9:00 a.m. (EST)

The first-quarter report card was decent for the bulls as the 3 of the 4 major averages finished higher.  March was a volatile month with an extended trading range but the bulls did enough last Monday to get an overall passing grade.

The Dow gained 136 points, or 0.9%, for the first 3 months of the year while the S&P 500 added 13 points, or 0.7%.  The Nasdaq dropped 109 points, or 2.2% and the Russell 2000 fell 10 points, or 0.9%.

We mentioned April is usually the bullish of the 6-month bull cycle and we talked about a “sweet spot” developing ahead of 1Q earnings.

That sweet spot may have lasted for 4 days and with Friday’s intraday all-time highs on the Dow and S&P 500 ended a day ahead of the earnings parade.

We mentioned last week Alcoa (AA, 12.63, down $0.11) would once again “unofficially” kickoff 1Q earnings season with their numbers on Tuesday.  The company is expected to earn 5 cents a share with revenue north of $5.5 billion.  This is the “average” of the 18 analysts covering the stock with a low estimate of a break even quarter, and a high estimate of Alcoa earnings 8 cents a share.

Shares jumped 3% to start the week and pushed $13 after reaching a peak of $12.97.  The bulls cleared this level on Tuesday’s trip to $13.18 before one analyst knocked the stock back on Wednesday with a downgrade.

Companies took the opportunity to lower their 1Q numbers during January and 4Q conference calls and will use the polar vortex excuse if their numbers come in even worse-than-expected.

There were no “high profile” negative earnings surprises or lowered guidance during the last few weeks of March and this was a good sign.  The first week of April is usually a quiet period.  However, the number of negative outlooks versus positive three months ago were 7:1 for companies when they reported their 4Q numbers and 1Q outlook.

Coming into the year, some 1Q earnings growth estimates were pushing 8%.  Profits are now expected to come in just 2% higher.  In other words, the bar is so low a snake could slitter over it.  This could be good or bad.

If companies weathered the storm, then earnings could come in ahead of expectations.  For those that miss lowered expectations, they will naturally blame the weather but it could also signal a troubling sign that growth for some companies is stagnant.

With the Dow setting fresh all-time highs last week but failing to hold resistance, we wanted to talk about the top 3 stocks that make up the blue-chips.

We often mention Goldman Sachs Group (GS, $163.24, down $2.85), International Business Machines (IBM, $191.77, down $0.92) and Visa (V, $207.70, down $7.31) from time-to-time.  These stocks are the 3 biggest movers on the Dow as the index is price weighted.

Visa’s 3.4% drop on Friday accounted for negative 47 Dow points.  There is risk to $195 on continued weakness.

 

Goldman Sachs fell 1.7% and added 18 points to the red.  A close below $160 would be bearish for Golden Slacks.

 

IBM shares had a slight single-digit impact in the DOW and held up well during Friday’s pullback.  Some of the “strength” may have been attributed to rumors IBM might be interested in acquiring Rackspace Hosting (RAX, $32.47, up $0.78).  IBM is still in an uptrend channel but a break below $190 would be bearish.

Side Note:  We recently covered Rackspace in our Weekly Wrap and have often mentioned them as a takeover candidate.  We checked the option chains to see how valid these rumors might become and traders are betting on an acquisition by June.

The Rackspace June 36 calls (RAX140621C00036000, $1.65, up $0.40) gained 32% on Friday after closing at $1.25 on Thursday.  They traded to a high of $2.10 on volume over 3,000 contracts.

If IBM, Visa and Goldman Sachs can hold up then the Dow should be okay.  However, if there is further weakness, these stocks will lead the blue-chips, and perhaps, the overall market lower.

The mid-December low on the Dow was 15,703 and we mentioned in January if this level triggered during the first quarter it would be a bad omen.  The bears attacked this level late in the month and on the last day of January the Dow closed at 15,618.  The index bottomed at 15,340 after testing 15,356 on back-to-back days.  The math at current levels would mean a 1,000 point drop on the Dow if these levels were tested again.  This would be a real possibility if the bears get below 16,200 and maybe when we would get really aggressive buying index put options.

