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

The Hunting Grounds

Technicals: The market rallied nearly 5% last week with strong closes the last 3 days of the week, going out at highs, and

momentum strong after some great basing action at 1,040 that looks to have put in the right shoulder of an inverse

head and shoulders pattern. The pattern would see a break of the neckline at 1,130 and imply a move to 1,250 within

the next 3 months. The S&P had a bullish MACD crossover early last week and now faces resistance at 1,115, as the 200

day EMA and 50% Fibonacci Retracement, before an attempt at 1,130 resistance. The 1,150 top from January this year

could also provide some resistance, but most would see the 1,220 highs as the next real resistance. We could begin the

week with a pullback and look for a gap fill to around 1,090, while 1,080 provides major support, the 20/50 day EMAs. A

break back below 1,080 would likely signal another attempt at the lower end of the range, and a potential breakdown,

so that would all but kill the current set up. We also broke clear above the Ichimoku Cloud, last done on March 5th

when a 90 point rally ensued, so this is another very bullish indication of the current shift in trends.

Sentiment: Market sentiment continues to be extremely bearish as the Investor Intelligence bull/bear ratio is at the

lowest level since February 2009, after which the market bottomed and rallied sharply higher. The Insider Buy/Sell ratio

is improving and a recent surge in mergers and acquisitions breeds optimism. Much of the consumer confidence and

bearish investor views is due to the recent economic data, but last week showed some significant improvements in the

employment situation and manufacturing. The McClellan Oscillator is trending higher and broke above 100 last week, a

bullish signal, and far from overbought. Copper has also been a leading market indicator and is breaking out, now near

the April highs, so the lagging equity market is likely to follow. Treasuries started to sell off sharply last week as the risk

trade came back around, and the bubble may be about to burst. Equity fund flows showed outflows for the 4th straight

week which tells me the money managers will be forced to chase performance and buy stocks very soon. Options

activity remains bullish with larger trades and the option buyer sentiment gauge as well as the equity put/call ratio

remains at a neutral signal. The New High to New Low Ratio was 90% vs 10% to close Friday, and heavy participation in

the 3 day rally also contributes to the factors for being bullish.

Week in Review: The past week saw a sharply rally in US equities as Treasuries faded and stronger than expected

Consumer Confidence, ISM Manufacturing, and Employment Reports gave the market plenty of reasons to rally, and

comes shortly after the market decided not to sell off on bad news, holding 1,040, a key indication of a shift in market

trends. The trading was slow into the 3 day weekend but Industrials, Financials, and Basic Materials led the markets

higher.

Week Ahead: The economic data and earnings calendar is extremely light this week, a shortened 4 day trading week,

but a few key investment conferences kick off, and we could begin to see some Q3 and/or FY 11 guidance that will give a

clearer view of how well corporations are managing the current economic environment. Here is a look at each days

planned events for the week ahead:

Tuesday: 3 Year Treasury Auction at 1pm; Earnings from PIKE, FLOW, MIND, NAV, PBY, PVH; Analyst Meeting at

ADVS; Barclay's Consumer Conf. (TAP, DF, DLM, PEP, CHD, PM, AVP, HRL, CL, MJN, IFF, RAI, CPB, JAH, MKC),

Barclay's Consumer Conf. (TAP, DF, DLM, PEP, CHD, PM, AVP, HRL, CL, MJN, IFF, RAI, CPB, JAH, MKC), Keefe,

Bruyette, & Woods Insurance Conf. (PFG, RDN, UNM, MTG, PRA, WRB, PRI, TWGP, LNC, AGII, HMN)

Wednesday: Quarterly Services Survey at 10am, Beige Book at 2pm, Consumer Credit at 3pm; Earnings from

CIEN, DFZ, HITK, MEDW, REX, SFD, TLB, TITN, UNFI, VRNT, CHKM, RURL, AVAV, CHP, CLCT, MW, GAME, SHFL,

SNDA; Hasbro (HAS) Investor Update, Salesforce (CRM) Cloudforce 2010 in London; Analyst Meetings at ATR,

LLNW, DHR; Barclay's Consumer Conf. (GIS, PG, MO, THS, HAIN, KO, KMB, TSN, DPS, EL, CCE, NWL, CLX, SJM,

