June 2012 | Members

Please remember, ALL “Exit Targets” and “Stop Targets” are targets.  You should not have any “Hard Stops” entered to close any trades or
“Exit Orders” in your brokerage account unless we list one.  We will send out a “Profit Alert” or “Trade Update” if we want you to close a position OR if a new trade comes out.  Otherwise, follow instructions at all times in the 9am and 1pm updates.  Also, we will usually give you a heads-up if we think we are going to send an email outside of these time frames but it is rare that we do.

3:30pm (EST)  

PowerShares QQQ (QQQ, $63.99, down $0.25)

Buy to OPEN August 60 puts (QQQ120818P00060000, $0.75, flat)

Action:  Use limit orders up to 80 cents to establish positions and only take half positions.  We don’t want to get too aggressive as we are still building short positions and we want to make sure the Fib and 100-day MA’s hold as resistance.

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1:50pm (EST)

Facebook (FB, $31.63, down $0.29)

 July 24 puts (FB120721P00024000, $0.20, down $0.05)

Entry Price:  $0.65 (6/14/12)

Exit Target: $1.05-$1.30

Return:  -69%

Stop Target:  None

Action:  Last update before we wait for a drop below $30.  The high has been $31.93 so resistance at $32 is holding.

 

Veeco Instruments (VECO, $34.30, down $0.07)

July 30 puts (VECO120721P00030000, $0.45, flat)

Entry Price:  $1.00 (6/6/12)

Exit Target: $2.00

Return:  -55%

Stop Target:  50 cents

Action:  We said a move above $34, which has been solid as resistance, would be bullish.  This could also mean resistance is getting stretched (just like the major indexes) so let’s see how this plays out for the rest of the week.  

 

Apollo Group (APOL, $34.18, up $0.09)

August 27 puts (APOL120818P00027000,
$0.50, down $0.05)

Entry Price:  $0.90
(5/10/12)

Exit Target: $1.80

Return:  -44%

Stop Target:  45 cents

Action:  Continue to hold.

 

Arena Pharmaceuticals (ARNA, $10.02, up $0.32)  

 July 3 calls (ARNA120723C00003000, $7.20, up $0.20)

Entry Price:  $1.00 (4/30/12)

Exit Target: $2+ (closed half on 6/5/12 at $3.40)

Return:  430%

Stop Target:  $5.50 (HARD STOP a quarter of the other half)

Action:  We still plan on closing a quarter of the remaining half position ahead of next week’s announcement by Friday.

We have a price target of $10+ if there is no delay with their obesity drug, Lorcaserin,
which could go to market by the end of the year if all goes well.  For those of you just joining us, the company
will meet with the FDA on June 27.

Other 2012 Portfolio OPEN positions (8):  These are trades that are still open in the portfolio but are down over 50%.  They have longer expiration dates and are on “hold but are not worth mentioning until they turn around.  This means we would not open any new positions.  We are still keeping track of the trades and we will record the results, accordingly, when we close them or if the options expire.  Click on
the 2012 Portfolio link in the Members Area to view ALL open/ closed trades.

E*Trade Financial July 12 calls (from March 2012)

Bank of America January 12.50 calls 2013, July 12 calls (from March 2012)

Best Buy July 16 puts (from May 2012)

First Solar July 10 puts (from May 2012)

FedEx July 77.50 puts (from June 2012)

Potash July 35 puts (from June 2012)

iShares Russell 2000 July 70 puts (from June 2012)

Illinois Tool Works July 50 puts (from June 2012)

 

WATCH LIST SECTION

We will update this section with some new ideas but we have some on deck to play a breakout or as we expect, a breakdown over the next 48 hours.

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Special Notice:  Some of you have written us and asked why we haven’t played call options over the past week and have expressed your concerns over the current trades. 

We understand no one likes to lose money but please remember these trades have over 4 weeks before they expire.  The charts we showed you on Monday were meant to help you control your emotions and we talked about last summer’s selloff which hammered the indexes.  Believe it or not, things are playing out the exact same way.

