9:00pm (EST)

1.  Market Summary

2. Vitamin Shoppe (VSI) – A Vitamin a Day Keeps the Bears Away

3. Obama’s Jobless Commission

4.  Earnings

5.  Weekly Wrap Portfolio Update

6.  Week Ahead

(To view the charts, please log into the Members Area and go to the Weekly Wrap Premium section)

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1.  Market Summary

The bulls came into the week looking to keep their momentum following a test to new 2011 lows the prior week.  Although they won the previous week, the bulls were still facing the uncertainty of Europe’s debt crisis and the start of 3Q earnings season which got off to a shaky debut with Alcoa’s (AA, $10.26, up $0.16) numbers.

Both fronts improved as Monday ended with a 3% pop as the bulls got good news over the weekend.  Wall Street was impressed with the determination to come up with a plan to recapitalize the European banks and futures were pointing towards a strong start that morning.  The plan-for-a-plan to fix Greece powered the indexes higher and should be in place ahead of the G-20 summit at the start of November.

Following Monday’s surge, we expected some pullback on Tuesday but the market held up well as both the S&P and Nasdaq finished slightly higher.  The Dow fell 17 points but had broken through resistance at 11,350 on Monday so it was good to see this level hold.

The bears went into Wednesday’s session trying to hold down resistance on the Nasdaq and S&P but were unable to keep the bulls at bay.  The major indexes jumped 1%, on average, as the S&P cleared 1,200 while the Nasdaq zoomed past 2,600.  The Dow traded to a high of 11,625 as all three indexes traded past our near-term price levels we outlined last week.

Thursday was a flat session but the bulls got good news after the bell when Google (GOOG, $591.68, up $32.69) announced earnings.  The company easily crushed Wall Street’s expectations as shares soared to nearly $600 in after-hours trading.  Futures were strong before the opening bell on Friday and from there it was a stampede.

The Dow jumped 166 points, or 1.5%, to settle at 11,644.  The blue-chips made a strong run past resistance at 11,200 and 11,350 (green line, brown circles) which is now short-term support.  We said to look for a close above 11,600 (blue line, black circles) by week’s end which now opens the door for a test to 11,800 and possibly 12,000 (orange line, green circles) which is home of the 200-day moving average.  The Dow started the week at 11,103 and managed to gain 541 points, or 4.9%.  This brought the blue-chips back into the green for 2011 as the index is now up 67 points, or 0.6%, YTD.

The S&P 500 advanced 21 points, or 1.7%, to finish at 1,224 – point 58.  The index made a strong push past resistance at 1,200 (blue line, orange circles) on Wednesday and held on Thursday which was key.  We were looking for a close above 1,225 on Friday but its close enough for government work.  The next area of resistance lies at 1,250 (green line, black circles) and there will be a battle at 1,275 (orange line, green circles) and the 200-day MA.  If these levels are achieved then the bulls could be looking for a run to 1,300 by Christmas.  The S&P started Monday at 1,155 and added nearly 70 points, or 6%, for the week.  For the year, the index is still showing a loss of 33 points, or 2.6%.

The Nasdaq soared 48 points, or 1.8%, to settle at 2,667.  Tech rebounded back above 2,500 (blue line, brown circles) on Monday and never looked back.  We mentioned last week there was a chance the bulls could push resistance at 2,600 (green line, orange circles), which is now short-term support, and they did so with ease.  The next test will come at 2,700-2,750 (purple line, red circles).  For the week, the Nasdaq surged 189 points, or 7.6%, after starting Monday’s session at 2,479.  For 2011, Tech is now up 27 points, or 0.6%.

The S&P Volatility Index (^VIX, 28.24, down 2.46) fell 8% on Friday and back below 30 (orange line, purple circles) after starting the week at 36.  We knew on Wednesday when the VIX traded down to 29.79 the bulls could end the week with a bang.  A move down near 22.5 (green line, black circles) is possible on a full-fledged rally but a break back above 30 would mean we could be still stuck in a trading range.  The bears will be looking to get back near 40 (blue line, black circles) if support levels start to fall.