HNZ, STZ),Citi Tech Conf. (DELL, AVT, BRCM, JDSU, LXK, VRSN, AMAT, DOX, ONNN, ST, XLNX, AKAM, ALTR, CRM,

ARRS, GOOG, JNPR, TEL, ELX, SLAB, VMW, CY, FLEX, KLAC, SNDK, TECD, HPQ, AVGO, NVDA, SYMC, FSLR, MU,

QLGC, FFIV, NVLS, PLCM, TXN, ACN, ADSK, APH, MRVL), Credit Suisse Transports Conf. (DAN, TRW, ACL, CGI,

ABFS, CNW, HEV), Gabelli Aircraft Supplier Conf. (HON, GR, PH, CW, GY, HRLY, CR, WGOV, ATRO, HEI, HXL,

KAMN, TXT), Dahlman Rose Transports Conf. (CSX, GWR, RA, NSC, AAWW, WERN, LSTR, KSU), Jefferies Shipping

& Logistics Conf. (RLOG, BALT, ACLI, EGLE, KEX, ALEX, NM, GNK, ANW, OSG, GMR, ESEA, SBLK, CAP), Keefe,

Bruyette, & Woods Insurance Conf. (AEL, BRO, AIZ, ALL, MIG, FPIC, HALL, TRV, AFSOI, NFP, SFG, AJG, FNF, GNW,

EIG, THG, PMI, SBX, FMR, SIGI, TGH, EMCI, FFG), Wells Fargo Conf. (CXO, EM, RRC)

Thursday: International Trade and Jobless Claims at 8:30am, EIA Natural Gas at 10:30am and EIA Petroleum at

11am, 30 Year Bond Auction at 1pm, Money Supply at 4:30pm; Earnings from KFY, JW.A, PNY, STEI, SEH, DSGX,

NSM, SWHC; Analyst Meetings at PNR, MOLX; Bank of America Mining Conf. (RGLD, AUY, HL, ANV), Credit Suisse

Transports Conf. (NSC, UNP, KSU, RA, F, TEN, KNX, WERN), Dahlman Rose Transports Conf. (KNX, CNW, ABFS,

SAIA, CNW, CGI), UBS Best of Americas Conf. (YUM, F, MON, CSX),

Friday: Earnings from ACETM GROW, DUCK, IRET, BRC, LULU, AEPI; Wholesale Trade at 10am; UBS Best of

Americas Conf. (CSCO, CHRW, CWC); Questcor (QCOR) FDA PDUFA Date Set for 9-11, Saturday

Sector Spotlight: Transports (IYT) are often seen as a leading market group needed to confirm market

strength/weakness, so this is the group to focus on in a pivotal week ahead. The group is mainly comprised of Truckers,

Rails, Air Freight, and Domestic Shippers UPS/FDX), and is a good indication of how strong the consumer is, how well

corporate spending is, and the demand for commodities. Rail traffic and trucking freight numbers have continued to be

strong throughout some of the weak economic indicators seen the past few months, and FDX and UPS have continued

to boost guidance on a quarterly basis. A triangle has formed on the IYT and this is the critical point to breakout and

send the group higher, or to be rejected and head back towards the lower end, also cutting the legs out from under the

current market rally.

Smart Money Tracker

8/30: American Commercial Lines (ACLI) a bullish chart with a recent ascending triangle breakout with not much

resistance until $35, is trading 25X average daily options volume as the December $30/$25 bullish risk reversal trades

1,000 contracts, a net debit of $0.35 per spread with shares at $27.47. The company is involved in shipping dry cargo

and also manufactures the vessels. Shares are performing well compared to peers, a sign that it is a well liked name,

and shares trade 18.3X earnings, 0.47X sales, and 8.35X cash flow with a 13% short float, 16.6 days to cover. Shares

were started a Buy at Sidoti on July 1st with a $30 target.