The “December Low Indicator” can be a hit or miss technical tool because history may or may not repeat itself.  We often say if history doesn’t repeat, it can still rhythm and we have seen a lot of historical trends repeating itself during this incredible bull market run.

If history hiccups, the Dow could be setting up for a 10% drop.  At current levels, this would put the blue-chips at 14,800.  Now.  This might sound scary to a lot of investors that do NOT know how to play a down market but we are here to show you how.

This is why we discredit the talking heads because when the market is in free fall, they should be telling their viewers to BUY put options instead of pushing the panic buttons.

For instance, we will be listing the Dow Jones Industrial Average Spiders (DIA, $163.88, down $1.46) in our Daily as a way to play further weakness or a break below 16,200.

The April put options can be used but we don’t like trading options with under three weeks before they expire.  Instead, we can look into May and June put options to give the trade more time to play gains.  While the April option do provide more bang for the buck, the M/J’s buy us more time.

With a price target of Dow 15,000 possible, the Dow Spiders would mirror the Dow’s fall and would be trading near $150.  The May 157 puts (DIA140517P00157000, $1.00, up $0.18) would be a GREAT way to play a violent move.

We consider this a “cheap” trade as the options are only a buck and here is the good news.  If the Dow Spiders do test $150 by mid-May, these options would be worth $7 for a massive 600% return!

For every $100 invested (1 contract) in the aforementioned put options, it would be worth $700 if this price target is achieved.  A $1,000 investment could be worth $7,000.

So, if you feel the market is going to tank, then this is your money trade.  We will likely take this trade for our Daily on a drop below Dow 16,200.  (If you do this trade and it pays off, we expect everyone to upgrade to a 1-year membership with a happy smile)

The beauty of this trade is that the breakeven point is just $156 on the Dow Spiders and the trade can be managed with a tight stop and closed if the Dow trips 16,600 or the Spiders trade past $166.

It is also important to note that after the Dow bottomed at 15,340 on February 4, the blue-chips gained nearly 1,000 points in the 9 trading sessions following.

In other words, while the bulls are hoping for the best, the bears are preparing for the worst with a possible 1,000 point swing in the Dow by month end.

The previous Monday/ Friday closes were a big plus but with the pullback from this past Friday, Monday will again be an important day for the bulls.

The Dow and S&P 500 pushed our fluff targets right into the end of the week but the weakness in the Nasdaq and Russell 2000 may have already signaled a short-term top if they don’t rebound quickly.

Trading ranges can be difficult to navigate but if the bulls hold support to start the week there could be another run to fresh highs.  If the Dow and S&P 500 start taking the hits their sister indexes have taken, a trend change could also be on the horizon.

For those of you that are new with us.  Remember, we are never bullish or bearish at heart, we play the trend.  If the market is trending higher we stick with call options.  On pullbacks, selloffs, or corrections, we have no problem riding the bears’ backs with put options.  (from 4/6/2014 Weekly Wrap…)

The bulls came into the week on the brink as the pullback from the previous Friday continued into Monday.  With economic news light and 1Q earnings starting the following day, Wall Street wanted no part of the dip buying as a number of slick talking pros said THIS would be the selloff the market has needed to see.

We talked about the wiggle room the bulls had coming into the week and although support was “stretched” into Tuesday, we mentioned there were bullish signs developing as the bulls cut their losses into the close.

The suit-and-ties called the rebound a “dead cat” bounce and were still cautious ahead of the Fed’s meeting minutes on Wednesday but they were wrong.  The market rallied on the Fed minutes to clear resistance that served as prior support.

Thursday’s session started flat despite a fantastic jobless claims number and we figured there would be a back test to support – but it got ugly.  There bears pushed Tuesday’s lows and then some leading to Friday’s climatic rush to safety.  We mentioned the bulls were on the brink and the bears threw in the kitchen sink as the indexes closed at key support levels.

