Options Hawk

CGNX, COHR, FEIC - I Asked for Sharks with Frikin Lasers Attached to Heads

2011-12-11T18:36:00.000-08:00

3 Awesome Set-Ups with Scientific Instruments, often considered the "Laser Plays"

Cognex (CGNX), FEI Co. (FEIC), and Coherent (COHR).

All 3 with strong growth outlooks, high short floats and fairly cheap valuation.

All 3 charts breaking out, and setting up for a move higher.

http://www.youtube.com/watch?v=Bh7bYNAHXxw

Earnings Snapshot Trades Review

2011-11-18T14:04:00.000-08:00

This weeks Earnings Snapshots sent Sunday night to subscribers:

Earnings Snapshots for the Week

AutoDesk (ADSK) will report earnings Tuesday after the close, and shares have traded down 3 of the last 4 reports, including an 11.7% fall last report. Shares are forming a bullish flag under its 200 day SMA at $36.85. The $7.83B software Co. trades 31.4X trailing earnings, 2.2 PEG, 3.76X sales and 16.3X cash flow, fairly rich for less than 15% EPS growth going forward. UBS reiterated a Buy with a reduced $42 target on 11-2, and BofA cut to Neutral from Buy on 11-9. November IV is bid higher to 65.5% with December at 49.4%, options pricing in around a 7% move on earnings. On 10-27 more than 5,000 April $40 calls were sold to open, likely part of a buy write position, and on 10-7 the November $32/$27 bullish risk reversal traded 5,000X at $0.23, the calls still in Open Interest. ON 10-24 a block of 5,000 April $36 calls was bought at $2.72 to open.

Trade to Consider: Sell the ADSK November 35/32 Strangle at a $1.40 Credit

Result: Shares Closed $33.50 Friday, Keeping the Full $1.40 Credit

Covidien (COV) is set to report earnings Tuesday before the open and shares have gained each of the last 4 reports on results. Covidien shares are setup with an ascending triangle, $48.50 the breakout point and $45 the breakdown point, but longer term in a channel down pattern with $40 the next lower low. Covidien is a $23.5B leader in medical instruments and trades 11.1X earnings, 1.2 PEG, 2.1X sales and 15.66X cash flow, also yielding 1.89%. Credit Agricole started shares a Buy back in early October, but not much Analyst action recently. Becton Dickinson (BDX) shares were recently hit hard on earnings, a close peer. November IV at 41.7% compares to December at 34.44%. Back on 10-26 there was unusual put action in April $45 puts bought 2,900X at $3.90/$4.

Trade to Consider: Long the COV November/December $45 Calendar Put Spread at $0.75

Result: COV closed Friday $45.61, December Puts Worth $1.55, +100%

NetApp (NTAP) will report earnings Wednesday after the close, and it has been a volatile mover on earnings, last report falling as much as 20% and closing 14% lower. Before last report 4 of the prior 5 were strong moves higher on results, but numbers have been disappointing lately. NTAP shares have been trending higher and could make a run to $46 to test a prior breakdown and just below the 200 day SMA. The $15.55B storage Co. trades 15.2X earnings, 2.86X sales and 13.75X cash flow, a fairly cheap Tech large cap growth play. Piper lowered its target to $53 on 11-7, but sees 3 new product cycles driving a new wave of growth, and easy y/y comps. ISI Group started Buy with $48 target on 10-14. NetApp November IV is extremely high at 81.7% compared to December at 49.1%, and options pricing in a 9% move on earnings. NetApp had been the focus of a lot of bullish risk reversals in recent months with Institutional size, but many have been closed now, but will review the recent trading. On 8-15 the January 46 and 48 calls were bought in size, and still open, on 8-16 7,500 March 35 puts were sold to open, on 8-23 7,000 March 45/30 bull risk reversals traded, a contract that appears to have over 20,000 open now that accumulated in the days following. More recently on 10-27 6,900 November $35 puts were sold and 5,000 January 2013 $40 puts were sold to open, while 5,400 November $42 calls were bought and 2,500 March 2012 $45 calls at $2.46 offer. On 11-7 5,000 November $39 puts were sold to open, and last week there was a slight bearish bias in November options, but longer term NTAP seen as a winner, so a buy on weakness play.

Trade to Consider: Long the NTAP November/December $45/$39 Double Calendar Spread at $1.15 or Better

Result: NTAP moved much more than anticipated, depending on how the trade was manged it is likely a losing trading here.

Aruba Networks (ARUN) will report results Thursday after the close, and is a stock that has traded higher in 7 of the last 8 reports, May being a 17% fall, while last quarter shares jumped more than 22% at a point. Shares have trended higher since early August and held trend support, showing relative strength during weak markets, but recently relative weakness in strong markets. Shares look likely to leave the $23/$25 range this week. Aruba is a $2.5B networking play with its hands in cloud computing, a major growth play, and potential acquisition target. Shares trade at a premium, 30.85X earnings, 1.76 PEG, 6.3X sales and 52X cash flow, also a big 20.65% short float that fuels the large swings on earnings. Brigantine cut shares to Hold from Buy on 11-10, while JMP started Outperform with a $30 target on 11-2. Deutsche Bank started Hold on 11-1 with a $27 target, noted as the leading provider of wireless equipment for campus environments. November IV at 124% and December at 79.7%, options pricing in an 11.5% move on earnings. There is notable open interest in November 26 calls, over 9,000, and 7,600+ in November 24 calls.

Trade to Consider: Long the ARUN November 24/27 Call Spread at $0.95 and Sell the November $20 Puts at $0.55 for $0.40 Net Debit

Result: This trade could have put put on for a net credit as ARUN as down 8% the day into earnings, and did hold $20, also opened near $24 so the calls could have been sold off as well for a nice profit.

Intuit (INTU) reports earnings 11/17 after the close, and shares have gained 5 of the last 7 reports, a strong 12% move higher last report, closing 8.3% higher, but shares have traded lower the past 2 November reports, a potential seasonal factor. Intuit shares are near all time highs with major resistance overhead at $55, major support down at $50. The $16.25B tax software Co. trades 26.75X trailing earnings, 16.4X forward earnings, PEG 2, 4.2X sales and 20.7X cash flow. UBs reiterated a Buy and raised its target to $60 on 11-8. Intuit recently announced a collaboration with AT&T to offer small business easy credit card processing on mobile devices, so it is entering a new growth market. Deutsche Bank raised its target to $68 on 10-31, a very bullish call. November IV at 49.1% compares to December at 35.3% and options pricing in around a 5% move. There is not a lot of notable Open Interest in November options, the November $55 calls traded 589 Friday against OI 2,294 with mostly offer side buys, and another 1,100 were bought on 11-9, also 100 Nov. 52.5/55 call spreads.

Trade to Consider: Sell the INTU November $55/$52.50 Strangle at $3 Credit

Result: INTU Closed $52.04, Buying Back the Puts at $0.45, a Solid $2.55 Kept ont he $3 Credit

Marvell Tech (MRVL) will report earnings 11/17 after the close and has traded higher 8 of the last 9 reports, including max moves of more than 12% the last 3 reports, generally a large mover. MRVL is forming a great looking inverse head and shoulders pattern with $15.70 the key breakout point, and $13 shoulder support. A move above $15.20 would break shares above its 200 day SMA for the first time since February 2011. The $9B chip Co. trades 10.6X earnings, 0.7 PEG, 1.8X book, and 9.6X cash flow. RBC started Outperform with a $21 target on 10-12, and Cowen started Outperform 10-14. November IV at 66.14% compares to December at 45%, options pricing in a 7% move, cheap to historical moves. There has been notable accumulation in November, December and January calls in recent months, a ton of open interest.

Trade to Consider: Long the MRVL January 2012 $15 Calls at $1.05 and Sell the January 2012 $12.50 Puts at $0.35, Net $0.70 Debit

Result: MRVL reported strong and looks poised to move higher, and no reason to exit this one.

Most Annoying Twitter Habits

2011-11-16T15:21:00.000-08:00

Recently I am finding Twitter to be more distracting than useful, and here are some of the things I see that are annoying throughout the day and jumble up the stream:

1) Asking for Re-Tweets of a Blog Post - If it is good, people will re-tweet, stop looking desperate

2) Re-Tweeting a Compliment from a Follower - How About Just Responding to that Person with a Thank You, No Need to Show Off to the World How Awesome You Are

3) Typing Out Sound Effects (Bang, Boom, Pow, Bam, etc.) on a Stock that Moves a Few Cents...Let's Keep the Celebrations for 10%+ Moves, Anything Less is Not Worth Cheering

4) Adding $ Symbol to a Ticker and Providing a Link to a Member-Only Area of a Website - Happens all the time although I though this was supposed to be banned

5) Responding with vague questions - As someone that may tweet 5 times in 2 hours, I need to know what tweet you are referencing in your question, no time to by a twitter sleuth

6) Twitter Muscles - Do Not Act All Tough Behind a Keyboard - Refrain from Saying Anything You Would Not Say Face to Face

Earnings Snapshot Trades Review

2011-11-11T13:49:00.000-08:00

To start, you often hear that "Trading Earnings is a Gamble" or "Do Not Trade During Earnings" but option traders know that this is the best time to trade, and the most opportunity for big gains. I use fundamental, technical, and options flow analysis, sometimes for directional trades, and other times you can be a net buyer/seller of volatility, so always a lot of flexibility when trading options.

Each week I send out a quick snapshot of the primary reports, the stocks that move, and a trade to consider into earnings.

Here is a review of this past week's with the result:

7 Earnings Snapshots for the Week of November 7th

Priceline.com (PCLN) will report earnings Monday after the close, and shares have jumped more than 8% on earnings 4 of the last 5 reports, including a 22% climb in Aug. 2010, while May 2011 was the only negative reaction, just a 2.8% loss, so a positive history of earnings reactions. Priceline shares have a lot of support at the $450 level and resistance at $552, currently consolidating in the $480 to $525 range. Both MACD and RSI are in downtrends since the July highs. The $25.55B online travel Co. trades 17.6X forward earnings, 1.4 PEG and 26.77X cash flow, considered one of the top growth plays, but a weak EU economy could hamper results. Wedbush started shares Outperform in September with a $675 target. Piper expects a slight beat and In-Line guidance, Overweight with a $640 target. Jefferies initiated Buy with a $580 target on 10-12. International Bookings growth has been the key for PCLN and the reason it deserves to trade at a premium. Priceline does trade weekly options and recently has seen a strong bullish bias with call premium purchased surpassing $1M a few days last week. The November weekly 525/550 1X2 call spread traded at $1 on Friday 315X630 contracts.

Trade to Consider: Sell the PCLN November $460 Puts at $10.50 and Buy the November $530/$550 Call Spread at $7.30 for $3.20 Net Credit (Risk = Willing to be Long Stock at $456.80 Cost Basis)

Result: This $3.20 Net Credit Trade Ends the Week at around $8.20, a huge winner

Rackspace Hosting (RAX) will report earnings Monday night after the close, and shares closed 2.23% lower last report, although were 14.75% higher intraday, and also closed higher the prior 4 reports. The chart is healthy, a recent break out at $38 that measured to $45 and shares closing last week at multi-month highs, under accumulation. The $5.57B cloud computing Co. is often considered a takeover target and trades at a hefty premium, 54X earnings, 3 PEG and 55X cash flow. BofA reiterated Buy and a $45 target ahead of the report, seeing Q3 acceleration and a modest beat. Option traders were recently busy on 11-3 with 5,000+ November $41 puts sold to open.

Trade to Consider: Sell the RAX November $42 Straddle at $4 (8 Straight Reports with Sub-10% Moves on the Close)

Result: RAX closes this week at $42.39 and this straddle could be bought back at $2.15, a strong gainer, or can allow more decay into next week

Fossil (FOSL) will report earnings Tuesday before the open, and shares have moved big on earnings recently, a 25.9% max move lower last report, closing 12.5% lower, and the prior quarter a 12.7% gain on the report. The $6B apparel Co. trades 17.55X earnings, 1.25 PEG, 2.65X sales, and 37.85X cash flow. Brean Murray cut shares to Hold on 10-31, and Benchmark cut to Hold on 10-28. On the chart shares failed to sustain a breakout past $105, and now sit above its 50 day EMA at $95, near a trend break that would send shares to $85 or lower. On 11-3 a trader sold 4,000 November $85 puts to open at $2, a willing long.

Trade to Consider: Long the FOSL November $95/$85 1X2 Put Spread at $1 Debit

Result: FOSL trade can be closed around $3 for a 200% gain, or hold another week and realize even more. Also, could close without buying back short puts as it is unlikely to see $85 next week and then the $4 close price is a 300% gain.

Sina Corp (SINA) will report earnings Tuesday after the close, and shares gained 3.55% last report, but fell more than 5.5% the prior 2 reports, averaging just above a 5% move on earnings the last 8 reports. The $5.5B Chinese Internet stock has spent the last quarter with concerns on increased Chinese regulations, and trades 50.7X earnings and 4X book, expensive, but a major growth name with Weibo, the Chinese Social media play. There is 10.9% of the float short. Maxim initiated shares a Sell with a $72 target on 10-17, while others see shares worth $140 or more if it spins off Weibo. On the chart shares have been making lower highs and lower lows, overall a bearish pattern and currently stuck below its 200 day EMA and declining 50 day EMA. The December 100 calls have been under accumulation in recent weeks with over 15,000 in Open Interest. Sina IV looks fairly rich considering the moves in recent reports, currently pricing in a 12.5% move on earnings with the weekly options.

Trade to Consider: Sell the SINA November $95/$72.50 Strangle at $4.90 Credit

Result: SINA strangle can be bought back at $1.20, but best to let expire and see the max profit as that range looks fair through next week

Weight Watchers (WTW) will report earnings Tuesday after the close, and shares have been volatile, tanking 22.8% last report at a point, and 10.3% the prior, also a 47.4% gain 3 quarters ago. The $5.55B Co. trades 16.75X earnings, 1.58 PEG, and 32.3X sales, also a 20.5% short float, 6.5 days to cover. Shares based along $55 for weeks, and recently have taken off back near highs. Auriga started shares Buy on 9-28 with a $71 target, a nice call, shares already trading well above most Street targets. On Friday traders purchased more than 3,600 November $70 puts around $2.60/$2.70 to open into earnings, and yet to see much action on the call side, options pricing in 12% movement for shares.

Trade to Consider: Long the WTW November 80/85 Call Spread and 72.5/67.5 Put Spread for $2.80

Result: WTW trade can be closed around $3.35 now, but was potential to close closer to $4 after earnings, a solid gain

Ralph Lauren (RL) will report earnings Wednesday 11-9 before the open, and shares have averaged max earnings moves intraday of more than 9%, and 5 of the last 6 positive moves. Shares of the $14.55B retailer trade 20X earnings, 2.4X sales and 34X cash flow, rich on valuation in my view. Macquarie started shares Neutral with a $148 target on 10-18. Shares of RL put in a shooting star top, closing deeply red after a break to all time highs last week, but riding its 20 day EMA higher, shares likely to stay in a $140 to $170 range near term. On 10-24 the November $140 puts were sold to open for 6,000+, some of which closed now, while November 165/170 call 1X2 spread bought 1,290X2,580 for a net credit.

Trade to Consider: Long the RL November 155/145/135 Put Butterfly at $1.65 Debit

Result: Shares moved lower to $147 and the spread was a strong gainer, and closed the week at $2, overall a nice winner

Nordstrom (JWN) will report earnings Thursday after the close, and shares have traded lower 4 of its last 6 reports, and last week fell on disappointing same store sales, but quickly rebounded off the 50 day EMA. Shares outperformed during the weak market tape in October, but have put in a rounded top pattern and the recent top showed bearish divergence on MACD and RSI. Shares trade 14X earnings, 1.05X sales and 19.23X cash flow. Macquarie started shares Outperform with a $60 target in October. Nordstrom open interest is high in November 50, 52.50 and 55 calls, including one large holder of 4,000 November 52.50 calls that rolled to that strike from October before expiration.

Trade to Consider: Long the JWN November 52.50 Calls at $0.85 or Better

Result: JWN disappointed, so the calls only worth about $0.10 here, still some time, or could roll out to December, a loser so far

Overall 6 winners and 1 loser, not a bad ratio!

Speculating on Earnings with Options in a Separate Account - Educational

2011-09-25T17:26:00.000-07:00

Although many misunderstand options trading and consider it too "risky", it is actually a way to trade smarter, defining your risk and utilizing strategies to win in markets trending higher, lower, or sideways. The flexibility of options allows for larger gains, better risk management, and can supplement any equity portfolio, even if just looking to go 20% into option positions.

However, I feel that there is a time and place for pure speculation, especially when it comes to earnings.

Understand, anyone that tells you that he/she can predict where a stock is going after earnings by looking at the chart and/or analyzing the fundamentals is selling you a lie, as there is no certainty to earnings. Many also rely on Sell-Side research, which tends to be way behind the curve, when deciding on earnings trades.

Options can be utilized to create high probability earnings trades, and often look to trade the magnitude of the move (volatility), more than the direction.

With that said, there is a way to give yourself an edge when trading options into earnings, and I will lay out some of the key factors to analyze when making a directional options trade into earnings:

1- Options Flow - Analyzing options flow is one of the key factors I look at when making a directional options trade for earnings. You are basically following in high dollar trades who are assumed to have much better information heading into earnings. Obviously we can not all be experts on every company, but those that do focus time consuming research are willing to bet big, so let them do the work for you and ride-along for the profits. Services such as mine at OptionsHawk.com constantly is looking for unusual and high impact options trades into earnings, and I often consider the action 5,4, and 3 days ahead of earnings more important than the action seen just ahead of the report, because those that spend the time doing the research will get in ahead of the Institutional money moving the equity in a pre-earnings run-up or run-down.

2- Fundamentals and Short Float - I prefer to be involved long in names are fair or cheap valuation and short in names at rich valuation, although you have to consider earnings momentum more than the metrics themselves. Look for companies with 20% or greater EPS growth forecasted for the following year, and building momentum in Q/Q sales growth. Also, I prefer companies with operating margins on the rise, and will also observe seasonal stock trends. I will read into the Sell-Side research just to get a better in depth view of how the channel checks are looking, and other important trends in key metrics. A stock with a high short float can result in much bigger moves, always key for options trades.

3 - Technical Analysis - I will gave the chart a thorough look for signs of accumulation or distribution, also mainly use technical analysis for target levels, stop levels, projected moves, etc. rather than a buy/sell signal. The chart enhances the first two factors and can determine the strike prices and/or strategy to use.

All this aside, even if the options flow is very bullish/bearish, there could be some inside info or thorough research that is spot-on, but a stock's reaction can even be more uncertain than the numbers. Many stocks will post what look to be fantastic results, but trade lower, whether it is from profit taking, or a lack of new interested buyers if the numbers are not eye-popping, and the same goes for earnings misses, where a stock could trade higher because it is simply too cheap, or expectations were low. Expectations into results play a key role in the stock's reaction.

Sometimes making a call into earnings is very tough, so only take the one's where all the analysis points to the same outcome, and follow your gut when it really comes down to it.

Side Note: You do not always need to trade earnings before the results, and can wait for the numbers. If you have positive signals from all the above factors and wait on the actual numbers to confirm, you can participate after hours in stock, or wait until the next trading session to play options, basing your expected move on the options flow and technical analysis already performed.

Now, with the speculating part of this means that it is best to set up a separate account, strictly for this type of trading. This account should be an amount that you can afford to lose while note taking a large hit to your overall portfolio. If you set aside $20,000 and make $8,000 in a quarter, book those profits and reset the portfolio back to $20,000 for the next quarter. Keep it small, around $2,500 per play and build it out as you hopefully make profits.

Last quarter I did this with a $10,000 account and closed Q2 with $51,057, a 400% return.

