"We Do the Hunting, So You Can Make a Killing"

The Hunting Grounds

Technicals: The market continued to flatten into year end, closing at 1,257.64, a 12.6% gain for 2010, a year that saw its

fair share of ups and downs, but closed the year near highs. The market is overbought on MACD, RSI, and various other

indicators, and the ATR Wilder is at a record low that shows the complacency in the market and has led to pullbacks in

the past. However, the McClellan Oscillator has been the consistent indicator of overbought and oversold markets and

is still far from being overbought, at a level of 41, and has seen levels North of 300 in the past year. The current

measured move continues to target 1,280 which would be just blow the resistance from 2008 around 1,300. The longer

term outlook remains positive as we should return to levels seen before the Financial collapse considering the

continuously improving conditions of the market and economy, but once we get in the 1,270 to 1,280 zone, I would

expect a sell-off with some taking profits and others just not willing to buy into an extended market. However, I also

feel the downside is very limited, and would target a move back to 1,225 to 1,230 where we broke out in December, also

being trend support off the August and November lows. A shorter term outlook sees 1,250 as support as we have

ridden the 10 day EMA higher since the start of December, and the 20 day EMA at 1,242. All major moving averages are

rising with a bullish short and long term trend for the markets, while an interesting situation developing is that we could

see the 50 week EMA cross above the 200 week EMA for the first time since May of 2004, when the markets gained

from 1,060 to 1,576.1 all time highs.

Sentiment: Sentiment remains in an overly bullish state with the Investor's Intelligence and AAII Survey both near recent

highs. Sentiment in the options market is the same with the CBOE Equity Put/Call and Option Buyer's Sentiment Gauge

both at bullish extremes, while the smart money continues to bet large sized trades in a bullish fashion, also seen in

positions extended out a few months with option positions rolled. The activity in the M&A market should be an early

catalyst in 2011 and most Companies are raising share buybacks (or initiating) and also raising dividends, positive signs,

although not exactly showing confidence in the ability to invest the money into growth projects as we are still in a slow

recovery period. Equity fund flows continue to be positive with money absolutely pouring out of bond funds and as I

have discussed for months, the asset allocation trade should continue to see any dips in the equity market bought by the

big money, as the risk/reward favors investment in equities, especially the US Market which appears to be the most

stable at this point.

Week in Review: The past week was a slow trading week, as expected, but data continued to show positive signs with

jobless claims coming in at 2 year lows and Chicago PMI at 2.5 year highs. The US Dollar got crushed and broke down

technically, while Oil, Copper, Silver, Gold, and Soft Commodities resumed strong uptrends to finish the year strong.

Week Ahead: The coming week is an important one as we start a new year, and generally January is a fairly positive

month. We start the week off with ISM on Monday, FOMC Minutes on Tuesday, and finish with the Jobs Report and a

Bernanke Speech on Friday. Earnings from Family Dollar, Monsanto, Mosaic, and KB Home will garner some attention

although Alcoa kicks off earnings season the following week. A full list of events is as follows:

Monday: ISM Manufacturing at 10am, Construction Spending at 10am;

Tuesday: Motor Vehicle Sales, Factory Orders at 10am; FOMC Minutes at 2pm; Earnings from NEOG, ANGO, LNDC, MOS,

SONC, TISI;

Wednesday: Fed's Hoenig Speaks, ADP Employment Report 8:15am, ISM Services at 10am; EIA Petroleum at 10:30am;

Earnings from FDO, PDY, UNF, ZEP, RECN, RT, SHLM; Ista Pharma (ISTA) 4:30pm Pipeline Update and 2011 Guidance; Citi

Media Conf. (AOL, EXPE, HSNI, SNI, TIVO, LVLT, TWX, CMCSA, LINTA, TRI), Pritchard Energize Conf. (GOK, ELON, MTZ,

TDW, KEG, VQ, WRES, WTI, FXEN, UNT, OII), Consumer Electronic Show (NVDA)

Thursday: Retailer Same Store Sales, Jobless Claims at 8:30am, EIA Natural Gas at 10:30am; Earnings from MON, MSM,