This week promises to be just as exciting as the bulls will try to counter with what’s left in their arsenal heading into the heart of 1Q earnings season.

The Dow dropped 143 points, or 0.9%, to close at 16,026 on Friday.  The Dow fell 167 points to close at 16,245 on Monday.  The blue-chips traded up to 16,421 on the open but ended at session lows while holding support.  Tuesday’s dip to 16,180 was textbook as the bears cracked 16,200 but the pullback was bought as the index reached a peak of 16,296 and held 16,250 into the close.  We said it wasn’t the best finish by the bulls as they faced further resistance at 16,350 but Wednesday’s run to 16,438 was impressive.  This kept 16,500-16,600 in play but Thursday’s opening run to 16,456 was in trouble from the start as the Dow gave back 303 points to test a low of 16,153 before ending at 16,170.  Friday’s low was 16,015 and while the bulls held support, there is further risk to 15,800-15,600.  A close back above 16,200 to start the week would be bullish.  For the week, the Dow declined 386 points, or 2.4%, after starting at 16,412 and is down 550 points, or 3.3%, for 2014.

 

The S&P 500 declined 17 points, or 1%, to settle at 1,815 ahead of the weekend.  The Index traded down to 1,841 ahead of Monday’s close and ended the session at 1,845 and back below 1,850.  Tuesday’s low reached 1,837 before the index bounced back to test 1,855.  We mentioned the close back above 1,850 was slightly bullish but further resistance at 1,875 remained.  Wednesday’s run to 1,872 was a good signal further weakness could come as the bulls failed at resistance and Thursday’s point pop to 1,872.53 was quickly greeted by a punch in the gut to 1,830.  The close at 1,833 was a lower low than Tuesday’s bottom and we mentioned a break below 1,825 could lead to 1,810-1,800.  Friday’s low reached 1,814 and a break below these level will likely lead to 1,775.  The S&P 500 came into the week at 1,865 and gave back 50 points, or 2.7%, by Friday’s close.  For the year, the index has now turned negative by 33 points, or 1.8%.

 

The Nasdaq was crushed for 54 points, or 1.3%, to finish at 3.999.73 on Friday.  Tech tanked 48 points to end at 4,079 to start the week and Monday’s low of 4,052 held 4,050 but suggested a test to 4,000 could come.  Tuesday’s low reached 4,066 before a rebound to 4,120 and close back above 4,100 to 4,112.  We mentioned a pop past 4,125-4,150 could lead to another test to 4,200 and Wednesday’s surge reached 4,185 with a close 2 points off the high.  However, we had a feeling when 4,200 didn’t clear there would be a back test and Thursday’s low reached 4,042 with a close at 4,054.  Friday’s bottom reached 3,991 that opened the door for a test to 3,900-3,850.  The Nasdaq was at 4,127 coming into the week and fell 128 points, or 3.1%.  Tech is down 177 points, or 4.2% year-to-date.

 

The Russell 2000 stumbled 16 points, or 1.4%, to end at 1,111 on Friday.  The small-caps opened right at 1,150 on Monday before the bears pushed a low of 1,130.  Tuesday’s test to 1,131 was as far as the bears got before the bulls rebounded to push 1,149 and resistance at 1,150.  We said if the bulls couldn’t clear and hold this level and then 1,160 there could be further weakness to 1,125-1,100.  Wednesday’s run to 1,160.42 was the perfect tease with the close at 1,159.96 before Thursday’s plunge back below 1,150 to 1,127.  The low of 1,123.68 suggested further weakness and Friday’s low checked-in at 1,107.  We mentioned there could be a violent push to 1,100-1,075 if 1,120 cracked and the bears came close to getting into this zone.  If support holds at 1,100 and the bulls can reclaim 1,125, it would be a bullish sign to start the week.  The Russell came into Monday’s open at 1,153 and was down 42 points, or 3.6% for the week.  YTD, the small-caps have declined 52 points, or 4.5%.

