Current Portfolio:

CALL Play Updates

Dresser-Rand Group - DRC - close 37.34 change -0.12 stop 36.15

Target(s): 39.00, 39.95, 41.40
Key Support/Resistance Areas: 42.00, 40.00, 39.15, 37.50, 36.30
Current Gain/Loss: -21%
Time Frame: 2 to 3 weeks
New Positions: Yes

10/7: Not too much has changed with DRC. The stock is stuck in a range and tomorrow's employment report could be the catalyst for a breakout. If we go lower we have a tight stop to keep losses under control.

10/6: DRC surged higher at the open today but the bounce was sold into. The stock remains above its rising 50-day SMA, however, if the market corrects we have a tight stop to keep losses under control. My comments below remain valid.

10/5: DRC has been in a bullish uptrend since its lows in the fall of 2008. The stock is now finding support at its 50-day SMA and looks poised to test its highs from 2007. We have a good reference point to place a stop below yesterday's lows at $36.15. Currently, the primary target is $39.95 which should produce a profit of +90% on options positions.

Current Position: Long November $40.00 CALL, entry was at $0.70

Entry on October 6, 2010
Earnings 10/28/2010 (unconfirmed)
Average Daily Volume: 570,000
Listed on October 5, 2010

Visa, Inc. - V - close 73.61 change -0.62 stop 67.40

Target(s): 74.90, 76.90, 79.40
Key Support/Resistance Areas: 79.80, 77.50, 75.00, 70.50, 68.00
Time Frame: 3 to 5 weeks

10/7: V is approaching our trigger to enter long positions, however, tomorrow's employment report could end our hopes of a lower entry if the reaction is favorable. On the other hand, if the reaction is unfavorable the stock could sell-off and blow right through our entry. So picking an entry when the market without knowing the outcome becomes a tricky proposition. Conservative traders may want to wait for a breakout over the $75.00 level, whereas more aggressive and nimble traders may want to time a pullback. I do not see V trading much lower than its rising 20-day SMA which is currently $71.25 and increasing about 30 cents per day. This puts the 20-day SMA near in the $72.50 to $73.00 area by mid to late next week. I suggest we stick with the $73.25 trigger and reassess over the weekend if we are not filled tomorrow. However, if the stock gaps lower near our trigger I suggest readers use the opening range as a guide to enter positions. If the opening range is broken to the downside use $72.60 as an entrance point. If the opening range is broken to the upside use the price above the opening range as the entrance point.

10/6 & 10/5: Nimble traders may want to consider entering long positions on a breakout over today's highs. I would prefer to enter long positions on a pullback to at least V's 100-day SMA (currently $73.04). Let's raise our trigger to enter long positions to $73.25 which will also fill today's gap higher.

10/4: V was taken out to the woodshed after FinReg and a Department of Justice anti-trust suit. The company, along with MasterCard, announced a non-monetary settlement has been made with the DOJ today which puts this issue behind them. There has been many analysts/brokerages defend the stock in recent weeks and I think V is on the verge of running higher into the company's earnings report on 10/27. Technically, the stock has made a higher high and closed above its 50-day and rising 20-day SMA. I would like to see V pullback a little more with the broader market and use $71.80 as our trigger to enter long positions. If triggered, our first two targets are estimated to produce +80% and +130% gains. This is a good addition to our model portfolio and will also provide more balance as we are currently firmly biased to the short side.

Suggested Position: Buy November $75.00 CALL, current ask $2.11, estimated ask at entry $1.90

Entry on October XX
Earnings 10/27/2010 (unconfirmed)
Average Daily Volume: 6.8 million
Listed on October 4, 2010

Volatility Index - VIX - close 21.56 change +0.07 stop 20.70 *NEW*

Target(s): 23.00, 24.00, 26.00
Key Support/Resistance Areas: 21.00, 24.00, 28.00, 30.00
Current Gain/Loss: -60%
Time Frame: 2 to 3 weeks
New positions: Only with later dated options

10/7: We are getting crushed in this VIX play and readers should use caution. Continue to use spikes to exit positions or tighten stops as time is not on our side. If the market breaks higher tomorrow we will likely be stopped out of the position. If we break lower our targets will likely be reached. $23.00 is another added target to consider exiting or tightening stops.

