Editor's Note:

Don't forget that the big event this week is the FOMC announcement tomorrow. Nearly everyone is expecting Ben Bernanke to announce a new round of quantitative easing. Market reaction to this announcement could be huge and odds are good stocks might see a "sell the news" move. Readers may want to scale back their positions or raise their stops on any bullish trades (except our VIX trade).

Current Portfolio:

CALL Play Updates

Cliffs Natural Resources - CLF - close: 67.31 change: +0.95 stop: 61.85

Target(s): 68.75, 70.75
Key Support/Resistance Areas: 71.25, 69.00, 65.00 62.00
Current Option Gain/Loss: Unopened
Time Frame: 1 to 2 weeks
New Positions: Yes

11/2 (James): I don't see any changes from yesterday's comments. We want to wait for a dip to $65.40 to launch bullish positions.

11/01: Manufacturing data from around the world was better than expected today, including here in the US. Companies like CLF should benefit from an uptick in manufacturing because the manufacturers need materials such as coal and iron ore to make their products. Technically, CLF has been trending higher since its lows in July and looks poised to move back towards its highs from early October if the broader market cooperates. The stock also broke and closed above a short term downtrend line today. Considering the overbought market conditions I consider this is an aggressive play, however, the trend in CLF is up and until proven otherwise the trend should continue. I suggest we use a trigger of $65.40 (near today's lows) to launch bullish positions. Our targets are +5% and +8% higher than our trigger.

NOTE: This is a good hedge against our short MTL position. I also consider this an aggressive trade so small position size is suggested to control risk if the stock reverses lower.

Trigger = $65.40

Suggested Position: Buy 2010 November $70.00 CALL, current ask $2.89

Entry on November XX
Earnings Date More than two months
Average Daily Volume = 4.3 million
Listed on November 1, 2010

Genco Shipping - GNK - close 16.42 change +0.22 stop 15.50

Target(s): 16.10 (hit), 16.70, 17.35, 17.95
Key Support/Resistance Areas: 18.25, 17.75, 16.90, 16.25, 15.75
Current Option Gain/Loss: -62%
Time Frame: 1 to 3 weeks
New Positions: No

11/2 (James): GNK still acts like it wants to trade higher but I wonder what it's waiting for. The market's major indices are hitting new five-month highs and GNK is still inching along. I am not suggesting new bullish positions in this stock. More conservative traders may want to strongly consider exiting positions ahead of the FOMC announcement tomorrow afternoon!

11/1: Friday's price action in GNK was promising, however, the gains were erased as the stock printed a bearish engulfing candlestick on Monday. In early trading the stock came with 5 cents of our $16.80 target before falling apart. GNK is finding support at its 50-day SMA. If the stock bounces I would use the strength as an opportunity to close positions or tighten stops. The 2nd target has been lowered slightly.

Current Position: Long November $17.00 CALL, entry was at $0.80

Note: Readers who want to give this more time to work may want to consider buying the JAN 2011 $17.50 CALLS

Entry on October 12, 2010
Earnings 11/1/2010 (unconfirmed)
Average Daily Volume: 1.2 million
Listed on October 11, 2010

Humana Inc. - HUM - close: 60.64 change: +1.96 stop: 49.75

Target(s): 57.50, 60.00
Key Support/Resistance Areas: 50.00, 51.00, 53.50, 55.00
Current Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see entry point below

11/2 (James): Grrr! Talk about buyer's remorse. I regret not buying HUM when we listed it the first time. This stock continues to surge without us! The stock added another +3.3% to close at two-year highs after being upgraded this morning. Expectations for the Republicans to gain a majority in the House in today's elections was also boosting the healthcare stocks. We do not want to chase HUM and may end up dropping it as a candidate before the week is out. For now our trigger to buy calls remains at $53.00 although I'm starting to think a dip to $55 or $54 might work.

11/1: HUM crushed earnings today on the bottom line but fell just short on revenue. The stock gapped higher but immediately began to trade lower. We are keeping our trigger at $53.00 and will use dips as buying opportunities. $53.80 could also be considered an entry point.