 

The S&P 500 Volatility Index ($VIX, 17.03, up 1.14) came into the week at 13.96 and closed above 15 at 15.57 after kissing 16.01 on Monday.  We mentioned a test to 16.50-17.50 could come on further market weakness and Tuesday’s high checked in at 16.20 before the VIX closed at 14.89.  The drop back below 15 was bullish and Wednesday’s low reached 13.70 with a close at 13.82.  The bulls needed to get below 13.50 to keep the momentum but Thursday’s flat open and slight dip to 13.81 wasn’t enough before the onslaught by the bears to 16.38 and close at 15.89.  Friday’s peak reached 17.85 before the finish just below 17.50.  Our “flinch” target to start looking at fresh short positions was 17.50-18.50 and Friday’s high reached 17.85.  The chart is showing a test to 20-22 on a move above resistance and from there it would get ugly.  If the bulls can get the VIX back below 15 by Monday or Tuesday’s close, the rest of the month could be bullish.  The start of 1Q earnings season was expected to be a non-event with only a handful of major companies reporting.  With economic news light, Wall Street was worried there could be continued selling pressure coming into the week.  There was but we were prepared for it.

 

The three Dow stocks we said to watch offered great clues but a mixed picture as far as giving us direction for this week.

Goldman Sachs Group (GS, $152.72, down $3.26) fell $10.52 for the week and for those of you that shorted the May 155 puts (GS140517P00155000, $5.50, up $1.50), congratulations, you made a mint as they opened at $1.72 on Monday and were up over 200%.  We we quoted last week as saying “a close below $160 would be bearish for Golden Slacks.”

Visa (V, $196.63, down $4.92) fell over $11 and last week’s chart work showed a back test to $195 could be coming.  Friday’s low checked-in at $194.84 and its hard to call it much better than that, folks.  Even better.  The May 190 puts (V140517P00190000, $4.50, up $1.55) opened at $1.95 on Monday and easily doubled by Friday’s close.

We listed both aforementioned put options on Goldman and Visa without call options in our Daily and these two trades were monsters.  For International Business Machines (IBM, $195.19, down $0.49) we listed call and put options as the chart was bullish and showed shares in a nice uptrend.  However, we felt a weak Dow would weigh on the stock.

The May 200 calls (IBM140517C00200000, $2.80, down $0.20) opened Monday at $2.05 after closing the previous Friday at $1.85.

The May 185 puts (IBM140517P00185000, $2.00, up $0.10) opened at $2.69 on Monday.

At current levels the trade would be slightly up if these options would have been purchased at the start of the week.  The real clue will be if shares can clear and hold $200 when IBM announce earnings this week or tumble below $190.  Last Thursday’s high was $199.21.

The Financial stocks have been stuck in the mud and we talked about JPMorgan’s (JPM, $55.30, down $0.10) and Wells Fargo’s (WFC, $48.08, up $0.37) results on Friday.  The zombies’ regulations have limited the banks’ ability to take on added risk but the problem is they are still not lending money because they want to get higher rates on the loans they do give out.  Additionally, credit scores and collateral are making it harder to get a loan (aside from an auto loan) as the banks hoard cash.

The Financial stocks needed to show strength on the run to resistance last week but instead are showing weakness.  The Financial Select Spiders (XLF, $21.28, down $0.26) stalled at $22.50 again and formed a “triple-top” in the process.  The chart shows three failed attempts at resistance ($22.50) and Friday’s close below $21.50 was bearish.  The XLF could test $20 on further weakness.

 

 

The Monday/ Friday closes have been streaking over the past 3 weeks as the bears have won the past 3 to start April following the bulls back-to-back wins to hold support at the end of March.

The bulls needed to win this past Friday’s session so this Monday will be crucial.  A higher Monday will likely keep the current trading range in play while a lower close would give the bears 4-straight M/F wins and would be a solid clue lower lows are coming.

