The Dow fell 51 points, or 0.4%, to close at 13,139.  The blue-chips traded to a low of 13,128 and faces risk down to 13,000 if they cannot clear 13,200.

The S&P 500 dropped 3 points, or 0.2%, to settle at 1,426.  The index held 1,425 after kissing a low of 1,424.66 but could slip to 1,400 on further weakness. 

The Nasdaq gave back 9 points, or 0.3%, to finish at 3,012.  Tech held 3,000 after touching a low of 3,008 and trading to a high of 3,016.  It was the second-straight session the index has closed below 3,025 after nailing 3,050 last Thursday.  These two levels will be crucial for the bulls to clear if they want to keep their momentum.

The Russell 2000 was lower by 3 points and went out at 844 while the S&P Volatility Index ($VIX, 17.84, NO CHANGE) was flat after trading to a high of 18.66.  It is pretty rare the VIX closes unchanged but it does happen. 

The VIX closed at 19.55 back in mid-April on a Friday/ Monday after bubbling above 20.  The S&P was at 1,370 in mid-April and traded up to 1,400 over the next 2 trading sessions before staying in a range and dropping in May to a low of 1,266 by early June.  The VIX reached a peak of 27.73 in June once 20 cracked and held in mid-May.   

The Fiscal Cliff deadline is in 6 days but the zombies have 3 days to get a deal done.  We doubt they will work the weekend and New Year’s Eve (next Monday) to get a deal done.    

We have lightened our portfolio after closing 7 winning trades least week and since early November we are 12-4 with 11 open trades as we head down to the wire for 2012.  We will likely keep some of these open going into 2013 but there will be some we close early and by next Monday; win, lose, or draw.  We have recommended over 200 trades this year and we will finish the year with a 70+% success rate for all of options.

We seriously doubt any option trading newsletter has matched our success for DIRECTIONAL option trading and for those of you who have followed us for 5 years, raise your glasses to another successful year, our fifth straight.  Please do us a favor and tell your friends about us and encourage them to use the special discount coupon that is on the website or the one we have emailed you.  Remember, your subscription should be a tax write-off (check with your accountant) so take advantage of the tax laws before the zombies think about changing it. 

Futures are showing a slightly higher open and look like this:  Dow (+26); S&P 500 (+2), Nasdaq 100 (+4).

MEMBERS AREA

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 “New Trade” 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.  Closed Trades for 2012: 158-59, or 73% win rate, including the Weekly Wrap which is 27-0). 

Special Notice:  The next 3 days could be the most volatile of the year and we could easily see huge price swings on our open positions.  We did our best to keep all of our trades below $1 and what we like to refer to as “cheap” options.  However, we still realize these positions can lose money but we like the risk/ reward these trades offer.  Of course, we hope all of them work out and please realize some may get caught depending on what DC does. 

Also, the last trading day of the year is next Monday so some positions might be exited even though they are January options.  We will keep you as informed for each trade so please make sure you read all of our comments carefully over the next few days. 

 

iShares Russell 2000 Index (IWM, $83.78, down $0.41)

January 85 calls (IWM130104C00085000, $0.60, down $0.20)

Entry Price:  $0.70 (12/21/12)
Exit Target:  $1.40
Return:  -14%
Stop Target:  None

Action:  These are WEEKLY options sand we will be closing this trade by Friday or next Monday.  Our breakeven point if we carried over into the New Year would be $85.70 and we will keep the trade open as long as $82 holds.  At $86, we should make nearly 50% on the options. 

 

Cree (CREE, $33.99, up $0.13)  

January 36 calls (CREE130119C00036000, $0.65, flat) 

Entry Price:  $0.65 (12/21/12)
Exit Target:  $1.30
Return:  0%
Stop Target:  None 

Action:  If there is further weakness, we would like to see $33 hold but there is risk down to $32.  We are looking for a close above $36 this week and a run to new highs.

 

Microsoft (MSFT, $27.06, down $0.39) 

January 28 calls (MSFT130119C00028000, $0.30, down $0.10)

Entry Price:  $0.42 (12/20/12)
Exit Target:  $0.85
Return:  -29%
Stop Target:  None

Action:  We were hearing good things about Windows 8 a few weeks ago but a report that PC sales have been weak and the new software is missing expectations.  To top things off, long-time executive, Charles Mundie, is retiring although it isn’t until 2014.  This sent shares down 1.4% on Monday.  Support is at $26.75 but a break below this level could lead to a test of $25.  We would like to see the stock regain $27.50 this week.

 

Nuance Communications (NUAN, $22.21, up $0.08)  

January 24 calls (NUAN130119C00024000, $0.25, flat)

Entry Price:  $0.35 (12/18/12)
Exit Target:  $0.70
Return:  -29%
Stop Target:  None 

Action:  Near-term support is at $22 but there is a chance $20 comes into play on a break below this level.  We have a near-term price of $25 if support holds.  These are “cheap” options we don’t mind holding open.