Some of the big winners included:

* Fed-Ex (FDX) October $75 Puts for +$4,650 on 10 Contracts (+150%)

* Research in Motion (RIMM) September $30 Puts for +$7,035 on 15 Contracts (+213%)

* Ulta Salon (ULTA) September $60 Calls for +$4,740 on 12 Contracts (+155%)

* Aruba Networks (ARUN) September $20 Calls for +$3,600 on 30 Contracts (+160%)

* Green Mountain (GMCR) September $100 Calls for +$4,571 on 7 Contracts (+220%)

* Silicon Labs (SLAB) August $40 Puts for +$6,800 on 20 Contracts (+425%)

Overall there were about 50 trades, fair share of losers and small winners as well, but as long as you catch a few monster wins, you should come out ahead, and if not, it will hopefully prove to be a learning experience and can take another shot with a separate account down the road.

Caterpillar (CAT): Playing the Breakdown Re-Test and a Look into My Trading Process

2011-09-06T15:06:00.000-07:00

One of the most common technical moves comes via the "re-test", whether it is a stock in an uptrend that breaks out of consolidation and then eventually comes back down and re-tests that level, or a stock that breaks key support, but then sees a bounce back to test that level. These generally come on lighter volume than was seen during the breakout/breakdown move.

A recent example that Options Hawk members capitalized on was with Caterpillar (CAT). Shares broke key support at $95 in early August and fell all the way to $80, which happened to be a re-test of the November 2010 breakout, a suitable support level for a bounce. Shares then bounced on decreasing volume over a few days and ran back up to $92.80, nearly a re-test before fading once again. I missed entry on that move, but then shares came back to $80 and proceeded to bounce on light volume to $93.80, just below the 50 day EMA which recently had a bearish cross of the 200 EMA, a Death Cross, so the intermediate trend was bearish and favored a move lower from that level.

I also felt better about this set-up by following the options action. On August 26th I pointed out a buyer of 5,600 October $87.50 puts on the $8.30 offer to subscribers in our members only chat room, a large bearish bet.

I track the high impact option trades and sentiment for all stocks I am watching on various spreadsheets I created for members, so when I saw this move in CAT I knew it was an opportunity to get those puts at a price well below where the Institutional Trader put on the position, which is what I often look for, either a break of a key price level to follow the smart-money or via a spreadsheet I created that tracks current option prices versus the price where a big block traded in recent days or weeks.

We added the CAT Oct. 87.50 puts at $3.60 on August 30th and took profits this morning at $8.50, a sweet 136% gain for a position we only had on for 2 trading days!

I track unusual and large options action for idea generation, always having a list of bullish/bearish sentiment names to look at depending on how the market is acting, and where I see it going. I also use this along-side basic Technical Analysis with price patterns, EMAs, and momentum indicators for the directional trades. I also put some weight into the fundamental view, and recent earnings from Joy Global (JOYG) were unimpressive in my view, despite the initial 6% pop in shares (later faded hard), and although CAT is a clear value and great Company, the outlook has been based on strong China growth, which is softening.

CAT Chart Below with Key Levels:

5 Bullish Set-Ups into the Week

2011-08-28T09:53:00.000-07:00

The reversal move by the markets Friday left some strong looking charts, and although the market remains submerged under its falling 20 day EMA, certain charts are starting to set-up bullish, and many relative strength names still have rising 10, 20, 50, and 200 day moving averages and are either above, or near breaking above these key resistance levels. It should be a quiet week of trading into the 3 day weekend, and despite key economic data like ISM and the Employment Report, the weeks where many of the large institutional accounts are on vacation tend to favor melt-ups.

I only scan names that average 1,500 or more option contracts a day, and my 5 favorite bullish set-ups are the following:

1) Crocs (CROX): Shares are in a falling wedge in a longer term uptrend which can result in a powerful breakout move, resistance at $28 as the key level. MACD and RSI are trending in a bullish manner, and the uptrend is in the early stages. More than 8% of the float is short, and a PEG of 0.9 with the growth story accelerating.

2) Baidu (BIDU): Shares were weak in recent weeks with some bad press, but with that being put behind it, shares did find great support at its 200 day EMA, and now face trend resistance along with the 50 day EMA converging at $140, the key breakout level. RSI is rising and MACD made a bullish crossover on Friday. Baidu is the dominant way to play Chinese Internet growth and continues to report consistently strong earnings.

3) Jazz Pharmaceuticals (JAZZ): Shares of JAZZ have formed a small triangle with a break above $38.50 likely to result in a surge to $40, follow back a run at $42. MACD is crossing over bullish and RSI is breaking above the 50 mark. JAZZ trades just 8.75X forward earnings and a PEG of 0.99, one of the cheapest growth plays in Biotech.

4) CVR Energy (CVI): Shares broke past trend resistance and have recovered quickly froma touch of its 200 day EMA, which is still rising, shares now above all major EMAs. The $2.35B refiner trades 8.16X earnings, PEG 0.6, and 0.49X sales.

5) Cabot Oil & Gas (COG): Shares held trend support after a recent test of its rising 100 day EMA, a strong name among the shale plays and near a break of trend resistance around $72.50. MACD is turning bullish and RSI is trending higher, while ADX nears a bullish crossover.

Reviewing this Week's Earnings Snapshots Option Trades

2011-08-18T15:49:00.000-07:00

Throughout earnings season I send these to subscribers each Sunday night, and for the bigger names I do In Depth Earnings Focus Stories, examples at: http://optionshawk.com/index_files/optiontrader.html

I wanted to review them:

Earnings Snapshots for the Week of August 15th-19th

Agilent (A) reports earnings Monday after the close and shares have been under pressure the last few weeks on a fall from $55 to below $35. The $12.6B maker of life sciences instruments trades 11X earnings, 0.88 PEG, 2X sales and 15.66X cash flow, and has beaten Analyst estimates the last 4 quarters, averaging a 4.5% move the past 6 reports. Jefferies recently reiterated a Buy and $65 target, noting it is underweight government/academic end-markets. Shares are oversold and could form a higher base near $32.50, trend from November 2009 and August 2010 lows. Agilent options are fairly liquid with $1 strikes, and recent trading highlights are 3,600 August $42 calls bought on August 2nd, and Friday August 12tht he August $33 puts bought 1,288X while August $37 calls also with buyers for 1,784 contracts.

Trade to Consider: Sell the A August $37 Straddle at $3.05

Result: Agilent (A) stuck right near that $37 level following earnings and the straddle could be closed at $1.85

Home Depot (HD) will report results Tuesday before the open and shares recently completed a measured move of a breakdown after a major top made at $38. Shares of the $48.7B home improvement retailer trade 11.6X earnings, 0.7X sales and 2.7X book, fairly cheap on a historic basis and a nice 3.27% yield, but the weak Housing Market and lack of consumer spend likely will limit the upside to the report. Jefferies cut shares to Hold from Buy August 10th and moved the price target to $33 from $44. Options are actively traded and 30,000 September $32 puts were sold on August 11th, after a trader rolled 25,000 September $36 puts to the $32 strike on August 4th. Traders bought 5,000 August $29/$30 call spreads for $0.56 to open on August 8th and 5,000 August $31/$33 call spreads at $0.34 on August 8th. Lowe's reports Monday morning and if HD trades lower in sympathy it may be a good opportunity to pick up cheap upside calls as the bad would likely be priced in before the report.

Trade to Consider: Long the HD November $30 Calls at $2.25 or Better

Result: Home Dept shares jumped big and the calls jumped to $4, solid winner.

Perrigo (PRGO) reports earnings Tuesday before the open and shares recently bounced on its 200 day EMA, and a trader bought 2,000 August 85/95 call spreads that remain in OI. The maker of generic brands for OTC drugs benefits from consumers looking for deals, and should continue to report strong results. Shares have moved more than 9.5% 3 of the last 6 quarters, and beat Analyst estimates by more than 10% the past 3 reports. Shares trade 19.4X earnings, 3X sales and 37X cash flow, fairly rich on valuation. Short Interest in PRGO fell 13% in the latest report, and UBS has shares Buy rated with a $100 target, expecting 2H 2011 momentum to pick-up.

Trade to Consider: Long PRGO Shares at $88 and Sell the November $100 Calls at $3.30

Result: Shares sold off early but recovered and actually closed above $90, a winning trade, but one to stay in for the long haul.

Dick's Sporting Goods (DKS) will report results Tuesday before the open and shares recently re-tested a major breakout level from November 2010 and bounced, support now near $29. The $3.87B sports retailer trades 14.2X earnings, 0.78X sales and 19.56X cash flow, a fairly good value, raised to Buy with a $45 target by Needham in May and $50 target at OpCo. Sterne Agee is negative the name with a Sell rating, but $32 target, not liking the open stock model footwear service, 20% of revenues. Dick's has beaten estimates the last 4 quarters and averaged 6.5% moves the past 3. Option traders have been actively positioning the week into earnings, an interesting spread Friday with 1,500 August $31 puts bought and the September $28/$26 ratio put spread traded 1,000X2,000, while 1,000 August $30 puts were bought to open on August 11th.

Trade to Consider: Long the DKS August $33/$31 Strangle at $1.45 or Better

Result: Dick's did not see the volatile move I was looking for, but the spread could still be closed around $1.75, a small gain.

Analog Devices (ADI) will report earnings Tuesday after the close and shares are -resting a major breakout level from last November, also at support of an extension of a channel down pattern. ADI reported a fantastic quarter last time and shares are cheat at 10.46X earnings, 0.96 PEG, and 2.75X cash value with a 3.2% dividend yield, attractive despite potential 2H 2011 headwinds for Semiconductors, much of which seems to be priced in at this point. Sterne Agee cut to Neutral from Buy on August 4th and Morgan Keegan reduced estimates last week, although noted ADI's broad exposure helps mitigate downside. Traders bought 2,200 August $31 puts at $0.45 on August 4th, while September $33 puts were sold to open 2,00X a few weeks ago. ADI's largest earnings move came last report with a 5.9% move higher, while the prior two were down less than 1%, and previously averaged around 4%.

Trade to Consider: Long the ADI August/September $33 Calendar Call Spread at $0.50

Result: We actually took this trade and closed at $0.65 for a 30% gain the next day as shares were up despite poor results, so it felt right to get out.

Abercrombie (ANF) reports earnings Wednesday before the open and shares have held up better than the market, recently testing its 200 day EMA and prior breakout and bouncing, putting the $60 to $77 range in play. Same store sales have been strong in recent months, and shares are trading 15X earnings, 1.7X sales and 37.4X cash flow with 8.58% of the float short. BofA reiterated a Buy and $90 target last week, and Wedbush previewed the quarter noting the stock already expects upside Q2 with fewer promotions, lean inventory and strong International momentum. Options are active in ANF and on August 2nd a trader bought 2,500 September $75 calls at $3.10, while another trader sold 1,800 September $77.50/$60 strangles along with 1,200 September $70 calls bought. The following day a trader bought 1,500 September $77.50 calls to open. On August 10th the November $60/$75 ratio call spread was bought 1,300X2,600. ANF has averaged just 4% moves the past 6 quarters, the downside moves the larger magnitude moves.

Trade to Consider: Sell the ANF August $75 Call at $1 and Buy the September $75/$80 Call Spread at $1.40

Result: ANF shares are down and the Aug. call will expire worthless, but still stuck with a September call spread, currently a losing position.

Netease.com (NTES) is set to report results Wednesday after the close and shares were strong last week with 4 strong consecutive days. The Chinese Internet Co. trades very cheap at 12.5X earnings, 0.84 PEG, and 14.6X cash flow. NTES has beaten estimates 3 straight quarters and shares have averaged 6% moves the past 4. Traders started to accumulate some August $50 calls late last week with 974 trading Friday. Shares are currently in a channel down with lower highs being made, currently back near the middle of the range and RSI and MACD Neutral. CLSA expects a blowout Q2 and strong Q3 driven by WoW and its new game GHOST.

Trade to Consider: Long the NTES September $50/$55/$60 Butterfly Call Spread at $0.85

Result: NTES reported very strong results, but caught up in the market weakness and closed down 9.35%, and butterfly spread currently pricing at $0.50.

JDS Uniphase (JDSU) will report results Wednesday after the close and shares have been in a strong trend lower, off 60% from February highs as the optics sector has been under pressure. Shares now trade 10.5X earnings, 42.7X trailing, 1.54X sales and 4X cash value. JDSU has beaten estimates the last 4 quarters, and has made 2 20%+ moves in the last 5 quarters on earnings, although the other 3 only average 4.5%. On August 12th Morgan Stanley previewed the quarter, saying to expect soft results with weak T&M spending, and maintained Equal Weight. Traders bought 9,000 August $11 calls to open on August 11th in big size. Call OI at 184,337 compares to Put OI at 116,846, elevated towards calls due to multiple takeover chatter reports. Shares have major support near $9.50 and resistance at $14. Aug. IV at 117.6% compares to September at 86.88%, a major disparity.

Trade to Consider: Long the JDSU August/September $14/$10 Double Calendar Spread at $0.65 Debit

Result: JDSU looks set to close right near $10 on options expiration, so the September puts can be closed around $1 for a nice gain, or can be held for more downside.

Dollar Tree (DLTR) will report earnings Thursday before the open and is one of the few names to maintain its longer term uptrend with the recent bounce at $60. Dollar Tree has beaten estimates the last 4 reports and 4% average earnings moves. Shares trade 15X earnings, 1.34X sales and 18.3X cash flow, and if we are heading for another recession, a name that tends to outperform. It is one of the few names Jefferies kept a Buy rating on last week, $72 target, and Piper raised to Overweight with an $87 target on July 27th. Shares have clear resistance at $70 and support at $60 and $57.50. Options action jumped on August 11th as the September $65/$70 put ratio spread traded 2,00X4,000 along with 1,000 September $70 calls sold, potentially a hedge. On July 5th more than 4,000 August $67.50 puts were bought at $1.85 and more than 2,900 remain in OI.

Trade to Consider: Long the DLTR August/September $62.50 Put Calendar Spread at $0.80

Result: September puts can be closed around $1.80 with August to expire, a big win.

GameStop (GME) reports earnings Thursday before the open and shares have fallen hard the past few weeks, but still a value at 6.5X earnings, 0.3X sales, 0.98X book and 5.7X cash flow, often seen as a value trap due to the troubles in brick-and-mortar retail and also weak video game sales numbers. GME tends to report In-Line quarters and only averaged 2% moves the past 4 quarters. Pac Crest cut to Underperform in July. July US video game sales fell 26%, the worst since 2006. GME used to be actively trading, but not a lot of Open Interest in August/September options. There has not been any unusual options action in recent weeks.

Trade to Consider: Long the GME August $21 Puts at $0.85 or Better

Result: The puts got above $2.50, a great win, and an easy profit take. Shares eventually rallied, but the anyone in their right mind takes a 200% gain.

Foot Locker (FL) will report earnings Thursday after the close and shares recently pulled back to fill a gap at prior major resistance, now support near $17, also holding a trend off the prior 2 lows. BMO started shares Outperform with a $25 target in July, and judging from recent earnings from the footwear names (UA, NKE, CROX, DECK), earnings should be fairly strong. FL has beaten EPS estimates may 30% or more in 3 of the last 4 reports, and traded higher by 12.8% and 11.6% in 2 of those. August IV of 82.9% compares to September at 58.9%, a wide margin, and August IV skew has a bullish look. The $2.9B retailer trades just 10.6X earnings, 0.56X sales, and 3.6X cash with a 3.5% dividend, very attractive from the perspective. Traders sold 4,000 September $25 calls to open on July 29th, and bought 4,000 August $20 puts. On August 9th more than 4,900 August $20 calls traded, but look to have been sold to open.

Trade to Consider: Long the FL August/September $20 Call Calendar at $0.40 or Better

Result: FL indicated higher on strong results, looks like it should be a winning trade.

Intuit (INTU) will report earnings Thursday after the close and shares are 25% off recent highs, but still fairly rich at 20.7X earnings, 1.47 PEG, 3.4X sales and 15.7X cash flow. The $12.9B maker of tax software was raised to Buy at UBS with a $57 target in late July. The recent return to $40 filled an August 2010 gap, also Fibonacci support from October 2009 lows to recent highs. Goldman's options team see's INTU options as cheap for directional views. Intuit has beaten estimates the last 4 quarters, and although just a 1.65% move last report, the prior 5 averaged 8%. Friday saw a notable trade with an adjustment to 4,000 January $46/$37.50 bullish risk reversals, a strong directional play.

Trade to Consider: Long the INTU August $42 Straddle at $2.55 or Better

Result: Depends on the move tomorrow, but could be a loser.

Autodesk (ADSK) will report earnings Thursday after the close and shares are trading near 1 year lows and extremely oversold, off more than 30% this year. Shares now trade 14.6X earnings, 3.36X sales and 13.9X cash flow, fairly cheap for a growth Software names, buts its exposure to engineering and construction is likely to hamper results. RBC reiterated Perform on 8-12 and lowered its target to $35 from $46, while Jefferies raised to Buy with a $44 target on 7-22. ADSK has beaten Analyst estimates by a narrow margin the last 3 quarters, and averaged 6% earnings moves. A move higher likely sees resistance at $32, while $28 is support. On August 9th the August $27, $26 and $25 puts saw aggressive buying, and July 27th a buyer of 2,000 August $33 puts and 1,700 August $31 puts.

Trade to Consider: Long the ADSK August $29 Puts at $1 or Better

Result: The Tech sell-off hit shares before earnings and the puts were worth $2.75, and always take profits ahead of earnings if you already have a nice gain, no need to risk it.

Overall, another solid week of winning trade ideas for earnings!

Riverbed (RVBD) and Akamai (AKAM): Option Strategists Buying the Blood, Long-Term

2011-08-03T20:20:00.000-07:00

Riverbed Tech (RVBD) and Akamai Tech (AKAM) are two former high flying growth Tech stocks that have both been crushed on earnings this quarter, with Riverbed now 35% off highs and Akamai 47% off highs.

Riverbed now has just a $4.47B market cap and down to 25.1X forward earnings, while Akamai has a $4.41B market cap, and trades at 13.7X forward earnings. Both names appear ripe for takeover offers, now trading at a major discount to 2011 highs, and both still in growth stages that would make a nice addition to some of the larger Tech companies. Akamai and Riverbed have both been rumored as takeover targets for years, but at this point it actually makes sense.

One way to play for an eventual comeback in shares, whether via M&A or just a turnaround story, is with longer dated options. A strategy known as a "Covered Risk Reversal" is a way to leverage for an upside move, while also willing to buy stock at a discount if shares were to fall much further.

In the past week I have seen a trader in both AKAM and RVBD utilize risk reversals in January 2013 options, the Riverbed one straight, while the Akamai one was covered.

On July 28th I noted to clients:
"Riverbed Tech (RVBD) trades 5,000 January 2013 $45/$20 bull risk reversals at a $0.40 debit, playing a long road recovery for the shares that were knocked down more than 25% in the past week. Shares are moving off lows today and above its 100 week EMA, also the 2007 highs were $26.40, so a potential re-test bounce. There is a gap from October from $22.50 to just above $25, so that is also likely support. The strategy is a good one, a willing long of 500,000 shares if it continues lower, willing to get in at $20, at which point its an obvious value. Shares are now 27X earnings, 7.34X sales and 8.85X cash, still fairly rich. Analysts have missed the boat and most have $40 targets for shares. With a sub $5B market cap, Riverbed becomes a viable buyout play, which in that case this spread would pay off in a big way."

On August 3rd I noted to clients:
" Akamai (AKAM) with a large January 2013 bullish spread, similar to what was seen in Riverbed (RVBD) last week, trying to call a near bottom. The trader sold 5,000 $20 puts at $3 to buy 5,000 $25/$40 call spreads at $3.45, opening professional trade for a $0.45 debit. Shares have re-tested a key 2009 breakout level and are closing the session today at highs, also remains a potential buyout target, so a good looking trade."

Both stocks are showing early signs of bouncing at multi-year support levels, and it would not surprise me to see this strategy used in Juniper (JNPR) soon as well.

I like both of the trades noted above, but only for professionals that realize the risk involved, and are willing to get long stock.

Inside Look: Earnings Snapshots from this Week

2011-07-28T19:28:00.000-07:00

Earnings season is like Christmas for option traders, and it comes 4 times a year. We do a lot of earnings trades with my service and I have posted on my website many of the "Earnings Focus" stories for the major reports where I do a thorough analysis into earnings and provide directional and non-directional options trading strategies.

