June 2012 | Members

Do not risk more than 5% of your trading account on any one trade but do try to take ALL of the trades.  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.

2:15pm (EST)

We always say plan your trades and trade your plan. 

Arena Pharmaceuticals (ARNA, $11.87, up $3.02) has opened for trading and we are seeing strong gains on our options.  We recommended the July 3 calls (ARNA120723C00003000, $9.00, up $3.00) at $1 back in late April and after locking-in profits along the way, we are ringing the register on a trade that is up 464%.

We said shares should open near $12 but they have traded up to $13.50 so our targets have been hit.

 

CURRENT TRADES

Arena Pharmaceuticals (ARNA, $11.87, up $3.02)  

July 3 calls (ARNA120723C00003000, $9.00, up $3.00)

Entry Price:  $1.00 (4/30/12)
Exit Target:  $2+ (closed half on 6/5/12 at $3.40, closed a quarter at $6.75)
Return:  464%
Stop Target:  $2 (Hard Stop on remaining quarter position)

Action:  Close the rest of the trade at current levels.

 

NEW TRADE!!!

PowerShares QQQ (QQQ, $62.86, up $0.34)

Buy to OPEN August 59 puts (QQQ120818P00059000, $0.75, down $0.10)

Action:  Use limit orders up to 80-85 cents but do not pay more than 90 cents to establish positions.

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1:00pm (EST)

AOL (AOL, $27.37, up $0.12)

August 24 puts (AOL120818P00024000, $0.60, flat)

Entry Price:  $0.53 (6/26/12)
Exit Target:  $1.00
Return:  13%
Stop Target:  None

Action:  AOL will announce what it plans to do with the $1 billion it made off the sale of its patents this week which could be good or bad depending on how Wall Street reacts.  There are reports AOL will do a share repurchase program, not a dividend, which would be bad news for shareholders which could cause them to dump the stock.  AOL’s top brass believes the best way to invest the money they made off Microsoft is to do a share buyback plan.

 

We are looking for a test to $26 over the near-term and then $24 if the long-term uptrend is busted.   

 

Consumer Discret Select Spider (XLY, $43.20, up $0.03)

August 41 puts (XLY120818P00041000, $0.60, flat)

Entry Price:  $0.80 (6/25/12)
Exit Target:  $1.60
Return:  -25%
Stop Target:  None

Action:  There is risk to $45 but we are expecting a test to $40 over the next week or two; mid-$30’s by August.   

 

Coinstar (CSTR, $66.73, up $1.20)   

July 60 puts (CSTR120721P00060000, $0.60, down $0.15)

Entry Price:  $0.90 (6/25/12)
Exit Target:  $1.80
Return:  -33%
Stop Target:  40 cents

Action:  There is risk up to $68 but we are looking for a drop below $60 by next week.  

 

iShares Dow Jones US Real Estate (IYR, $61.85, up $0.24)

August 57 puts (IYR120818P00057000, $0.65, down $0.05)

Entry Price:  $0.85 (6/25/12)
Exit Target:  $1.70
Return:  -24%
Stop Target:  40 cents

Action:  We would like to see a close below $60 this week.

 

KLA-Tencor (KLAC, $48.00, up $0.54)

August 43 puts (KLAC120818P00043000, $0.90, down $0.10)

Entry Price:  $0.90 (6/25/12)
Exit Target:  $1.80
Return:  0%
Stop Target:  45 cents

Action:  There is risk up to $50 but we have a $40 price target by mid-August. 

 

Freeport-McMoRan Copper & Gold (FCX, $32.18, up $0.57)

August 31 puts (FCX120818P00031000, $1.40, down $0.25)

Entry Price:  $1.05 (6/20/12)
Exit Target:  $2.10 (closed at $1.50 on 6/27/12)
Return:  43%
Stop Target:  $1.50 (Hard Stop)

Action:  Our Hard Stop of $1.50 has been triggered as shares are testing resistance.  The trade made 43% in a week and we would love to see shares push $34 which is where we would go short again.