We have traded the market for 20 years and it’s rare we get caught on a trend change which could happen but our plan was to build a few short positions that didn’t expire until July.  We always say plan your trades and trade your plan which is what we are doing.

We also have a few open call positions left over from March which could come back on a trend change and our Arena Pharmaceuticals
trade (up 420%) has covered some of the smaller positions we recently took that are currently down.  Of course, this does not help those of you who have joined us in June but remember our Track Record over 5 years is a 75% win rate and we are 100-21 for 2012.  With that said, we can be wrong on market direction from time to time but we went with July options because we were UNSURE of direction. 

While the current batch of trades are down, we also remind our subscribers to take ALL trades and for those of you have been with us all of 2012 (and longer), you are still having a 700% year.  For those of you who started in June this is no comfort but we expect to produce the same 75% or better win rate that we have proved to accomplish over the years.      

We also have our covered call portfolio which we share with you through our Weekly Wrap and we have a number of positions that are doing well.  For those of you who wish to play options in a “safer” manner then this newsletter is for you.  We are now 36-0 over the last 2 years for the Weekly Wrap after closing our Pandora trade yesterday.  We are now 20-0 for 2012 for the Weekly Wrap.

We have seen option trades lose 70%-90% of their value and come back to hand us a triple-digit profit.  We are still hopeful that some of these trades rally back but it will take patience.  Yes, the market is on the verge of a breakout but until we get there we just don’t trust this rally so we decided to go short until mid-summer.  We may be wrong RIGHT NOW but we have said the market could test the 50-day MA’s.

For you Fib heads, the Fibonacci retracements are a technical indicator used to predict support and resistance levels.  Usually after a selloff or rally, a stock or index will “retrace” a predictable portion of a move, before resuming its prior trend.

The Dow closed at 12,101 on June 4 and here were our thoughts on June 5 in our morning update.

“The Dow fell 17 points, or 0.1%, to finish at 12,101.  The blue-chips traded to a low of 12,035 but held support just above 12K before rebounding to a high of 12,143.  A break above 12,200 would be short-term bullish while a dip below 12,000 would obviously be bearish.” (END)

We could have went with June put options for our current trades because they still had 2 weeks left before expiration.  However, we went with July puts because we expected some kind of bounce but not this much considering we were on the verge of a MAJOR breakdown for the market.  Since the June 4 low, the Dow has rallied 800 points and has retraced roughly 61.8% of the decline from the April highs.  We will try to show you this in the charts on Monday but hopefully it will be too late.

Usually, the 61.8% reading off the lows is super strong resistance but can go to 78.6% or even 100% of the retracement.  If this were to happen the Dow will break 13,000 or 13,300, respectively.  Of course, we are looking for a nasty selloff and 2011 summer market history to repeat itself.

We mentioned the 50-day MA’s have cleared but the 100-day MA’s are 12,862 for the Dow and 1,359 for the S&P 500.  The Nasdaq’s 100-day MA is at 2,951.  The indexes closed below these levels yesterday after testing them.

There are NUMEROUS market moving events that we have been telling you about for a couple of weeks still coming up so bear with us (pun intended).  

 

Facebook (FB, $31.91, up $0.50)

 July 24 puts (FB120721P00024000, $0.25, down $0.05) 

Entry Price:  $0.65 (6/14/12)

Exit Target: $1.05-$1.30

Return:  -62%

Stop Target:  None

Action:  Shares closed below $32 and these options have over 30 days before they expire.  We will still hold this trade open but we are dropping daily coverage of it until shares fall below $30 again.  

 

Veeco Instruments (VECO, $34.37, up $1.11)

July 30 puts (VECO120721P00030000, $0.45, down $0.35)

Entry Price:  $1.00 (6/6/12)

Exit Target: $2.00

Return:  -55%

Stop Target:  50 cents

Action:  We said a move above $34, which has been solid as resistance, would be bullish.  This could also mean resistance is getting stretched (just like the major indexes) so let’ss see how this plays out for the rest of the week.  