Last week was the start of 3Q earnings season but this week will be the heart as over half of the Dow’s components will be reporting and a quarter of the S&P 500 companies will announcing their numbers.

We got a lot of clues from last week to stay long and strong and we said on Friday that this Monday is usually bullish.  However, we also know this is options expiration week so anything and we mean anything, can happen.  Everything is looking bullish and we have done well over the past few weeks by being a contrarian as the pros and talking heads were calling for a pullback.  However, the price action was clearly visible on the break above resistance and there were people who got caught on Friday shorting into the weekend.

We also said on a breakout the chase could be on as fund managers try to make up for the double-digit losses from the 3rd quarter and will be trying to play catch-up for the year.

We mentioned at the beginning of the month that statistically, October, which has been known to be the month of big crashes, averages gains of 0.6% for the month.  Well guess what?  We may have already seen the October crash which happened on the 4th.

The bounce since has been phenomenal to say the least.  We will still keep an eye on our downside targets but the trend is still up for now.  We could see a slight pullback after this week as Europe’s uncertainty gets closer but let’s enjoy the ride first.  We should know something by the first week of November on if “the plan” is going to work or not.  If there are no speed bumps, the bulls should cruise to new highs by year-end but if there is, or Europe’s debt doesn’t get resolved – the bears could push new lows.

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Key of Technicals Used In Following Articles


2. Vitamin Shoppe (VSI) – A Vitamin a Day Keeps the Bears Away

By Michael Bryant

Third-quarter earnings season gets in full swing and when Vitamin Shoppe (VSI, $36.70, up $1.22) reports on October 26, it is possible they beat Wall Street’s expectations.  Valuations are not as attractive but long-term growth seems to be positive.

Analysts predict that earnings and revenue will come at $0.33 on $208.12 million in the 3rd quarter and $0.32 on $210.49 million in the 4th quarter.  Estimates are included in graphs below and marked as 9/11 and 12/11.

It seems like in March (1st quarter) of every year, the company experiences a peak in revenue and earnings.  From the graph, one can question why 3rd quarter sees a decline in earnings growth which is not evident in the other quarters.

The company is a leading specialty retailer and marketer of vitamins, minerals, nutritional supplements, herbs, sports nutrition formulas, homeopathic remedies, natural beauty and personal care, natural pet food, low carbohydrate foods, and diet and weight management supplements.

Other brands sold include BodyTech, Ultimate Man, Ultimate Woman, Whey Tech, Solgar, Twinlab, EAS, and Nature’s Way.  All brands can be easily found on the company’s website, where customers can place orders instead of going to the store.

Below is a snapshot of its website http://www.vitaminshoppe.com/ .

Going back to the graphs at the beginning of the article, the seasonality fluctuation in revenue and earnings could be due to the fact that people take more vitamins and minerals in the winter months.  This is probably true for vitamin D supplements, with people getting less sunshine in the winter.  Remember that 1st quarter revenue is for the three months ending in March.


Sales grew by $63.6 million (12%), $73 million (12%), and $77 million (11%) between the years 2007-2010 respectively.  Gross profit did better, growing $18.4 million (10%), $21 million (11%), and $32.6 million (15%) for the same period.  Net income was the most impressive, growing $2.1 million (45%), $1.4 million (21%), and $4.5 million (55%) for the same period.  The company’s store count grew to 60 stores (17%), 37 stores (9%), and 46 stores (10%) between the years 2007-2010.  Thus, everything seems to be growing healthily.  As a percentage, gross profit and net income show impressive growth rates.  Gross profit as a percentage has been increasing each year.  Long-term debt was reduced to $42 million in 2010 from about $100 million in 2009, and management remains committed to further debt reductions.  Cash flow increased from $7 million in 2009 to $17 million in 2010.


