Current Portfolio:

CALL Play Updates

Cliffs Natural Resources - CLF - close: 66.87 change: -0.44 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

11/3: CLF came within 20 cents of triggering our entry of $65.40 to launch bullish positions, however, the stock reversed and closed +$1.48 off of its lows. I do not recommend chasing CLF higher unless you are looking for a short intraday move. We simply need to see more price action after today's QE announcement by the FOMC, and this will most likely take a few days to resolve itself. We have seen several sharp post FOMC sell-offs recently, however, the difference behind this one is that the Fed announced billions of dollars of asset purchases in the coming months. Whether the full amount is already priced into the market is still up for debate.

After some thought I actually think we should lower the trigger to $64.50 and try to get a more a favorable entry point on a pullback. This is near CLF's primary uptrend line that began in early July and the 50-day SMA.

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 = $64.50

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 16.59 change +0.17 stop 15.50

Target(s): 16.10 (hit), 16.70, 17.00, 17.35
Key Support/Resistance Areas: 18.25, 17.75, 16.90, 16.25, 15.75
Current Option Gain/Loss: -50%
Time Frame: 1 to 3 weeks
New Positions: No

11/3: GNK reported earnings after the bell today of 99 cents per share compared to estimates of 96 cents. Revenues also beat estmates and the CEO made positive comments. We'll have to see how this translates into trading tomorrow but I suggest using strength to close positions or tighten stops to protect capital. We need to be looking for an exit (even if it is a loss) to prevent further time decay as our options expire in November.

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!

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 11/3/2010 (unconfirmed)
Average Daily Volume: 1.2 million
Listed on October 11, 2010

Humana Inc. - HUM - close: 59.57 change: -1.07 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

11/3: HUM printed a bearish dark cloud cover candle pattern today which signals a decline is imminent and needs no confirmation. However, the comments below regarding the GOP gaining control in the House definitely throws a wrench in the pattern. I suggest we remain patient to see if HUM does in fact pullback and I agree with James that $53.80 to $54.00 is a logical entry point a dip to find support and continue higher. The rising 50-day SMA is currently near $52.50 so we will keep the trigger at $53.00.

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.

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: 19.56 change: -2.01 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: -29%
Time Frame: Two or Three weeks
New Positions: Yes


11/3: Ouch! After a quick spike higher following the QE announcement by the FOMC, volatility collapsed. Our calls are hanging tough considering the -9% drop in the VIX. In my opinion, today's price action looks like it could have been a capitulation event in volatility. I suggest we remain patient and not panic out of the position. Since 10/13 VIX has been trading in an upward channel of higher highs and higher lows, and now it finds itself at the bottom of the channel. Let's see what happens over the next few days so we can get a better sense of today's VIX beating.

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.

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

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

PUT Play Updates

Fastenal Co. - FAST - close: 53.22 change: +0.12 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

11/3: FAST was weak early and down nearly -2%, but the stock surged late in the day to close barely in the green. My comments haven't changed from James' below, except that I would add to be looking to close positions on weakness and salvage the remaining premium in our options positions.

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 46.31 change -0.18 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: -20%
Time Frame: 2 to 3 weeks
New Positions: Yes

11/3: ITW has been bouncing around between $45.60 and $47.70 for the past week. We are looking for a break but are going to need some help from the broader mmarket. The comments below all remain valid.

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.

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 23.59 change -0.31 stop 24.60

Target(s): 22.30, 21.25, 20.25
Key Support/Resistance Areas: 24.25, 24.00, 23.60
Current Gain/Loss: -11.5%
Time Frame: 1 to 3 weeks
New Positions: Yes

11/3: The bounce in MTL looks like it has failed at its 20-day SMA as the stock lost -1.30% today. However, MTL found support at its 200-day SMA, which is also near the top of the prior congestion level from last week. If MTL breaks below today's low of $23.31 I anticipate a retest of the 10/22 lows.

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: 96.54 change: +0.44 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: -16.5%
Time Frame: Three weeks
New Positions: Yes

11/3: MICC is consolidating under its 50-day SMA and declining 20-day SMA (both at $96.50). There is resitance right here at current levels and 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.

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.

Current 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 54.06 change +1.16 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: -85%
Time Frame: 1 to 2 weeks
New Positions: Neutral

11/3: The break lower is not happening, at least not yet. Our thought process in PNC remains the same, which is to take advantage of more meaningful market correction and salvage 20 to 40 cents of our option premium. We have come close the past few days but the stock has once again been saved with support at its 50-day SMA. Throw in QE from the Fed, which appears to be an effort to steepen the yield curve (which will help bank earnings), and this trade could be over. PNC has traded in a downward channel over the past week and a half but looks like it is on the verge on breaking higher, however, the broader market direction will mmost likely determine PNC's immediate fate. I would continue to use weakness to exit positions. The comments below remain valid.

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.

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: 78.74 change: +1.08 stop: 80.25

Target(s): 72.25, 68.50
Key Support/Resistance Areas: 80.00, 79.00, 75.00, 72.00, 200-dma
Current Gain/Loss: -30%
Time Frame: 3 to 4 weeks
New Positions: Yes

11/3: VMW was weak again this morning but gained +1.39% on the day, and our positions took a hit. The stock gained about +$2 off of its lows today and finds itself near $79.00 resistance, which is last week's highs. VMW is forming a symmetrical triangle near the bottom of its trading range from the past month. It looks like a bearish pennant to me but readers should use caution and may want to consider tighter stops. We are most likely going to need help from a broader market correction for this to be a profitable trade, and this is certainly still a good possibility.

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 lower. 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.

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