10/30 (James): Wow! The rally in HUM has been very impressive. Unfortunately, we're still sitting on the sidelines as spectators since the stock never pulled back. I think that's about to change. HUM is due to report earnings on November 1st (Monday) before the opening bell. Analysts expect a profit of $1.66 a share. Odds are very good HUM should see some profit taking on Monday. Plus, we're expecting a market-wide pull back on Wednesday and Thursday this week. While I'm tempted to raise the trigger to buy calls I am actually going to lower the trigger down to $53.00 (from 53.80).

Suggested Position:

Trigger to buy calls at $53.00 <-- new trigger!

BUY the 2011 January $55 calls.

Entry on November xxth at $ xx.xx
Earnings Date 11/01/10 (confirmed)
Average Daily Volume = 2.1 million
Listed on October 16th, 2010

Volatility Index - VIX - close: 21.57 change: -0.26 stop: 17.45

Target(s): 24.90, 29.00
Key Support/Resistance Areas: 18.00, 21.00, 25.00, 30.00
Current Option Gain/Loss: -6.6%
Time Frame: Two or Three weeks
New Positions: Yes


11/2 (James): Tomorrow is the big day. I expect stocks (and the VIX) to drift sideways in a very narrow range tomorrow until the FOMC announcement in the 2:00-2:15 p.m. time frame. That's when the fireworks should start. If you want to be in this trade then open positions ahead of the announcement.

10/30: Stocks have been climbing for weeks on expectations the Federal Reserve will launch a new round of quantitative easing. Expectations are too high and odds are very strong that no matter what Ben Bernanke says on Wednesday that the market will see a sell-the-news reaction. Obviously a market sell-off will help push the VIX higher. I am suggesting new bullish positions now but nimble traders could try and launch positions anywhere in the $19-23 zone. The key here is to make sure you have your bullish position open before the FOMC announcement on Wednesday afternoon. Personally I would want to do it on Monday morning but you could wait until Tuesday afternoon before the election results are out. The VIX moves fast. I am suggesting our first target to take profits at 24.90. Our second target is 29.00. We'll use a relatively wide stop loss at 17.45. Keep in mind that VIX options do not expire on the normal expiration schedule.

Current Position: Long 2010 December 25.00 calls (VIX1022L25), entry was at $2.25

Entry on November 1, 2010
Earnings Date --/--/--
Average Daily Volume = xxx million
Listed on October 30th, 2010

PUT Play Updates

Fastenal Co. - FAST - close: 53.10 change: +1.34 stop: 53.40

Target(s): 51.20 (hit), 50.25, 49.65, 48.25, maybe lower
Key Support/Resistance Areas: 55.00, 52.00, 50.00, 48,00,
Current Option Gain/Loss: -70%
Time Frame: 3 to 4 weeks
New Positions: NO

11/2 (James): Homebuilders were some of the best performers today with the DJUSHB index up +4.2%. I think some of the builder's strength rubbed off on FAST and the stock gained +2.5% on no news. On a very short-term basis today's close over its 10, 20, and 30-dma is bullish. If I wasn't expecting a market sell-off in the next 48 hours I would consider an early exit right here and now! However, since we are looking for a market decline soon we'll stick it out but readers may want to adjust their stops. Currently our stop is at $53.40 and it wouldn't take much for FAST to stop us out tomorrow. No new positions at this time.

Current Position: Long November $50.00 PUT, entry was at $1.00

Entry on October 18, 2010
Earnings Date 10/12/10
Average Daily Volume = 1.0 million
Listed on October 16, 2010

Illinois Tool Works - ITW - close 46.49 change +0.26 stop 47.83

Target(s): 44.95, 44.15, 43.50
Key Support/Resistance Areas: 47.75, 46.10, 45.50, 44.60, 44.00, 43.00
Current Gain/Loss: -25%
Time Frame: 2 to 3 weeks
New Positions: Yes

11/2 (James): ITW is still trying to bounce higher and managed a +0.5% gain today. I would keep an eye on the $47 level and the 20-dma (47.40) and 30-dma (47.25) as potential overhead resistance. A failed rally near these levels could be a new entry point.

11/1: The bounces in ITW keep getting sold. We need a break below $45.50 to get things moving towards our targets. I've raised the first target to $44.95 to account for the 100-day SMA. A move to this level should produce a +33% gain.

10/30 (James): The post-earnings, oversold bounce has failed. The new trend for ITW seems to be down. Shares are hovering near short-term support at $45.50 and a drop under this level could be used as a new entry point to buy puts. If the market corrects I wouldn't be surprised to see ITW hit the $42-41 zone.