At $36.70, the stock is not even above its low target of $40.00 made by the 8 analysts recorded by Thomson/First Call.  Mean target is $48.38; median target is $50.00; and high target is $54.00.  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 1.9, unchanged from a week ago.


Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

3

3

3

3

Buy

3

3

4

4

Hold

2

2

1

1

Underperform

0

0

0

0

Sell

0

0

0

0


Standard & Poor’s Ratings Services upgraded the company to “BB-minus” from “B-plus” on September 30th, saying it expects the specialty retailer to continue its trend of rising profits and sales.  Though the new rating is still below investment-grade, S&P listed the outlook as “stable.”

Its chain of about 500 stores is dwarfed by competitor General Nutrition Centers’ 7,400 locations, but S&P says that Vitamin Shoppe’s websites, national catalog and broad product range make it a “small but growing player in the fragmented $27 billion U.S. dietary supplements industry.”


Comparing the company’s stock numbers to its top competitors and its industry, the company doesn’t seem overvalued but does not look undervalued either.

GNC = GNC Corporation       KO = Coca-Cola (owns Vitamin Water)

WAG = Walgreen      WFM = Whole Foods Market

Industry = Specialty Retail, Other

VSI

GNC

KO

WAG

WFM

Industry

Price/Sales

1.28

1.13

3.67

0.41

1.22

0.59

Price/Book

3.09

2.36

4.40

2.00

4.22

Trailing PE

29.01

21.63

12.64

11.22

37.44

15.40

Forward PE

20.73

14.12

16.19

10.22

30.72

PEG

0.93

1.04

2.19

1.36

1.89

0.79

Revenue Growth (%)

12.30

13.80

46.80

6.50

10.90

5.90

Gross Margin (%)

42.80

35.70

61.76

28.39

35.02

35.94

Total Debt/Revenue

0.030

0.467

0.622

0.033

0.002

Cash Flow/Revenue

0.093

0.070

0.210

0.050

0.073

Current Ratio

1.96

2.88

1.10

1.52

1.54

Market Cap/Revenue

1.999

1.197

3.694

0.411

1.244

0.565

Market Cap/Cash

232.56

23.28

11.11

19.06

22.82

EV/Revenue

1.35

1.62

3.98

0.42

1.19

EV/EBITDA

12.12

10.52

14.61

6.10

14.24

Return on Assets (%)

9.10

6.53

9.44

9.15

8.43

Return on Equity (%)

12.24

12.59

41.05

18.56

12.62

Source: Numbers calculated from Yahoo Finance

VSI has price/sales close to GNC’s, though slightly higher.  But VSI leads competitors with the lowest PEG.  Revenue growth is slightly higher than GNC’s, but is higher than the industry average.  Gross margin exceeds GNC’s by about 7 points.  Debt is about 3% that of revenue, a good thing and much better than GNC’s 46.7%.  Cash flow is rather low at 9.3% of revenue, but better than all its competitors except Coca Cola.

The current ratio is a comfortable 1.96, meaning current assets are almost double current liabilities.  Thus, it probably won’t run into credit problems in the near-term.  The market cap is almost twice revenue and a huge 232 times cash.  The EV/EBITDA is 12.12, greater than 5, which is often used to find takeover targets, but not that much higher than GNC’s.  Return on assets beats GNC’s, and return on equity is about equal to GNC’s, an indication that the stock might do well.


3
Obama’s Jobless Commission

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By Bill Gunderson

The head of the President’s Jobs Commission knows why we do not have enough jobs: People in Washington are not talking about it enough.

And I know this is true because I recently heard it on 60 Minutes.  And it came from Jeff Immelt, who in his spare time runs General Electric (GE, $16.60, up $0.38).

Here is what we did not hear on 60 Minutes: Thousands of American companies are creating jobs and increasing sales at record rates.  But with the exception of Facebook, not one is a member of President Barrack Obama’s Jobs Commission.