They can be found at this Link

I also have been putting together a nightly Earnings Snapshot email to subscribers with a more brief overview of the key upcoming earnings, and the best option strategy I am seeing to trade them, some directional, and others volatility strategies.

Here are the ones from this past week, a fairly good win rate:

Wednesday Night Report:

Decker's (DECK) closed down 4.75% on heavy volume with shares rejected at $97.50, a double top, with the potential to re-visit the double bottom at $77.50. Under Armour (UA) beat and raised in apparel and shares still sold off, so it will be an uphill battle for Deckers to react positively, coming off a weak report last quarter when shares were hit hard. The $3.54B footwear Co. is definitely a name to buy for the long term on weakness, shares valued fairly at 17X earnings, 0.97 PEG and 3.37X sales. There is also a 10.3% short float, 3.7 days to cover. Piper recently raised its target to $100, and Analysts are expecting strong International growth. There has not been a lot of notable options action, on July 13th 1,250 August $90 puts were bought at $2.85 that remain in OI.

Trade to Consider: Buy the DECK Aug. 90/85 Put Spread at $1.80 or Better

Expedia (EXPE) shares are in a strong trend and are flagging in a tight $29.50 to $30.70 range, not far from $32.50 and $35 resistance for all time highs. Shares are trading 14X earnings, 2.36X sales and 12.9X cash flow with a 10% short float, the top value in online travel stocks and a name people want to own to be part of the TripAdvisor spin-off later this year. Expedia has beaten Analyst estimates by an average of 13% the past 4 quarters. Benchmark raised its target to $34 this morning, seeing 15% y/y bookings growth, but does note costs rising. Expedia was alerted today with unusual options as more than 2,000 October $31 calls were bought at $1.55.

Trade to Consider: Long the EXPE Aug. 30 Straddle at $2.45 or Better (With 15 Days of Trading Remaining Shares Average 15% of Movement During these Expiration Cycles and the Straddle is Only at 8%)

Veeco Instruments (VECO) is a great value name at 10.27X earnings, 0.47 PEG, 1.55X sales and 2.3X cash value, so downside would appear limited but with orders likely being pushed into 2012 shares could get hit on guidance, and then be a great long term buy. There is a 25.78% short float or 7.4 days to cover, and shares have been sliding, currently with a bear flag set-up, and on a breakdown could target $32.50. JPM lowered its target and estimates on the increased risk of shipment delays to China, cutting target to $60 from $75, so still seeing value. VECO options have been very active including a purchase of 10,000 August $42 puts at $2.25 to open yesterday and 5,000 August $45 puts on July 5th. The options action has been bearish and the IV skew is steep. VECO has not been too wild post-earnings with less than 7% moves the past 5 quarters, although it often extends moves through the rest of the month.

Trade to Consider: Long the VECO Aug. 40/35 Put Spread at $1.75 or Better

KLA Tencor (KLAC) shares have been hanging fairly strong while other Semi's have crashed and will be down tomorrow due to LRCX's report. KLAC is one of the top values among large cap Semi's at 9.6X earnings, 0.69 PEG, 2.47X sales and 3.8X cash value. UBS raised to Buy with a $49.50 target on July 7th. LAM's (LRCX) outlook for chip equipment spending was weak and should impact KLAC's results. KLAC has only averaged around a 3.5% movement on earnings the last 8 quarters. Most of the Open Interest in KLAC is on the call side from buyers in August and September a few weeks ago. On Monday a trader sold 6,600 Dec. 50 calls to open at $1.45.

Trade to Consider: Sell the KLAC Aug. $45/$38 Strangle at $1.10 or Better

VeriSign (VRSN) is a name that hit my screen today as an overvalued Tech stock that could get hit on earnings. Shares of the $5.5B Co. trade 18X earnings, PEG 4.5, 8X sales and 43X cash flow, although cash rich trading 2.8X cash value. Shares have formed a Head and Shoulders topping pattern and a break of $32 would target a move to $27. July 22nd saw the most notable action with 700 of the Aug. 33 and 32 puts each bought offer side.

Trade to Consider: Long the VRSN Aug. $33 Puts at $1.20 or Better (Technicals and Fundamentals Point to Bearish View)

Other volatile movers include ACOM, NTGR, NETL, ARBA, CERN, N, and NXPI.

Tuesday Night Report:
Akamai (AKAM) reports Wednesday night and is coming off of 2 consecutive large gap down moves on earnings as its costs and competition rise, slowing earnings growth, and causing a re-valuation shares. Going back to March of 2010 shares broke out at $27.30 which is a level I see now as support, currently a falling wedge pattern with a double bottom at $29 that looks fairly clean and MACD and ADX with bullish crossovers this week. Shares have upside to $35 gap resistance, and downside to $27.50 in my view. At 17.45X forward earnings, PEG of 2, 5.4X sales and 28.6X cash flow, I would still consider shares rich on valuation with just 12.8% EPS growth seen next year, favoring a further pullback in shares. With narrow EPS beats the prior 2 quarters, Akamai could be set for a headline miss. Akamai shares have moved more than 13% in 6 of the last 8 reports. There are risks to guidance and results are likely to come in near the low end with a slowdown in media traffic for Q2, although another big move lower would immediately make it an attractive buyout target. Order flow has been mostly bullish in the calls the past week and there is a ton of open interest in both puts and calls. The largest trade recently was 1,000 August/November $26 calendar call spreads that traded at $0.98 yesterday, bearish as it looks for shares to head to $26. However, back on June 30th, 3,000 August $35/$28 bull risk reversals traded at a 10 cent credit.

Trade to Consider: Long the AKAM Aug. $31 Straddle at $3.30

Citrix Systems (CTXS) reports Wednesday night and shares are in a channel down pattern that eventually leads to $65, but shares are showing strong support at $72.50, just above its 200 day EMA and a re-test of the breakout move from April. Shares have downside to $65 while a move higher would likely find resistance at $80. Its closest peer in the virtualization market is VMware (VMW) which reported a strong quarter recently. Citrix trades 27.3X earnings, 7.2X sales and PEG of 3.17, another richly valued Tech Co. with a $14B market cap. Morgan Stanley was out with a note this morning that comparisons are tough but Q2 should be solid, but does see conservative guidance. Goldman also previewed the quarter this morning and did not see much reason to own shares into results. Citrix generally moves 6 to 10% on earnings, but last July shares moved 21.9%. There were sellers in the Aug. 75 puts today with 1,496 trading, and a buyer of 80 75/80 call spreads. In late June Aug. 80 puts were active with buyers as more than 4,000 accumulated, but now less than 3,000 in OI so some have taken profits. There was unusual buying in September 70/60 puts last week and Monday a trader bought 500 August 75/65 put spreads at $3.15.

Trade to Consider: Sell the August $80/$70 Strangle at a $3.25 Credit

Cliffs Natural (CLF) reports Wednesday night and the $14B Iron Ore Co. is the best value among all the metals stocks trading 6.5X earnings, 2.7X sales, 3X book, 6X cash and a PEG of 0.47. Shares recently triple topped at $102.50 of a 20 point horizontal channel, but have since pulled back to its 20 day EMA near $95. UBS started shares a Buy with a $122 target earlier this month. Cliffs has averaged around a 6.5% earnings move the past 6 quarters. On June 16th 1500 October 92.5/70 bull put spreads traded, and 1,000 October $100/$97.50 bull risk reversals traded July 7th. A big buyer stepped in today on weakness for more than 1,500 August $95 calls on the $3.75 offer, large bullish buyer.

Trade to Consider: Sell the August $100 Straddle at $8.65 (Bullish Bias Straddle) or Long the August/September $100 Calendar Put Spread at $1.55

Green Mountain Coffee (GMCR) reports Wednesday after the close and has made more than a 10% earnings move the last 7 quarters, and averaging a 21% move the past two. Shares are hanging near all time highs, consolidating above its 20 day EMA. Stifel had a note out recently cautious on K-Cup share losses to partners. Shares of the $13.84B Co. trade at an obscene 42X earnings, PEG of 3, 12.5X book and 7.25X sales. There is a 15.55% short float, 7.1 days to cover. On July 5th a trader bought 1,800 Aug. 80 puts, but went long stock, and July 6th saw sizable buying of 2,500 September $100 calls. A trader bought 900 September $110 calls at $2.30 on July 11th. Another 2,000 September $100 calls were bought July 18th. A trader bought 1,000 August $87.50/$82.50 put spreads at $1.14 on July 21st. Shares could see 75 on weakness or above 105 on strength.

Trade to Consider: August/September $110/$75 Double Calendar Spread at $1.80

Visa (V) will report Wednesday after the close and shares have consolidated under $80 since the big run-up on the debit card fee legislation. Now the company will be forced to deliver on earnings, and with growth slowing and costs rising shares are tough to add after the recent run. Shares trade 15.65X earnings, 8.6X sales and 2.83X book and we have recently seen large blocks of calls being sold with profit taking ahead of results. Some long term thinkers bought 950 March 2012 92.50 calls at $6.10 Monday. Street Analysts have been raising price targets, most near the $100 level.

Trade to Consider: Long the V July/Aug. $85 Calendar Put Spread at $1

Potash (POT) will report earnings Thursday before the open and will look to continue momentum seen in fertilizer stocks since Mosaic's (MOS) strong report. Shares are back near year highs and at resistance under $62.50. Shares have had less than 3.6% moves 3 of the last 4 quarters. Shares trade 15.4X earnings, 7.44X sales and 7.3X book, not a top value name in its industry and getting a bit rich. POT is a name that has been registering high on the call premium leader board the last couple weeks, bullish flow in the options. Today, more than 2,800 of the July 62.50 weekly calls were bought to open while 13,727 August $60 calls sit in Open Interest. On July 10th more than 2,500 December $62.50 calls were bought to open, so the longer term outlook has a bullish bias also. Potash looks to be starting a fresh trend higher after a recent breakout of a descending triangle, and may make a run up to those 2008 highs just under $80 by year end, although a short term pullback to $58.50 to form a cup and handle would be welcomed.

Trade to Consider: Ratio Calendar Spread: Sell 2X August $65 Calls at $0.74 to Buy 1X September $62.50 Call at $2.40, Net Debit $0.92

10 Small Cap Earnings of Interest this Coming Week

2011-07-24T09:48:00.001-07:00

3D Systems (DDD): The $1.35B Software Co. has been on fire since triggering a breakout buy signal at $20 earlier this month. This is a high growth name projecting 25.56% EPS Growth Next Year and Seeing 51.44% Q/Q Sales Growth. It is highly shorted and trades 23.8X earnings, 7.65X sales and 6.8X book value. The Company improves costs for customers via 3D building systems and modelers. Ford, Hasbro, Mattel, Precision Castparts, Tupperware, and Xerox are a few of its customers. Earnings are July 28th before the market opens.

Barnes (B): The $1.35B Industrial components maker trades 14.8X earnings, PEG 0.99, 1.15X sales and 1.78X book, a good value. Shares have formed a bullish cup and handle and look set to break out. The Company sees FY12 EPS growth above 23%. Earnings are July 29th before the market opens. Barnes beats revenue and earnings estimates 63% of the time and raising guidance 16% of the time.

ACI Worldwide (ACIW): The $1.2B Software Co. is a play on electronic payments with its software, and projects 26% EPS growth next year. Shares trade 23.1X earnings, 2.75X sales and 4.5X book value, currently consolidating with a bullish flag near a breakout. Earnings are July 26th before the market opens.

iRobot (IRBT):The $975M maker of robots is becoming more than just a niche consumer play with its robots now being used for other purposes. Shares trade 27.4X earnings, 1.5 PEG, 2.37X sales and 41.3X cash flow with 8.38% of the float short, which has come down quite a bit. Shares are also in a cup and handle pattern and could project a move to $45 on a strong report. iRobot sees next year's EPS growth at 28.85%. Earnings are July 26th after the market closes. The Company beats EPS estimates 73% of the time and raises guidance 27% of the time.

MarketAxess (MKTX): The $972.4M provider of an electronic trading platform for CDS, Bonds, and more is a name I recently featured in a small cap research report. The Company is seeing great growth in transactions on its platforms and trades just 21.4X earnings and 3.45X book. Shares are forming a bullish consolidation flag and would breakout on a move through $26 and target past $30. Earnings are July 27th before the market opens. MKTX beats EPS estimates 52% of the time.

TriMas (TRS): The $863.5M diversified Industrial has been a hot name with 225% EPS growth this year and projecting 20.5% for next year. Shares trade cheap at 13X earnings, PEG of 1.04, and 0.87X sales. Shares are in consolidation mode into earnings and look to be ready for a move to $30. Earnings are July 28th before market opens.

Viad (VVI): The $455.66M provider of exhibition, event and retail marketing services is a lesser know play on an improving economy where businesses increase spending with Corporate Events. Shares trade 22.9X earnings, 0.5X sales, 1.19X book and 14.15X free cash flow with 61.3% EPS growth seen for next year, an impressive growth name. Shares are nearing a breakout at $23 for a run at $27 highs. Earnings are Friday July 29th before the open.

Tennant Co. (TNC): The $915M maker of cleaning machinery for industrial Companies such as scrubbers, floor washers, advanced sweepers, and also cleaning chemical solutions does not receive a lot of recognition, but shares are hanging out under major resistance at $43 and could target new highs, and with shares at 18.5X earnings, 1.13 PEG, 1.18X sales and 3.6X book value with 27% EPS growth seen for next year and a 1.6% dividend yield, shares are cheap. The niche machinery Co. also makes a lot of sense as a buyout target for a larger Industrial seeking a new industry with a strong growth name that has consistent earnings. Earnings are July 28th before the open. It beats EPS estimates 63% of the time and raises guidance 13% of the time.

Altisource Portfolio Solutions (ASPS): The $937.6M provider of real estate and mortgage portfolio management trades 12.7X earnings, PEG of 0.83, 2.85X sales and 23X cash flow with 45.4% sales growth Q/Q. Shares are consolidating near new highs and have a strong uptrend. Earnings are July 28th before the market opens.

Materion (MTRN): The $841M maker of high performance materials for alternative energy applications is a name I picked up on in the low $30's, and shares are now nearing new highs. Shares trade cheap at 13.75X earnings, 0.6X sales, PEG 1.38, and 2.11X book value, projecting 15% EPS growth next year and seeing 27% sales growth Q/Q. Earnings are July 29th before the market opens.

Petrohawk Energy (HK) $12.1B Buyout: A Game Changer for Natural Gas Stocks

2011-07-14T18:21:00.000-07:00

After the close tonight it was announced that BHP Billiton (BHP) made a $12.1B All Cash Deal for Petrohawk Energy (HK) at $38.75/Share, a 65% premium!

I posted on twitter earlier the detail of a June 27th options trade where a trader sold 30,000 January 2012 $21 puts and bought 30,000 January 2012 $25 calls. The $1M trade will be worth more than $40M on the open tomorrow. This same trade was followed up twice in the past week, each time for 5,000 contracts, and is a trend I have seen in the options market since April. Needless to say, a lot of smart money was betting on Petrohawk being acquired, but I doubt they expected it to come at such a lucrative premium.

At the time of the deal Petrohawk shares were trading 14X earnings, 4.3X sales, 2X book and 14.35 EV/EBITDA, some numbers to keep in mind as we explore other names later in the post.

I see this deal as a game-changer for the Natural Gas stocks, specifically the ones with shale exposure. The hefty premium in an all-cash deal will revalue the acreage across all the shales and the stocks should gain on expectations of future deals. North America is seen as the "Saudi-Arabia of Natural Gas", and there have been a few deals in the last year, but now I think the race is on and there will be plenty of acquisitions moving forward. Foreign Oil Companies have a lot of cash to spend and are looking to enter the US Shale market, and are willing to pay up. The only concern remains environmental, as well as recent questions raised in the Times about companies overstating the productivity of their wells and size of reserves.

Some of the top shale assets in the US include Marcellus Shale, Bakken Shale, Barnett and Woodford, Fayetteville, Eagle Ford Shale, Horn River, Green River Basin, and Haynesville.

A few of the stocks that will be "in-play" tomorrow because of this deal, and should remain strong for the future outlook in the industry are as follows:

Apache (APA), Devon Energy (DVN), Anadarko (APC), EOG Resoources (EOG), Chesapeake (CHK), and Southwestern Energy (SWN) should trade well tomorrow and enjoy the valuation expansion, but are all trading with $15B+ market caps, and I want to focus on the next potential large acquisition candidates, also excluding the small caps.

Newfield Exploration (NFX, $66.90: The $9B Oil & Gas producer trades 10.8X earnings, 4.57X sales 9.5 EV/EBITDA and 2.7X book. Newfield has over 100 potential locations in the Woodford Shale with 6 wells On-Line and 172,000 net acres. It also has 30-35 wells in the Eagle Ford Shale. Stifel raised shares to Buy on July 8th with an $80 target.

Range Resources (RRC, $55.10): The $8.85B Oil & Gas producer trades 35X earnings, 9.55X sales 22.4 EV.EBITDA and 4X book value. On those metrics, shares are pricey to peers, but it owns some valuable assets. Range has assets in the Marcellus Shale, Wolfcamp, Bone Springs, Woodford, and Utica shales. It is the lowest cost producer among the 33 gas companies. Production with a CAGR of 12% and Reserves at 32% in 2010. 86% of its capital budget is focused on the Marcellus Shale, seen by many as the best opportunity. Goldman started shares Neutral with a $63 target in June.

Cimarex Energy (XEC, $83.54) is a $7.15B Oil & Gas producer that trades 9.9X earnings, 4.5X sales, 6.88 EV/EBITDA and 2.65X book value. I have long considered Cimarez to be the best value among gas producers. Cimarex is 67% Natural Gas with 77% proved developed, and production of 590 MMcfe/d. The breakdown for production is 45% Mid Continent, 25% Gulf Coast and 30% Permian. It has assets in Western Oklahoma with the Cana-Woodford Shale and in the Permian Basin it has 125,000 acres at Wolfcamp, 160,000 at Avalon and 60,000 at Cisco/Canyon, all shale targets. Stifel raised to Buy on July 8th with a $105 target.

Ultra Petroleum (UPL, $44.86): Ultra Petro is a $6.86B Oil & Gas Producer trading 15.6X earnings, 7.12X sales, 5.65X book value and 10.12 EV/EBITDA. Ultra Petro grew production 19% in 2010 and is an emerging Marcellus Shale play. The Company targets 50% production growth from 2010 to 2013. Capital One SouthCoast raised shares to Add with a $58 target on June 3rd.

Cabot Oil & Gas (COG, $62.60): Cabot is a $6.55B Oil & Gas Co. that has been on a strong run in recent weeks, and trades 28.55X earnings, 7.8X sales, 3.5X book value and 15.22 EV/EBITDA. Cabot is at a record growth pace with 31% reserves growth and 27% production growth. Cabot has a lot of Oil assets, but its major gas asset is in the Marcellus Shale, and one of the best acreages out there. Howard Weil raised its target to $75 on June 28th, and Canaccord raised its target to $85 with a Buy rating in early June.

Plains Exploration (PXP, $37.29): Plains Exploration is a $5.26B Oil & Gas Co. trading 12.56X earnings, 3.3X sales, 1.5X book and 10X EV/EBITDA. Plains has assets in the Wind River Basin, California, Eagle Ford, and Haynesville. Goldman raised its target to $52 on June 10th with a Conviction List Buy. PXP plans to sell 20% of its deepwater Gulf of Mexico assets in Q3. Its drilling activity in the Eagle Ford Shale looks to be driving growth to the upper end of forecasts.

SM Energy Co (SM, $72.14): SM Energy is a $4.59B Oil & Gas Co trading 21.3X earnings, 4.4X sales, 3.8X book and 11.77 EV/EBITDA. Jefferies has a $73 target, while Canaccord set a Buy and $101 target in June. 66% of revenues are from Oil, while 65% of proved reserves are in Gas (640 Bcf). Its focus is in the Eagle Ford Shale, Bakken, and Granite Wash. It sees 20%+ production growth in 2011.