Current Position: Long December $45.00 PUT, entry was at $1.20

Entry on October 27, 2010
Earnings: More than two months (unconfirmed)
Average Daily Volume: 4.5 million
Listed on October 26, 2010

Mechel OAO - MTL - close 23.90 change +0.22 stop 24.60

Target(s): 22.30, 21.25, 20.25
Key Support/Resistance Areas: 24.25, 24.00, 23.60
Current Gain/Loss: -23%
Time Frame: 1 to 3 weeks
New Positions: Yes

11/2 (James): We need to be nimble here. The $23.50-24.25 zone should be overhead resistance for MTL. The stock has managed to rally past $23.50 and its 200-dma and today saw shares challenge its 50-dma and $24.25 area. This could be a new bearish entry point but I'd like to see the stock roll over first!

11/1: Friday's bounce in MTL continued on Monday and the stock closed above its 200-day SMA. The stock rallied up to touch its 50-day SMA from below for the first time since it broke below on 10/21, which is where today's selling began. There is resistance at current levels but we are going to need to see the broader market correct to see MTL make new lows and reach our targets.

Current Position: Long December $23.00 PUT, entry was at $1.30

Entry on October 30, 2010
Earnings Date: More than two months (unconfirmed)
Average Daily Volume: 2.1 million
Listed on October 27, 2010

Millicom Intl. - MICC - close: 96.10 change: +1.10 stop: 98.25

Target(s): 90.25, and the 200-dma
Key Support/Resistance Areas: 98.00, 96.00, 92.00, 90.00
Current Gain/Loss: -14.2%
Time Frame: Three weeks
New Positions: Yes

11/2 (James): MICC is providing a potential entry point here. Over the weekend I suggested that readers may want to wait for a bounce toward $96.00 and MICC delivered that bounce today. Shares are also testing overhead resistance near their 50-dma. Aside from the new entry point I don't see any changes from our prior comments.

11/1: MICC is consolidating under its 50-day SMA and declining 20-day SMA (both at $96.50). There is also resitance at $96.00 so this is a logical spot for the stock to turn lower and make a lower low. The 100-day SMA is just under $93.00 which may provide support on weakness. I like new positions to play for a pullback but we are most likely going to need help from the broader market.

10/30: The long-term trend for MICC is bullish but short-term the bulls have lost their focus. MICC has a bearish double top formed in the last six weeks and now shares are failing at the 50-dma in what almost looks like a bear flag pattern. I am suggesting we buy puts now to capture a move toward its long-term trendline. Then we can think about switching directions and buying calls. I would open positions now. However, you could wait and try and time your entry point on a bounce near $96.00. There is some support near $92.00 but our first target is $90.25.

Suggested Position: Long December 2010 $90 puts (MICC1018X90), entry was at $2.45

Entry on November 1, 2010
Earnings Date 02/01/11
Average Daily Volume = 490 thousand
Listed on October 30th, 2010

PNC Financial - PNC - close 52.90 change -0.27 stop NONE

Target(s): 53.00(hit), 52.10, 51.05 (hit), 50.35
Key Support/Resistance Areas: 54.50, 53.50, 50.50, 49.50, 48.75, 47.00
Current Gain/Loss: -80%
Time Frame: 1 to 2 weeks
New Positions: Neutral

11/2 (James): Moody's issued some bearish comments on the banks this morning, which depressed the financial sector. The banks were the worst performers on Tuesday. PNC followed the group lower with a -0.5% decline. I am almost tempted to launch new positions here but readers may want to wait for a move under $52.50 first.

11/1: PNC lost -1.35% today and printed a bearish engulfing candlestick. However, the stock is finding support at its 20 and 50-day SMA's. We have three weeks for PNC to break down and are playing for a move back towards the recent lows. We are most likely going to take a loss on this trade but if we can gain another 20 to 30 cents in premium I suggest exiting the position.

10/30 (James): The larger trend for PNC is certainly down but the breakout over its 50-dma several days ago concerns me. I would hesitate to launch new positions with PNC trading above $52.50 (or even $52.00). We're expecting a market-wide correction soon and believe PNC will be testing new lows for the year before November is done. Keep in mind we only have three weeks left before November options expire. If we see a new entry point I suggest the December or January puts.