The CEOs who serve on the commission are a Who’s Who of big, lumbering companies that are resistant to change and slow to grow:  General Electric, Intel (INTC, $23.50, up $0.11), Procter & Gamble (PG, $64.89, up $0.24), Citigroup (C, $28.40, up $0.76), American Express (AXP, $46.10, down $0.23), Southwest Airlines (LUV, $8.61, flat) and the former CEOs of AOL (AOL, $14.09, up $0.08) and Time Warner (TWX, $33.53, up $0.55).

The president picked his commission members the same way lots of people pick their stocks:  He just assumed big names are good investments.  They are not.

Start with Immelt.  During the decade that Immelt has led GE, the stock is down 44%.  In the decade before Immelt, GE’s stock was up 711% and in the decade before that, up 571%.

Somehow, 60 Minutes either forgot to tell us that.  Or didn’t think it was important.

Eastman Kodak (EK, $1.24, down $0.04) is the latest dismal example from the Jobs Commission.  The stock of this Jimmy Carter-era, industrial giant recently sank 53% in one day.  It has since but is down 80% from the beginning of the year and could go bankrupt.

Many of the other commission members differ from Eastman Kodak only in degree.  Not quality.

The commission members who used to be CEOs at AOL and Time Warner made business history by engineering the worst merger in history.

Southwest may be a good airline, but it has lost 4% a year for the last 10 years.  That’s dividends and share price together.

Citigroup received one of the biggest bailouts in financial history.  Not sure what they are even doing on there.

A rogue trader at commission member UBS (UBS, $12.15, down $0.12) recently lost $2 billion of the company’s money tarnishing the reputation of the onetime giant of the banking industry and causing the European CEO to resign.

These are the people advising our president on how to create jobs?  No wonder the unemployment rate hasn’t budged in recent months.  Harvey Golub, former CEO of American Express, recently told the Wall Street Journal:

“From green jobs to cash for clunkers, many of us have suspected that economic illiterates were setting the economic policy of this administration.  The president’s jobs plan … reveals a depth of cluelessness that boggles the mind.”

These are tough words for tough times.

But some companies are thriving in tough times — and making money for their shareholders.

Here are just a few: AutoZone (AZO, $328.12, up $1.26), for example, is growing and hiring because its CEO figured out that people are replacing mufflers and tires rather than getting new cars.

Apple (AAPL, $422, up $13.57), of course, is a shining example of the best of America.

CSX (CSX, $21.13, up $0.36) is one of America’s largest railroads.  Next time you see one of its trains barreling down the tracks, just imagine it is carrying jobs and money, because it is.

Most people know Priceline.com (PCLN, $499.13, up $5.36) from the commercials featuring William Shatner.  It turns out that Shatner, who took stock options from Priceline, knew a heck of a lot more about investments than all the other financial and political talking heads combined.

The list goes on and on: Green Mountain Coffee Roasters (GMCR, $92.09, up $0.45), Panera Bread (PNRA, $110.35, down $1.26), Continental Resources (CLR, $57.10, up $3.39).

America has tens of thousands of companies, public and private, that have figured out the jobs and growth question.

Problem is, they are too busy making money to serve on Obama’s Jobless Commission. 

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4.  Earnings

The companies in BOLD, we are looking at as possible trades and we may list call or put options on them in our Daily Newsletter.  If they become official recommendations, we sent out Trade Alerts or include them in our 9am and 1pm updates that come out during the week (Quotes are as of Friday’s close, 10/14/11).