One smaller Oil&Gas name that is worth a look is $1.6B Swift Energy (SFY) with 119,000 Eagle Ford Shale Acres

A few smaller shale plays like PVA, CRZO, REXX, MHR, and GST could be some big percentage movers, as the speculative names tend to runs after deals like this.

The analysis would be better using industry specific ratios, looking at proven and unproven reserves, etc., but in the essence of time I kept it fairly simple. As far as options activity I have seen the most bullish in COG, SM and PXP of the above mentioned names.

I would last mention that Consol Energy (CNX) has been seeing a massive amount of bullish options activity in September and October, using call spreads and bullish risk rerversals, and is a name I have long seen as likely to sell its valuable Marcellus Shale assets.

A graphic that breaks down many of the Co's is:

Open Table (OPEN) Options: Having a Great Plan and Not Executing

2011-07-13T16:33:00.000-07:00

Open Table (OPEN) is a name that was soaring to start last week, and although it was on minimal volume and right back to resistance, I saw a lot of people playing this one long, or at least via the virtual Twitter trading account.

What I saw was that shares remained in a downtrend since very disappointing earnings last Quarter. You will see this a lot with shares attempting to take a run at the earnings gap, failing, and proceeding to new lows. The move was nothing more than a relief rally in a bloated stock, so that the smart money could short it at a higher price ahead of next quarter's results.

My thoughts were confirmed on July 5th, the day shares were up big, when I saw the options market making large bearish bets. I put out the following note to clients on July 5th:

OPTIONS RADAR: Bears Making Reservations at Open Table

Ticker/Price: OPEN ($87.20)

Analysis:
"Open Table (OPEN) with 1000 Aug. 80 puts bought here at $4.40, more than $580,000 in put premium on the day purchased, and then another 1000 bought at the $4 offer on the PHLX, now total of nearly $1M in put premium purchased versus $300,000 on call premium, buyers of volatility today with earnings set for early August, and a downward bias today. Shares are up 6.5% today, trading at its upper Acceleration and Bollinger Band, very overbought on RSI and Williams %R. Shares were hit hard last Quarter on earnings and valuation is very questionable at 49.2X earnings, 17.5X sales and 65.77X cash flow. There is a 20% short float in shares, and the momentum name may be forming the right shoulder of a head and shoulders pattern which could lead to a big move below $75. BofA reiterated a Buy and $120 target on May 11th, and OpCo raised to Outperform and a $115 target in May as well. The next resistance for optimal short entry may be at $90, the 38.2% Fibonacci."

Each day I put together around 10 of these Option Radar stories to focus on, the action I see as most unusual or significant in the options market. Along with the analysis I provide the trading strategy, if there is one. For Open Table (OPEN) I noted the following on that day:

Trading Strategy: I think shares could definitely see pressure into results with concerns from last Q, so if it gets to $90, the Aug. 80 puts are a nice trade in my view.

Open Table (OPEN) shares hit $90 that day and also the next two days, printing a high of $90.89 on July 7th, and the puts were pricing around $3.50.

As of today's close the puts are priced at above $7, so a 100% move in just less than a week.

A great move, but I failed to ever put in the order, so only a lesson, no hard cash to show for the great plan. Luckily, a few of my subscribers followed the trading strategy, which for me, is the number one priority!

At this juncture I do not want to chase the move, although I see it highly likely shares test $75 support in the coming days, and I could even see a move to $65 post-earnings, as competition is heating up, and International growth is lagging expectations.

Collins Stewart set a Buy and $108 target on July 8th, but I have seen some negative Analyst notes as well come out recently.

Options Flow Case Study: Yea BEBE! Bebe Stores Jumps 33% in 5 Days

2011-07-08T04:36:00.000-07:00

Understanding where options traders are positioned into key events, such as earnings, always gives you an edge up on figuring out the directional bias.

With options activity I look at two types that are important. You have the "High Impact" trades, which are clear signs of Institutional positioning in the options markets, large lots of contracts and flow into a specific strike or spread.

However, I have often found more value in studying how unusual options action is, not always necessarily a giant block of contracts, but an anomaly. The reasoning behind this is that you can not expect to be an expert on every stock, and certain individuals, not just institutions, have better information into events regarding specific companies than you do, and they will position accordingly. Whether this is from insider information, or due diligence with channel checks and such, that is not important, just the outcome is.

Such was the case with Bebe Stores (BEBE), a much maligned retailer that has not done much good for the last few years. On June 2nd, more than 2,000 September $7 calls were bought to open at $0.30, pushing Implied Vol. higher, and running at a rate of more than 10X the average day in call volume for BEBE. Wedbush had raised shares to Outperform on May 5th with an $8 target. I noted the action live that day, as I always do, to my subscribers in the chat room, but that was not the only chance here. Seeing that same store sales were set to be announced, I noted on Wednesday to clients that Bebe Stores (BEBE) shares were acting strong, and still had more than 3,000 September $7 calls in open interest sitting out there, so there was a bullish bias for shares in the options, and the Sep. 7 calls were still trading at that $0.30 price.

Bebe Stores (BEBE) shares jumped more than 15% yesterday after reporting results, and most of the call buyers are sitting with more than a 200% gain.

Knowing how options players are positioned can set you up for quick gains, and although not 100% accurate, which is impossible to expect, it will give you a leg up and point you in the right direction. It also puts you onto the trail of stocks you normally would not give a second look to. I never would have thought twice about BEBE if I had not remembered the unusual call buying just 1 month earlier.

M&A: DST Systems (DST) a Potential Deal Stock

2011-07-07T15:30:00.001-07:00

Short post today, but an interesting trade I saw today, and shares are on a 9 day run and look to be trading like a deal stock:

DST Systems (DST) received buyout interest back in June and shares touched just below $60, but then pulled back to $50, and are now back on the move higher. Shares remain a great value at 8.8X earnings, 0.88 PEG and 7X cash flow, so an offer could come at any time. Options volume surged to more than 15X daily average as one trader sold 1,000 July $55 puts to buy 1,000 August $55/$60 call spreads for a net debit of $1.50.

Ariad Pharma (ARIA): Bullish Option Spread Targets 2H 2011 Catalysts

2011-06-22T15:33:00.001-07:00

This was an interesting spread I came across after hours, and after some research it looks like a very nice trade...

Ariad Pharma (ARIA) call volume jumped to 3X daily average as the August $11 / January 2012 $11 calendar call spread traded 2,500 contracts at $1.20 to open, the trader trying to time the Biotech for a move, looking for shares to stay near the $11 area through August expiration, and then potentially close the spread or let the January calls ride if the outlook is bullish. The spread is show below based on August expiration:

The spread traded as shares hit 5 year highs, although closing modestly lower, and overbought. Shares have tripled since last November, and volume has been strong lately with heavy accumulation. Ariad is a $1.35B Biotech that trades 7.6X sales and has a 10.65% short float. Ariad is in a strong trend, as seen below:

On June 20th, Oppenheimer raised its target to $13 from $11. Lazard reiterated a Buy with a $10 target on June 7th, and shares moved 25% and reached the target already. Lazard noted it expects Ariad to file for approval in the US and EU in 2H11, and forecast approval in the first half of 2012 for Ridaforlimus which has shown strong results, a 28% reduction in risk of progression in sarcoma and endometrial cancer. Lazard also notes that Pantinib in resistance CML is the most promising opportunity for Ariad, and data expected at ASH in December.

It is fairly clear from these event dates why this calendar call spread strategy is well designed, and has the potential to be very profitable as Implied Volatility jumps later this year in anticipation of the events.

The August/January $10 calendar call spread also makes for a solid trade if you see less near term upside, as the IV Skew has the $10 August calls bid up quite a bit. If more bullish, you could try the $12 strike, but regardless, the spread is set up well.

If you prefer not to take directional trades, you could look at the August/January Double Calendar or Diagonal Spread as more of a play on the likelihood of increased volatility later this year.

Philip Morris (PM): Option Trade Looks for Flame to Burn Out

2011-06-22T15:29:00.000-07:00

I do a lot of work after hours scanning for any action in the options market I may have missed during the day, and this spread in Philip Morris really caught my eye as a large trade that makes a lot of sense with the current Technical and Fundamental outlook.

Philip Morris (PM) with a large spread in August as the $65/$60 ratio put spread traded 3,000X6,000 on the ISE at a debit of $0.42 to open. The spread profits with shares in the $55.42 to $64.38 range (Shown Below)

The spread comes as shares sold off on heavy volume and broke back below its 50 day EMA. Shares also broke through the neckline of a head and shoulders pattern that would target the 200 day EMA just below $62. Today's breakdown was the start of a new trend, according to DeMark and the ADX Crossover. The chart below shows the Head and Shoulders Breakdown:

The $118.5B cigarette maker has been on a major run and is finally showing weakness, and shares now trade 16.3X earnings, 1.73X sales and 25.5X cash flow, and the yield is now only 3.84%, so shares do look over-valued. The trade also comes as the FDA released new grisly warning labels to try and deter smoking, a potential impact to profits moving forward.

BofA raised its target to $78 in early June, noting strong pricing power. However, the Japan and Spain markets could see weakness due to recent events, and with the economy struggling, the spending on cigarettes could become more discretionary.

Ratio put spreads are often used as protection, and the small outlay here can yield a big return if shares head towards $60, while the risk is limited , because shares are not heading back below $55 due to value/yield buyers.

Smart Money Positioning for Late Summer Commodity Rally

2011-06-19T13:13:00.000-07:00

Discovering trends in options activity often leads to the highest probability trades, and the recent trend has been large opening positions in commodity names, mainly the metals.

The S&P has corrected more than 8% in the last 2 months, while Metals (XME) have corrected more than 19% in the same time period, notable weakness in Coal, Steel, Iron Ore, Gold, Copper, and Steel stocks, with many of the individual stocks down more than 30%.

Commodities are considered a risky-asset, tied more closely to global economic growth than other industries, and a heavy reliance on China, India, and other growth markets. However, the group does appear to be over-shooting to the downside, especially if the 2H 2011 improves from 1H 2011.

The recent data also supports a bullish fundamental view on the metals, with China showing strong demand for Coal, Steel, and Iron Ore, while Japan is also seeing a demand surge as the rebuild begins.

Some of the leading Wall Street Research shops are also starting to make bullish calls, Credit Suisse out with a very bullish Copper forecast last week, and Steel Market Intelligence making a positive Steel call, flipping from a bearish call that was spot-on.

In the last two weeks I have seen large institutional buying in upside call options across most of the metal groups, and will highlight that action below. Alcoa (AA) earnings will kick off Q2 earnings season, and is a potential catalyst for a resurgence in the metals, although aluminum fundamentals are not looking quite as positive as the other metals.

Steel
Arcelor Mittal (MT)September $35 calls were active the last 4 days of last week, with open interest starting the week at 207 contracts, and on Friday 5,013 contracts traded against open interest of 30,228 that accumulated in the contract throughout the week, and the implied volatility of the contract rose more than 15%. Arcelor has held up much better than its peers and have been basing above $31. The $39.2B Steel giant is trading 7.1X forward earnings, 0.85 PEG, 0.59X sales, and 0.8X book value, making it one of the cheapest names in the industry, and also a Company interested in acquisitions. Option traders are positioning for shares to gain more than 13% in the next 3 months.

Copper
Freeport Mcmoran (FCX)shares have held well above the $46 double bottom from earlier in 2011, and face resistance with a descending trend line at the $50 level. It has outperformed most of the names in the metals sector, and Copper, often seen as a leading indicator for economic growth, has held the $4 level very strong since rebounding sharply off $3.90 lows in early May, a bullish divergence versus other metals. On Friday, a large holder in call options extended his/her play out another month, rolling 25,000 June $42 calls to the July $43 strike, and another rolled 12,000 June $47 calls to 12,000 July $46 calls. Freeport is another value name at 7.66X earnings, 2.23X sales, 3.3X book and 11.3X free cash flow. Deutsche Bank noted last week that the Company is likely to return money to shareholders via special dividends and has a Hold and $65 target. Morgan Stanley also recently reiterated an Overweight, noting improving Copper fundamentals.

Iron Ore
Vale SA (VALE)is a $155.87B mining giant, often focusing on its Iron Ore business, but also a major player in other metals, and becoming a force in the fertilizer space as well. Shares trade very cheap at 5.8X earnings, 0.45 PEG, 3X sales and 2X book value. Goldman reiterated a Buy in April with a $45 target, citing a strong upcoming Iron Ore cycle, and the new CEO should lift the uncertainty. Recent speculation is the Company could announce a healthy dividend. Recent data out of China and Japan bodes well for Iron ore. Shares have been trying to base and remain in a channel down since January, current resistance at $32 and support at $28, while $29 remains major support from May lows and the September breakout level, so reward/risk is compelling. VALE August $32 calls were extremely active with buyers on June 16th, more than 30,000 traded including one block of 8,300 at $0.80 on the CBOE, and open interest in that contract doubled, now sitting at 61,376.

Coal
Arch Coal (ACI) shares have been under pressure since announcing the acquisition of International Coal (ICO), a longer term positive as metallurgical coal is the hottest coal group. Shares have fallen more than 30% off April highs. Arch Coal is trading 6.4X forward earnings, 0.42 PEG, 1.58X sales and 1.78X book value. On May 12th, Standpoint raised to Buy with a $37 target. Arch Coal was the focus of bullish option traders on three occasions last week. On June 14th, more than 10,400 July $26 calls were bought to open, while on June 16th 4,600 July $27 calls were bought to open, and finally on June 17th more than 11,600 July $25 calls were bought to open as $1.2 million in call premium was purchased. 30 day implied volatility in Arch Coal jumped 15% last week.

Gold
Barrick Gold (ABX)shares are trading 21% off a recent double top at $56, at August 2010 lows, while Gold prices are barely off all-time highs, a major disconnect. Barrick shares trade 9.4X earnings, 3.77X sales, and 2.1X book value. Stifel raised shares to Buy with a $70 target in late April. Barrick Gold saw a few large bullish option positions last week. On Friday, more than 2,500 October $43/$47 call spreads were bought at $1.53, a nice reward/risk trade. On June 16th, more than 11,350 July $45 calls were bought to open, looking for a nice run in shares in the coming month.

There are likely a few names I am not mentioning, but all of these took place within the last week, so the trend is noteworthy. If the market shows signs of bottoming this week, I would concentrate on being long metals for the reversal move.

Cisco (CSCO) - Long Term Option Strategy Beats Buying Stock

2011-06-16T15:14:00.000-07:00

As a lead in I have always felt that there really is no sense ever buying an equity where the options are liquid with tight spreads, because if you are confident in your view, the use of leverage allows you to better position for larger gains, whether you want to use deep in-the-money calls/puts or play the upside with out-of-the-money options. Also, if you are a long term investor willing to buy a stock at a certain level, why not just sell a cash secured put where you improve your cost basis due to the premium. If your fear is missing a big upside move, you can go long a call along with short a put for a risk reversal, a strategy that can amass huge gains if you catch a trend, or use a synthetic.

Anyway, I wanted to take a look at Cisco (CSCO), the $82.8B much-maligned former Tech leader. For months I have seen "value-gurus" trying to call the bottom and get long this Company, first on the move down to $18 on earnings, and more recently around the $16 level. Cisco is cheap on all metrics, trading 8.85X forward earnings, 1.9X sales and 8.95X cash flow, and also with around $40B in cash, or nearly half the market cap. One would question why management is not actively making acquisitions to drive growth, or returning money to shareholders in the form of a dividend, or even a special one time payment. Either of these actions would result in shares heading higher in my opinion, just anything to change the current sentiment, or maybe even a shakeup in management.

I'd rather not get too deep into the Cisco situation, as my goal is to lay out a strategy that is a much better play than simply trying to catch shares in this sharp trend lower. Shares are nearing the $14 level, which would be a 50% haircut from the early 2010 highs, and also a spot for a potential double bottom with the 2008 lows.

Most of the Street maintains $20+ targets on shares, seeing the longer term value.

The trade that caught my eye today was 10,000 January 2013 $20/$10 bullish risk reversals at a $0.23 Net Debit, buying the $20 calls and partially funding via selling the $10 puts.

The $230,000 outlay is a 41 Delta position, or equivalent to being long 410,000 shares of Cisco stock.

Through this strategy you are leveraged to being long Cisco, and if shares head higher the value of the calls increases, while the value of the puts decrease, and as that spread widens, a relatively small move higher in the stock can quickly double, triple, or more your $0.23 basis on the spread. I would note that the spread requires margin, so you would want to do this at a size where you are willing to be long Cisco (CSCO) at $10, so if you want $25,000 of Cisco, you can put on 25 of these spreads (note cost basis is actually $10.23 due to the debit, adjust accordingly).

The beauty of this strategy is that for a small outlay you limit your risk, but can participate in more of an upside move. If shares were to somehow tank below $10, making Cisco (CSCO) the greatest value buy of all time, you are willing to be long stock at $10.23, and did not just lose 33% on your equity position. If shares of Cisco have a resurgence and reach $25 by 2013, the spread is worth $5, roughly 20X your investment.

I would also note, if you see even less downside potential in Cisco, you could put on the January 2013 $17.50/$12.50 bullish risk reversal for less than $0.10.

These type of spreads are often done at a net credit, my preference, so you have zero outlay, willing to be long at a certain level, but able to participate in an upside move with maximum leverage.

These risk reversals are risky for growth stocks and high Beta stocks, but when you are looking at a beaten up value name with a limited downside view, it can really accelerate your returns.

Good Luck!

Could Rio Tinto (RTP) Acquire the Rest of Ivanhoe Mines (IVN)?

2011-06-13T15:34:00.000-07:00

Ivanhoe Mines (IVN) is a $14.5B miner that is trading 3.88X book value. It's principal property is the Oyu Tolgoi copper & gold mine development project in southern Mongolia. The Company announced on June 9th that construction is ahead of schedule, currently 23% complete.

Ivanhoe is partnered with Rio Tinto (RIO), a $129B miner with nearly $10B of cash on hand, and always willing to make deals. Global mining M&A should be strong moving forward for cost efficiency, and most every CEO, whether it be for Gold, Silver, Copper, or other metals, has shown confidence that metal prices are only going higher.

Ivanhoe owns 66% of the project, with Mongolia's government owning the rest, and Rio Tinto owns 42.1% of Ivanhoe, and can raise its stake to 49%. Ivanhoe's CEO also owns 15.5% of the Company, a positive sign.

Ivanhoe's chart is not a thing of beauty to say the least, breaking support o a $6 horizontal channel at $23 that would measure a move to $17, while $19 is major support as a re-test of a big breakout level from September 2010.

Ivanhoe Mines has caught my eye lately due to the options action, the January 2012 $25 calls which traded 5,585 contracts today, and buyers paying $2.20 on a $2/$2.25 bid-ask, aggressive bullish trades, and these contracts have been seeing action for more than a month.

Ivanhoe typically trades just 1,790 calls a day, but has been running well above that pace lately. The January $25 calls had open interest of 21,594 contracts going into today, and likely to increase with the volume seen today. On May 13th there were only 521 contracts in open interest and then:

1) May 16th: 3,670 contracts bought
2) May 17th: 5,411 contracts bought
3) May 20th: 1,072 contracts bought
4) June 3rd: 7,926 contracts bought
5) June 6th: 2,535 contracts bought
6) June 7th: 1,645 contracts bought
7) June 8th, 1,170 contracts bought

On May 18th a trader bought 210,000 shares of Ivanhoe, along with 15,000 January $17.50 puts in a hedged play, betting on increased volatility.

The implied volatility (IV) of that contract has jumped from 42% to 47.3% over the course of that time as well, and the September IV Skew is exhibiting a bullish smile, while January s surprisingly normal.

Logically it would make sense for Rio Tinto to acquire the rest of the Company as the Mongolian asset is seen as a crown jewel, so better to make an offer before the mine is actually producing and Ivanhoe's shares are re-valued higher.

