8:35am (EST)

Special Note:  Due to the nature of the market’s volatility, we are lifting all stop limits and placing stops on the current trades.  It makes no sense to fight the market and we will have to see how this plays out.  We mentioned key support levels for the indexes outside the Members Area and if they are broken then we could be in for an even bigger correction.

On Monday, we will get a ton of information about Black Friday so there may be a trade or two on the short or long side depending on how today shakes out.  Something is telling us that no matter how good today’s deals are, consumers are still going to be picky and may wait for even better deals.  After all, we are the ones with the money which means we have the leverage…  

There are a couple of trades that we are looking at this morning and we list one of them if you want to play today’s “panic”.  We can’t see how the market “snaps back” after the Dubai news which means we could be weak again on Monday.  The risk is that the news is overblown and everybody spends a ton of money over the weekend leading to good news.


HSBC Holdings (HBC, $62.07)

Buy to OPEN December 60 puts (HGKXL, $0.95)

We are going to try and get into these puts at $1.00-$1.20 when the market opens.  HSBC is a London-based bank and could see some selling pressure today.  If these put options open higher than our limit price, do not pay over $1.40 for them.  If they open higher than $1.40, cancel the trade.

We will also try to get into the December 55 puts (HGKXK) which closed at 10 cents on Wednesday.  If they are under 30 cents at the open, then you could add these put options as well.  If they are higher, do not pay over 50 cents for them.  If they open higher than 50 cents, cancel the trade. 

If the stock falls below $60 there is a good chance it will test $55 which is short-term support.

CURRENT TRADES  (Quotes are from Wednesday’s close)

KB Home (KBH, $13.87, up $0.14)

January 15 calls (KBHAC, $0.75, up $0.10)

Entry Price:  $0.75 (11/25/09)
Exit Target: $1.50

Return: 0%

Stop (Limit):  50 cents

Action:  Most of you should have gotten filled at the limit price of 75 cents.  The calls traded to a low of 70 cents and to a high of 80 cents. 

We were going to close this trade at the open no questions asked but we have listed a stop of 50 cents for those of you willing to stay in.  We normally would follow our strict trading rules of limiting losses at 50% but we aren’t waiting around.  Today’s correction is too strong to ignore.

Hewlett-Packard (HPQ, $50.05, down $0.14)

December 55 calls (HPQLK, $0.06, down $0.02)

Entry Price:  $0.24 (11/23/09)
Exit Target: $0.50

Return: -75%

Stop Limit:  NO STOP

Action:  We are stuck with this one and will still keep it “OPEN” in the portfolio.  This was a really cheap option trade to start with and we knew the risks going in.  We will NOT cover this trade in the “Current trade” section until it makes a comeback, which seems unlikely at this point.  A 20 lot trade was less than $500 so we are not worried about this one expiring worthless.

Note:  We have been getting a lot of emails on what size positions to use.  We recommend doing a minimum of 10 contracts and on options less than 50 cents we might recommend 20 contracts.  What you decide to do for your portfolio is entirely up to you.  Some subscribers trade 1 or 2 contracts, some may trade 10 while others trade 50.  However, we keep recommendations at 10-20 contracts no matter how excited we get about a position and try to limit positions to $1,000-$2,000 per trade.

Microsoft (MSFT, $29.79, down $0.12) 

December 30 calls (MSQLF, $0.50, down $0.06) 

Entry Price:  $0.65 (11/16/09)
Exit Target: $1.30
Return: -23%

Stop (Limit):  30 cents 

Action:  Microsoft was a little weak on Wednesday after news hit the Street that its CFO was leaving.  It’s not that big of a deal and like any other solid company, the replacement usually ends up carrying the torch and does just fine. 

We still think the stock will trade over $30 and eventually $35 down the road but we will close this one if our stop is hit.

Netflix (NFLX, $59.22, down $0.45)

December 65 calls (QNQLM, $0.35, down $0.10)

Entry Price:  $0.80 (11/13/09)
Exit Target: $1.60+
Return: -56%
Stop Limit:  NO STOP, place one at 20 cents

2010 June 80 calls (QNQFP, $1.65, down $0.15)

Entry Price:  $1.65 (11/13/09)
Exit Target: $3.30+

Return: 0%

Stop Limit: NO STOP, place one at $1.25

Action:  We really don’t want to fight the market on this one which is why we have decided to put a stop in for these positions.  With the weekend coming out, the news could get worse and we don’t feel “safe” holding call options over the weekend.