 

PowerShares QQQ (QQQ, $63.02, up $0.50)

August 60 puts (QQQ120818P00060000, $0.95, down $0.15)

Entry Price:  $0.75 (6/20/12)
Exit Target:  $1.50 (closed at $1 on 6/27/12)
Return:  33%
Stop Target:  $1.00 (HARD STOP)

Action:  The choppiness this week has whipsawed us out of this trade but we will be back to play the next leg lower.

 

Illinois Tool Works (ITW, $51.74, up $0.21)

July 50 puts (ITW120721P00050000, $0.70, down $0.05)

Entry Price:  $1.05 (6/4/12)
Exit Target:  $2.10
Return:  -33%
Stop Target:  None

Action:  Continue to hold.

 

Apollo Group (APOL, $35.76, down $0.05)

August 27 puts (APOL120818P00027000, $0.30, flat)

Entry Price:  $0.90 (5/10/12)
Exit Target:  $1.80
Return:  -67%
Stop Target:  45 cents

Action:  The Department of Education (DOE) said it will conduct a review on Apollo’s verification process for federal student financial aid programs.  The probe will start July 16 and they have already informed the “verification codes” from 2010-2011 are misreported.  We are still disappointed with yesterday’s unaudited earnings results and eventually their books and practices will be exposed.  These options have 51 daus before they expire so let’s watch the news play out.       

 

Arena Pharmaceuticals (ARNA, $8.76, down $0.09)  

July 3 calls (ARNA120723C00003000, $6.00, flat)

Entry Price:  $1.00 (4/30/12)
Exit Target:  $2+ (closed half on 6/5/12 at $3.40, closed a quarter at $6.75)
Return:  389%
Stop Target:  $2 (Hard Stop on remaining quarter position)

Action:  We will still try to send out a Trade Alert once shares reopen for trading.

On our 20 contract trade, we sold half at $3.40 and a quarter at $6.75 which netted $3,400 (10 contracts x $3.40) and $3,375 (5 contracts x $6.75).  The remaining 5 contracts are valued at $6.00, or $3,000.  The total cost of the trade was $2,000 and the value is now at $9,925.  If shares fall to $5 these options would still be worth $2 so our gain would be 339%.  If the stock moves past $13, the calls would be worth $10, or $5,000, and we would show a profit or 489%.  We can live with either outcome.   

 

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)

Facebook July 24 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.

We will update this section in the morning.

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9:00am (EST) continued…

The Dow added 32 points, or 0.3%, to end at 12,534.  The blue-chips tested a low of 12,452 before reaching a peak of 12,576.  The Dow came close to cracking 12,600 but fell short with support still sticking at 12,400-12,350.    

The S&P 500 bounced a half-dozen points, or 0.5%, to settle at 1,319.99.  The index traded down to 1,310.30 shortly after the open but was able to recover and pushed 1,324.24 intraday.  We went decimals today because a break below 1,310 will lead to 1,300-1,290.  We knew the move above 1,315 would lead to a test of 1,325 but as you can see, this level was not cleared.  Watch these same numbers today. 

The Nasdaq popped 18 points, or 0.6%, to finish at 2,354.  Tech touched a low of 2,832 but was able to reclaim the 2,850 level after peaking at 2,862.  A move above 2,875 would be bullish while a break below 2,825 gets 2,800 in play.

The Russell 2000 closed at 765, up 3 points, while the S&P Volatility Index ($VIX, 19.72, down 0.66) closed below 20 but stayed in a tight range.

Futures are showing a slightly red open and look like this:  Dow (-8); S&P 500 (+0.10), Nasdaq (-1). 

 

Do not risk more than 5% of your trading account on any one trade but do try to take ALL of the trades.  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.