 

Southern Copper (SCCO, $37.88, up $0.27)

January 40 calls (SCCO130119C00040000, $0.30, flat)

Entry Price:  $0.45 (12/14/12)
Exit Target:  $1.00
Return:  -33%
Stop Target:  None 

Action:  The 52-week high is $39.44 set at the beginning of November and we nearly got our close above $38 to start the week.  We are going to have a tight stop for this trade and may close it if shares fail to hold $37.

  

Taser International (TASR, $8.76, up$0.07)

January 10 calls (TASR130119C00010000, $0.20, down $0.05)

Entry Price:  $0.15 (11/29/12)
Exit Target:  $0.45
Return:  33%
Stop Target:  None

 

March 10 calls (TASR130316C00010000, $0.55, flat)

Entry Price:  $0.30 (11/29/12)
Exit Target:  $0.50
Return:  83%
Stop Target:  None

Action:  The recent 52-week high is $9.26 and shares traded to a high of $8.91 on Monday.  The company continues to see new orders and upgrades come in and we would like to see a close above $9 for a possible push to double-digits over the near-term.

 

Vivus (VVUS, $13.40, down $0.02)

January 15 calls (VVUS130119C00015000, $0.60, down $0.05)

 

Entry Price:  $0.65 (11/21/12)
Exit Target:  $1.30
Return:  -8%
Stop Target:  50 cents

 

Action:  We would like to see Vivus close above $14 this week while holding $12 on any pullback.

 

 

Rosetta Stone (RST, $12.39, down $0.06)

 

January 15 calls (RST130119C00015000, $0.10, down $0.05)

Entry Price:  $0.20 (11/19/12)
Exit Target:  $1.00
Return:  -50%
Stop Target:  None 

Action:  We would like to see a close above $12.75 today.  Support has been strong at $12 and we will stick with the trade as long as $11.75 holds.

 

Other 2012 Portfolio OPEN positions (2):  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.

 

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

Monster Beverage January 35 puts (from November 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.

 

Akamai Technologies (AKAM, $41.39, down $0.37)

January 43 calls (AKAM130119C00043000, $.65, down $0.20)

May 55 calls (AKAM130518C00055000, $0.65, flat)

Thoughts:  We still like the stock to push $45 over the near-term and we believe Akamai will be a takeover target in 2013 which is why we listed the May call options.

 

MGM Resorts International (MGM, $11.69, down $0.12)

January 12.50 calls (MGM130119C00012500, $0.15, down $0.03) 

March 13 calls (MGM130316C00013000, $0.35, down $0.02) 

June 15 calls (MGM130622C00015000, $0.32, down $0.03)

Thoughts:  We are expecting a run past $12 to the upper mid-teens for MGM over the next few months.  Support has been strong at $11 with $10 serving backup.

 

JPMorgan Chase (JPM, $43.92, down $0.08)

January 46 calls (JPM130119C00046000, $0.35, down $0.08)

Thoughts:  The 52-week high is at $46.49 and if shares make a run this level will likely trip with fluff up to $48.  If the Fiscal Cliff is averted, the Financial stocks should continue gathering momentum.  A close below $42 could indicate a trend change.

 

Fossil (FOSL, $92.41, down 0.40) 

January 80 puts (FOSL130119P00080000, $0.65, down $0.10) 

March 65 puts (FOSL130316P00065000, $1.05, flat)

Thoughts:  We are more interested in the March puts because it would give us enough time to plat earnings which are due out in mid-February.  We would like to see shares test $100 before going short.  

  

Caterpillar (CAT, $87.48, down $0.42) 

January 85 puts (CAT130119P00085000, $1.25, flat)

Thoughts:  Shares could be headed for another trip below $85 after a failed test at $91 again.   

 

Taiwan Semiconductor (TSM, $16.93, down $0.02)

January 17.50 calls (TSM130119C00017500, $0.20, flat)

April 17.50 calls (TSM1304C00017500, $0.70, flat) 

Thoughts:  If the bulls can hold support, shares could push $18-$19 by mid-January.  We have played this name with great results in the past and we like it at current levels.

 

Dunkin’ Brands Group (DNKN, $32.90, up $0.07) 

January 32.50 calls (DNKN130119C00032500, $0.95, flat) 

Thoughts:  Near-term support is at $32.50 but there is risk to $31.50.  We still expect shares to make a run past $34.

  

TiVo (TIVO, $12.37, down $0.01)  

January 12.50 calls (TIVO130119C00012500, $0.45, flat)

May 14 calls (TIVO130518C00014000, $0.85, flat) 

Thoughts:  We have mentioned Google could acquire TiVo down the road due to litigation issues and with the company’s new high-speed internet rolling out in Kansas, Google has new technology that everyone will crave.  We see Google eventually moving to cable and TiVo would be a perfect fit.  At this point, the May calls are the safer way to play a buyout.  There is risk down to $11.50 if $12 doesn’t hold but we are looking for new highs if support holds.