 

Apollo Group (APOL, $34.09, up $0.88)

August 27 puts (APOL120818P00027000, $0.55, down $0.05)

Entry Price:  $0.90 (5/10/12)

Exit Target: $1.80

Return:  -39%

Stop Target:  45 cents

Action:  Shares traded up to $34.13 and closed above $34.  There is further risk up to $36 but we still like this trade a lot.

 

Arena Pharmaceuticals (ARNA, $9.70, up $0.32)   

July 3 calls (ARNA120723C00003000, $7.00, up $0.50)

Entry Price:  $1.00 (4/30/12)

Exit Target: $2+ (closed half on 6/5/12 at $3.40)

Return:  420%

Stop Target:  $5.50 (HARD STOP a quarter of the other half)

 

Action:  Arena traded to a high of $10.34 but finished below $10 which was a little disappointing.  We still plan on closing a quarter of the remaining half position ahead of next week’s announcement by Friday. 

We have a price target of $10+ if there is no delay with their obesity drug, Lorcaserin, which could go to market by the end of the year if all goes well.  For those of you just joining us, the company will meet with the FDA on June 27.

 

Other 2012 Portfolio OPEN positions (8):  These are trades that are still open in the portfolio but are down over 50%.  They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around.  This means we would not open any new positions.  We are still keeping track of the trades and we will record the results, accordingly, when we close them or if the options expire.  Click on the 2012 Portfolio link in the Members Area to view ALL open/ closed trades.

 

E*Trade Financial July 12 calls (from March 2012)

Bank of America January 12.50 calls 2013, July 12 calls (from March 2012)

Best Buy July 16 puts (from May 2012)

First Solar July 10 puts (from May 2012)

FedEx July 77.50 puts (from June 2012)

Potash July 35 puts (from June 2012)

iShares Russell 2000 July 70 puts (from June 2012)

Illinois Tool Works July 50 puts (from June 2012) 

 

WATCH LIST SECTION

These trades are NOT recommendations.  They are trades that we like but have not added to the portfolio as an official recommendation because of market conditions or because we are waiting for better entry prices.  We try not to have more than 12-15 open trades at any one time which is why we created a Watch List.  We will not list entry prices because these stocks are on the verge of breaking out or they could sell off but these are the trades we are watching as new candidates.

 Freeport-McMoRan Copper & Gold (FCX, $35.45, up $1.19)

July 33 puts (FCX120721P00033000, $0.70, down $0.40)

August 31 puts (FCX120818P00031000, $0.75, down $0.30)

Thoughts:  A move above $35 would be bullish but we are expecting a test to $30 over the near-term and the mid-$20’s by August.  The 52 week low is $28.85.

 

Coinstar (CSTR, $65.65, up $0.89)   

July 60 puts (CSTR120721P00060000, $1.20, down $0.30)

Thoughts:  Resistance at $65 has held up well but we are looking for a drop below $60 over the next month or 2.

 

KLA-Tencor (KLAC, $49.55, up $0.13)

July 47 puts (KLAC120721P00047000, $0.65, down $0.05)

September 39 puts (KLAC120922P00037000, $0.60, flat)

Thoughts:  We would like to see a quick pop to $50 which is where we might start half positions as we expect a drop to $44 or worse over the next few months.

 

Schlumberger (SLB, $67.15, up $0.61)  

July 60 (SLB120721P00060000, $0.40, down $0.20)

August 55 puts (SLB120818P00055000, $0.50, down $0.20)

Thoughts:  We said shares could test $67 on fluff.  We like the July 60’s if this level holds over the next day or two. 

 

PowerShares QQQ (QQQ, $64.24, up $0.66)

July 62 puts (QQQ120721P00062000, $0.85, down $0.20)

Thoughts:  Watch for
now.