10/6: Our new position in VIX has not worked so we need to adjust as time decay is really affecting premiums. I've added a lower target which should get our position closer to break-even and have also lowered the stop 15 cents to 20.70 which is just below the swing low on 9/14. I suggest readers use any surges in VIX to tighten stops or close positions.

10/5: A surprise shift in monetary policy suggesting significant quantitative easing by the Bank of Japan caused volatility to collapse today. This provides more liquidity in the market and traders are feeling more and more comfortable buying stocks. If there is follow through tomorrow there is a good chance we will be stopped out of the position.

10/2 I really like Scott's play on the VXX. The market is very overbought with the huge rally off its August lows. Now upward momentum has stalled and we're about to move into earnings season after a very weak third quarter. Volatility is almost guaranteed. I think options on the VIX might offer an even better trade than the VXX. I'm suggesting bullish positions now. We'll plan on taking profits at $26.00 and at $29.50. I do consider this somewhat aggressive so consider keeping your positions small. Traders will also want to keep in mind that VIX options don't expire on the same schedule as normal equity options but it shouldn't matter since our time frame is only two to three weeks.

Current Position: Long October $25.00 CALL, entry was at $1.80

Entry on October 4, 2010
Earnings N/A (unconfirmed)
Average Daily Volume: N/A
Listed on October 2, 2010

PUT Play Updates

Alliant Techsystems - ATK - close 74.36 change +0.11 stop 76.25

Target(s): 72.25, 71.25, 70.50
Key Support/Resistance Areas: 76.00, 74.00, 72.00, 71.25, 70.00
Current Gain/Loss: -20%
Time Frame: 1 to 2 weeks
New Positions: Yes, with tight stops

10/7: ATK has formed a perfect bearish head and shoulders pattern on its hourly chart and remains below its 200-day SMA. If the market breaks lower tomorrow I would consider new short positions.

10/6: I see no change from the comments below. ATK traded in tight range today. We are looking for a move down towards the stock's 50-day SMA.

10/5: ATK reversed yesterday's losses and then some as the stock surged +3.13%. Yesterday's gain is now a loss and readers should use caution.

10/4: ATK's slide continued today as the stock broke through its 20-day SMA. There is support near $71.00 so I have added $71.25 as a target. Protecting profits is key here as we already have a nice profit in the trade.

10/2: The rally in this defense stock just failed at significant resistance near $76.00 and its simple 200-dma. Combine that with an overbought market that has seen its upward momentum stall and it looks like a good spot to speculate on some puts. Now the intermediate trend for ATK is still higher so we're only looking for a correction toward support. I'm suggesting bearish positions now. More cautious traders may want to wait for a little confirmation of Friday's bearish reversal pattern before initiating positions. I am targeting the 50-dma (currently $70.31).

Current Position: Long November $70.00 PUT, entry was at $1.45

Entry on October 4, 2010
Earnings: 11/11/2010 (unconfirmed)
Average Daily Volume: 310,000
Listed on October 2, 2010

Isilon Systems, Inc - ISLN - close 25.14 change +1.26 stop NONE

Target(s): 21.50, 20.50, 19.25
Key Support/Resistance Areas: 26.35, 25.00, 21.40, 20.40, 19.00
Current Gain/Loss: -28%
Time Frame: 1 to 2 weeks
New Positions: Neutral

10/7: ISLN retraced much more of Wednesday's loss than I expected. The stock is sitting right at the 61.8% retracement which is a normal turning point for a move back down. I think trying a short position at this level makes sense, especially if the market turns lower from here. We should know a the short term direction tomorrow.

10/6: 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.

Current Position: Long November $20.00 PUT, entry was at $0.70

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

SPDR DJIA ETF - DIA - close 109.60 change -0.17 stop 110.55

Target(s): 107.50, 106.55, 105.40
Key Support/Resistance Areas: 112.00, 110.00, 107.30, 106.40, 105.00
Current Gain/Loss: -25%

Time Frame: 1 to 3 weeks
New Positions: Yes, with tight stops

10/7: DIA had an outside day (traded lower and higher than Wednesday's range) and looked vulnerable but buyers stepped in again. Tomorrow's reaction to the employment report will likely determine our fate on this position. We have tight stop overhead if there is a major breakout.