MONDAY

American National Bankshares (AMNB, $x), AMR (AMR, $x), Baidu (BIDU, $x), Brown & Brown (BRO, $x), Charles Schwab (SCHW, $x), Cyberoptics (CYBE, $x), Delta Air Lines (DAL, $x), First Horizon National (FHN, $x), Gannett (GCI, $x), Halliburton (HAL, $x), Hasbro (HAS, $x), International Business Machines (IBM, $x), Lincare Holdings (LNCR, $x), Packaging Corp Of America (PKG, $x), Stanley Black and Decker (SWK, $x), Steel Dynamics (STLD, $x), United Continental Holdings (UAL, $x), VMware (VMW, $x), Wells Fargo & Co (WFC, $x)

TUESDAY

Apple (AAPL, $x), Bank of America (BAC, $x), Check Point Software Technologies (CHKP, $x), Coca Cola (KO, $x), Dominos Pizza (DPZ, $x), Forest Laboratories (FRX, $x), Genuine Parts (GPC, $x), Harley Davidson (HOG, $x), Intel (INTC, $x), Johnson & Johnson (JNJ, $x), Juniper Networks (JNPR, $x), Linear Technology (LLTC, $x), Omnicom Group (OMC, $x), Polaris Industries (PII, $x), River Valley Bancorp (RIVR, $x), Sonic (SONC, $x), United Rentals (URI, $x), W W Grainger (GWW, $x), Weis Markets (WMK, $x), Yahoo (YHOO, $x)

WEDNESDAY

Abbott Laboratories (ABT, $x), Apollo Group (APOL, $x), Bank Of New York Mellon (BK, $x), Buffalo Wild Wings (BWLD, $x), Cirrus Logic (CRUS, $x), Datalink (DTLK, $x), E*Trade Financial (ETFC, $x), Freeport McMoRan Copper & Gold (FCX, $x), Kinder Morgan Management (KMR, $x), Lam Research (LRCX, $x), Morgan Stanley (MS, $x), Noble (NE, $x), Piper Jaffray Companies (PJC, $x), PNC Financial (PNC, $x), Polycom (PLCM, $x), Raymond James Financial (RJF, $x), St Jude Medical (STJ, $x), Travelers Companies (TVR, $x), US Bancorp (USB, $x), Western Digital (WDC, $x)

THURSDAY

Acme Packet (APKT, $x), AT&T (T, $x), Athenahealth (ATHN, $x), BB&T (BBT, $x), Briggs & Stratton (BGG, $x), Capital One Financial (COF, $x), Chipotle Mexican Grill (CMG, $x), Chubb (CB, $x), Cypress Semiconductor (CY, $x), Diamond Offshore Drilling (DO, $x), Eli Lilly (LLY, $x), Flextronics International (FLEX, $x), Huntington Bancshares (HBAN, $x), Keycorp (KEY, $x), Lacrosse Footwear (BOOT, $x), McGraw-Hill Companies (MHP, $x), New York Times (NYT, $x), Noble Energy (NBL, $x), Patriot Coal (PCX, $x), Rambus (RMBS, $x), Sandisk (SNDK, $x), Schnitzer Steel Industries (SCHN, $x), Tempur Pedic International (TPX, $x), USA Truck (USAK, $x), Washington Federal (WFSL, $x)

FRIDAY

Air Products and Chemicals (APD, $x), Citizens First (CZFC, $x), Dover (DOV, $x), General Electric (GE, $x), Honeywell International (HON, $x), Manpower (MAN, $x), McDonalds (MCD, $x), Nobility Homes (NOBH, $x), Schlumberger (SLB, $x), Verizon Communications (VZ, $x)

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5. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 10/14/11)

WEEKLY WRAP CLOSED TRADES for 2011: VVUS +18%, DNDN +9%, PCX +13%, SGEN +26%, TIVO +34%, REDF +11%, PCX +7, GE +5%, CLNE +13%

Ford Motor (F, $11.56, up $0.22)

October 11 calls (F111022C00011000, $0.67, up $0.19)

Original Entry Price:  $10.63 (9/20/11)

Lowered Price from Selling Options: $10.28

Exit Target: $15+

Return: 12%

Stop Target: None

Action:  Ford started the week at $10.69 and closed above $11 every day.  The October options expire this Friday and if shares are over $11 we will get called away.  We mentioned the surge past resistance at $10.50 (blue line, green circles) would be bullish and is now short-term support.  Shares traded to a high of $11.80 last week and the next area of resistance will come in at $12 (orange line, purple circles) but shares could run to $13 (black line, dark blue circles).