8/31: Energy (XLE) with a buyer of 20,000 December $57/$62 call spreads for $0.79, a bullish bet on energy prices. The

40,000 contract trade is 2X daily average call volume in the XLE and was not tied to any shares. Energy is trading in a

similar pattern to the market, near the bottom of the range at $51.40 with the top of the range at $56.50. This trader is

looking for a breakout of the resistance and a move back to April highs near $62 for max profits. Top holdings in the XLE

include Chevron (CVX), Exxon (XOM), Schlumberer (SLB), and Conoco (COP).

9/1: Human Genome Sciences (HGSI) with a buyer of 5,250 January $33/$40 call spreads at $2.52, while 1,000 April $40

calls were sold at $2.75 against an equity long position this morning. Early this morning there was a seller of 4,929

September $32 calls which may have been tied to the 96,500 shares bought off the open. Shares made entry into the

April gap that extends form $29.90 to $30.78, but have faded this afternoon. Traders are positioning for the December

9th PDUFA data for Human Genome, trading 25,000 calls today, 5X average, and IV in October at 47.85% compared to

January of 77.3%. The PDUFA is for BENLYSTA, a potential blockbuster for the treatment of Lupus, and was given

priority review 2 weeks back. Human Genome is often mentioned in takeover chatter as well. Shares have an implied

move back to $35 on the recent breakout at $28, right where most Analysts have price targets.

9/2: Gannett (GCI) trades 11,000 October $16/$11 bull risk reversals for zero cost with shares in the middle of that

range at $13. Shares are trying to build a base down here and have support at $12. The newspaper publisher is

extremely cheap at 5.4X earnings, 0.55X sales, and 3.7X cash flow, also deep in debt. There is a 13.6% short float and

with a $3 market cap it is also one of these names that makes sense for private equity. The Company which owns the

USA Today is focusing on the digital age and making positive changes.

9/3: Dollar Tree (DLTR) options are active today as 10,000 November $40 puts were bought at 70 cents in what is likely

a closing trade and now 5,000 February $50 calls were sold at $2.075 tied to long equity, although I have not

seen the share block trade yet. Shares are lower today after breaking to new highs recently, potentially on renewed

economic optimism that would lead to consumers returning to spend at other stores with higher prices. Shares trade

13.5X earnings, 14.4X cash flow and 1.08X sales, and along with Family Dollar, many think a dollar store could be set for

a buyout, despite Dollar General recently coming public. The February r$50 calls were likely sold in a Buy Write looking

for around a 12% profit on the position come February with shares above $50.

Camouflaged Options Action

Cobalt Energy (CIE) has seen a surge in options activity lately in a relatively new name, IPO last December. On August

25th a trader bought 3,000 January $10 calls at $0.49, while on August 26th another 4,000 January $10 calls were

purchased at $0.69, shares trading around $8. On August 30th a buyer of 1,250 April $7.50 calls paid the $2.30 offer, a

longer term bullish ITM call position. The oil and gas driller is trading at $8, half of the post-IPO move to $16 in January

of this year. Shares trade 1.58X book value and 2.99X cash value, no debt on the books. Shares were cut to Perform

with a $12 target at RBC on July 28th, reduced from a $20 target. Shares were hit with the oil spill, as Cobalt is a

deepwater explorer with a focus on the Gulf of Mexico, and offshore Angola and Gabon in West Africa. The Company

entered a partnership with Total SA (TOT) in April for the Angola assets. Goldman has a 21% stake in Cobalt, and George

Soros recently disclosed a new stake. With the offshore drilling moratorium set to expire in November, Cobalt will be a

major beneficiary, and was not hurt as badly as other companies because it operates without any debt, and could afford

to wait, although not the best situation. Once the Company can start drilling again it will be recognized for its valuable

portfolio off assets and should see shares respond positively.

The Trade: Long Cobalt (CIE) Equity at $8 and Sell the January $10 Calls at $0.70

Prowling the Charts

Coeur D'Alene Mines (CDE) operates silver mines in South America and trades at a 24% discount to book value. Shares

recently broke out of a descending triangle and have not reacted as strong as other silver stocks. Silver is likely to

continue to rally and squeeze short, and the action in the options market shows that silver hedges are being bought in

size as investors load up on the commodity. Shares should be able to make a run at $20, potentially helped by a 10.5%

short float.