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

Entry on September 30, 2010
Earnings: 10/21/2010 (unconfirmed)
Average Daily Volume: 5 million
Listed on September 29, 2010

VMWare Inc - VMW - close: 77.66 change: +1.03 stop: 80.25

Target(s): 72.25, 68.50
Key Support/Resistance Areas: 80.00, 78.65, 75.00, 72.00, 200-dma
Current Gain/Loss: +10%
Time Frame: 3 to 4 weeks
New Positions: Yes

11/2 (James): So far so good. VMW has seen a little bit of a bounce but it's still trading inside the trend of lower highs. I would still consider new positions at current levels.

11/1: VMW reached Friday's high in early trading and immediately turned lowere. The stock is consolidating just below its 100-day SMA and declining 20-day SMA. The first level of support is near $75.00. If the stock breaks this level it may find support at $73.00 but I would be surprised if $72.25 is not reached.

10/30: VMW has seen an incredible two-year fun but it appears that the upward momentum has reversed. The stock started selling off days ahead of its earnings report. When VMW reported on Oct. 18th shares gapped down again. Now traders are selling into strength and VMW has a bearish trend of lower highs and lower lows. I do think VMW could be a bullish candidate again but it might take a correction toward $70 or its 200-dma before shares find any real support. In the meantime the short-term trend is down. I am suggesting bearish positions now. We'll use a stop at $80.25 but more conservative traders might be able to get away with a stop close to $79.00. Our first target is $72.25. Our secondary target is $68.50 (or the 200-dma, whichever VMW its first).

Current Position: Long 2010 December $70.00 put (VMW1018X70), entry @ $1.85

Entry on November 1, 2010
Earnings Date 01/25/11
Average Daily Volume = 4.5 million
Listed on October 30th, 2010


Archer Daniels Midland Co. - ADM - close 31.19 change -2.20 stop 31.90

Target(s): 33.75, 34.15, 35.15, 35.95, and possibly higher
Key Support/Resistance Areas: 38.00, 34.15, 33.00, 32.00
Current Option Gain/Loss: -61%
Time Frame: 2 to 4 weeks
New Positions: No

11/2 (James): The action in ADM today is another good example of why we normally want to avoid holding positions over an earnings report. The company missed expectations by 21 cents! Wall Street was expecting a profit of 75 cents and ADM delivered 54 cents. Revenues improved significant (+12.6%) to $16.8 billion, which was better than expected but that fact was not enough to save the stock price.

Shares of ADM gapped open lower, under multiple layers of support. The stock opened at $32.06, briefly traded down to $31.75, hitting our stop loss at $31.90 closing our play in the first few moments this morning. The call option was trading near $0.30 when we were stopped out.

Closed Position: Long December $34.00 CALL, entry @ $0.77, exit @ 0.30 (-61%)

Annotated Chart:

Entry on October 27, 2010
Earnings Date 11/2/2010 before market (confirmed)
Average Daily Volume: 5 million
Listed on October 25, 2010

ATP Oil & Gas Corp - ATPG - close 14.36 change +0.27 stop 13.75

Target(s): 14.70, 15.10, 15.40, 16.10
Key Support/Resistance Areas: 18.00, 17.00, 16.25, 14.75, 14.10
Current Gain/Loss: -38%
Time Frame: 1 to 3 weeks
New Positions: No

11/2 (James): Hmm... after much thought I am suggesting an early exit out of our ATPG position. Here's why: First, the stock has continued to underperform its peers in the energy sector. Shares did gain +1.9% as traders bought the dip this morning but overall the short-term pattern remains one of lower highs. Bulls could argue that ATPG is poised to rally from recent support near $14.00. However, I'm expecting the market to sell-off tomorrow or Thursday on the QE2 news. What will ATPG do during a market-wide decline? Next, I'm concerned about earnings. We just saw what happened to ADM after its earnings report this morning. ATPG reports earnings in the next few days. I'd rather exit now than see ATPG gap down on us. More aggressive traders may want to ignore these issues and ride it out. Closed Position: Long December $16.00 CALL, entry @ $1.00, exit @ $0.62 (-38%)

Annotated Chart:

Entry on October 25, 2010
Earnings Date 11/4/2010 (unconfirmed)
Average Daily Volume: 2.7 million
Listed on October 23, 2010