We recommended buying the stock at $10.63 on 9/20/11 and for every 100 shares to sell the October 11 calls for 35 cents.  This lowered the cost basis to $10.28.

If shares are called away at $11 in mid-October the trade will make 7%.


Vivus (VVUS, $8.58, up $0.10)

October 9 calls (VVUS111022C00009000, $0.10, flat)

Original Entry Price:  $8.45 (9/9/11)

Lowered Price from Selling Options: $8.05

Exit Target: $10+

Return: 7%

Stop Target: None

Action:  Vivus made it back to over $8 (green line, blue circles) on Monday and closed above this level all week as shares went out at the high.  We are hoping we DON’T get called away as we want to stay in the position and continue writing calls.  With this being options expiration week, anything can happen, but there is strong resistance at $9 (orange line, black circles) which is where Vivus needs to be for us to get exercised.  There is additional support at $7.50 (purple line, orange circles) should shares retreat below $8 again.

We recommended buying the stock at $8.45 on 9/9/11 and for every 100 shares to sell the October 9 calls for 40 cents.  This lowered the cost basis to $8.05.

If shares are called away at $9 in mid-October the trade will make 12%.


MGM Resorts (MGM, $10.22, up $0.02)

October 12 calls (MGM111022C00012000, $0.02, down $0.01)

Original Entry Price:  $11.73 (8/12/11)

Lowered Price from Selling Options: $10.23

Exit Target: $12+

Return: 0%

Stop Target: None


Action:  After falling below multi-year support at $10 (green line, blue circles) last week, MGM rallied and traded to a high of $10.52 last Wednesday.  The next wave of resistance will come in at $11 (orange line, purple circles) and shares will need to move 20% this week for us to get called away.  We doubt MGM makes a run like that in 5 days which means we should be able to write another call option next week.

We recommended buying the stock at $11.73 on 8/12/11 and for every 100 shares to sell the September 12 calls for 90 cents.  This lowered the cost basis to $10.83.

On 9/20/11 we recommended selling the October 12 call option for $0.60 which lowered the cost basis to $10.23.

If called away in mid-October at $12 the trade makes 17%.

Newpark Resources (NR, $7.43, up $0.26)

December 10 call (NR111217C00010000, $0.30, flat)

Original Entry Price:  $9.45 (7/27/11)

Lowered Price from Selling Options: $8.10

Exit Target: $10+

Return:  -8%

Stop Target: None

Action:  Newpark started the week at $6.30 and closed above $7 (brown line, green circles) on Monday.  Shares ran into short-term resistance at $7.50 (green line, orange circles) afterwards but did reach a high of $7.71 on Wednesday.  The next test comes at $8.00 (blue line, purple circles).  The low last week was $5.19 and we were prepared for a test down to longer-term support at $5.50 (blue line, black circles).

We recommended buying the stock at $9.45 on 7/27/11 and for every 100 shares to sell the August 10 calls for 50 cents.  This lowered the cost basis to $8.95.

On 9/15/11 we recommended selling the December 10 call option for $0.85 which lowered the cost basis to $8.10.   

If we are called away at $10 in mid-December, the trade makes 23%.


Rambus (RMBS, $16.61, down $0.05)

October 15 calls (RMBS111022C00015000, $2.50, down $0.25)

Original Entry Price:  $15.60 (7/22/11)

Lowered Price from Selling Options: $12.95

Exit Target: $20+

Return: 28%

Stop Target: None

Action:  Rambus made a big run past resistance at $16 (orange line, purple circles) on Thursday as shares reached a high of $16.94 on Friday.  This are should serve as short-term support.  We will likely get called away from this name as well as the options are well in-the-money and we still think Rambus will test $19-$20 – shortly.