RPM, STZ, BLUD, DMAN, GPN, IHS, LWSN, SABA, SCHN, SHAW, XRTX; Citi Media Conf. (AMT, CTL, OWW, AHC, LOOP,

FTR), Consumer Electronic Show (TRID), Goldman Healthcare CEO Conf. (BMY, AGP, MRK, SYK, CELG), JP Morgan Tech

Forum (MSFT, XLNX), Pritchard Energize Conf. (GDP, SPN, DRC, PQ, CXO, WG, CRZO, CLR, XEC), RJF Tech Conf. (GTEC,

NCIT, KTOS); Avago (AVGO) IPO Lock-Up

Friday: Fed's Yellen Speaks, Employment Report at 8:30am, Bernanke Speaks at 10am, Consumer Credit at 3pm;

Earnings from AZZ, KBH, PSMT, RBN; Endo Pharma (ENDP) PDUFA for Oxymorphone; Consumer Electronic Show (SIMG)

Sector Spotlight: US Home Construction (ITB) broke out last month and has now pulled back on light volume. Housing

will be a big focus in 2011 with improvement needed for a full economic recovery and currently inventory is too high,

while demand is too low. However, many of the home building stocks are trading near record low valuations and could

bring about M&A in 2011. There could also be a scenario where the US Govt. steps up incentives once again for home

buyers to encourage buyers, and then create a better supply/demand picture to allow the builders to once again excel,

and also would be a positive for the financials and mortgage insurers. From a valuation perspective the best names in

this group are DR Horton (DHI), Meritage (MTH) and Standard Pacific (SPF). From a technical perspective Lennar (LEN)

has the strongest trend.

Smart Money Tracker

12/31: Forest Oil (FST) is trading 4X daily call volume as shares jump with 3,4000 February $39 calls bought, shares at

$38.33 and bouncing off the 10 day EMA after recently touching highs. Shares have a ton of room for upside on the

weekly chart with no real resistance until $50, or potentially around $43 as a Fibonacci Level. The $4.3B Co. is the

perfect market cap for a potential acquisition play, and plans to sell it's 19.9% stake in Lone Pine Resources in 2011, also

planning a spin-off of Canadian assets. BMO raised it's target for Forest Oil to $45 on 12/20 and option traders agree

with the bullish view. Forest Oil is a big player in the Eagle Ford shale, where valuation could increase in 2011.

12/30: William Sonoma (WSM) trades 2X daily call volume in one swoop of 1,500 January $38 calls bought at the 45

cent offer, shares right near multi-year highs with the $40 level a major top from 2005 to 2006. The $3.8B home

furnishing retailer did not see much sympathy play on strong Bed Bath (BBBY) earnings. Shares trade 17.75X earnings,

1.11X sales and 15.55X cash flow with an 11.35% short float. On 12-7 OpCo was positive seeing William Sonoma gaining

market share and maintained it's $42 target. Traders look to be playing upside calls for a potential breakout at this

resistance zone.

12/29: Pepsi (PEP) with a large ratio put spread betting on the food and beverage Co. to continue to be cramped by

rising commodity costs as the February $65/$60 ratio put spread trades 3,000X6,000 at a debit of $0.60, shares at

$65.47 and the trade looking for a pullback. Shares failed to move into the gap from a disappointing earnings report and

will next report in February. On Dec. 21 Stifel reiterated a Buy and a $72 target for shares, and although this could be

hedging long equity exposure, shares do seem a bit pricey here with headwinds coming in 2011, trading 14.2X earnings

and 2X sales.

12/28: Pfizer (PFE) April implied volatility jumped with shares nearing 1 year highs, gaining strong the past week as

money flows into the safe value play with a strong dividend yield. More than 115,000 April $19 calls were bought

against open interest of 572, massive opening buying including a 10:05am block of 80,000 on the NYSE at $0.255. A few

traders opted for April 19/16 bull risk reversals, of which 4,000 traded. The $141B drug maker yields a 4.55% dividend

and trades 7.7X earnings, 1.6X book and 6X cash, likely looking to make a big deal in 2011.