Special Note:  We have an array of July and August puts so we wanted to go over what we would like to see by the end of the week or by mid next week.  We have outlined key support and resistance levels and we would like to see support cracked by next Tuesday.  From this time last year to mid-July, the market stayed in a trading range before folding like a cheap lawn chair in August.  The Dow fell from 12,724 on July 21, 2011 to close at 10,719 by August 10, or 3 weeks.  Folks, this is a 2,000 point drop.

We will need the kind of velocity for some of our July puts to come back.  The same problems from last year are present this year and U.S. economic growth is coming to a stretching halt which is why we have been updating the regional reports this week.  The difference is we are at lower levels and we are hoping the selloff starts on a shady EU summit meeting, a jump in initial claims to 400,000, more earnings warnings, and the Obamacare bill which will be announced on Thursday.   

While some of our current trades are showing nice gains, please keep in mind that while some are down, we are continuing to take profits and we haven’t closed any losing trades.  Since late February, we have closed 53 trades for the Daily with 6 losers.  We have closed 11 winning trades for the Weekly Wrap over the same time frame which gets us to 64-6. 

Some of those 53 winning trades were down over 60%-80% before coming back but try not to get hung up on percentages until the trade closes.  A 50 cent option that falls to 25 cents is a 50% loss while an option that moves from $1.00 to $1.25 is “only” a 25% gain.  The real difference and what you should focus on is that the 25% gain offsets the 50% loss if equal number of contracts were traded.  Trades that make 400%, 600% or 2,500% will offset “100%” losers.  We have one current trade pushing 400%. 

Don’t get nervous and don’t give up on positions while the market chops around.  The chart work we do tries to predict a stock or the market to be at certain levels by a certain date and we spend countless hours studying all of this.

The bottom line is we are expecting the selloff to come a month earlier, or at least half of it would, and we should get some great clues by the close of Friday or by early next week on which side has the momentum.

 

AOL (AOL, $27.25, up $0.10)

August 24 puts (AOL120818P00024000, $0.60, up $0.05)

Entry Price:  $0.53 (6/26/12)
Exit Target:  $1.00
Return:  13%
Stop Target:  None

Action:  AOL will announce what it plans to do with the $1 billion it made off the sale of its patents this week which could be good or bad depending on how Wall Street reacts.  There are reports AOL will do a share repurchase program, not a dividend, which would be bad news for shareholders which could cause them to dump the stock.  AOL’s top brass believes the best way to invest the money they made off Microsoft is to do a share buyback plan.

Yesterday’s chart was posted a little late after our update, so please take a look at if you haven’t already.  We are looking for a test to $26 over the near-term and then $24 if the long-term uptrend is busted.   

 

Consumer Discret Select Spider (XLY, $43.17, up $0.53)

August 41 puts (XLY120818P00041000, $0.60, down $0.20)

Entry Price:  $0.80 (6/25/12)
Exit Target:  $1.60
Return:  -25%
Stop Target:  None

Action:  There is risk to $45 but we are expecting a test to $40 over the next week or two; mid-$30’s by August.   

 

Coinstar (CSTR, $65.53, up $0.14)   

July 60 puts (CSTR120721P00060000, $0.75, down $0.15)

Entry Price:  $0.90 (6/25/12)
Exit Target:  $1.80
Return:  -17%
Stop Target:  40 cents

Action:  Shares traded to a low of $63.51 and we wanted to see a close below $63.50 yesterday.   Coinstar rebounded to finish slightly higher but the technical damage that was done should get us below $60 over the next week or two.  

 

iShares Dow Jones US Real Estate (IYR, $61.61, up $0.27)

August 57 puts (IYR120818P00057000, $0.70, down $0.10)

Entry Price:  $0.85 (6/25/12)
Exit Target:  $1.70
Return:  -18%
Stop Target:  40 cents

Action:  We would like to see a close below $60 this week.

 

KLA-Tencor (KLAC, $47.46, up $0.40)

August 43 puts (KLAC120818P00043000, $1.00, down $0.10)

Entry Price:  $0.90 (6/25/12)
Exit Target:  $1.80
Return:  6%
Stop Target:  45 cents

Action:  There is risk up to $50 but we have a $40 price target by mid-August. 