Important Note:  The market will be closed this Good Friday.  Technically, the April options expire on the 19th but Thursday will be the last day to trade them.  Brokerage houses exercise the in-the-money options on Saturday to square the books.

We mentioned last week April is the best month for the Dow during the historical bull runs from November through April.  There will be a flood of earnings due out from the big boys that will certainly move the market needle as some of these stocks are heavily-weighted in the major indexes.

There are nearly a dozen companies we are looking at for possible earnings trades and while we certainly won’t take all of the trades listed in our Earnings section and Watch List, we could take one or two trades.  Specifically, we are watching Citigroup, Intel, Yahoo, PNC Financial Services Group, American Express, Google, IBM, SanDisk, Du Pont, Cypress Semiconductor, Fairchild Semiconductor and General Electric.

The flood of Initial Public Offerings (IPOs) this year and especially last week has also worried the bull haters as they say it adds froth to the market.

Ally Financial (ALLY, $24.20, up $0.22) was the largest IPO last week and perhaps the “greediest” as it still priced in the mid-$20’s.  The smart money was hoping shares would debut in the low $20’s to give back to the taxpayers that funded the company’s bailout back in 2008.

Instead, the zombies and investment bankers priced shares at $25 that was still in their expected range of $25 to $28.  Shares opened Thursday morning at $24.25 and kissed $24.79 before closing its first day of trading just 2 pennies south of $24.

Ally unloaded 95 million shares and was looking to get $2.5 billion from the offering.  The government used over $17 billion to keep the company afloat following the 2008 financial crisis debacle.  Ally, a General Motors (GM, $25.23, down $0.15) spinoff, did over $4 billion in sales last year and is an loan provider.

While we agree there have been some “sketchy” companies coming to the market, some of these IPO’s are worth looking into.  The difference from the dot.com IPO bubble from then and now is the companies going public today have earnings and revenue.

The charts are ugly, make no doubt about it, but there is a good chance the bulls rebound this week.

The Monday before April expiration is usually bullish as the blue-chips have been up 17 of the last 25 years.  This gives the market a 68% chance of finishing higher but over the past decade the Dow has been down 5 of the past 9 so its 50/50 if this factoid is added.

April expiration day is technically this Thursday and the good news here is that the blue-chips have traded higher 14 of the past 17 years with the Nasdaq up 13-straight.

We aren’t ready to give up on the bulls but if they don’t bounce back this week, we could be riding with the bears for a little while.  Remember, we are neither bullish or bearish at heart, we play the trend.  We would hate to see a continued pullback but there is just as much money to be made going short as there is long.

Our Daily portfolio has already started a put option position that is up over 200% and we have a few short candidates for our Weekly Wrap.  Like last week, the bulls have a little wiggle room left but not much.

As we head from desk to press:  Dow futures are down 30 points to 15,941 while the S&P 500 futures are lower by 3 points to 1,808.  The Nasdaq 100 futures are declining 5 points to 3,439.

 

MEMBERS AREA

Closed Trades for 2014: 35-18 – the Weekly Wrap is 12-3 for 2014 (97-10, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk.

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. 

 

Rambus (RMBS, $11.60, up $0.42)

May 12 calls (RMBS140517C00012000, $0.55, up $0.15)

Entry Price:  $0.45 (4/9/2014)

Exit Target:  $1.00

Return:  22%

Stop Target:  None

Action:  Shares traded to a high of $11.75 following our midday update and the 52-week high is at $11.82.  If $12 clears, we are expecting a run to $14-$15.  Support is at $11.  Earnings are due out April 21.

 

Garmin (GRMN, $54.86, down $0.37)

May 62.50 calls (GRMN140517C00062500, $0.40, down $0.05)

Entry Price:  $0.65 (4/9/2014)

Exit Target:  $1.30

Return:  -38%

Stop Target:  None

Action:   We mentioned there was additional risk to $54.  Resistance is at $57 and the 52-week high is at $58.21.