Camouflaged Options Action

12/29: Cheniere Energy (LNG) trading 10,886 calls which is 10X daily average as IV pops 5.7%, a block buyer of 10,000

March $8 calls at the $0.25 offer with a 10 cent bid, aggressive bull, accounting for most of the action with shares at

$5.37. Shares have formed a bullish pennant pattern and set up for a potential run at $10. The $310M oil & gas

explorer trades 3.8X cash value, and recently applied to ship export LNG across the world, a potential major catalyst.

Cheniere is seeking DOE approval and could export 16M tonnes per year, as US Natural gas Inventories are near record

highs.

The Trade: Long March $5 Calls at $1.20

Prowling the Charts

Covidien (COV) shares have pulled back to the prior breakout level on light volume and near the 20 day EMA and trend

support, a great looking dip to buy. Shares are also a solid buy on fundamentals at 11.5X earnings and 2.17X sales, as

medical device companies come back into favor.

The Trade: Long January $45 Calls at $1.30

The Long Shot

Buckle (BKE) will report same store sales on Thursday, January 6th, along with many retailers and has in recent months

reported better than expected numbers. Shares remain a compelling value with a $1.77B market cap, trading 13.2X

earnings, 1.9X sales, and 7X EV/EBITDA. There is also a 21.2% short float, 11.65 days to cover. The chart shows some

concerns with shares topping out at the $40 mark, also the April highs, and with a large unfilled gap sitting below, while

retailers could face some profit taking after a recent run, and the snowstorms could cause numbers to be weaker than

expected for December sales. Shares were raised to Neutral from Sell at Janney on 12-2. Buckle looks like a potential

value trap here, and would be a better long idea with shares below $35.

The Trade: Long January $37.50 Puts at $1.25 or Better

Taking Cover

Riverbed Tech (RVBD) implied volatility (30 Day) is near 1 year highs at 53% and shares have consolidated in tight

Bollinger Bands. Shares have solid support just above $31 and the next targeted move is likely above $40. Shares of the

$5.2B networking equipment Co. trade rich at 45.7X earnings, 10.35X sales and 40.8X free cash flow, seen as a major

growth player (132% EPS Q/Q, 45% Sales Q/Q) that will take advantage of the continuing build-out of internet

networking infrastructure and Smartphone growth. It's software allows for WAN optimization and also speeds up data

access in cloud computing applications. Wedbush raised its target to $40 on 12-29, while Barclay's recently lowered its

target to $40 from $50. Riverbed could also be a prime acquisition candidate for Cisco.

The Trade: Long Riverbed Tech at $35.17 and Sell the March $40/$30 strangle at $3.10

Volatility Stalker

The VIX remains depressed below the 18 mark and many of the fears that caused the spikes in late November have been

put to rest, so we very well could be headed lower on the VIX with a low volatility environment for the beginning of the

year. Commodities are starting to show some added volatility with large intraday swings in oil and gold prices, while

some of the Technology stocks with high valuations are showing weakness, so those would be the first areas to target

for pro-volatility strategies. Earnings is likely to bring about a rise in some volatilities, but it will be key to watch

reactions across various groups on earnings to get a good feel for how volatile we will trade this quarter, with

expectations that these reports should provide the clearest 2011 forecasts, so stocks could move big.

Stocks trading with expensive volatility taking into account 1 year IV ranges include Clinical Data (CLDA), Endo (ENDP),

Sohu (SOHU), InterDigital (IDCC), Valeant (VRX), EBAY, ITT Educational (ESI), and Chipotle (CMG) . Stocks with expensive

volatility relative to its 30 day median and its sector include Apple (AAPL), Google (GOOG), IBM, Cree (CREE), F-5 (FFIV),

Akamai (AKAM), VMware (VMW), Citrix (CTXS), Zimmer (ZMH), Exxon (XOM), Devon (DVN), Chevron (CVX), Coach (COH),

Starwood (HOT), McDonald's (MCD), Archer Daniel (ADM), Wells Fargo (WFC), State Street (STT), CSX, Alcoa (AA),

Monsanto (MON), CostCo (COST), Dollar Tree (DLTR), and Consolidated Edison (ED).