Ivanhoe also owns part of Ivanhoe Nickel & Platinum which made majro Tier 1 copper discoveries in South Africa back in February.

Packaging and Paper M&A is Hot -Who's Next?

2011-06-09T15:56:00.000-07:00

...MeadWestvaco (MWV) and Bemis (BMS) are Two Names that Stick Out...

Temple Inland (TIN) recently received a $30.60/share offer from International Paper (IP), a 44% premium, valuing the Company around $3.3B, or 15X earnings, 0.85X sales, and 3.5X book value. On EV/EBITDA, commonly used in M&A Analysis, TIN is at 9.3 while MWV is at 6.8 and BMS at 6.9, so MeadWestvaco/Bemis look to be better values here, and in an industry seeing a lot of consolidation, a potential takeover target. Remember, that Silgan (SLGN) bought Graham Packaging (GHM) for $1.3B back in April also.

There has been notable call action in packaging names the last few days since the deal was announced, looking for the next target, and seen in names such as Crown Holdings (CCK), Avery Dennison (AVY), Packaging Corp (PKG), Rock-Tenn (RKT), Boize (BZ) and Sealed Air (SEE).

There was notable action in Crown Holdings (CCK) today with 3,450 In-the-Money October $37 calls bought to open today, detailed to subscribers in full earlier today. However, MeadWestvaco (MWV) traded 2,036 calls on the day with offer side buyers, more than 10X daily call volume as 739 June $35 calls traded and 1,184 July $35 calls. IV was up modestly and the action was unusual, although very cheap contracts, but potentially thinking buyout.

MeadWestvaco Corp (MWV) is a $5.55B packaging Company mostly geared to the consumer related industries that trades 14.4X earnings, 0.96X sales, and 1.63X book value.

On May 14th UBS recommended IP as its top pick, but also noted it liked TIN and MWV, raising its target to $37 a few weeks prior. RBC has a $40 target and JP Morgan a $38 target. MeadWestvaco shares have a confirmed uptrend off the Summer 2010 lows, through the March 2011 lows, coming into play at $31, support, and currently in a narrow channel down, consolidating while momentum indicators begin to trend bullish, near a bullish MACD and ADX crossover.

Purely on valuation and technicals I have to favor Bemis (BMS), a $3.5B maker of flexible and pressure sensitive packaging. Shares trade 12.8X earnings, 0.68X sales and 1.86X book, cheaper than most of its peers and offering a 2.9% dividend yield. Sales grew nearly 30% Q/Q and EPS at 73.36% clip. There is 5.1% of the float short, or 7.17 days to cover. The Company was positive on business fundamentals at a Goldman Conf. in late May. KeyBanc raised shares to Buy with a $38 target on February 3rd. Specialty resin prices have impacted results in the past, as a commodity cost, but I am unable to find a good source for how pricing is currently tracking. The chart is a thing of beauty, an ascending triangle that finds support at the 200 EMA and bounces, and is now looking to breakout at the $33.50 level, strong volume buying the last 3 days.

The entire group is looking fairly cheap on valuation with healthy dividends, and the potential for M&A, so I like a lot of the names.

Will Oil Service/Equipment See Increased M&A? Is Cameron (CAM) a Target?

2011-06-03T12:59:00.000-07:00

The Oil Services (OIH) group has outperformed the market recently and Crude seems to magnet to the $100 level, buyers at $95 and sellers at $105. I would expect M&A in this group moving forward, as valuation is fair, and synergies can result in great cost-savings. It is also no secret that the large Exploration and Production companies are boosting CAPEX, and some may be interested in integrating a service Co.

In 2010, Schlumberger (SLB) made an $11B deal for Smith International (SII) and in 2009 Baker Hughes (BHI) made a $5.5B deal for BJ Services (BJS), so this is an industry that is consolidating. The Smith Int'l deal was done at a 37.5% premium and the BJ Services deal was done at a 16% premium. Halliburton (HAL) could be next to strike, the $45.9B Company.

On valuation, Complete Production (CPX), Helix Energy (HLX), and Superior Energy (SPN) are three smaller names (All Under $3B) that are attractive targets, but I am looking for a big deal in this group, and Cameron International (CAM) is the name I am looking at. Weatherford (WFT) is the long rumored buyout target with a $14.4B market cap, while National Oilwell Varco (NOV) is another potential suitor in this space.

Cameron International (CAM) is an $11.3B maker of Drilling & Production Systems. Shares trade 13.35X forward earnings, 1.8X sales and 2.45X book value. Cameron shares have come down from recent highs above $60 to $46 and are re-testing a major breakout level from last November, likely to base around this level.

Cameron (CAM) has caught my eye as 32,775 August $48 calls have accumulated in Open Interest, which began on May 26th when 16,000 were bought around $3.60, another 8,800 bought on May 31st around $3.40, and a block of 5,300 bought on June 2nd at $2.70.

That is a whole lot of money sitting in that contract looking for a move higher. Maybe it is just a technical or fundamental call, as I can see the bullish argument for both, but a large M&A deal in Oil Services also makes a lot of sense to me, with Halliburton the likely buyer, and likely a stock deal, which has been the norm in this industry.

Disclaimer: I am just speculating and stating facts and have no inside information

Ethan Allen (ETH): Put Volume Soars to 240X Avg. - A Seasonal Sell?

2011-06-02T15:30:00.001-07:00

Ethan Allen (ETH) shares fell 6% as MasterCard Spending Pulse data showed weak spending in furniture and it traded 6,066 puts on the day, 240X daily average with most of the action on the offer as bearish buyers cause IV30 to jump 21.8% on the day. The August $20 puts were the target today as 4,286 traded against OI of 62, opening positions.

The $594M home furnishing Co. trades 24.3X forward earnings, 0.89X sales and 13.35X cash flow, and a massive 19.3% short float, 19.5 days to cover. There was also no signs of buyers in the underlying stock on the day, so it looks to be plenty of outright bearish bets, mainly from 3:44pm to the close.

Meanwhile, Pier 1 stayed positive on a day that was weak for retail after reporting strong same store sales growth, potentially stealing market share from Ethan Allen.

Looking at the chart we have a clear double top at $25 from April 2010 highs and April 2011 highs, a very similar seasonal pattern and history may repeat itself here. Shares broke $21.30 that was acting as support and now are sitting right on the 200 day EMA that looks unlikely to hold, and a break below the 38.2% Fibonacci would target a move to $19, and then possibly lower. Shares also closed below the lower Keltner Channel, which over the last two years has resulted in sharp sustained sell-offs.

The best approach here may be to wait on a weak volume bounce to around $21.50, and let the IV come down a bit, but longer term, the put options look to be a good choice.

Options Expiration Pins for May 20th

2011-05-20T05:37:00.000-07:00

Options Expiration Strike Pegs:

AMZN Max Pain $190 - Looking for $200 Pin - $195/$200 1X2 Call Spread an Option

GOOG Max Pain $535 - Selling the $530 Straddle an Option

BIDU Max Pain is $135 - May $130/$135/$140 Butterfly Spread an Option

POT Max Pain at $55 - June $55 Calls at $1.50 Cheap

CAT Max Pain $105 - May $105 Straddle Sale an Option

PCLN Max Pain at $515 (Shares at $522) - May $525/$515 1X2 Ratio Put Spread an Option

AAPL Max Pain $340 - May $340 Straddle Sale an Option

NFLX Max Pain at $240 - May $245/$240/$235 Put Butterfly an Option at $1.75

FSLR Max Pain at $135

GS Max Pain at $150

OXY Max Pain at $100

BA Max Pain at $77.50

IBM Max Pain at $170

CRM: The Force is Strong with this One

2011-05-19T15:11:00.000-07:00

Salesforce.com (CRM) is trading 7.9% higher after hours to $146.50 ahead of the CEO on Cramer, and the Company beat by a penny on EPS but beat big on revenues, and along with raising its guidance, it showed new customer adds, the real key to its report as it continues to show itself as the leader in cloud computing, which is still fairly early in the growth stage. In this case it is best to throw away traditional measures of valuation and use a more common sense approach, realizing that cloud computing is going to be the future for every Company and the transition is in the early stages.

I previewed the quarter for subscribers last Sunday:

Earnings Focus
Details: Salesforce.com (CRM), $134.91, Technology - Application Software, Earnings May 19th After Market Close

Earnings Expectations and Keys to the Report: Analysts are expecting $0.27 EPS and $482.45M in Revenues for the Quarter and $1.27 EPS and $2.11B for FY12 estimates. Estimates are factoring in 28% growth this year in revenues. Last quarter subscription revenues grew 31% Y/Y and 5,100 new customers were added in Q4 to a total of 92,300. Analysts and Traders will focus on subscription revenue growth and new customer adds. Also, the launch, and early read on the success of Chatter will be eyed on the Conference Call. Salesforce's $326M acquisition of Radian6 should be a positive moving forward for social media channels, and acquisition costs will cause a discrepancy in the headline Non GAAP and GAAP numbers.

Previous Reports and Reactions: Shares jumped on the report/outlook last quarter, but faded quickly, sinking that day and for a few weeks following the report. In 3 of the past 7 quarters, Salesforce has made a 15% or greater move, while the other 4 quarters the move only averaged 3.5%. The quarter before last resulted in a strong gap up, followed by strong buying to close the day at highs, and then continuation to all time highs.

Technical Analysis: Salesforce shares are making a series of lower highs in a channel down pattern since reaching all time highs in December 2010, recent resistance at $140, and the channel bottom extends to $115, a potential target as it would also fill the November 2010 gap. If shares were to break $140 on earnings a move to $150 would likely be quite easy, and potentially as high as $165/$170. MACD and ADX are showing early signs of turning bullish and RSI is trending higher. Bollinger Bands are tight, and a big move looks imminent. Shares found the 200 day EMA as support in March, and that is currently at $122.50.

Fundamental Analysis: Salesforce shares are undoubtedly rich on valuation at 73X forward earnings, 10.9X sales, and 200X free cash flow, and although that has not mattered in the past, being priced for perfection is a dangerous game, and could result in sharp sell-offs on any negative outlooks concerning growth potential. However, smart acquisitions and customer adds, along with cloud computing still in the early stages leave Salesforce as a leader in the industry that is likely to remain at a valuation premium.

Analysts: Of the 31 Analysts covering Salesforce the average target price is $160, a high of $200. FBR raised shares to Outperform on April 7th with a $170 price target.

Sympathy Movers: VMW, FFIV, CTXS, ORCL

Options Activity, Open Interest Analysis and Volatility Analysis: Salesforce May IV at 65.9% compares to June at 45.27%, so front month volatility is definitely pricing in a move, the straddle pricing in a 7.5% move on earnings, although we have seen many of the high flying Tech names make much less than priced in moves on earnings in recent weeks. The IV Skew has a minor bullish smile for May options and is fairly flat going out to later dated months. Salesforce has not seen a lot of large option trades in recent weeks, notable buying of the May $130/$135 call spreads for 2,500 contracts on May 4th. I feel the straddle is fairly cheap here and expect more than a 7.5% move in shares on earnings considering the recent tight trading range, and historical movements.

Now, on May 17th, just 2 days ahead of earnings there was very bullish options action in Salesforce ahead of the quarter, and I put out the following note to subscribers:

OPTIONS RADAR: Salesforce Call Spreads Active Ahead of Earnings

Ticker/Price: CRM ($129.20)

"Salesforce (CRM) June $140/$155 call spreads with 2,000 bought at $2.50, earnings May 18th, and then another 6,000+ were bought as call volume jumps to 26,500, or 3X daily average with opening bullish buyers, and not seeing any short stock with the spreads. Also, similar bullish action seen yesterday with these spreads and plenty of May $130/$135 call spreads still sitting in open interest. Shares rebounded a bit off support today and are set to close in the green. The larger picture channel down has resistance at $140 and support at $115. Shares of the cloud computing leader trade 69.7X earnings, 9.3 PEG and 10.4X sales, and the recent launch of Chatter could get investors excited this quarter as the Company continues to win new clients. Morgan Stanley noted this morning that it expects a solid print, but remains Equal Weight. "

The action continued today right up until the report, including a buyer of 1,000 May $145/$150 call spreads at 3:28pm, and the 345/350 May ratio 1X2 call spreads also traded in size.

All of my signals were bullish into the quarter, so the spread I recommended late in the day was the May 140/150/155 unbalanced butterfly call spread at $1.75. If shares hold around where they are trading after hours, a big IF as anything can change, the spread should work out very well. For the more neutral traders looking for a safe trade I recommended the May/June $150/$120 Double Calendar Spread, which should also work out very well.

Looking at the chart, shares broke trend resistance late today after a great support bounce at $127.25 two days ago, and on the break of this pattern of lower highs at $140, shares should hit $150 easily, and be well on its way to $175.

Disclosure: Long Calls and Spread Noted Above

Sherwin Williams (SHW): Painting a Bullish Picture

2011-05-17T15:23:00.000-07:00

Sherwin Williams is a name catching my eye, a great ascending triangle has setup above the prior resistance, now support at $79. If shares can push through $86.30 on volume it would measure a move to above $90. ADX is climbing after a bullish crossover and RSI is rising, although a bit overbought. Shares have topped out here previously and I do see a Red 13 on DeMark, but the 3rd attempt is usually the breakout move, so definitely one to watch in coming days.

As for the fundamentals, Sherwin Williams has a $9.1B market cap and trades 14.65X earnings, 1.13X sales and 23.6X cash flow, fairly valued for a Company with modest sales growth. The Company would benefit from the recent action in commodity prices, lowering raw material costs, and increasing margins and profits, the Raw Material Cost Index currently at 10 year highs. Home Depot and Lowe's both recently reported earnings, and the results were not spectacular as the housing cycle remains near the bottom, and no clear signs of a recovery, but as we enter the Summer, projects should pick-up and homeowners looking to increase the value/attractiveness of their homes could go for a new paint job. Home Depot noted on it's Conference Call that it expects more maintenance and repair than major renovations and is beefing up its paint offerings.

BofA-Merrill recently reiterated a Neutral rating and $92 price target after the Company's Annual Meeting. The Company is now targeting a younger demographic via HGTV and Digital Media and is also set to raised prices on coating by 7 to 9% on June 6th.

One trade to consider is the June $85/$90 1X2 Ratio Call Spread for a $1.40 Debit

A simple June $85 Call at $2 or Better Looks Fine As Well

S&P 500: Current Technical Outlook

2011-05-15T09:14:00.000-07:00

The S&P traded in a choppy narrow range last week and closed the week slightly lower than where it opened, and is flirting with a technical breakdown. Shares have formed a descending triangle above the 50 day EMA and prior support at 1,330, along with a 50% Fibonacci Retracement of the 1,290 to 1,370 range.. A break past 1,350 is needed to break the short term trend lower and make a push to new highs around 1,375 in a bigger picture rising wedge. If we can break to 1,375/1,380, the 1,400 target may not be achieved initially, and we could see a push back towards 1,300/1,250 in seasonally weak months of trading, possibly with resistance at 1,400, the next Fibonacci extension. In the near term of a break of 1,330 we would lose a long term trend from last August, and 1,300 is the initial target with the April lows and 100 day EMA, while 1,280 is a Fibonacci support level, and the 200 day EMA at 1,250 is major support, also the March lows. I also see 1,312 as a minor support level as a gap fill from April 20th, and a Fibonacci level. A buy signal near term would confirm with a break past 1,350 and the RSI breaking above 50. The 50,100 and 200 day EMAs are all rising with a bullish slope, while the 20 day EMA is flattening and a potential bearish cross of the 20 day EMA with the 10 day EMA from above is worth watching as a bearish signal.

Conclusion: Buy Above 1,350 with RSI > 50 with 1,380 Target; Fade a 1,400 Target with Stop at 1,410 and Target to 1,350/1,325/1,300/1,250; Sell Below 1,330 with 1,300 Target; If 1,250 is Seen, Load Up Aggressively!

Apple (AAPL): Prepping for Explosive Move - Traders Get Long Volatility into Developers Conf.

2011-05-13T11:59:00.000-07:00

Apple (AAPL) traded a large spread on the PHLX May 12th that I am trying to drill down on, between 3:15 and 3:25pm. All in all it appears that at 3:17pm a trader bought 4,000 May $350/$355 call spreads at $1.29 and 4,000 May $335/$330 put spreads at $0.36. After that the trader looked to June and bought 4,000 June $370/$375 call spreads at $0.60 and 4,000 June $335/$330 put spreads at $1.20. I am going to operate under the assumption the trader is closing a May short Iron Condor that worked nicely, and now going long a June Iron Condor.

Apple has been in a tight range and is due to breakout or breakdown, which is what these trades are looking for, and comes after Goldman recommended earlier this week to be long Apple volatility into the June 6th Developers Conference where the Company is expected to discuss its cloud initiative. The event averages a 5.4% move in shares and Implied Volatility is at all-time lows. Goldman recommended the June $350 straddles at $19.40.

Apple Bollinger Bands are not really squeezed too tight, but shares have traded in the $340 to $355 range for 3 weeks. Shares are basically consolidating along the trend line that it broke out past, and that was a descending triangle breakout with a measured move to around $385, all time highs. If shares were to breakdown below $340 there is not much support and another test of $325 would be likely, and I doubt it would hold again, so the 200 day EMA at $315 would be a downside target. The last time Apple's ATR Wilder was this low was in February, where shares topped, and made an explosive move lower. This is not to say that the next move for Apple is lower, but more a sign that an explosive move is nearing. Either way, the $19.50 straddle seems like a smart play, but let's take a look at today's trade. The trader paid $1.80 for the June Condor and a potential return of $5, $3.20 in profits, or nearly 180% gains, if shares were to close June expiration either above $375 or below $330.

I also like to look at valuation and Analyst estimates to get a feel for the range shares of a certain stock can trade. OpCo recently started shares Outperform with a $450 target, Argus raised its target to $415, ISI group raised its target to $425, Wedbush raised its target to $445, Citi raised its target to $435, UBS raised its target to $495, Jefferies raised its target to $500, Goldman raised its target to $470, and Barclay's raised its target to $465. Basically, it's a safe assumption that Apple shares can easily trade North of $400. As for the downside potential I do not see any way shares can trade less than 10X forward earnings, so $285 is the maximum downside.

In my view, Apple has greater upside than it does downside, so a bullish strategy, the risk reversal trade, would involve selling the June $315 puts and buying the June $365 calls for a $0.25 Net Credit.

Your worst case scenario is that Apple shares fall and you are put shares at a $314.75 cost basis, which is much better than just buying shares now and hoping for the best, and is why option strategies are almost always better than being long stock.

Polaris (PII) - Ratio Put Spread Looks for Slow Slide, Gap Fill

2011-05-11T15:47:00.000-07:00

Polaris (PII) recently reported a blowout quarter, and now shares have consolidated in a tight range. The growth story is intact here, and on any significant fall I would be a buyer of this stock, but one trader is looking for a slide in shares:

Polaris (PII) traded 4,675 puts on the day, more than 20X the daily put volume. The action was in September where the September $95/$85 ratio put spread traded 1,500X3,000 contracts at $0.17, a small debit for a bet on a slide in shares, and also a bearish bet on volatility as the spread will become profitable if shares fail to make new highs and trend sideways the next few months, a positive Theta and negative Vega trade structure. The trade is profitable in the $75.15 to $94.85 range, shares currently at $103.43. Maximum Profits are made if shares end at $85 on September expiration, where each $17 spread would be worth $983, a massive percentage gain.

Looking at the chart you can see shares gapped up last quarter on earnings from $92.50 resistance all the way to $105, and clear gap support at $102.50. A slow gap fill move back towards $92.50 would make this spread work perfectly over time.

Shares of the $3.5B maker of recreational vehicles trade 15.4X forward earnings, 1.63X sales and 19.9X cash flow, fairly valued, but sales are elastic to oil prices and consumer discretionary spending. There is a 10.1% short float, 7.2 days to cover.

Wells Fargo recently raised 2012 earnings estimates to $7, and a P/E of 15, its historical average would put shares at $95, so one could argue shares are over-valued. Shares are trading at 5 year highs on Price/Sales and Price/Earnings. However, earnings growth and margins are also making 5 year highs. RW Baird cut shares to Neutral from Outperform, but raised its target to $125 from $90 recently, which seems unusual as a stock with 20% upside is generally at least an Outperform.

