove Israel from its emerging-markets index and add it to its world index. As a result, funds that track Morgan's emerging-markets index have been forced to sell the stock, and that has hurt the share price. Cramer is still bullish on TEVA, citing its acquisition of Ratiopharm and ability to withstand the pressure from Europe right now. He expects the stock to pick back up "over time" as the funds that track Morgan's world index begin to buy the stock.

The key quote to this statement is "he expects the stock to pick back up over time." I also do not know how quickly the transition will take from one fund to another. But I know one thing for sure and that is time is not on our side when owning options. Our +50 gain yesterday has been wiped out and is now down -15%. Considering the circumstances the smart thing to do is exit TEVA tomorrow and wait for the dust to settle. I've listed 3 lowered targets above as logical exit points. All of these targets are within today's price range and I urge readers to tighten stops at these levels, assuming we hit them. And I have also listed a new stop at $53.75 to limit downside risk. Our initial first target was hit yesterday so if readers happened to exit congratulations. Technically TEVA has support and holding an upward trend line, but when institutions are involved these don't really matter.

Current Position: June $55.00 CALL, entry at $1.70

Entry on May 25, 2010
Earnings Date: More than 2 months (unconfirmed)
Average Daily Volume: 3.7 million
Listed on 5/24/10

Walter Energy - WLT - close 75.20 change +1.75 stop 72.65

Target(s): 77.25, 80.95
Key Support/Resistance Areas: 77.75, 74.50, 72.50, 70.00, 68.50
Current Gain/Loss: N/A
Time Frame: 1 week
New Positions: Waiting to be triggered

WLT gapped higher this morning and almost traded to our first target. But we'll wait patiently for the proper entry point at $72.65 which would be a retest of the stock's 200-day SMA that I think will hold. My comments from the play release remain the same. I believe the sell off in coal stocks was overdone and they appear to be building momentum for a move higher. WLT has retaken its 200-day SMA at $72.50 and also has solid support at $67.85. Our stop will be just below at $66.50. The stock could find some resistance near it 20-day SMA but I believe it will bust through this level if the market has in fact found some footing. I would like to see some retracement in the recent gains and use $72.65 as a trigger to enter long positions. I am looking for a move up to $77.25 and possibly $80.95. I view this trade as aggressive and quick so please use small position size to manage risk.

Suggested Position: June $75.00 CALL if WLT trades down near $72.65, current ask $4.30, estimated ask at entry $3.60

Entry on May xx
Earnings Date: More than 2 months (unconfirmed)
Average Daily Volume: 3.4 million
Listed on 5/25/10

PUT Play Updates

IAC/Interactive Corp - IACI - close 22.57 change -0.04 stop 23.10

Target(s): 21.40, 20.90, 20.50, 20.05
Key Support Areas: 22.40, 21.15
Key Resistance Areas: 22.90
Current Gain/Loss: -23%
Time Frame: Several Weeks
New Positions: Yes, with tight stop

I remain very surprised in the price action of IACI the last couple of days, but we are still in the position. But today's price action late in the day may be the end of the short covering which could get things heading south for us. This company has terrible fundamentals and I don't foresee a lot of new buyers stepping in at these levels. The stock peeked its head above the its downtrend line and the 50-day SMA but that was quickly sold into. I've listed a new target of $21.40 and $21.90 as potential exit point. If selling picks up in the market IACA could fall hard.

Current Position: June $22.50 PUT, entry at $0.85

Entry on May 24
Earnings More than 2 months (unconfirmed)
Average Daily Volume: 1.4 million
Listed on May 22, 2010


Hewlett Packard Co - HPQ - close 45.72 change -0.13 stop 44.60

Target(s): 46.65 (hit), 47.50, 48.20, 48.60
Key Support Areas: 45.25, 45.60, 45.11, 44.80
Key Resistance Areas: 46.75, 48.25, 48.70, 50.00
Current Gain/Loss: -38.7%
Time Frame: Closed
New Positions: No

HPQ hit our target of $46.65 this morning so we are now flat the position at $0.90 for a loss. There was simply no follow though in the market so I think it is prudent to preserve capital and take the loss. I suggest readers protect the premium left in these options and come up with an exit strategy soon. The above targets and support/resistance areas are still valid and can be used as a guide.

Closed Position: JUNE $47.50 CALL at $0.90, entry was at $1.47

Annotated Chart:

Entry on May 19, 2010
Earnings Date More than 2 months (unconfirmed)
Average Daily Volume: 16 million
Listed on May 18, 2010

Morgan Stanley - MS - close 26.11 change +0.36 stop 25.50

Target(s): 26.60 (hit), 27.25, 28.50
Key Support Areas: 26.40, 25.64
Key Resistance Areas: 27.25, 28.00
Current Gain/Loss: -4.34%
Time Frame: 1 to 2 weeks
New Positions: Closed

Our lowered target on MS was hit today and we are taking a small loss on the position. We are flat June $27 CALLS at $1.10 for a 5 cent loss. I'm frustrated with the volatility and think it is prudent to exit positions when the opportunity presents itself. Today was that opportunity. MS may surge higher tomorrow but it may also surge lower. For readers who may still have positions I suggest selling into strength and also keeping a tight stop. The targets listed above are still valid as well as the support areas for possible tight stops.

Closed Position: June $27.00 CALL at $1.10, entry was at $1.15

Annotated Chart:

Entry on May 24
Earnings Date: More than 2 months (unconfirmed)
Average Daily Volume: 25 million
Listed on 5/19/10