Stocks trading with cheap volatility taking into account 1 year IV ranges include Ford (F), Crown Castle (CCI), Longtop

(LFT), GeoEye (GEOY), Terremark (TMRK), and Marvell Tech (MRVL) . Stocks with cheap volatility relative to its 30 day

median and its sector include Petrobas (PBR), Conoco (COP), Lam Research (LRCX), KLA Tencor (KLAC), Corning (GLW),

Cognizant (CTSH), Western Union (WU), Amgen (AMGN), WellPoint (WLP), Consol (CNX), Peabody (BTU), Pioneer (PXD),

MGM, Carnival (CCL), Clorox (CLX), FedEx (FDX), Deere (DE), Newmont (NEM), and Southern Co (SO).

Stocks showing a bearish skew bias (puts expensive vs calls) include Lorillard (LO), Duke Energy (DUK), Region's (RF),

Biogen (BIIB), Bristol Myers (BMY), and Vertex Pharma (VRTX).

Stocks with a bullish skew bias (calls expensive vs puts) include Sear's (SHLD), Cephalon (CEPH), Yahoo (YHOO), Tellabs

(TLAB), Sara Lee (SLE), Barrick Gold (ABX), Boston Scientific (BSX), General Mills (GIS), Allergan (AGN), Travelers (TRV),

and Leap Wireless (LEAP).

Stocks that experienced exploding IV30's the past week include NV Energy (NVE), Crosstex (XTEX), Rare Elements (REE),

Omeros (OMER), Sino Coking (SCOK), NPS Pharma (NPSP), Multi-Fineline (MFLX), and BioScrip (BIOS).

Trade Idea: Deere (DE) implied volatility is cheap and without a catalyst until late January Caterpillar (CAT) earnings,

although we could see some order numbers between now and then. Shares have made a great run and are now

consolidating, and at 13.2X earnings are still fairly cheap, the near $90 highs from 2007 and 2008 seem achievable

considering the global commodity boom and need for new equipment.

The Trade: Long the January/February $85 Calendar Call Spread (Sell January, Buy February) at a Debit of $1.40

Scouting LEAPS

Jazz Pharma (JAZZ) is a $766M Biotech that could see a lot of action in 2011 as a potential buyout target with its recent

success. Shares trade 7.7X expected earnings of $2.56 for FY11, and sales grew 45% Q/Q. Shares have run since a

blowout earnings report, a trend that should continue and there are multiple catalysts to increase the valuation for

shares going forward. Jazz Pharma has Xyrem for narcolepsy and Luvox CR as an antidepressant for OCD in production,

also with ongoing R&D for JZP-6 (Fibromyalgia), Sodium Oxybate, and JZP-8 (Seizures). Jazz is partnered with Abbott for

Luvox CR and with Abbott underperforming recently it could make for a potential acquirer of Jazz Pharma. Jazz Pharma

is expected to raise Xyrem prices in 2011, currently accounting for 75% of revenues, and R&D expenses have been

dropping, so profits should continue to grow.

The Trade: Long March $20 Calls at $1.75 or Better

Chatter Calling

As we headed into yearend there really was not a lot to talk about in M&A, although I do expect a major surge in action

in 2011, starting during earnings season. A few recent deals include:

� CVS to Buy Medicare Business from Universal American (UAM) for $1.25B

� Rovi (ROVI) Announced a $775M Deal for Sonic Solutions (SNIC)

� Jo-Ann Stores (JAS) Received a $1.6B Buyout Offer from Leonard Green

The hottest takeover rumors the past week were BJ's Wholesale (BJ), Imax Corp (IMAX), and Anadarko (APC). Other

names with chatter included OCLR, PLCE, MJN, DF, CAG, GIS, MRCY, ARMH, SPEC, DRCO, KRA, HRLY, GTEC, ISYS, and

MRCY.