Disclosure: No Current Position, Set Alerts for $102.50 Breakdown

PSS World Medical (PSSI): Stealth Options Action of the Day

2011-05-10T15:39:00.000-07:00

PSS World Medical (PSSI) traded 50X daily call volume as 1,000 June $30 calls were bought on the CBOE at $0.625, with the bid-ask at $0.55/$0.80, so not an aggressive purchase, but appears to have been a buyer based on the IV movement. Earnings are May 12th before the open and shares are at all time highs, and have jumped on earnings the last 2 quarters. The $1.6B Medical Equipment Co. trades 19.5X earnings, 0.8X sales, and 17.5X cash flow. There is a 14.95% short float, 16.35 days to cover, so a short squeeze is a real possibility. If earnings turn out not to be the catalyst there is also the Jefferies, Goldman and William Blair Conferences in June where the Company will be presenting. Last quarter the Company guided FY11 above the Street. PSS World Medical is a supplier that is a direct play on the aging baby boomers as it supplies to alternate site physician practices and elder care businesses. Credit Suisse has an Outperform rating on shares.

Archer Daniels (ADM): Option Trader Sees Further Downside with Ratio Put Spread

2011-05-08T11:17:00.000-07:00

Archer Daniels (ADM) shares continue to slide post-earnings, and one bearish trader sees more downside potential for the grains Company. The trader traded the June $34/$32 ratio put spread for 2,500X5,000 contracts at $0.27 debit, looking for a fall to $32, and seeing limited upside despite the valuation. The trader's profit zone is from $30.27 to $33.73 (See Below), and with the trade also Vega Negative, the trader can close this trade for a profit if shares stay below $35 in coming weeks.

Put volume was 3X daily average.

Shares could see further downside as farm subsidies are argued in Government. The $32 level is a major support level, and shares recently lost $34.50 support, now with a gap fill to $33, and a measured move to $31.50 on the most recent breakdown. The chart below highlights this trades' profit zone in orange.

6 Speculative Option Trades on Small Caps Reporting Earnings this Week

2011-05-01T15:27:00.000-07:00

Every week I look to the week ahead and screen for small caps that report earnings and then filter them out by looking at fundamentals and the charts using FinViz to find some names that others are likely not watching, but could trade strong post-earnings. Although the options tend to be illiquid, I will provide a few speculative ideas here, although I often just buy the stock in front of earnings.

1) ION Geophysical (IO): Shares of the $2B Seismic Technology Co. with strong ties to Oil & Gas CAPEX, which is strong in FY11, trade 18.3X earnings and 4.4X sales with 30.8% quarterly sales growth. Shares have been consolidating since the last earnings jump and are in a tight triangle, ready to break higher.

Trade: Long the IO May $13 Calls at $0.50 or Better (May 5th Earnings AMC)

2) TTM Tech (TTMI) is a $1.55B maker of printed circuit boards, similar to Jabil (JBL) which posted strong results recently. Shares trade 9.4X forward earnings, PEG of 1, 1.3X sales and 2.1X book with a 7.9% short float. Shares are trading in an ascending triangle with $19.50 the breakout level for a measured move to $23.50.

Trade: Long the TTMI June $20 Calls at $0.90 or Better (May 5th Earnings AMC)

3) CSG Systems (CSGS) is a $734.35M provider of customer care and billing solutions for the cable industry, which has seen strong results. Shares of the software Co. trade 8.5X forward earnings, 1.34X sales and 7.2X cash flow, a good value. There is also a 5.85% short float, 7 days to cover. Shares are trading in an ascending triangle pattern with $21.30 the breakout level for a measured move to $25.

The Trade: Long CSGS June $22.50 Calls at $0.30 or Better (Earnings May 3rd AMC)

4) Ares Capital (ARCC) is a $3.6B Diversified Investments Co. trading 11X earnings, 0.54 PEG, and 1.2X book value. Shares recently broke out at $17.60 to new highs.

The Trade: Long ARCC June $18 Calls at $0.30 or Better (Earnings May 3rd BMO)

5) Atlas Air (AAWW) is a $1.8B provider of air cargo solutions and trades 10.15X earnings, 1.34X sales and 7.1X cash flow. Shares just broke out of a symmetrical triangle after consolidating from a strong move on last quarter's results.

The Trade: Liquidity is a Problem Here, but Long the AAWW June $70 Calls at $3 or Better (Earnings May 4th BMO)

6) PolyOne (POL) is a $1.37B maker of specialty chemicals that trades 12.8X earnings, 0.8 PEG, 0.5X sales and 13.5X cash flow. Shares are in a $12.50 to $14.80 channel, and a breakout past $15 could target a move towards $17.50.

The Trade: Long POL September $15 Calls at $1.05 or Better (Earnings May 4th BMO)

Bonus: Silicon Graphics (SGI) is a $557M provider of high performance computing and storage with high growth rates, 88.6% sales growth Q/Q and coming off a big move on earnings. Shares have consolidated tightly and look ready for another surge.

The Trade: Long SGI June $20 Calls at $0.95 or Better (Earnings May 3rd AMC)

Disclosure: No Position in Above Mentioned as I Just Came Up with these Ideas. These are for speculation only, so only trade what you can afford to lose.

Sunpower Surges 38.65%: Were Option Traders Lucky, Good, or Cheating?

2011-04-28T15:51:00.000-07:00

After the close it was announced that Total SA (TOT) has offered to buy 60% of Sunpower (SPWRA) for $1.38B, a $23.25 Tender Offer Price, and shares jumped 38.65% in one of the largest Solar deal to date, an industry that has yet to see much M&A.

I had recently posted a bullish "Options Radar" to clients, and here is what I posted on April 15th, just two weeks ago:

OPTIONS RADAR: High Delta Bullish Trades Surface in Sun Power

Ticker/Price: SPWRA ($15.80)

Analysis:

"Sun Power (SPWRA) is trading 6,700 calls, in line with daily average, but interesting action with the deep ITM June $13 calls trading 4,640 vs OI of 632, opening bullish buyers at $3.10. Shares have come down after a big earnings run and found support near $15.50 where the 100 day EMA is bullishly crossing the 200 day EMA. The $1.6B Solar Co. is turning into a major value name with a 15% short float, trading just 6.6X earnings, 0.37 PEG, 0.96X book and 2.49X cash value. US and German solar demand seems to be waning, so the Chinese solar stocks are favored currently, but traders are liking Sun Power on this pullback. Sun Power is working on a 250MW California Valley Solar Ranch, and is set to benefit from a Government push to solar components for power plants, recently receiving DoE backing."

As I noted, shares were a great value, and obviously Total SA (TOT) saw the same thing. The June $13 calls are likely to be worth at least $10 tomorrow on the open, a triple from when the near $1.5M worth of calls was bought less than 2 weeks ago.

Sunpower would have never been on my radar if the options action had not shown up in my scans, and this is why I think it is a must to follow options flow, as it often leads you to stocks that are going to move big, and in this case it happened rather quickly.

Sunpower has a great chart heading into this news with a strong volume bounce off support today, and this deal is sure to get Solar stocks heated again.

Amazon (AMZN): Reviewing Options Strategy for Earnings

2011-04-27T15:54:00.000-07:00

I try and put together in depth earnings analysis reports in my chat ahead the major reports, and all signs were bullish heading into Amazon (AMZN) yesterday. Here is what I Posted:

OPTIONS RADAR: Amazon Action and Skew Looking for Move Higher on Earnings

Analysis:

Amazon (AMZN) is trading 1.65% lower into earnings and as of 2:15pm is trading 62,000 calls and 49,700 puts, 2X daily calls and 1.5X daily puts. There is mixed offer and bid side action with a positive overall net Delta, and net premium paid in Calls at $265K vs a -$1.64M in put premium played, a bullish bias. Amazon April IV is at 81.6%, May at 37.4% and June at 33%, the April options pricing in a 4.7% earnings move, basically the $175 to $190 range. IV Skew is also showing a bullish bend for April and May, so overall options looking to favor a bullish move. Shares bounced at $180 today, the 20 day EMA, and although the retail earnings are likely to be very strong, the focus will be on all the new growth initiatives with Cloud Music and other projects. Shares have clear resistance at $190, but would target $210 on a breakout. Amazon shares are trading 42.25X earnings, 2.44X sales and 33X cash flow, so a Beat and Raise is needed to trade higher. BofA reiterated a Buy and $198 target into the quarter, but did cite margins will remain under pressure. Deutsche Bank reiterated a Buy and $192 target, saying the Company will deliver despite Japan concerns. The largest trades today include a 1,012 contract May $185 synthetic long position at a $1.70 credit, the April $185/$195/$205 Butterfly Call Spread 430X860, and a few sizable May $180 and $175 put sales. The June $200 calls also trading a fresh 2,000 contracts, so all indications bullish into this report.

Previously that morning I highlighted the April/June $195/$175/$200/$170 Double Diagonal for $3 as a Neutral trade I liked with my targets at $195 and $175 depending on the report.

Later in the day we put that spread on for $3.40 and closed it today at $5.40, a solid 58.8% gain overnight.

The other thing was that I had such a bullish read on Amazon that when I saw it trade down to near $170 after hours I had a strong opinion that shares would bounce back, as you know if you follow my twitter feed. Before the open this morning I was telling clients I was extremely impressed with the earnings and see it as a $200+ stock, and when it broke $186.20 this morning it was go time. Amazon's performance was impressive, and on the open the April weekly calls lost a ton of value with shares opening near flat, and many of my clients grabbed some weekly calls and accumulated 300% profits intraday.The April $185 weekly calls were available at $1.50 this morning, and closed today at $11.95, and the further OTM calls even gained more on a % basis.

The addition of weekly options has allowed for awesome flexibility to trade earnings, both before and after the results are announced. It pays to know what the options market was betting ahead of the quarter, because you can avoid the risk of being involved into the report, and instead play the action the following day.

Definitely an exciting and fun day with Amazon options...expect much of the same in Baidu tomorrow.

Mastec (MTZ): Construction Co. with Great Fundamentals Attracts Bullish Options Action

2011-04-26T15:28:00.000-07:00

MasTec (MTZ) traded 5,556 calls on the day, more than 30X daily average call volume as IV30 jumped 19.8%, yet shares were down 1.9% on the day. The action was in June, and mainly $22.50/$25 call spreads bought at $1.15 throughout the session, shares at $22.56 to $23. Earnings come after market on May 4th and shares have been in a strong trend higher, near all time highs, while a longer term measured move to $26 is still in play from the breakout at $15. Shares have been climbing since reporting results last quarter.

Shares of the heavy construction firm trade 14.94X earnings, 0.77X sales and 9.46X cash flow, which makes it cheap compared to larger peers like Fluor (FLR), Foster Wheeler (FWLT), McDermott (MDR) and Shaw Group (SHAW), and also with better growth forecasted and shown consistently. MasTec is involved with upgrading Utility and Communication infrastructures, which will obviously be in high demand moving forward. It also builds wind farms, solar farms, wireless communication systems, and delivers natural gas, oil and gasoline.

The most interesting business may be the emergency services for accidents and storm damages, considering the recent storms that have hit the South and Midwest, and done a lot of destruction.

The action came today as the Company announced the acquisition of Fabcor, a Canadian Energy Infrastructure Company, for $21.2M. On April 20th Wunderlich reiterated a Buy rating and raised its target to $26 from $21.

So, we have a momentum Company at cheap valuation and strengthening earnings seeing unusually bullish options activity, making MasTec look like a great Buy at these levels. The spreads are only looking for a bit over a 100% return as most of them were bought at $1.15 for a potential $2.50 return, and need at least a 5% move higher from here to start making money.

Disclosure: No Position at Time of Writing, but Considering as Long Term Investment

Woodward (WWD): Potential Undiscovered Gem

2011-04-23T11:13:00.000-07:00

It must be the stock-junkie in me, but I get excited when I come across a new Company in my weekend scans that I have never heard of previously.

Such is the case with Woodward (WWD), an Industrial with a $2.34B market cap that trades nearly 300,000 shares a day, so it was surprising to me that I had never come across the Company before. Apparently I am not the only one, as the StockTwits Stream has zero posts on the Company in its history.

Woodward designs and manufactures energy control and optimization solutions for commercial and military aircraft, as well as for ground vehicles and electrical power equipment. Eaton (ETN), Rockwell Automation (ROK), and Parker Hannifin (PH) are considered competitors. Woodward's markets encompass Aerospace and Energy, with applications for alternative fuel vehicles, electrical power generation, engines, turbines, and wind power.

Woodward shares trade 15.8X earnings, 1.58X sales, 2.84X book and 27.8X free cash flow, also a 0.82% dividend yield. Sales grew 7.6% Q/Q and on valuation is most comparable to Parker Hannifin (PH), although with better margins and growth outlook.

Woodward will report earnings Monday April 25th after the close, and it actually does trade options, but very illiquid with wide bid-ask spreads. Analysts expect EPS of $0.41 and Revenues of $392.75M for the Quarter and $1.81 and $1.61B for FY11. The estimates are comprised of 5 Analysts, although I do not see any recent analyst coverage on the under the radar Company. RW Baird, CJS Securities, CL King, DA Davidson, Dougherty & Co, Maxim and Sidoti cover the Company.

Shares are 64.57% Institutionally owned, room for expansion, so new buyers could come into the name, especially with a strong report, and based off the industry for engines and power equipment, I expect a strong outlook. Royce & Associates are the largest owner with 6.83% of shares outstanding, while T. Rowe Price, Vanguard, Blackrock, and Alger Mgmt. are also top owners.

It is tough to find a lot of in depth research on the Co., but with a good valuation and a small enough market cap, I would say it could make for a nice acquisition for one of the larger players it competes against.

Last, we look at the chart, and Woodward is holding a nice uptrend since July of 2009, making a series of higher lows, and recently topping out at $39 resistance in late 2010 and early 2011, with 5 year highs up around $47, shares currently at $33.97. The daily chart shows shares making a bullish MACD and ADX crossover and RSI breaking back above 50, so momentum is picking up.

Polycom (PLCM): Previewing the Quarter - Potential Options Strategy

2011-04-20T20:37:00.000-07:00

Polycom (PLCM) will report earnings Thursday, April 21st after the close and the Street is looking for EPS of $0.42 and Revenues of $337.8M. For FY11 EPS estimates are at $2.05 and Revenues at $1.45B. Due to the Holiday, shares will not open for trade until next Monday.

Polycom is not exactly your every day popular Tech stock, but the options are fairly liquid, and its history of big earnings moves makes it attractive for options trading.

The last 3 quarters Polycom has moved +15.45%, +10.87%, and -10.18% the day after reporting earnings.

Polycom's weekly chart is most interesting to me, as shares broke out at a key $40 level, and out of an ascending triangle, measuring a move to $72.50, which happens to be the exact highs from the Tech bubble for shares in 2000. The ADX of 47 on the weekly charts shows that this stock is in a super strong trend. Shares have near term support at $45 and resistance at $52 highs. Shares could easily push past $55 on strong numbers, or sink below $45 on a weak forecast.

The Company is a play on workforce communications and collaboration with its telepresence, video and voice solutions allowing people to connect around the World. Polycom has a market cap of $4.4B, shares trading 19.6X forward earnings, 3.63X sales and 9X cash value with around $425M in cash on the books, and zero debt. There is a minimal short float of 3.15%, 2.34 days to cover. April has been the second strongest seasonal month for shares with an average 5.67% return the past 5 years. Polycom recorded 26.7% sales growth Q/Q and 151.32% EPS growth.

Polycom has not seen a great deal of options activity into the quarter, a few buyers of the May $52.50 calls at the $1.40 offer today which traded more than 600 contracts. May IV of 46.4% compares to June at 39.73%. The May $50 straddle trades for $5.35, expecting roughly a 10% move, although not just on earnings with 4 weeks until expiration, so the IV may actually be cheap here considering its history. The May $50 puts have seen some accumulation this week with 1,119 in open interest, but really not much action in May options, so I will be watching tomorrow leading up until the report.

What is interesting is the amount of open interest in July options, with the $45 calls housing 5,344 contracts, and the $55 calls with 3,372 contracts. Also, the July $40 and $37.50 puts each with open interest above 3,500. I can trace these trades back to January for the most part when a trader sold a chunk of July $40 puts to open, and also bought 3,120 July $50 calls at $2.25, while another bullish risk reversal remains in the $45/$37.50 strikes also. Then, on February 14th, a trader bought 3,120 July $50/$55 call spreads at $2.30.

The July option positions open have a major bullish bias, so that helps gauge sentiment in this name, where the "smart money" is betting, and also makes Polycom a buy if it were to get hit on results.

This leaves us with a growth stock at a fairly good value, bullish options sentiment, and a strong chart, so I would be overall bullish the name, although a risky own considering the magnitude of earnings moves. I also like the recent acquisition of video content company Accordent for $50M, and the recent announcement of a Cloud-Based Media Service, so the Company seems headed into new growth markets.

Looking over some recent Analyst coverage in the name from April I see that Bank of America-Merrill reiterated a Buy on 4-19 with a price target boost to $56 from $50, expecting an in-line quarter and on track for 20% operating margins, benefiting from video conferencing and UCC adoption.

The way the IV Skew is the June $55 calls look relatively cheap, and one bullish trade with a low risk is the May/June $55 calendar call spread at $0.35, targeting a 10% move higher, and basically In-Line with Street target prices for shares.

For a more Neutral strategy, you can add the May/June $45 Calendar Put Spread at $0.30 for a Double Calendar $55/$45 May/June at $0.65. This trade has a wide range of profitability from around $42 to $60.

Disclaimer: This is Not a Trade Recommendation (No Position at Time of Writing)

Amarin (AMRN) - Option Traders Nail It, Strike Gold

2011-04-18T04:00:00.000-07:00

Amarin (AMRN) announced very positive Phase 3 ANCHOR Trial Results this Morning for AMR101 and is setting up to open more than 60% higher.

Amarin is a name that has been coming up on my option scans for a couple months now. Traders were mostly active in June with the Q2 data release expected and traders not wanting to be in May and have the data released after May expiration. However, recently it became clear that the data would come in May as May IV jumped to 196% and June is at 168.58%.

If you take a look at the June call open interest the numbers are astounding, 26,912 June $7.50 calls, 24,886 June $9 calls, 34,896 June $10 calls, 16,016 June $12.50 calls, and 23,886 June $15 calls. Almost all of this open interest has built in bullish trades, most notably was the sales of the June $5 puts, 30,365 in open interest, to purchase the June $10/$15 call spreads, and quite a few institutional sized trades in recent months. On March 10th more than 5,000 June $9/$15 call spreads, and more than 5,000 June $10/$15 call spreads were bought to open. On March 21st a trader sold 3,000 June $5 puts to buy 3,000 June $9/$11 call spreads.

I also recently updated on my website on the Option Radar Freebies that on April 12th a trader bought 4,500 May $9/$13 bull call spreads at $1.30.

I put out a Options Radar note to clients on 2/23 when there was hot action, noting:

"Amarin (AMRN) options were busy on the day with shares in an 8 week consolidation, finding support at the 50 day EMA, and ready to make a run higher it appears. IV30 was up 6.6% on the day as 11,549 calls traded and 3,882 puts, 5X daily call volume and continued bullish activity in June, this time the June $9/$12.50 bull call spread bought a total of 3,000X in two trades at $0.90 on the CBOE. There was some smaller action in June $9 puts that amounted to 2,545 trading, already heavy open interest in June from a bullish 3 way trade where the $5 puts were sold to buy the $10/$15 call spreads back on 2-3. The $961M drug maker was started a Buy with a $12 target at Jefferies on 2-2 and a break above $9 would likely target that move to $12. Amarin will present at the Citi Healthcare Conf. on March 2nd and the RBC Healthcare Conf. on 2-2 as well. On January 11th Bloomberg reported that Amarin had a dozen parties interested in acquiring the Company. On February 2nd the Company hired Paul Huff, who will be key in evaluating strategic partnerships and commercialization of AMR101. Investors are awaiting ANCHOR Phase 3 study results in Q2, expected to be a big mover as seen with the 127.34% June IV."

