Current Portfolio:

CALL Play Updates

Dresser-Rand Group - DRC - close 38.01 change +0.89 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

10/9: Oil services stocks did well on Friday and DRC surged +2.4% on the back of more likely stimulus from the Fed after the lackluster employment report. DRC looks good here as long as the broader market cooperates. If we continue drifting higher this week DRC should easily reach our first target. However, a correction could certainly derail long positions. We'll tighten stops as the trade moves forward but.

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

Annotated Chart:

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

Visa, Inc. - V - close 74.00 change +0.39 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
Current Gain/Loss: +16%
Time Frame: 3 to 5 weeks
New Positions: Yes

10/9: V traded right down to our entry Friday morning and bounced. We are long November $75 calls at $1.92. I do not see V trading much lower than its rising 20-day SMA which is currently $71.55 and increasing about 30 cents per day. This puts the 20-day SMA in the $72.50 to $73.00 range later this week. Any pullback to this area will provide another good entry point. The stock also has support at $72.50 if there is bigger pullback earlier in the week. I like V to go higher as they have worked through the issues that caused the stock to sell-off over the past few months. Even a small move up to out 1st target should produce a +40% gain, while a move to our 2nd target should produce a +85% gain. I plan to tighten the stop in the coming days.

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.

Current Position: Long November $75.00 CALL, entry was at $1.92

Annotated Chart:

Entry on October 7, 2010
Earnings 10/27/2010 (unconfirmed)
Average Daily Volume: 6.8 million
Listed on October 4, 2010

PUT Play Updates

Alliant Techsystems - ATK - close 73.75 change -0.61 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: -17%
Time Frame: 1 to 2 weeks
New Positions: Yes, with tight stops

10/9: ATK formed a perfect bearish head and shoulders pattern on its hourly chart turned lower right where it should have. Now we follow through to the downside. The stock remains below its 200-day SMA and I am ultimately looking for a move towards its 50-day SMA and our second target of $71.25. I do think a sell-off is likely to get bought so be prepared to take profits or tighten stops to protect them.

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.

10/5: 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.

10/2: 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

Annotated Chart:

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 26.14 change +1.00 stop NONE

Target(s): 23.20, 21.50, 20.50
Key Support/Resistance Areas: 26.35, 25.00, 21.40, 20.40, 19.00
Current Gain/Loss: -40%
Time Frame: 1 to 2 weeks
New Positions: Neutral

10/9: ISLN has not followed through lower as I anticipated. In fact, it snapped right back up to its highs before the sell-off on 10/5. I picked the wrong stock in the sector as others such as F5 Networks (FFIV), Red Hat (RHT), and VM Ware (VMW) remain near their lows. In any event, our puts are still hanging in there and I suggest we give this some time to see if the stock turns lower. I chose further out of the money puts to limit losses for these reasons. Now there is a possible double top play that could be met with selling this week. A move back down to the $23 area is still certainly in the cards and that should get us out of the position near breakeven. The 20-day SMA is another target readers should consider. I've adjusted the targets. Finally, trying a short position at this level could work out nicely for a quick trade. I would suggest trying the $22.5 puts and use a stop near $26.80.

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

Annotated Chart:

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 110.16 change +0.56 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: -36%

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

10/9: There are not many changes to my comments. We have a tight stop overhead if DIA breaks out. However, I would be leery of any gap higher on Monday which could be sold into. As such, this is how I suggest readers manage the trade. Temporarily remove the stop and wait for Monday's open. If there is a gap higher near our stop, place a new protective stop above the opening range. This provides us the chance to measure the true strength or weakness of DIA. Often times this will keep you in the trade and looking for a better exit. At these elevated levels it would not surprise me to see a gap higher and an immediate sell-off so we don't want to have a GTC stop in place that gets taken out if DIA is only going to head lower. This is just a scenario. If the markets are surging higher and convincingly break the opening range then we need to get out of the way.

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.

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

Annotated Chart:

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

PNC Financial - PNC - close 53.08 change -0.02 stop 54.92

Target(s): 51.05, 50.35, 49.50, 48.75
Key Support/Resistance Areas: 54.50, 53.50, 50.50, 49.50, 48.75, 47.00
Current Gain/Loss: -36%
Time Frame: 1 to 2 weeks
New Positions: Yes, with tight stops

10/9: PNC has been drifting higher in a bear flag and now sits at the bottom of the channel. The stock turned lower this past week right at it 50-day SMA and descending trend line. If the broader market corrects I'm looking for PNC to break lower towards $49.50 to $50.35 level which is our 2nd and 3rd targets. I suggest we begin to exit positions or tighten stops if PNC heads lower early this week. >p> 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.

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

Annotated Chart:

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


Volatility Index - VIX - close 20.71 change -0.85 stop 20.70

Target(s): 23.00, 24.00, 26.00
Key Support/Resistance Areas: 21.00, 24.00, 28.00, 30.00
Final Gain/Loss: -72.2%
Time Frame: 2 to 3 weeks
New positions: Closed

10/8: There is not much to say except our volatility plays turned out horrible this week. We've taken a disappointing loss and will move onward to find better opportunities. For readers who may still have positions I suggest continuing to look for an exit.

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.

10/2 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.

Closed Position: Long October $25.00 CALL at $0.50, entry was at $1.80

Annotated Chart:

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