The Trade: Long October $18 Calls at $0.85

The Long Shot

Phillips Van Heusen (PVH) reports earnings Tuesday after the close and shares are nearing a descending triangle

breakout, and the Company seems to always deliver on earnings. Shares trade 11X earnings, 1.38X sales, and 20.55X

cash flow, a bit rich in the apparel industry. The recent strong earnings out of Joseph A Bank provided some clarity that

the sale of dress shirts may be strong as job hunters are looking to impress at interviews.

The Trade: Long the September/October $55 Calendar Call Spread at $0.85

Taking Cover

Factset Research Systems (FDS) is trading at new all time highs just below $79 and shares trade rich at 23.4X earnings,

5.8X sales, and 24.4X cash flow, but its high growth and high margin business make it likely that share gains continue. As

a key competitor to Thomson Reuters, and with just a $3.66B market cap, I feel FactSet is a name that could become a

hostile takeover target. Davenport started shares a Buy with an $80 target back in late July.

The Trade: Long FactSet (FDS) Equity at $79 and Sell December $85 Calls at $2

Volatility Stalker

The VIX closed the week at 21.31, near its lowest level in months and is looking to breakdown back towards 20, but

volatility is very cheap here considering the economic and election uncertainty so puts should be bought as protection

as equity long holdings begin to show gains. Although the market seems ready to break higher which should correlate to

a lower VIX, complacency is dangerous as we enter September and October, two months that have historically seen

volatile market moves.

A few upcoming FDA events have September volatility extremely elevated compared to October, including Savient

(SVNT), Arena (ARNA), and Questcor (QCOR). A few names that are rumored to be near buyouts are also showing a

large September/October IV spread, namely ArcSight (ARST), L-1 Identity (ID), Sonus Networks (SONS), and Brocade

(BRCD).

Earnings names with large September/October IV spreads include Ciena (CIEN), Lululemon (LULU), Men's Wearhouse

(MW), and Talbots (TLB).

Based on 1 year implied volatility some names with options that are considered rich here include Hospira (HSP),

Compellent (CML), Commvault (CVLT), Hologic (HOLX), Kellogg (K), Diamond Foods (DMND), Northern Trust (NTRS), BMC

Software (BMC), Cavium Networks (CAVM), Itron (ITRI), Cirrus Logic (CRUS), and AmerisourceBergen (ABC). Many of the

Tech stocks noted above are seen as potential takeover targets, and that is why the IV is elevated.

Stocks with cheap implied volatilities based on the past year of data include Apple (APPL), Barrick Gold (ABX), United

Health (UNH), Capital One (COF), Trina Solar (TSL), UAL Corp (UAUA), Iamgold (IAG), Zion's Bancorp (ZION), AIG, Amylin

(AMLN), Carrizo (CRZO), Stillwater (SWC), Dr. Pepper (DPS), Medicis (MRX), Sohu.com (SOHU), Helmerich & Payne (HP),

and United Therapeutics (UTHR).

Trade Idea: Sell the Itron (ITRI) October $60/$55 strangle at $4.30

Scouting LEAPS

Warner Chilcott (WCRX) recently announce a large special dividend and began to get some recognition. Shares are near

a $7 channel break and are currently consolidating. Shares trade 8.5X earnings, PEG of 0.84, and 13.5X cash flow.

Shares go ex-dividend on September 9th. Roth Capital increased its target price for shares to $45 on August 16th.

The Trade: Long the April $30/$35/$40 Butterfly Call Spread at $0.80

Chatter Calling

There were a few deals that made headlines this week:

• Hewlett Packard (HPQ) emerged victorious in the fight for 3Par (PAR) at $33/Share, Beating Out Dell

• Posco (PKX) is in talks to buy Norway's Elkem, silicon solar panel maker, for around $1B

• Intel (INTC) decided to buy the wireless chip unit from Infineon for $1.4B

• Casey's General (CASY) Takeover Offer was raised to $38.50/Share

• CA Tech is buying Arcot Systems for $200M cash in another IT security deal

• Icahn raised his offer for Lions Gate (LGF) to $7.50/Share, which is still considered way too low by many

• Burger King (BKC) was taken private by 3G Capital at $24/Share in a $3.3B deal

• Salary.com (SLRY) was bought at $4.07/share in an $80M deal, 43% premium, by Kenexa (KNXA)