One curveball could be in play, however, as the company does announce earnings on Thursday.  The books have been improving as Rambus seems to have turned the corner and could be a growth play.  If they miss expectations there could be a pullback to $14 (black line, green circles) but we doubt this will be the case

We recommended buying the stock at $15.60 on 7/22/11 and for every 100 shares to sell the September 17 calls for 65 cents.  This lowered the cost basis to $14.95.

On 9/20/11 we recommended selling the October 15 call option for $2 which lowered the cost basis to $12.95.

If we are called away, the trade makes 16%.

Symantec (SYMC, $17.99, up $0.21)

October 18 call (SYMC111022C00018000, $0.35, up $0.10)

Original Entry Price:  $18.77 (6/8/11)

Lowered Price from Selling Options: $17.37

Exit Target: $20+

Return: 4%

Stop Target: None

Action:  Symantec kissed $18 on Friday after busting thru resistance at $17.50 (green line, purple circles).  We could also get exercised on these options if shares are above our 18 strike price this Friday.  If Symantec can break above its 200-day MA, shares could challenge $18.50 (orange line, blue circles) this week and we would get called-away.

We recommended buying the stock at $18.77 on 6/8/11 and for every 100 shares to sell the July 19 calls for 60 cents.  This lowered the cost basis to $18.17.

On 7/18/11 we recommended selling the August 20 calls for 35 cents which lowered the cost basis to $17.82.

On 9/15/11 we recommended selling the October 18 call option for $0.45 which lowered the cost basis to $17.37.

If we are called away, the trade makes 4%.

Rare Element Resources (REE, $5.78, up $0.11)

Original Entry Price: $12.38 (5/31/11)

Lowered Price from Selling Options: $11.23

Exit Target: $15+

Return: -49%

Stop Target: None

Action:  Shares gained 60 cents for the week and resistance is at $6 (green line, black circles).  We may add to this position this week to average our cost down.  Support is at $4 (orange line, blue circles) should shares retreat.

We recommended buying the stock at $12.38 on 5/31/11 and for every 100 shares to sell the July 12 calls for $1.15.  This lowered the cost basis to $11.23.


AKS Steel Holding (AKS, $7.52, up $0.14)

Original Entry Price:  $15.93 (5/2/11)

Lowered Price from Selling Options: $14.58

Exit Target: $20+

Return: -48%

Stop Target: None

Action:  We wanted to add to this position when shares traded down to $5.51 on October 4 but we wanted to see if this level would hold.  We may add to this position this week instead.  Short-term support is at $6.50 (green line, black circles) level which is also multi-year support.  The next area of resistance will be at $8 (purple line, blue circles) and the 50-day MA.

We recommended buying the stock at $15.93 on 5/2/11 and for every 100 shares to sell the May 16 calls for 50 cents.  This lowered the cost basis to $15.43.

On 7/1/11 we recommended selling the August 16 call option for $0.85 which lowered the cost basis to $14.58.


American Capital (ACAS, $7.09, up $0.22)

October 9 calls (ACAS111022C00009000, $0.02, down $0.01)

Original Entry Price:  $9.73 (4/19/11)

Lowered Price from Selling Options: $8.38

Exit Target: $15+

Return: -15%

Stop Target: None


Action:  Shares were up 6% for the week and we will likely be writing another call options soon as the October 9’s expire this week.  Short-term support is at $6.50 (orange line, black circle) while resistance will be at $7.50 (green line, blue circles).

We recommended buying the stock at $9.73 on 4/19/11 and for every 100 shares to sell the June 10 call for 50 cents.  This lowered the cost basis to $9.23.

On 7/1/11 we recommended selling the August 10 call option for $0.55 which lowered the cost basis to $8.68.

On 9/13/11 we recommended selling the October 9 call option for $0.30 which lowered the cost basis to $8.38.

If shares are called away at $9 by mid-October the trade will make 7%.