Income Trapper

PPG Industries (PPG) shares have quietly gained more than 50% in 2010 and now are extremely overbought on all

measured, having some trouble with the $85 level with shares at all time highs, Shares trade 19.8X trailing earnings,

PEG of 2.65, and 20.25X cash flow. Shares are also well above any Street price targets. PPG Industries specializes in

protective and decorative coatings, with exposure to industrial and automotive sectors. At this valuation shares are a bit

extended, and the chart is also showing the same signal.

The Trade: Sell the January $80/$85 Call Spread at $3.40

Explanations of the Sections

The Hunting Grounds: This section provides an overview of the market and previews the week of trading ahead, as well as reviewing recent

trends and themes in the market. An overview of the technical levels for the S&P, market breadth, upcoming tradable events, and a

spotlight on a sector in the market is given each week. It is vital for any successful options trader to have an opinion of the market overall,

the economy, and an opinion of the individual sectors to find the best opportunities.

Smart Money Tracker: This section highlights the top five (sometimes more) key institutional option trades from the prior week to show

where the "smart money" is betting, and what it means, as well as the bottom line on a trading strategy. Large option trades have proven

time after time to be a leading indicator for explosive moves in the underlying shares, and provide ample opportunities to piggy-back trades

of the best minds on Wall Street. The section will also be an opportunity for non professional option traders to learn the strategies being

used by the "big money", which often gives clues into potential strategies you can emulate in your individual portfolio.

Camouflaged Options Action: This section provides 1 weekly "under the radar" story about a lesser known stock that had unusual options

trading the prior week. I often use what I call "suspicious" options action to find investment ideas for stocks I have never previously

analyzed. I will provide a fundamental and technical analysis as well as an overview of the options action I saw. This section capitalizes on

what can sometimes be insider info trades, as there are often times when a small unusual trade is more than it appears on the surface.

Prowling the Charts: This section provides a weekly option trading idea based on technical analysis, either bearish or bullish, depending on

the overall market trend. The trade will outline a target, a stop, and an analysis of the options strategy. Simple long call/put strategies as

well as more complex spreads such as verticals, condors, butterflies, ratio spreads, and more will be used.

The Long Shot: This section highlights a speculative trading idea based on an upcoming event, whether it be an FDA data, Investment

Conference, Earnings, or other speculative event. It will utilize options to provide the best reward to risk set-ups for the event, and

capitalize on a volatile move in shares.

Taking Cover: This section provides a weekly investing idea based on fundamentals, a position established in options that is tied to equity

for a less risky investor. I will use covered calls, protective puts, covered puts, collars, and more depending on the valuation analysis and

appropriate options strategy.

Volatility Stalker: This section will take a weekly view at market volatility (S&P, Oil, Gold), as well as the top strategies for the current

environment. I will also highlight some volatility movers from the prior week, up and down, as well as a look at stocks with large spreads in

implied and historical volatility to find expensive and cheap options. I may provide some further trading ideas in this section based on

volatility movements in individual securities.

Scouting LEAPS: This section involves trading LEAPS, longer term trades based on fundamental, technical, and rational common sense

reasoning. Some of these will be safer in the money plays while others could look at Black Swan opportunities.

Chatter Calling: This section will focus on mergers & acquisitions, with an overview of recent takeover chatter, analysis of recent deals, and

an outlook for potential takeover candidates in the market.

Income Trapper: This section will capitalize on selling options, using strategies to collect income in high probability trades for solid monthly

returns.

All references to "You Should Buy", “Buy” or "Buy Point" or “I would consider some here” or similar statements should not be construed as

a recommendation or warranty in any fashion but a mere form of expression on the writer’s part. The Information that will be provided in

this website or newsletter is not to be relied upon for your investment/trading decision but is solely your own decision to buy or sell any

securities as a result your own judgment and your own research and/or consultation with your investment advisor. You agree that THIS

PUBLICATION IS FOR EDUCATIONAL PURPOSES ONLY!