October 2009 | Members



9:00am (EST) NEW TRADE!!!  Abercrombie & Fitch We had great success with the Abercrombie & Fitch (ANF, $32.67, up $0.87) trade back in August and the stock appears to be setting up for a similiar trade as we head into October.  On August 14th, Abercrombie & Fitch was at $34 and we used the September 32 puts (ANFUJ, at the time) as a way to play the possible downside as the stock had gotten to the top of its “trading range”.  The put options were at $1.25 at the time (stock at $34) and by August 19th, shares had fallen to $30.  The $4 drop in the stock was good enough for a 120% return as the put options hit $2.75 a week later which is when we closed the trade. I have been looking at this trade since Tuesday when the stock got a 3% pop and closed above $33.  Again, shares are now at the TOP of the “trading range” which has currently been $30-$34 since the beginning of August.  We closed the trade  and locked in profits because the stock did NOT fall below $30 AND, if you will notice, has bounced off support and back up to resistance.  I was hoping for a rally on Wednesday but once the PMI number came out, ANF went south with the rest of the market.  The stock was at $33.54 at one point on Wednesday so it remains to be seen if we head back towards $30. The story hasn’t changed much with the company.  Last time we checked in on Abercrombie, they were reporting that same store sales were down 29%.  The September Retail Sales report should come out on October 14th and Abercrombie doesn’t announce earnings until November so there isn’t any news event that I know about that could cause the stock to trade higher.  Other than that, the keys to this trade are Friday’s unemployment numbers and the $34.50 level.  Who knows what the market does but if we get a better-than-expected number, the bulls could blow the roof off the market and ANF could rally with the bulls.  If we print 10% on unemployment, the market could tank. If we shoots higher and the stock breaks $34.50 we will EXIT the trade.  Other than that:  BUY to OPEN Abercrombie & Fitch November 30 puts (ANFWD, $1.40, up $0.05) with a LIMIT PRICE of $1.40 or better. IMPORTANT:  Wait 15-20 minutes AFTER the market opens.  If the stock OPENS higher, we may be able to get BETTER prices and I’d love to get these for $1.25.  If the stock opens LOWER, do not pay more than $1.50-$1.60 for the put options. We are looking for the stock to trade back to $30 and a break below $30 could lead us to $27-$28.  If the stock is at $27 these puts will be worth at least $3 or a double from current levels.  Set stops at half of your entry price OR close the trade if ANF trades above $34.50. Current Trades Nike (NKE, $64.70, up $4.61) October 60 calls (NKEJL, $4.70, up $2.70) Entry Price: $1.65 (9/29/09)  Exit Target: $3.00-$4.00+ Return: 185% (sold half at $4.50 on 9/30) Stop:  $4.50 Action:  Nike showed no weakness after Wednesday’s big pop and stayed strong all day.  Beautiful.  We went into the morning with a $2.75 stop but these calls OPENED at $4.70.  I mentioned in the 1pm update to raise the stop to $4.50.   Hopefully, Nike continues higher for the rest of the week but if we don’t, let the market take you out of the other half of the trade at $4.50.  Then if the stock falters and goes back to “fill in the gap” from $60 to $64, you will get stopped out automatically.  However, SELL to CLOSE the trade today if the stop is not hit, regardless.  I don’t want to be long going into to Friday because of the unemployment report.   I also wanted to update the trade in case you took “insurance” yesterday.  Tuesday I said, “The November 55 puts (NKEWK, $1.10, down $0.25) can be used to hedge this trade.  If Nike falls to $55 then these options should double.”  Well, the puts are at 30 cents.  If you take the $4.70 for the call options plus the 30 cents for the put options, you get $5.  The total cost of the trade would have been $2.75 from the original entry prices so the trade still netted 75+% if you took the safe route.   I mentioned Goldman Sachs gave the stock a $75 price target and maybe we get some institutional buying between now and Friday.  Remember, Friday we get the unemployment numbers so we will be out of the entire trade by then regardless of the stops. But if Goldman is right, we might be able to roll it out…   Citigroup (C, $4.84, up $0.14) January 7.50 calls (CAQ, $0.13, flat) Entry Price: $0.32 (8/28/09) Exit Target: $0.64 Return: -59% Stop:  None   January (2011) 10 calls (VRNAB, $0.42, flat) Entry Price: $0.60 (8/28/09)  Exit Target: $1.20 Return: -30% Stop: None  Action:  Continue to hold.   Imax (IMAX, $9.41, down $0.02) March 2010 12.50 calls (IMQCV, $0.40, flat) Entry Price: $0.45 (8/10/09) Exit Target: $1.00+ Return: -11% Stop: None  Action:  Continue to hold. Sirius XM (SIRI, $0.64, up $0.02) December 1 calls (QXOLA, $0.05, flat) Entry Price: $0.15 (8/21/09) Exit Target: $0.30 Return: -67% Stop: None Action:  Continue to hold.