October 2009 | Members


9:15am (EST) Special Note:  The market seems to be searching for direction so some of our “bullish” (call option) plays may suffer over the near-term if the bulls can’t keep the rally going.  We are up on Imax and Dendreon is a pure speculative takeover play so there is no stop.  The other 2 call positions, Chesapeake Energy and Blackstone Group…there are stops in place.  However, they can be treated as “mental stops”. Although the market may be stalling or topping out (for now), I don’t believe the bulls are finished running.  But calling market tops/ bottoms or rallies/ corrections is extremely tough.  That is why the talking heads always report the action and hype the news because they are not in the fire.   When the Dow bottomed at 6,440 everybody was wondering how low the market would go.  Everybody was scared and nobody was buying stocks.  In fact, many investors were cashing in the retirement accounts or moved money around because they were terrified and couldn’t take the pain.  Now they want back in and are afraid they may miss the next leg up Look, our philosophy is pretty simple.  In bull markets you buy call options and in bear markets you buy put options.  Of course, you have to be in the right sectors and the right stocks during these times and you have to know what investors or buying or what they are dumping.  The key is not to make things too complicated or over think things as a trader.  You have to have patience. If you will notice our track record, sometimes we will have streaks where everything we touch turns to gold.  Other times, when the market is acting like it currently is, trades become harder because everybody is searching for direction. This is why we added the Abercrombie put trade and it is why we went out to January on the Blackstone call options.  Having said that, the trades held up well yesterday, all things being considered, so here they are…   CURRENT TRADES  Abercrombie & Fitch (ANF, $36.34, down $0.71) November 34 puts (ANFWL, $1.00, up $0.15) Entry Price: $0.90 (10/20/09) Exit Target: $2.00  Return: 11% Stop:  40 cents Action:  Abercrombie spent much of Wednesday bumping into resistance at $37.50 before succumbing to the market sell-off in the last hour of trading.  In after-hours last night, shares were down another 28 cents when we peaked and were last seen trading at $36.06. Remember, we are looking for a drop to $35 where there is some support which should get the put options to $1.25-$1.30 but if we fall through $35 then it paves the way to a possible test of $30 again. I’m not trying to put the cart before the horse but if we get to $32 the put options will be worth at least $2 which is our initial target.   Chesapeake Energy (CHK, $28.83, down $0.02)  November 30 calls (HKWKF, $0.90, down $0.05) Entry Price: $1.05 (10/19/09) Exit Target: $2.00  Return: -14% Stop:  50 cents (mental) Action:  We were off to a strong start shortly after the opening bell as the stock quickly jumped over $29 and hit a high of $29.68.  The calls traded as high as $1.25 which represented nearly a 20% gain but as you can see we are now down 14%.  We mentioned yesterday this position will be volatile.  The 50 cents is a mental stop and not a “hard” one which means if we dip below this level we will have to look at where we are. Our stops are normally placed at 50%, regardless, but when we are having trouble finding direction we allow for some wiggle room.  Sometimes you can be down 80% on a trade only to have it turn around because your fundamental analysis was right on.  Other times, you just have to chalk the trade up for a loss.  We still try to limit losses to 50% and it’s not often we use “mental stops”.  However, given the current market environment, we thought we would update everyone on our thoughts.    Blackstone Group (BX, $15.60, down $0.27)  January 20 calls (BXAD, $0.40, down $0.10) Entry Price: $0.65 (10/15/09) Exit Target: $1.30   Return: -23% Stop:  25 cents (mental) Action:  Same deal here.  If the stop is hit we will take another look.  However, with this position, we will probably leave open regardless. We think Q4 will be big for Blackstone so we are willing to hold the calls if they trade to a dime.  Also remember, this trade was a “roll-over” position from an original “layered” Blackstone trade that we profiled back in March of this year. At the time we profiled the April, May and the January 10 2010 call options.  The April trade was closed when the 50% stop loss was hit.  The May calls options were closed when the trade hit over a 300% return.  The January 10 calls were closed out for nearly a 200% profit. So really, subscribers who got in back then are playing with “house money”.  Those of you just joining us may or may not be in on the trade so that is why we are explaining some of the stops in greater detail this morning.     Dendreon (DNDN, $28.26, down $0.17) January 35 calls (UQBAT, $1.50, down $0.15) Entry Price: $2.15 (10/15/09) Exit Target: $5.00   Return: -30% Stop:  None Action:  Continue to hold.   Imax (IMAX, $10.92, down $0.19) March 2010 12.50 calls (IMQCV, $0.75, unchanged) Entry Price: $0.45 (8/10/09) Exit Target: $1.00+ Return: 67% Stop: 50 cents   Action:  The winning streak was stopped at 9.  Imax was poised to close its 10th straight day higher as the stock hit a high of $11.33 yesterday.  Quotes got up to $1.05 on the “ask” so there was an opportunity to take a 100% profit for those of you who entered the trade in August.  It took some time but Imax has hit our initial target.  We are still keeping the trade open but wanted to point this out again.  Most of the time we take profits at 100%, no questions asked, but our target for the stock remains $15 by March 2010.]]>