10/6 & 10/5: DIA has resistance at $110.00. Our stop is $110.55. I still like the short set-up with a tight stop. However, the massive amount of quantitative easing being announced in recent weeks from various countries (US, China, UK, and now Japan to name a few) will/is providing liquidity to the market and investors are beginning to feel more comfortable buying equities. DIA will correct but I am concerned of another push higher first, perhaps up to its YTD highs. I suggest using caution and honoring stops if we are taken out.

10/4: DIA took out last weeks lows and looks like it is headed lower. My primary target is $105.40 but taking profits or tightening stops on any further weakness should also be considered. The 20-day SMA is just below which may provide a bounce.

10/02: Upward momentum in the market has clearly stalled. Stocks have been trading sideways for a week. Thursday's action looks like a bearish reversal but Friday did not confirm the signal. Instead Friday produced an inside day. While I remain bearish here more cautious traders may want to look for a move under Thursday's low (107.47) before initiating positions. Personally, I would target a correction toward $105.25 but keep an eye on the rising 50-dma, which could be support (currently $104.81). FYI: The November $105 put closed with a bid of $1.85.

Current Position: Long November $105.00 PUT, entry was at $1.75

Entry on September 30, 2010
Earnings: N/A (unconfirmed)
Average Daily Volume: 6.5 million
Listed on September 25, 2010

PNC Financial - PNC - close 53.10 change -0.68 stop 54.92

Target(s): 51.05, 49.50, 48.75
Key Support/Resistance Areas: 54.50, 53.50, 50.50, 49.50, 48.75, 47.00
Current Gain/Loss: -30%
Time Frame: 1 to 2 weeks
New Positions: Yes, with tight stops

10/7: PNC turned lower and printed a bearish engulfing candlestick. The stock continues to look bearish, however, a breakout in the broader market will likely prevent further declines for the time being. If the opposite happens we should be on our way to nice gains.

10/6: Nothing has changed in my comments below. PNC is at resistance and this is a logical spot for the stock to turn lower. New positions with tight stops at this level makes a lot of sense to me.

10/5: PNC has been consolidating below its 20-day SMA for the past 2 weeks but the stock closed above it today. There is resistance at current levels up to $54.00. I want to raise the stop to $54.92 to account for the declining 50-day SMA and a trend line.

10/4: PNC reversed off of its declining 20-day SMA today and looks to be headed lower if the broader market correction continues. The comments from the weekend remain valid.

10/02: Financial stocks have been a drag on the market of late and the path of least resistance seems to be down. Yet Friday's action in PNC was uncomfortably bullish. Shares posted a +1.79% gain and closed above the simple 10-dma. I'm not saying we should panic yet but the relative strength is a warning sign. Look for short-term overhead resistance near $54.00. I would prefer to see a failed rally under $54.00 or a new close under $51.50 before launching new positions.

Current Position: Long November $48.00 PUT, entry was at $1.26

Entry on September 30, 2010
Earnings: 10/20/2010 (unconfirmed)
Average Daily Volume: 5 million
Listed on September 29, 2010


Petroleo Brasileiro - PBR - close 33.89 change -1.20 stop 33.70

Target(s): 37.40, 38.65
Key Support/Resistance Areas: 39.00, 37.50, 36.60, 34.00
Final Gain/Loss: -60%
Time Frame: 1 to 2 weeks
New Positions: Closed

10/7: PBR has fallen apart the previous two days and our stop was hit today so we are flat the position for a loss. The stock head faked us by breaking its primary downtrend line last week but the downgrade yesterday from Barclays sealed our fate. At the close on Monday we had an unrealized gain so this is a disappointing result.

10/6: PBR was the recipient of a downgrade this morning from Barclays to Equal Weight from Overweight. This sent PBR down -4.4% today and we have gone from a winning position to a losing position. Readers may want to consider exiting positions to preserve capital, especially considering the overbought conditions in the broader market as a pullback will likely put even more pressure on the stock. PBR has solid support at $34.00 but that is -$1 lower than current levels. Our stop is below this level at $33.70.

10/5: PBR experienced a wave of selling early today but recovered nicely. The stock continues drifting higher and I am expecting the first target to be reached, perhaps tomorrow or Thursday. I suggest taking profits or tightening stops to protect them at $37.40.

Closed Position: Long November $37.00 CALL at $0.50, entry was at $1.25

Annotated Chart:

Entry on September 25, 2010
Earnings 11/11/2010 (unconfirmed)
Average Daily Volume: 13 million
Listed on September 23, 2010