 

Apollo Group (APOL, $27.12, down $0.74)

May 30 puts (APOL140517P00030000, $3.20, up $0.60)

Entry Price:  $0.90 (4/7/2014)

Exit Target:  $3.00, raise to $4.25 (closed quarter @ $2.00 on 4/9/14, closed quarter @ $3.00 on 4/11/14)

Return:  217%

Stop Target:  $2.00, raise to $2.50  (Hard Stop on remaining half position)

Action:  We set limit orders to close another quarter of the trade at $3 that triggered on Friday as $27.50 failed to hold as support.  The next wave of support is at $25 and where we can close another quarter or the rest of the trade.  The low on the options was $2.55 on Friday so we raised the Hard Stop to $2.50 on the remaining half.

 

Kodiak Oil & Gas (KOG, $13.01, up $0.07)

May 13 calls (KOG140517C00013000, $0.75, up $0.10)

Entry Price:  $0.55 (4/3/2014)

Exit Target:  $1.10- (closed half at 70 cents on 4/10/14)

Return:  32%

Stop Target:  50 cents (Hard Stop)

 

June 13 calls (KOG140621C00013000, $1.05, up $0.10)

Entry Price:  $0.70 (2/13/2014)

Exit Target:  $1.40

Return:  50%

Stop Target:  70 cents (Hard Stop)

Action:  We are still pulling for a run to $14-$15 and we got our close above $13 on Friday.  Support is at $12.75-$12.50 and our Hard Stops are set to protect profits and to avoid a loss.  Earnings are due out on May 1.

 

Other 2014 Portfolio OPEN positions (7):  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 2013Portfolio link in the Members Area to view ALL open/ closed trades.

Exact Sciences April 19 calls (from January 2014) – Expire Friday

Sony April 20 calls (from January 2014) – Expire Friday

Zynga April 5.50 calls (from March 2014) – Expire Friday

Finish Line April 30 calls (from March 2014) – Expire Friday 

 

Morgan Stanley May 33 calls (from April 2014) – continue to HOLD

EMC May 29 calls (from March 2014) – continue to HOLD

April 28 calls (from March 2014) – Expire Friday

Ariad Pharmaceuticals May 11 calls (from January 2014) – continue to HOLD

 

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 and why we have 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

 

Coca-Cola (KO, $38.63, down $0.26)

May 39 calls (KO140517C00039000, $0.50, down $0.18)

May 38 puts (KO140517P00038000, $0.40, up $0.08)

Thoughts:  This is an important quarter for Coca-Cola and the options are relatively cheap.  We have listed a strangle option trade and while it would be hard to short the stock, shares could test $36 if they miss estimates.

 

Pep Boys-Manny Moe & Jack (PBY, $11.89, down $0.20)

May 10 puts (PBY140517P00010000, $0.50, flat)

Thoughts:  Shares could be headed to single-digits on another earnings miss.  The company has missed Wall Street’s estimates over the past 4 quarters by 1,2,1 and 9 cents last quarter.  This is a sign of bad management and with the rough winter they will likely kitchen sink their numbers.  Shares usually trade lower after the announcement and we like these put options.  The trade can be entered before Monday’s close and if shares sink below $10 on Tuesday.

 

Intel (INTC, $26.18, down $0.25)

May 27 calls (INTC140517C00027C00027000, $0.34, down $0.12)

May 25 puts (INTC140517P00025000, $0.38, up $0.06)

Thoughts:  This could be a good strangle trade if held for a month.  We believe Intel could beat estimates but what they say going forward will be more important.

 

Yahoo (YHOO, $32.87, down $0.53)

May 35 calls (YHOO140517C00035000, $1.00, down $0.20)

May 30 puts (YHOO140517P00030000, $0.63, up $0.10)

Thoughts:  Analysts have turned bearish on the stock and say its overvalued.  We believe Yahoo could surprise to the upside but we aren’t willing to take a trade on Yahoo without protection as shares could fall below $30 on a miss.