It will be interesting to see where shares close today, as many will see these news as encouraging for a potential buyout bid. I picked up on unusual call action back in November before the big gap higher and made some clients a bunch of money, and now once again, option traders were right on point with Amarin, flooding into bullish positions the past few months.

Disclosure: Long May $9 Calls (Likely Close Partial Today)

F-5 Networks (FFIV): Trading Earnings with Options in the Quarter After the Disaster

2011-04-17T19:33:00.000-07:00

F-5 (FFIV) is set to report earnings on April 20th after the close, and it will be the first real news out of the Company since it crumbled 21.35% last quarter on earnings that brought the entire Technology sector down with it.

F-5 shares have continued to trend lower, although initially rebounding a week after the gap lower, and are now at $94.69. Shares have found some support at $90, similar to the October lows, and would need to break above $105 to move past downward trend resistance. The bearish momentum does appear to be waning with the ADX peaking at 43 in late March and now at 37, and MACD and RSI also showing signs of bullish divergence. Using Fibonacci Levels from the February 2010 lows, the $85 level is support and $107 is resistance. Bollinger Bands are very narrow, so a large reaction seems likely this time around as well. The volume on the moves lower has far outweighed the weak bounces in recent weeks, signs of Institutional selling. There is an unfilled gap from a July 2010 earnings gap higher from $79.40 to $77.75. April and May are two of the three best seasonal months for F-5 with 12.34% and 8.15% average returns the past 5 years.

Analysts are looking for $0.86 in EPS and $277.75M in Revenues for the Quarter and $3.60 in EPS and $1.15B in Revenues for FY11. For Q2 the expectation if for $0.89 in EPS and $290.59M in Revenues, a 26% growth year over year.

F-5 shares are now trading 43.25X trailing earnings, 21.9X forward earnings, 1.89 PEG, 7.97X sales and 23.3X cash flow, actually cheap compared to many of the other cloud computing stocks. Riverbed (RVBD) recently gave positive guidance that may be an indication that F-5 could deliver this time around.

JP Morgan recently lower estimates ahead of the quarter due to the impact from Japan. SunTrust recently initiated shares a Buy with a $126 target. Most firms have been lowering estimates into the quarter, so F-5 has a lower bar this time around, which could allow for some upside surprise.

F-5 has always been a big mover on earnings, before the 21.35% move lower, shares put in 14.67%, 14.07%, and 15.58% moves higher in 3 of the prior 5 quarters. F-5 trades weekly options, and the April IV of 97.33% compares to May at 54.3% and July at 48.7%. Options are implying a 10% move on earnings and the IV Skew is fairly flat which shows that OTM puts are not in high demand for protection into results. The options market has under-priced volatility the last 2 quarters, with being long the straddle paying off each time.

On April 5th a trader sold 1,000 October $95/$135 call spreads for a $10.70 net credit, bear call spreads. On April 13th a trader close 4,000 July $95/$90 put spreads, but sold to open 4,000 July $87.50 puts at $5.46.

UBS was out last week with its derivatives team recommending to sell F-5 puts into the quarter, seeing limited downside potential for shares.

With the April options "juiced" into earnings, one trade to look at would be the April/May $105/$85 Double Calendar Spread at $2.60, a profit range from roughly $80 to $115. This gives some wiggle room if the options market is once again under-pricing volatility, and also takes into account key technical support and resistance levels, also noting that upside potential is likely capped due to valuation.

A bearish biased trade with a great reward/risk profile would be the April $80/$85/$95 Butterfly Put Spread at $0.63.

Disclaimer: This is Not a Trade Recommendation, Just Kicking Around Some Ideas

Infosys (INFY): Sneaky Option Traders Play Earnings with Cognizant (CTSH) Puts

2011-04-15T15:01:00.000-07:00

With earnings season here, it is not only important to pay attention to the stocks that will be reporting, but also to the closest competitors/peers. Some of these are obvious like Deere/Caterpillar, At&T/Verizon, Salesforce/VMware, while others take more digging, but there is almost almost a read-through from an earnings report that will impact a related stock. Sometimes the initial reaction may not be of a large magnitude, but it is worth keeping in mind for when that company reports, as seen recently with being able to predict a blowout quarter from Bed Bath and Beyond (BBBY) after William Sonoma (WSM) posted blowout numbers a few weeks prior.

Often, with options trading, especially close to expiration, if a Company is set to report earnings the front month volatility is juicy, and likely has been bid up in the weeks leading up to earnings, but the sympathy plays often have cheap volatility that allow for some great overnight trades.

Such was the case with Cognizant Tech (CTSH), which was down more than 3% intraday, after Infosys (INFY) reported results and gave poor guidance. Infosys shares tanked more than 15% at a point, weighing on Cognizant (CTSH), considered a close related peer.

In my live chat room I put out a note yesterday on Cognizant (CTSH), because there was very unusual opening buys in April $80 puts with these contracts expiring the next day. Traders were paying $0.30 and pushing up front month volatility 20% to own these puts, more than 4,100 traded on the day in a strike that only held 1,443 puts in open interest, and put volume for the day was 4X daily average. I picked up on the action very early, and then a bit later realized the motive behind this trade....the Infosys (INFY) results.

I already had a bearish outlook for Infosys (INFY) into results because I picked up on some unusual options action recently. On March 25th I put out the following note to clients:

"Infosys (INFY) at day lows on earlier note mentioned and trading 14X daily put volume, with 4,000 May $65/$60 put spreads just bought on the CBOE at $1, reports the Company is under investigation by US Federal Authorities in a tax fraud case. Shares gapped higher this morning after strong earnings from Accenture but have faded sharply now, and IV continues to rise. Recent price action has turned most indicators bullish, but anytime fraud is noted there is potential for major downside. The $39B provider of outsourcing trades fairly rich at 22.3X earnings, 6.8X sales and 103X cash flow, also coming off of a major disappointment last quarter in its report. The Company is also exposed to Japan with staff there, and could see results impacted in the coming quarter. Shares also have a head and shoulders top pattern forming if they fail here."

Shares climbed the two weeks after that into earnings, but lost all that and more with today's move closing at $63.20 but touching near $61. I figured the report would be bad with wages rising in India, and shares were already trading at a pricey valuation.

The Cognizant (CTSH) puts that were bought for $0.30 traded up to around $1.50, a 400% gain for an overnight trade, and quite a clever one.

Always pay attention to events that will not only impact a certain stock, but the stocks that trade in a high correlation.

I like this website to find correlations, although you can also use FinViz to find related Companies, http://www.market-topology.com/index.php?option=com_impactopia&view=friend&Itemid=&symbol=infy&discr=100&above=20&below=1&etf=0&timeFrame=1y

Hopefully this provided some insight and can make you some money one day looking for these type of opportunities. These are exactly the kind of scenarios with unusual options action that I provide daily to subscribers.

Qihoo 360 Tech Jumps 13.45% Day After Call Volume Sets Record

2011-04-14T15:31:00.000-07:00

Qihoo 360 Tech (QIHU) shares jumped 13.45% today, and even more considering the turnaround in yesterday's session after I put the following note out to clients in the morning:

"Qihoo 360 Tech (QIHU) the next potential China Tech name to run seeing 2,075 calls trade, bullish buying of 1,520 September $35 calls with shares at $24.60, sizable buys right off the open this morning. Qihoo 360 provides Internet and Mobile security products in China, and has a $1.4B market cap. That sector has seen active M&A in the US with cyber security a major focus moving forward, and in China it will be in huge demand due to the amount of the population moving online. It is the number 3 Internet company in China based on user base for its browser. Shares are near post-IPO lows but have found support at $24 recently, and option traders look to be positioning for an upside move once Analysts start coverage and we begin to hear more from this China growth Company."

Call volume is building each and every day in this name, so hopefully we get to a point where it is as liquid as BIDU, SINA, SOHU, NTES, YOKU, and DANG because it looks like it will be a fun one to trade going forward....

Kellogg Co (K) Calls....They're Gr-r-r-eat!!

2011-04-11T15:26:00.000-07:00

Although the Dow Jones actually finished up a point today the market sure felt much weaker. I did, however, notice strength in the consumer staples, a name that has held up fairly well considering the rising commodity prices weighing on margins. As we enter earnings season I feel that the sentiment is so bearish in these names, that we could see some surprise reactions, as the names trade at fair valuations with high dividend yields, and can pass many of the costs on to the consumer, so the fears may be overblown.

One such name is Kellogg (K), a $20B maker of cereal and convenience foods, with shares trading 14.5X earnings and 1.6X sales with a 2.96% dividend yield. Shares were reiterated a Buy with a $60 target at Deutsche Bank in February and UBS recently reiterated it as a top pick in consumer goods, seeing Q3 as a turnaround inflection point for the group.

The chart is looking very bullish. As you can see on the weekly chart below shares carved out a rounded bottom around the $48 level and broke past a triple top around $53, now consolidating above that breakout level. The measured move of the breakout targets a move to $58.

Furthermore, Kellogg (K) has seen quite a bit of bullish options activity in recent months. Today the call volume traded 3X daily average, including a buyer of 1,000 May $55 calls at $0.95 on the PHLX (although tied to 48,000 shares short as a Delta Neutral strategy). The June $55 calls also saw more than 1,080 bought on the day. With IV30 at 17%, options are very cheap in the name, near 1 year lows. On February 7th, 2,500 of the June $55/$50 bull risk reversals were opened, and the January 2013 $60 calls are holding 6,915 in open interest from some large buyers a few months ago, so the sentiment is very bullish, and some even thinking an eventual buyout target, although it would take a sizable deal.

The simplest way to play a move higher here is with the May $55 calls at $1 or better, and look for an exit price of about $2.50.

(No Position: This is Not a Trade Recommendation)

Big Lots (BIG): Playing Deal Stocks with Option Spreads

2011-03-26T12:50:00.000-07:00

There is no better feeling than being long call options and then having a takeover deal announced for your holding, resulting in huge gains, but sometimes potential deals are made public well before an official deal, and there are weeks, and often months, of large options trades positioning for an eventual deal. I am not talking about the every day takeover rumors that make the way around trading floors, chat rooms,twitter, and especially the laughable rumors cited on CNBC's Fast Money, as these never come to fruition 95% of the time. I am talking about when activist investors make it public that they are looking into an acquisition of a Company or a Company announces it is seeking a sale. A variety of strategies can be used to benefit from the price of the stock eventually surging on a deal, and also take advantage of the volatility and time decay in options. With some basic relative valuation analysis and looking at prior deal premiums, projecting a price is also not too difficult to allow for the construction of a profitable strategy.

In this particular case I am looking at Big Lots (BIG). While fellow discount retailer BJ's Wholesale (BJ) has often been mentioned in takeover reports lately with Leonard Green, famous for buyouts, releasing a 13D with a 9.5% stake in shares last July. The group is hot lately with Nelson Peltz's recent offer to buy Family Dollar (FDO) being rejected, so the value is seen in this group.

On February 7th, Bloomberg reported that Big Lots (BIG) is considering a sale, sending shares from $34 to up above $39. The Company was said to be working with Goldman Sachs on a sale. Raymond James feels that the Company could fetch a $54/share offer. Since the story on February 7th shares have been able to not only maintain gains, but climb to new highs with a $43.55 close on Friday. The price action dictates that an eventual sale is likely here.

Big Lots' shares trade 12.5X earnings, 0.66X sales and 14.2X cash flow. EV/EBITDA of 6.9, also a key metric looked at for potential takeover prices, is on par with BJ's Wholesale, but well below the 8.84 ratio at CostCo (COST).

Considering the recent move in shares since the report, it has hard to imagine a premium coming in for more than 20%, and a $50 price-tag seems most likely in my view.

There are plenty of opportunities in the options market to bet on an eventual deal occurring. On March 23rd I noticed one large opening trade that was a very interesting approach.

A trader bought 5,000 May $45 calls at $1.85 and sold 10,000 October $50 calls at $0.80, net $0.25 debit (small outlay), in the calendar ratio call spread. The same trade was put through for 975X1950 contracts earlier that day. This trade is looking for the deal to get done by May expiration, being long the May calls at the $45 strike, OTM, and not wanting to be left with 10,000 short October $50 calls after May expiration. The maximum profits of this trade comes with shares at $50, the perfect situation as the May calls are then worth $5 and the October $50 calls would be worth $0.00 (theoretically, although will hold some value until official closing of the deal and without another bidder coming in at a higher price). So, a deal at $50/share would result in the $0.25 outlay being worth $5, or a 1900% gain, turning $125,000 into $2.5 Million. The trade is also profitable above $45.25 all the way to around $55, where the spread would be worth $0 and the trader would lose the $125,000 outlay. A deal above $55 and the trader's losses would start to mount, but this seems unlikely given the valuation and average premiums paid in retail buyouts.

Another way to play for a buyout in the expected price range I have noted without needing a margin account (due to the naked short calls in the ratio spread) would be to buy the July $45/$50/$55 butterfly call spread at $1.20, a profit zone from $46.20 to $53.80, which would not have quite as big of a percentage gain, but still a great way to play the deal. The strategy view is provided below:

A riskier way to play that is also attractive is the May $47.50/$37.50 bull risk reversal, buying the $47.50 calls at $1.05 and selling the $37.50 puts at $0.95 for a $0.10 outlay, a leveraged long position.

***This is Not a Trade Recommendation***

15 Bullish Set-Ups for March 9th

2011-03-09T05:58:00.000-08:00

ITW: Consolidation Breakout

NDAQ: Bull Flag - Break of $29 Key

CAKE: Looks Great on Break of $30, Trend Resistance

LMT: Channel Down to Support - Like Above $81

RL: Post-Earnings Consolidation, Nearing BreakOut

EMR: Riding 50 EMA - Could See Highs Soon

DD: Looks Excellent Above $55

CAT: Consolidation; Above $105

YUM: Clean Strong Volume Break to Highs

DHR: Bull Consolidation, Break of $52

SCHW: Heading Higher after Consolidating

INFY: Based, Bullish ADX Crossover - Look for Close Above 50 EMA

AN: Consolidating Above 20 EMA; Look for Break of 20 EMA

CNQR: Breakout, Bullish ADX Crossover

RBCN: High Short Float - Broke $25 Resistance

After Scanning my Stocks that Have Liquid Options, Here are 15 Charts I Liked this Morning:

Silver (SLV) - Trading the Parabolic Move with Option Spreads

2011-03-04T14:49:00.000-08:00

Silver (SLV) has been on an absolute tear and without getting into too many details of why, some of the reasons include:

1) Silver is the only commodity with both industrial uses and monetary value

2) Unlike Gold, Silver is Consumed and Needs to be Replaced

3) Silver Production Increases Can Not Meet Demand

4) There is a Massive Short Squeeze in Silver

Today at 11:19am there was a large options trade in Silver (SLV) with 7,000 April $35 calls bought at $1.54 and 14,000 April $40 calls bought at $0.38. The trade was not marked spread, but it sure looked like a ratio call spread, but regardless I thought I would take a look at that trade as a spread.

Silver closed at $34.70 and a simple view of the chart would show the measured move targeting $41 (Prior Breakout of $19 to Next Top of $30 Implies $11 Move past $30 Breakout). Silver officially gave me a bullish reading on January 31st at $27.39 based on the ADX DM+/DM- Crossover, and the ADX closed today at 32, the trend is still fresh and room to run, seeing as the ADX hit 53 in October before a mini correction. The ratio call spread would work nicely in this case, as it is also bearish volatility, and the move higher is likely to have at least one correction along the way.

Trade: Buy the April $35/$40 Ratio Call Spread 1X2 at $0.79 Debit (Trade Profitable Between $35.79 and $44.21)

The ratio spread does tie up some margin because you are naked short OTM calls, but this spread is a way to use leverage to turn $79 into $500 (on a close at $40 come April expiration), but does involve risks if Silver were to blow past $44. If you are not wanting to be fancy, just look to buy the April $36 calls at $1.25, because this rocket-ship has plenty of fuel in the tanks.

Costco (COST) - Option Trader Plays Earnings Via the Ratio Put Spread

2011-03-01T15:28:00.001-08:00

Costco (COST) options were active ahead of earnings to be reported before the open tomorrow morning, call volume 4X daily average and put volume near 4X daily average. There were a couple large trades on the day, early in the day the March $75/$80 "Call Stupid" Spreads traded around 2,500 contracts, both legs pricing below the bid. The March $75 calls traded 5,401 and $80's traded 3,483 on the day, well exceeding open interest, fresh action that pushed March IV 12% higher. Also, back on February 22nd a block of 20,000 March $70 puts was rolled out to the July $70 puts, which remain in Open Interest.

Costco shares are now trading in a tight $73 to $75 range after finally breaking clear of the 2008 top. The $32B retailer trades 19.4X earnings, 0.4X sales and 21.17X cash flow, and should be boosted from gasoline sales. Costco is a superb operator and generally reacts well on earnings, but after recently topping out at $75 is could pull back to the 50 day EMA at $72.42 where it tends to bounce, but expect buyers to bring it back from that level. Shares made a bearish ADX cross on 2/25 and the downtrend does have potential to accelerate from here.

This brings me to the ratio put spread that traded today at 2:14pm on the CBOE. The trader bought the March $75/$72.50 1X2 ratio put spread for 1,500X3,000 contracts at a $0.05 debit. The trade is bearish volatility, but actually positive Delta (Delta 0.14), as the $75's will hold value if shares head higher while the $72.50's will rapidly lose value, and the spread will widen. The trader makes maximum profits with shares sitting on the $72.50 level come options expiration, and is profitable in the $70 to $74.95 range come expiration, although the trader would likely exit the trade early if the shares hang in the $75 range next week, the trade a positive Theta trade as well. The trade comes with Costco's IV at more than a 6 month high, which ran up 40% in the past 3 weeks. With a small $0.05 outlay the trader can bank big time percentage gains on this trade, and it is fairly low risk, only getting the trade in trouble if shares were smashed below $70, which seems unlikely for a well respected name trading at fair valuation. (The P/L View is Below Using ThinkorSwim's Analyze Function)

My chart of CostCo is Below along with IV, HV, ATR Wilder, CCI, and Relative Volatility Index (This Likely Looks Confusing, but Settings I Have Gotten Used To)

Time will tell if this trade works or not, but as long as it hangs in this $70 to $75 range, it should work well, and looks to be a great choice into earnings. Also note, ratio spreads like these are often hedging large equity positions, because you get more "bang for your buck" with this type of hedge into a stock-moving catalyst.

Corning (GLW) Case Study - The Importance of Following Options Flow

2011-02-17T15:11:00.000-08:00

In the first three minutes of trade today I saw big blocks buying the February $22 calls in Corning (GLW) at $0.42, offer side buying and soon that swelled to 5,000 contracts (More than 8,000 traded by day end). Shares opened quietly but started to make a run soon after, sending the calls for $0.42 up to $1.15 just before 3pm, an easy trade for an option scalper, nearly a 200% gain intraday.

I've come to learn that often the hottest action in the first 15 minutes in the options market tends to be the best for day trading options, and this is just an example of something seen most every day where there are opportunities to flip options intraday for 100%+ gains, especially near option expiration when much of the premium has been sucked out of these names that have very liquid trading and $1 strike increments.

Weight Watchers (WTW): Insider Info into Earnings, or Just a Hungry Bull?

2011-02-17T04:57:00.001-08:00

Weight Watchers (WTW) posted a slamming quarter this morning, the classic beat and raise, blowing away Street estimates. Shares are indicated to open higher by more than 11% this morning, light pre-market volume, but looks like it will be a big winner today.

