TEN Exclusive: Options Update – 8/25/10

A somewhat lackluster market was revived in the final hour as buyers and a flurry of short-covering rallied the Dow above the key 10,000 level by the close. Early this morning we were primed for another sell-off after a report that new home sales had plummeted to an all-time low in July.  Sales for the month sank 12.4% to a seasonally adjusted pace of 276,000, falling well short of economists’ expectations. On top of that, durable goods orders improved by a slimmer-than-forecast 0.3% in July.

These next two days will be very important in determining the markets near-term direction.  We are trading in a lower range this week and the SPX had difficulty getting above yesterday’s low of 1046, and did put in a new lower low.  We’ll be watching the 1040 level closely to the downside and the 1067 level as resistance.

It’s best to be patient and cautious until the market works itself out.  In the meantime we remain short-term bearish.

Weekly Economic Calendar:

Thursday

• The weekly report on new jobless claims will be released befor e the open. Aruba Networks Inc. (ARUN), Bebe stores inc. (BEBE), Novell Inc. (NOVL), and OmniVision Technologies Inc. (OVTI) will report earnings.

Friday

• The Commerce Department will release a revised look at second-quarter gross domestic product, and the University of Michigan will update its consumer sentiment index for August. Frontline Ltd. (FRO) and Tiffany & Co. (TIF) will report earnings.

New Trade Idea:

Buy Visa (V) September 67.5 Puts @ $1.05 or Better:

The stock has support at $70 and a break below that level should give us a very quick and steep decline.  Use $2.30 as a target and $0.75 as a mental stop.

Open Positions:

Baidu (BIDU) September 82 Calls @ $4.20:

The position triggered our stop-loss.

Aruba Networks (ARUN) September 16 Puts @ $0.75:

ARUN reports earnings tomorrow.  Continue to use $1.50 as a target and $0.40 as a mental stop-loss.

Related Reading:

• TEN Exclusive: Options Update – 11/21/10
• TEN Exclusive: Options Update – 11/14/10
• TEN Exclusive: Options Update – 10/31/10
• TEN Exclusive: Options Update – 10/27/10

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