 

PNC Financial Services Group (PNC, $81.14, down $0.59)

April 82.50 calls (PNC140419C00082500, $0.60, down $0.45)

April 80 puts (PNC140419P00080000, $0.70, up $0.10)

Thoughts:  Shares could be north of $84 or south of $76 after earnings are announced.  These are April options so the trade would need to be opened on Tuesday and would need to be closed on Wednesday/ Thursday.

 

American Express (AXP, $84.54, down $0.82)

April 85 calls (AXP140419C00085000, $1.50, down $0.45)

Thoughts:  We have always been bullish on AXP and it would be hard to short a strong stock.  The options are expensive but shares could make a $6 move on earnings.  The April 87.50’s are trading for 50 cents.  These options expire on Friday so it would be an all-or-nothing trade.

 

SanDisk (SNDK, $73.65, down $2.04)

May 67.50 puts (SNDK140517P00067500, $1.15, up $0.30)

Thoughts:  If shares fall below $72.50 ahead of earnings, we could use these put options to go short.

 

United Rentals (URI, $87.41, down $0.76)

May 90 calls (URI140517C00090000, $1.80, down $0.20)

Thoughts:  We ate expecting a 10% move in shares of United Rentals.  We are more bullish than bearish on the stock and we like the chart.

 

Fairchild Semiconductor (FCS, $13.46, down $0.24)

May 14 calls (FCS140517C00014000, $0.40, down $0.05)

Thoughts:  We have traded this name in the past and we are bullish on the stock.  However, there is risk to $13.

 

Rackspace Hosting (RAX, $31.61, down $0.79)

May 36 calls (RAX140517C00036000, $1.00, down $0.25)

June 37.50 calls (RAX140621C00037500, $1.10, down $0.30)

Thoughts:  We mentioned IBM might be interested in acquiring the company.  Shares are near 52-week lows and a break below $30 will likely lead to further weakness.

 

Dow Jones Industrial Average Spiders (DIA, $160.02, down $1.45)

May 165 calls (DIA140517C000165000, $0.65, down $0.30)

May 157 puts (DIA140517P00157000, $1.45, up $0.60)

May 155 puts (DIA140517P00155000, $1.05, up $0.45)

Thoughts:  We could use puts on a drop below Dow 16,000 or use the calls if support holds to play a rebound to 16,400 this week.

 

PowerShares QQQ (QQQ, $84.11, down $0.99)

May 87 calls (QQQ140517C00087000, $0.90, down $0.25)

May 81 puts (QQQ140517P00081000, $1.05, up $0.35)

Thoughts:  We could use the May calls on a move above $85.  We might buy puts on a close below $83.50.  These options together could also make a great strangle option trade.

 

iShares Russell 2000 (IWM, $110.41, down $1.55)

May 115 calls (IWM140517C00115000, $0.95, down $0.45)

May 104 puts (IWM140517P0010400, $1.10, up $0.30)

Thoughts:  If the Russell 2000 closes below 1,100 we will target these put options.  On a close back above 1,125 we could use the call options.

 

Twitter (TWTR, $40.05, down $1.29)

May 47 calls (TWTR140517C00050000, $1.30, down $0.30)

May 35 puts (TWTR140517P00037000, $2.00, up $0.30)

Thoughts:  There is risk to $40.  A close below this level would be bearish that could lead to a free fall into the low $30’s.  A close back above $43 would be bullish.

 

Facebook (FB, $58.53, down $0.63)

May 65 calls (FB140517C00065000 $2.10, down $0.25)

May 50 puts (FB140517P00050000, $1.35, up $0.15)

Thoughts:  support is at $55, resistance at $60.

 

Potash (POT, $33.33, down $0.33)

May 35 calls (POT140517C00035000, 0.40, down $0.15)

June 35 calls (POT140621C00035000, $0.75, down $0.10)

Thoughts:  We like these calls for a possible push towards $35.  Support is at $32.