On February 14th, Monday, I noticed very unusual action in the Weight Watchers (WTW) call options and put out the following note to subscribers:

"Weight Watchers (WTW) touching new highs today on big volume into earnings on 2/17 and call volume of 6,764 is 25X daily average, a block of 4,273 bought at $0.95 and more than 5,450 trading as opening buys in the February $45 calls, OTM with shares at $44 and Feb IV up 20% on the day. Put volume in non-existant and shares have been on quite a run on building volume lately, maybe due to the failure of all the diet pills with the FDA denying all parties. There was also substantial accumulation with big blocks of shares this morning. The $3.25B Company has also frequently been noted in takeover chatter, shares trading 15.9X earnings and 2.3X sales, not a bad value. Shares rose on 12/7 with BofA raising it to Buy with a $48 target. Weight Watchers has not been exactly blowing away earnings of late, but maybe the New Year brought about more business with obesity a continued concern in the US and abroad, although April tends to be the best month for shares."

Another 1,360 of these calls traded yesterday and the March $45/$50 calls also attracted some unusual activity.

Those $0.95 calls will be worth more than $6 today, more than a 500% return over the course of 3 days, and nominal more than a $2.15M profit.

Now that is a fat pay-day, but making a directional bet of that size the week of options expiration has me thinking someone had some insider information on the earnings number.

Whole Foods (WFMI): Reviewing A Successful Double Calendar Spread Earnings Startegy

2011-02-12T13:44:00.001-08:00

Whole Foods (WFMI) was set to report earnings on February 9th after the close and I had a good feeling it would continue its momentum from strong earnings last quarter, and also felt the options market was not pricing in enough volatility, seeing it as a stock that had consolidated with tight Bollinger Bands and ready to explode. I was closely following the options activity leading up to earnings and although more than 10,000 March $50 puts accumulated the action looked to be hedging as all the large blocks of stock were being bought right alongside. Also, I was seeing accumulation in May $60 calls, far OTM calls that are seeing a positive move coming. On a fundamental basis, shares do trade at a premium to other grocers, but they should with the growth and ability to pass on rising commodity costs to a more affluent customer base. The Street was also seriously under-estimating Whole Foods with most price targets sitting below $50. I now see shares as fairly valued, trading at the 10 year average P/E of about 33X. Same store sales rose at an impressive 9.1% in the quarter, and there is plenty of room for expansion going forward.

Directional bets can be dangerous on big earnings movers so I went with a more neutral strategy despite my positive inclinations. I decided to have my clients put on the February/March $60/$48 double calendar spread at $0.87, selling the February $60 calls and $48 puts to buy the March $60 calls and $48 puts. I chose these strikes because I felt these front month options were the most "juiced" with premium and was also my target moves for a beat/miss. The strategy is effective especially with less than a week left until options expiration when the front month IV is at a wide spread compared to the next month out.

Whole Foods delivered a stellar quarter and shares shot higher, reaching highs of $60.94 and settling Friday at $59.67 on the close. I decided to take profits mid-day on Thursday closing the spreads at $1.32, a 51.72% gain overnight. Not the biggest return, but a great execution of a neutral strategy and using options to effectively trade earnings.

A diagram of the original strategy P/L is below (ThinkorSwim Analyze Chart):

For a look at some of my recent earnings previews and along with option trading strategies, most of which were a resounding success, please visit (Scroll to Bottom of page): http://optionshawk.com/index_files/optiontrader.html

Bullish Breakout from Today, Many Large Cap

2010-10-06T12:23:00.001-07:00

CSX Corp (CSX)

3M (MMM)

Lamar Advertising (LAMR)

Consol Energy (CNX)

Helmerich and Payne (HP)

Moody's (MCO)

Statoil (STO)

Thomson Creek (TC)

Grainger (GWW)

Waste Mgmt. (WM)

BE Aerospace (BEAV)

Fresh Breakout Alerts that Triggered Today with Charts

2010-09-28T12:17:00.000-07:00

NPS Pharma (NPSP) Triggered at $6.75 - First Target $7.50, Potential for Bull Flag Breakout, Good Volume

Aluminum China (ACH) Triggers at $23 - Target $27 on Ascending Triangle Break (Call Buying)

Analog Devices (ADI) Triggers at $31 - Ascending Triangle Breakout (Call Buying) - First Target $34 2008 Highs

Digital River (DRIV) Triggers at $32 - Breaks into Massive Gap (Call Buying) - Target Near $40

Calix (CALX) Consolidation Breakout - Recent IPO's in Tech Hot (Also Like MOTR, IL)

Tupperware (TUP) - Triggered at $44 (Already +$2) - Call Buying Later - Ascending triangle Breakout and Room to Run - Target $50

Johnson Controls (JCI) Triggered at $30.50 for Channel Breakout - Target $35 - Call Buyers Came in Later

Pharmasset (VRUS) - Triggered at $29 - Simple Resistance Breakout - Target $34 Resistance

Steve Madden (SHOO) - Triggered at $40 - Target $45

Stanley Black & Decker (SWK) Bull Flag Breakout, Developing - Target $65

Cognizant (CTSH) - Triggered $64.50 - Resistance Breakout - Target $70

Carribou Coffee (CBOU) - Triggered at $10.25 - Consolidation Breakout - Target $12

99 Cent Stores (NDN) - A Bit Late but Great 10 year Weekly - Gap Fill to $20

Carbo Ceramics (CRR) - Triggered at $83 - Major Resistance Breakout - Target $100

Estee Lauder (EL) - Triggered at $62 - Descending Triangle Breakout - Target $65

12 Fresh Breakouts You Need to be Watching

2010-09-13T15:24:00.000-07:00

Xyratex (XRTX) Breaks Channel Down for Implied Move to $17 - Great Value Name as Well

Infineon (INFN) Weekly Chart Breakout for Potential Move to $15

Lexmark (LXK) Key Break of Resistance - Should be Good to $45

Cypress Semi (CY) Breaks Key $11.75 Resistance for Implied Move Exactly at #13.75 May Highs

Viacom (VIA.B) Descending Triangle Breakout for $40 Target

Infosys (INFY) Explosive Ascending Triangle Breakout - Target $70

Life-Time Fitness (LTM) Descending Triangle Breakout - 24.5% Short Float - Target $50

Concur Tech (CNQR) Breakout to Lifetime Highs - 13.7% Short Float - There is a Reason All those Feb. 50 Calls Bought Recently - First Target of $55

Ardea Bioscience (RDEA) Channel Breakout - Longer Term Bull Flag - Target $30

Vocus (VOCS) Massive Descending Triangle Breakout Above 200 EMA - $20 Target

Synopsys (SNPS) Channel Breakout on Weekly - $26.50+ target

Scholastic Corp (SCHL) Channel Breakout - $30 Target

My Rules for Who to Follow on Twitter

2010-08-15T17:54:00.001-07:00

As of this writing I have 1,927 followers and follow 71, and I feel the higher that ratio the better.

Around half of the 71 follows for me are somehow tied to the Oakland Raiders, Boston Bruins, Fantasy Baseball/Football, NFL/NH:, and Hunting/Fishing, but I thought I would provide my "technique" for finding worthy follows on Stock Twits.

1) Less is More! - I do not mind the occasional jokes, or worthless info, but the less fluff the better when it comes to trading the market. I pull up my ST Desktop a few times an hour throughout the day and want to see something meaningful.

2) Originality - I could care less about Apple, Google, Goldman, etc. chart as everyone is watching those charts, and good luck trading against the robots that are faster, smarter, and have more money. The way I find people that have clever and fresh ideas is often via searching stock symbols of names I come across and find interesting. I then check the stream, and if you were someone onto the name before me, I consider you a worthy follow.

3) Lack of Show-Boating - I can be as cocky as the next guy, but if you made a great trade and want to tell everyone about it, sure go ahead, but if you do it more than once, well...then there is a problem

4) Insight - I like to find people that specialize in a sector, whether it be Financial, Technology, or Commodities. I am someone that will trade any stock, any sector, any country, but also realize there are plenty of people that focus solely on an industry group that have much better insights than I do, or at least in a shorter amount of time and without having to do all the messy research

5) Chart Mongers - I probably follow too many chartists because I honestly never actually look at the charts, but use it for idea generation and look at the chart myself. If my opinion lines up with that of the person providing the chart, it adds the extra bit of confidence....always a good thing to have

With that said here are my StockTwitters I follow most closely (in no particular oder):

News/Info: @MFFAIS, @BreakoutBeacon, @bloombergnow, @livevol_Pro @TradeHawk, @TradeIdeas

Chartists:@stt2318, @flare9x,@harryboxer, @TheMeatBaron, @Zortraders, @MonsterTrader, @TraderFlorida, @RaginCajun @DanZanger @sssc @gtotoy

Knowledgeable Comments and Market Inight: @Xiphos_Trading, @biggercapital, @ukdaytrader, @rayjman, @CondorOptions, @agwarner, @attitrade @stevenplace

Great Swing/Day Traders: @Legacy_Trades, @traderjaz, @SellPuts, @johnwelshphd

Industry Focused: @TMTanalyst, @adamfeurstein, @mikehuckman

I am sure I am leaving a bunch of great contributors off the list, and apologize in advance.

The truth is I have never taken much time to find people to follow, so feel free to leave me recommendations, and the other reason is Entourage is coming on soon, so I need to get off the computer!

Thomas and Betts (TNB): Buy on Valuation, Technicals, and Seasonality

2010-07-07T06:10:00.000-07:00

Thomas and Betts (TNB) is trading 10.75X earnings, 0.95X sales, 3.88X cash value, and 8.6X free cash flow with a $1.8B market cap. Shares were raised to Outperform at Wells Fargo on June 1st and are down around 12% since then, likely on concerns over residential construction.

However, shares have become a value play and the chart sets up well here as shares re-test a prior bottom and breakout level around $33, setting up for a bounce with shares extremely oversold, and the CCI starting to trend higher with bullish divergence.

The Company manufactures heating, ventilation, and Air Conditioning systems. The firm also produces switchgears for Utility companies and other electrical components. With the recent heat wave I came across TNB as a play on the air conditioning systems, and also the Utility industry is looking to upgrade its systems.

The valuation and chart sets up for a solid reward/risk, entering a long around $34 a shares and having a $32.50 stop, with a target move to $38.

2010-06-23T04:57:00.001-07:00

10 Charts for Bulls

2010-06-09T13:04:00.001-07:00

Week of May 24th to May 28th Events

2010-05-23T17:20:00.000-07:00

I provide the week ahead preview to my subscribers in the weekly Options Hunter Newsletter. Here is a sneak peak at the events you should be watching this week:

Week Ahead: Earnings are few and far between this week as the season comes to a close but we will hear from Medtronic, Campbell's Soup, Heinz, CostCo, NetApp, AutoZone, Tiffany's, Toll Brothers, American Eagle, Big Lots, J Crew, Blue Coat Systems, Take Two, and OmniVision. Housing data including existing home sales, Case Shiller, and New Home Sales are in focus in the front half of the week for economic data, while GDP, Personal Income, Consumer Sentiment, and Chicago PMI dominate the latter half of the week. It is also a fairly light schedule for Fed speakers with Bullard on Tuesday and Thursday, and Lacker on Wednesday. A look at the upcoming schedule this week:

Monday: Exiting Home Sales; Earnings from CPB, DCI, PVH; Analyst Meetings at HK, ARBA, HRS; BofA/Merrill Services Conf. (XRX, IT, CATM, MHP, GPN, IPG)

Tuesday: S&P Case Shiller, Consumer Confidence, State Street Investor Confidence, Bullard Speaks at 11:15am; Earnings from MDT, DSW, HEI, NZ, TIVO, AZO, CBRL, FLO, SAFM; Analyst Meetings at AMSC, FLEX, MFE, NICE; B. Riley Investor Conf. (SNAK, SHOO, VLCM, HIL, TYL), BofA/Merrill Services Conf. (CBG, WU, ADS, DV, VRSK, EXBD, ESI, ACN), Stephens Spring Investment Conf., UBS Global Oil and Gas Conf. (DVN, HAL, BHI, NBL, NBR, NFX, APA, HP, OXY, RDC, COP, UNT, PXD)

Wednesday: Durable Goods Orders, New Home Sales, Lacker Speaks at 4:15pm; Earnings from DBRN, JAS, AVGO, SIGM, SMTC, BWS, SYNO, TOL, AEO, FRED, PAY, NTAP, RUE; Analyst Meetings at DNR, ITRI, NWL, VQ,ARW, FOE, SFG, TMO, NTRS, WRI, YHOO, EW; B. Riley Investment Conf., BofA/Merrill Services Conf. (V, COCO, APOL), Barclays Communications and Media Conf. (AMD, CMCSA, ATHR, INTC, LEAP, SWKS, QCOM, LINTA), Citi Global Healthcare Conf. (DNDN, MRK, GILD, HUM, HOLX, REGN, BAX, MHS, MD, PFE, CAH, CELG, AET, ISRG, VRUS, VVUS, AUXL, MDT, TRGT, AMLN, XNPT, POZN, INCY, WPI, UTHR), Janney Montgomery Consumer Conf. (OMX, HD, ERTS, LOW, GMCR, MED, VPRT, HLF, BJ), Kaufman Cloud Computing Conf. (SFSF, RAX, SVVS, CRM, TMRK, AKAM, BMC), UBS Global Oil and Gas Conf.(MRO, CHK, SWN, APC, COG, RRC, NE, CAM, KWK, FST, CLR), Wells Fargo Gaming Conf. (PENN, IGT, MAR, GET)

Thursday: GDP, Jobless Claims, Fed's Balance Sheet, Bullard Speaks at 2:30pm; Earnings from DMND, ESL, GES, JTX, OVTI, SEAC, TMRK, BRLI, COST, GCO, MNRO, HNZ, BCSI, BIG, HGG, JCG, MOV; Analyst Meetings at BRS, DNR, SYMC, NEM, ES, BGCP, PSSI, AEL; Barclays Media and Tech Conf. (T, MOT, CAVM, TXN, BRCM, NTGR, HLIT), Citi Global Healthcare Conf. (ALTH, BDX, MCK, IART, VRTX, MYGN, AMAG, MNTA, COV, NPSP, CFN, CLDX, ISIS, KERX, HGSI), UBS Global Oil and Gas Conf. (EOG, SD, HERO, TDW, RIG, XEC, PXP, WFT, DRC, HES, OIS, SFY)

Friday: Personal Income, Chicago PMI, Consumer Sentiment, Farm Prices; Earnings from MENT;

Polycom (PLCM) - Inverse Head and Shoulders Breakout

2010-03-11T19:48:00.001-08:00

Broke out past key resistance on 1.7X relative volume

Ready for an easy move to $35 highs from 2007

Orient Express Hotel (OEH): By the Book Breakout

2010-03-11T19:42:00.000-08:00

Triangle Breakout on 2.7X Relative Volume Above Upper Keltner Channel

Shares closed at $12.30 today, and I see this as a double in 2010 - Target $25

Verisign (VRSN): Great Breakout and Bullish Action

2010-03-04T20:57:00.001-08:00

Verisign shares broke out of an ascending triangle implying a move that is likely to see resistance at $33, more than 25% higher from here. The owner of the .com and various other Internet identifications is likely to continue to experience strong growth, and recent price increases should boos the bottom line. Also, cyber security continues to be a major threat, and VRSN has authentication and security software. There is also likely to be a surge in business on the mobile end with most smart phones having internet access. Shares trade 15.3X next year's earnings estimates, and just 3.3X cash value.

Today, a large options trade suggested a sustained move higher in shares:

VeriSign (VRSN) traded a 2,000 contract January 30/25 bull reversal trading for a $1 credit, selling the $25 puts and buying the $30 calls in a leveraged bullish bet.

The chart set-up is below, and a break through the 200 week EMA that coincides with the 38.2% Fib level of $26.25 is a major buy signal.

Finisar (FNSR): Major Breakout

2010-02-22T17:25:00.000-08:00

The $800M market cap maker of networking equipment is on a long road back, trading as high as $410 in the Tech Bubble, and as low as $1.69 in the March lows. Shares are now trading at $12.22 and breaking out of an inverse head and shoulders, implying we could see a move North of $20 by 2012, a solid 66% gain. The pattern is a bit sloppy, but it still implies a major reversal move.

Defense Stocks on the Offensive

2010-02-21T07:17:00.000-08:00

The Aerospace/Defense Sector is hot and the stocks are breaking out. As a group of the 25 stocks that trade 100,000+ shares a day with a market cap greater than $300M it is one of the cheapest groups on valuation as well, here are some stats on the average company metrics:

Forward P/E: 13.5X; Price/Sales: 1.3X; Price/Book: 2.6X; Price/Cash: 13X; Price/Free Cash Flow: 20.9X; EPS Growth this Year 10.7%

There are some great individual value plays here, names that are lesser known like Esterline (ESL) and Triumph Group (TGI).

Here are a few of the charts I like in this group, break outs with a lot of upside:

BE Aerospace (BEAV), Boeing (BA), General Dynamics (GD), Goodrich (GR), L-3 (LLL), Northrop Grumman (NOC), Orbital Sciences (ORB), and Raytheon (RTN). Lockheed Martin (LMT) is the noticeable laggard.

Henry Schein (HSIC) Cup and Handle Breakout

2010-02-15T12:17:00.000-08:00

Medical Device Firm Trading at a Good Value and with a 9.83 Short Ratio, Target of $63

2010: The Year of Large Cap BioTech

2010-02-02T20:00:00.000-08:00

Starting off 2010 the markets had a rough January, losing around 4% on the S&P, often a bearish indication for the year ahead, but BioTech large caps are seeing a resurgence. Breakouts are developing in Amgen (AMGN), Cephalon (CEPH), OSI Pharma (OSIP), Gilead (GILD), Genzyme (GENZ), Acorda (ACOR), Biogen (BIIB), Dendreon (DNDN), Talecris (TLCR), Regeneron (REGN), and United Therapeutics (UTHR).

An FDA approval of Auxilium's (AUXL) XIAFLEX today could also keep the bullish tone for the group.

One laggard has been Onyx (ONXX), so keep an eye on that one.

Campbell's Soup (CPB) Breaking Out in Down Market

2010-01-28T19:33:00.000-08:00

Packaged goods are the best plays with commodity prices falling and Campbells broke out on a volume surge.

FedEx (FDX) Head and Shoulders Reversal

2010-01-25T15:34:00.001-08:00

VmWare (VMW) and Wynn Resorts (WYNN): Masterful Gap Fill Plays

2010-01-14T17:32:00.001-08:00

I love looking for gap fill plays and sometimes you have to look back a couple of years and I found two great ones with VMW and WYNN today. RSI also broke out in VMW.

Amylin (AMLN): Breaking out Ahead of 3-5 FDA

2010-01-14T05:49:00.001-08:00

Textron (TXT) and Illinois Tool (ITW) Breakouts

2010-01-11T11:27:00.000-08:00

Flow Serve (FLS): Class 5 Rapid Breakout

2010-01-10T18:17:00.000-08:00

AGCO Breaks Out with Room to Run - Target $45

2010-01-10T15:49:00.001-08:00

Cummins (CMI): A Diesel Powered Breakout

2010-01-07T19:07:00.000-08:00

Looking for a break of that 61.8 Fib Level at $51.55 to Drive this to $60.

Plexus (PLXS): Waiting on $30.90 Breakout

2010-01-07T03:54:00.001-08:00

InfoSpace (INSP): A Multitude of Breakouts

2010-01-06T08:49:00.001-08:00

Paccar (PCAR) Channel Bounce - Room to Run to $40

2010-01-06T05:55:00.001-08:00

BorgWarner (BWA) - A Sweet Bull Flag Breakout

2010-01-05T13:34:00.000-08:00

Manitowoc (MTW) Ready to Run Higher

2010-01-05T04:06:00.000-08:00

Disclosure: Long March $5 Calls at $3 from 9/8

Conoco Phillips (COP) Bullish Breakout

2010-01-04T18:00:00.001-08:00

Oil and Gas Names were absolutely on fire today, and COP is an underperformer that looks certain to make it to $60 near term

Brinker (EAT) Bearish Set-Up

2010-01-03T20:33:00.001-08:00

Channel Down Resistance and Failing

McGraw Hill (MHP) Bullish Set-Up

2010-01-03T20:31:00.000-08:00

Consolidation Above Prior Breakout Level