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Opening Bell/ Closing Trades

Friday, August 29th, 2008

The market has just opened and the financial stocks look like they will be trading lower. I’ve been mentioning four trades that we have going and how they should be closed today. If you still believe these stocks may go higher then you could sell half of your positions and hold onto the rest.

The four trades we looked at involved Citigroup (C, $18.86, down $0.22), Wachovia (WB, $15.67, down $0.32), Fannie Mae (FNM, $7.38, down $0.57) and Freddie Mac (FRE, $4.82, down $0.46)

The Citigroup January 20 calls (CAD, $1.95, down $0.10) were at $1.37 and had posted gains of 50% before this morning’s slight decline. The Wachovia January 15 calls (WBAC, $3.80, down $0.20) were recommended at $3.00 and should do well as Wachovia remains a buyout candidate.

The Fannie May January 5 calls (NJWAA, $4.00, down $0.10) were profiled at $2.40 and are have posted gains of 70%+. The Freddie Mac January 5 calls (FREAA, $1.85, down $0.15) were profiled at $1.20 and are showing a 50% gain.

Again, I’d close half of each position ahead of the holiday weekend. The market is closed on Monday so I’ll be back Tuesday with some fresh ideas.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Citigroup, Fannie Mae, Freddie Mac, Wachovia
Posted in Company Commentary, Hot Stocks | No Comments »

Dell Disappoints

Thursday, August 28th, 2008

It doesn’t look like Dell (DELL, $25.21, down $0.42) is going to have a good Friday. After the bell, the company reported a 17% drop in earnings after lowering prices and taking some restructuring charges for the quarter.

Dell earned $616 million, or $0.31 a share, versus $746 million, or $0.32 a share, in the year ago quarter. Wall Street had forecast a profit of $0.36. Although sales grew over 10% to $16.4 billion (Wall Street expected $15.9 billion) the lower prices for their computers cut into earnings.

The company has done a great job of growing its business in retail stores and the price cuts helped Dell gain a bigger piece of the market share pie. Its laptop shipments grew 44% year-over-year the company reported.

However, Wall Street is taking the stock out to the woodshed in after-hours trading as shares are down nearly $2. The stock could recover a little bit but there’s a good possibility Dell will open Friday’s session lower than today’s closing price. There was whispers that the company would report a blowout quarter but today’s news is another example on why you shouldn’t play earnings with options.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Dell, Dell Computers
Posted in Earnings | No Comments »

Citigroup, Wachovia Updates

Thursday, August 28th, 2008

Citigroup (C, $18.80, up $0.68) and Wachovia (WB, $15.73, up $1.18) continue to rally today as the Dow is up an impressive 171 points shortly after lunch. There’s no specific news concerning these two companies, they are just along for today’s ride. As we head towards the end of the week it’s good to see that some of our trades are going to be huge winners before the holiday weekend.

We will close either close them on Friday and simply look for more trades next Tuesday or we will sell half of our positions and let the rest ride. It all depends. Don’t forget we get the Personal Income and Outlays and the Consumer Sentiment reports tomorrow and they will either help extend the market gains or stop us out of our trades.

The Citigroup January 20 calls (CAD, $2.00, up $0.30) were at $1.37 and are up 50%. The Wachovia January 15 calls (WBAC, $4.00, up $0.70) were profiled at $3.00 so they are up 33%. Set stops on the Citigroup calls at $1.75. For Wachovia, set stops at $3.50.

These trades would have shown even bigger gains had we played the September or October option calls but the risk would have been much greater had these stocks headed the other way. I’ll provide another update before Friday’s closing bell.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Citigroup, January option calls, Wachovia
Posted in Hot Stocks | No Comments »

Fannie and Freddie Continue Surge

Wednesday, August 27th, 2008

Fannie Mae (FNM, $6.48, up $0.86) and Freddie Mac (FRE, $4.75, up $0.78) each gained 15% and 20%, respectively, on Wednesday. After the closing bell, Fannie Mae restructured its management team as traders continue to ride the massive price swings of both stocks. This week alone, Fannie shares are up 30% while Freddie’s stock has zoomed nearly 70%.

The catalyst today were the comments out of Merrill Lynch saying the companies may not need to raise additional capital to stay within levels mandated by regulators. The fact that Freddie was able to sell $2 billion in notes on Monday and Fannie was able to do the same on Wednesday was seen as a positive.

The girations these stocks are making is incredible and there are a lot of people making money from the volatility of both stocks. We’re one of them. The Fannie May January 5 calls (NJWAA, $3.30, up $0.55) were profiled at $2.40 and are up 38%. The Freddie Mac January 5 calls (FREAA, $1.70, up $0.35) were mentioned at $1.20 and are now up over 40% with yesterday’s 22% gain.

There’s also an interesting debate going around that maybe the two companies should merge. I’m not sure how feasable that would be but it doesn’t look the goverment is going to bail either of these companies out anytime soon. In the meantime, I still think we will have more opportunities to keep playing both stocks. Keep an eye on your exit points for the current trade and make sure you are out by Friday either way.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Fannie Mae, Freddie Mac merger, Government bailout
Posted in Company Commentary, Hot Stocks | No Comments »

Home Depot LEAPs Higher

Wednesday, August 27th, 2008

Home Depot’s (HD, $27.40, up $0.38) stock has managed to trade higher since the company announced earnings despite a choppy market. The company beat Wall Street’s estimates by 10 cents and the better-than-expected results have seen buyers start to come in.

The stock managed to hold the $25 level and did not trade down to the $20-$21 level like we were hoping for. Even some not-so-great economic news about the housing market hasn’t stopped Home Depot from drifting higher.

I mentioned how we needed to get into Home Depot before the market realized how cheap the stock was getting and we were targeting the January 2010 25 calls (WHDAE, $6.00, up $0.25). These call options are considered LEAPs and don’t expire for another 18 months. After Home Depot’s earnings the calls were trading for $5.00 so they are now up 20%. Although we were hoping to get in at $4, the calls never traded down to this level.

Home Depot has been making changes at the top and recently announced a dividend of 22.5 cents. For you dividend buffs, Home Depot’s is payable September 18 to shareholders of record September 4.

Sometimes entry points don’t work out as we plan and the train ends up leaving us. For those of you who may have boarded early, keep riding the train and set you stops at $5.75.

Rick Rouse
Rick@OptionsMentoring.com

Tags: dividend, Home Depot LEAPs
Posted in Company Commentary, Hot Stocks | No Comments »

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Archive for August, 2008

Opening Bell/ Closing Trades

Dell Disappoints

Citigroup, Wachovia Updates

Fannie and Freddie Continue Surge

Home Depot LEAPs Higher