• Cogent (COGT) was offered to be bought for $943M by 3M (MMM), although most feel a better deal is needed

• A.D.A.M (ADAM) was bought by Ebix in a $60M deal in the online information space

• American Physicians (AMPH) was bought for $233M for a 23% premium

• EOG Resources (EOG) hired BMO Capital to Sell its Gulf of Mexico Assets

• Goldcorp (GG) Bought a Canadian miner, Andean, in a $3.4B deal as deals among gold/silver miners continue to be

active

• Cisco (CSCO) is rumored to be actively looking at the purchase of Skype in a potential $5 deal

• Bain Capital is Near a Deal for a $1B Acquisition of Air Medical Group

• Arc Sight (ARST) made no mention of a potential takeover deal in the works on the conference call

• Autonomy is rumored to have Microsoft and Oracle as suitors for a buy out of the software maker based in London

Some of the hot sectors and sympathy plays off recent M&A include:

• FPIC Insurance (FPIC) is a $305M market cap provider of insurance to Floridian physicians and is the only remaining

publicly traded player in this niche space after AMPH was bought last week, making it a prime target

• Denny's (DENN), Red Robin (RRGB), Wendy's (WEN), Sonic (SONC), Jack in the Box (JACK), Cali Pizza (CPKI), Texas

Roadhouse (TXRH) and Ruby Tuesday (RT) all are suitable targets in the restaurant space after the Burger King deal,

which adds to a flurry of deals in this industry the past 6 months.

• Most are expecting Sanofi (SNY) to eventually raise its bid for Genzyme (GENZ) to the $75 to $80 range, and some

other large Biotech's in play include Alexion (ALXN), Allergan (AGN), Cephalon (CEPH), and Biogen (BIIB). M&A was

expected in this group, but has been relatively slow and should pick-up into year end.

• Potash (POT) is still holding out for a higher offer and it seems that a deal could come out of China, which could set

BHP's sights on another player. Mosaic (MOS), Intrepid (IPI), CF Industries (CF), and Agrium (AGU) are all potential

plays in that group. I like Innophos (IPHS) as a phosphate play that could be taken out by one of these names in a

smaller deal. BHP is rumored to next have its sights set on Anadarko Petro (APC).

• Following the end of the 3Par (PAR) bidding war many are looking at other targets in storage as next potential targets

for Dell, and Commvault (CVLT), Compellent (CML), and Isilon Systems (ISLN) are the most notable mentions. Dot

Hill (HILL) is a smaller name that could draw interest, while Xyratex (XRTX) and Brocade (BRCD) are seeing increased

speculation in the options market looking for a deal. NetApp (NTAP) is often rumored, but seems like a more likely

buyer than a seller.

• After the McAfee deal, rumored Arc Sight deal, and the Arcot Systems deal, IT Network Security Software is a very hot

space for M&A. Check Point (CHKP), Sourcefire (FIRE), Fortinet (FTNT), Radware (RDWR) and Vasco Data (VDSI) all

are considered potential targets in this space now.

Takeover chatter was seen in familiar names last week, including, but not limited to: CVLT, APC, MCO, DRYS, HAS,

BRCD, AMR, CRUS, AKS, SKS, WEN, CAVM, LO, DF, and MTB.

Income Trapper

Starwood Hotels (HOT) shares are trading 35X forward earnings, 2X sales and 5X book, very rich for sales falling and

margins/efficiency ratios in the red. Shares put in a doji at April highs and are overbought, but downside is also fairly

limited in this name as the improving outlook from the CEO for room rates at Hotels lends to a brighter future for the

group.

The Trade: Sell the October 52.5/55 Call Spread and 45/42 Put Spread for a Net Credit of $1.30 in the Iron Condor

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.

Legal/Disclaimer:

Options Hunter is prepared by Joe Kunkle, founder of OptionsHawk.com, and professional options trader. The

Newsletter is intended for Option Trader as an idea generation tool, a primer for the trading week ahead, and will be

released every Sunday night. Charts are provided by ThinkorSwim and Prophet, and are not affiliated with this product.

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!