 

Freeport-McMoRan Copper & Gold (FCX, $31.61, up $0.01)

August 31 puts (FCX120818P00031000, $1.65, down $0.05)

Entry Price:  $1.05 (6/20/12)
Exit Target:  $2.10
Return:  57%
Stop Target:  $1.50 (Hard Stop)

Action:  The puts traded down to $1.54 on Tuesday so our stop is still holding up.  We are looking for a drop below $30 to $28 or worse by mid-August but we will close the position if the options dip below $1.50.

 

PowerShares QQQ (QQQ, $62.52, up $0.39)

August 60 puts (QQQ120818P00060000, $1.10, down $0.15)

Entry Price:  $0.75 (6/20/12)
Exit Target:  $1.50
Return:  47%
Stop Target:  $1.00 (HARD STOP)

Action:  The puts traded to a low of $1.04 as the Q’s traded to a high of $62.70 yesterday.  Our mid-August target is for a test to $58 but we will close half of the trade once the puts hit $1.50.  We will close the trade if our stop of $1 is triggered.

 

Illinois Tool Works (ITW, $51.89, down $0.37)

July 50 puts (ITW120721P00050000, $0.75, up $0.05)

Entry Price:  $1.05 (6/4/12)
Exit Target:  $2.10
Return:  -29%
Stop Target:  None

Action:  Shares fell to a low of $51.40 and we wanted to see a close below $51.50.  Maybe today.

 

Apollo Group (APOL, $35.81, up $3.34)

August 27 puts (APOL120818P00027000, $0.30, down $0.60)

Entry Price:  $0.90 (5/10/12)
Exit Target:  $1.80
Return:  -67%
Stop Target:  45 cents

Action:  We still have until mid-August for Apollo to crumble and there will be some headline news in July that will impact the “Education” stocks.  We would like to see a move back below $35 by week’s end.      

 

Arena Pharmaceuticals (ARNA, $8.85, down $0.34)  

July 3 calls (ARNA120723C00003000, $6.00, down $0.30)

Entry Price:  $1.00 (4/30/12)
Exit Target:  $2+ (closed half on 6/5/12 at $3.40, closed a quarter at $6.75)
Return:  389%
Stop Target:  $2 (Hard Stop on remaining quarter position)

Action:  Arena shares will be halted today and we will send a News Flash once we get the news on its obesity drug, Lorcaserin.

On our 20 contract trade, we sold half at $3.40 and a quarter at $6.75 which netted $3,400 (10 contracts x $3.40) and $3,375 (5 contracts x $6.75).  The remaining 5 contracts are valued at $6.00, or $3,000.  The total cost of the trade was $2,000 and the value is now at $9,925.  If shares fall to $5 these options would still be worth $2 so our gain would be 339%.  If the stock moves past $13, the calls would be worth $10, or $5,000, and we would show a profit or 489%.  We can live with either outcome.   

 

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)

Facebook July 24 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.

 

Netflix (NFLX, $66.80, down $0.23)

August 50 puts (NFLX120818P00050000, $1.20, up $0.10)

July 60 puts (NFLX120721P00060000, $1.05, flat)

Thoughts:  If shares fall below $65 a quick test to $50 could be in the cards.  We like the puts we have listed but the premiums are a little juiced which could keep us on the sidelines.

 

iShares Dow Jones Transportation Average (IYT, $89.68, up $0.31)

August 83 puts (IYT120818P00083000, $1.40, down $0.10)

July 86 puts (IYT120721P00086000, $1.05, down $0.15)

Thoughts:  Resistance has held up well at $95 and a drop below $90 would be bearish. 

 

Schlumberger (SLB, $59.67, down $0.39)  

August 55 puts (SLB120818P00055000, $1.60, up $0.10)

Thoughts:  We missed some great entry points last week and we are expecting a move below $60 this week.