Cisco Systems (CSCO, $17.55, up $0.13)

November 17 calls (CSCO111119C00017000, $1.15, up $0.05)

Original Entry Price:  $17.14 (3/17/11)

Lowered Price from Selling Options (and dividends): $15.51

Exit Target: $20+

Return: 13%

Stop Target: None

Action:  We said last week we were expecting a run up to resistance at $17.50 (purple line, brown circles) which is where we closed.  These are November options and they are well in-the-money as shares will now look to challenge $18-$20.  Support is at $16.50 (green line, black circles) on a pullback.

We recommended buying the stock at $17.14 on 3/17/11 and for every 100 shares to sell the May 18 call for 56 cents.  This lowered the cost basis to $16.58.

On 7/5/11 the company paid out a 6 cent quarterly dividend.  This lowered the cost basis to $16.52.

On 7/22/11 we recommended selling the August 17 calls for 30 cents which lowered the cost basis to $16.22.

On 9/9/11 we recommended selling the November 17 calls for 65 cents which lowered the cost basis to $15.57.

On 10/4/11 the company paid out a 6 cent quarterly dividend.  This lowered the cost basis to $15.51.

If shares are above $17 by mid-November and we are called away, the trade makes 9%.


Spreadtrum Communications (SPRD, $21.61, up $0.36)

November 25 call (SPRD111119C00025000, $0.80, up $0.05)

Entry Price:  $23.45 (2/7/11)

Lowered Price from Selling Options (and dividends): $20.38

Exit Target: $30

Return: 6%

Stop Target: None

Action:  Shares started the week just below $19 (black line, orange circles) and surged 15% for the week.  We are looking for a breakout above $22 (green line, blue circles) which represents “blue-sky territory” and may add these calls to our Daily newsletter as well.

Shares opened at $23.43 on 2/7/11 and the March calls could have been sold for 95 cents.  This lowered the cost basis to $22.48.

On 4/11/11 we recommended selling the May 22.50 call option for $1.00 which lowered the cost basis to $21.48.

On 7/7/11 the company paid out a 5 cent quarterly dividend.  This lowered the cost basis to $21.43.

On 9/15/11 we recommended selling the November 25 call option for $1 which lowered the cost basis to $20.43.  If we are called away, the trade makes 22%.

On 10/6/11 the company paid out a 5 cent quarterly dividend.  This lowered the cost basis to $20.38.


DryShips (DRYS, $2.74. up $0.15)

January 2012 7.50 call (DRYS120121C00007500, $0.05, flat)

Entry Price:  $5.25 (1/03/11)

Lowered Price from Selling Options: $4.60

Exit Target: $8

Return: -51%

Stop Target: None

Action:  DryShips added 50 cents for the week and will try for another run at resistance which is at $3 (blue line, black circles).  Support is at $2 (orange line, green circles).


DryShips opened at $5.37 on 1/3/11 and shares were at $5.25 shortly after the bell.  The January call options could have been sold for 65 cents which lowered the cost basis to $4.60.

If shares are over $7.50 by January 2012, the stock will be “called away” and the trade will make over 60%.

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6.  Week Ahead

The economic calendar kicks off Monday with the Empire State Manufacturing Index for October before the bell, along with September’s Industrial Production and Capacity Utilization numbers also before the open.

On Tuesday, the Producer Price Index (PPI) and Core PPI results for September will be released an hour before trading starts.  The NAHB Housing Market Index is due out at 10am (EST).  Additionally, Fed Reserve Chairman Ben Bernanke is scheduled to speak at a conference in Boston.

Wednesday starts off with the MBA Mortgage Index at 7am (EST) followed by the Consumer Price Index (CPI) and Core CPI reports for September which will be released an hour before the bell.  Housing Starts and Building Permits for September are also due out along with the CPI updates.  The weekly crude inventories will hit the Street at 10:30am, and the Fed’s Beige Book report for October is due out later in the day.

For Thursday, Initial Claims and Continuing Claims highlight the job market data.  The flood comes 30 minutes after the opening bell as Existing Home Sales for September, the October Philadelphia Fed index, and the Conference Board’s index of Leading Indicators, all hit the Street.

There are no major economic reports scheduled for Friday.