2008 November | Momentum Options Trading Alerts and Option Picks Blog

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Black Friday Update

Friday, November 28th, 2008

The market is closing at 1PM today and we’ve got about a half hour to go. Here’s what we’re watching:

Citigroup (C, $8.27, up $1.22) has moved above $8. This was my near-term target for the stock and the December 5 calls (CLP, $3.40, up $1.00) are now deep-in-the-money and are trading in tandem with the stock. Many of you got into this position for under a $1 as the calls traded to a low of 60 cents last Friday. Set stops at $3.00.

Chesapeake Energy (CHK, $16.95, down $3.29) is down over 15% as they plan to sell stock to raise nearly $2 billion in cash. Talk about diluting shareholder value. The December 17.50 puts (CHKXW, $2.10, up $1.15) are up 120% and opened at $1.65.

Yahoo (YHOO, $11.00, up $0.42) is up today on news that Carl Icahn is increasing his stake in the company. Apparently he has been buying shares this week and has plunked another $70 million down. More on this story next week.

Ford (F, $2.68, up $0.53) and General Motors (GM, $5.29, up $0.48) are getting nice pops. I’m hearing the two companies could be meeting around December 8 with Congress again and there’s a good chance they get some bailout bucks.

The Ford December 3 calls (FLG, $0.31, up $0.09) have traded over 20,000 contracts while the GM December 5 calls (GMLA, $1.00, up $0.15) have traded nearly 6,000 contracts. These two options could post huge gains if Ford and GM continue to rally. If Ford can get to $4 over the next week or two, the December 3 calls will be worth at least $1, or a triple from current levels. If GM can get to $8, same return. Big risk but big reward if you get in these options but I do like them.

Looks like the Dow is headed for its fifth straight winning session.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Black Friday, Chesapeake Energy, Citigroup, Ford, GM, Yahoo
Posted in Company Commentary, Market Analysis | No Comments »

Deere Disappoints Again

Wednesday, November 26th, 2008

Shares of Deere (DE, $30.26, down $2.84) are getting crushed this morning after the company missed Wall Street’s expectations once again. The company reported profits of $345 million, or $0.81 a share compared to last year’s quarter of $422 million, or $0.94 a share. Wall Street had expectations of $0.99 a share.

Back in May when Deere was at $80, the company missed estimates by a penny. In August, when the stock was at $60, they missed by four cents. Although I didn’t recommend any put option plays at the time, I did say “stay out of the headlights”.

And I said this:

“The sell-off in Deere has put the stock near its 52-week low but the real key was when the stock fell below $80. Once that happened you could clearly see the breakdown was coming. Deere’s earnings report was the straw that broke the camel’s back.”

Yeap, I blew this one. We missed the downtown train on that one, folks. Sorry. The Deere December 60 puts (DEXL, $30.53, up $2.63) were probably selling for $5 back in August…

Now the company misses by 18 cents a share. Of course, Wall Street’s only worried about the company’s agriculture equipment sales which are expected to grow only 5% next year, down from 15% not so long ago. Yikes.

Deere has gotten a 60% haircut in just six months and fallen from $80 to $30. The stock now has a PE of 6, a book value of $18 and trades at 1 1/2 times that. Historically, that is what you call a blue-light special. However, there is a new wave of the market that is being ushered in and people are trading instead of buying and holding.

I’ve been saying for years that the buy-and-hold theory has been dead money and it is only now that I am hearing the talking heads say the same thing. The real wealth in the market comes from option trading and here at OptionsMentoring.com, we can teach you this. There are so many strategies you can deploy in markets like these and it is one of the best environments ever to be trading.

There may come a time when Deere provides us with a trading opportunity to go long but there still appears to be some downside risk. Bearish options traders are targeting the December 25 puts (DEXE, $0.85, up $0.17) which have traded over 2,000 thus far.

Rick Rouse
Rick@OptionsMentoring.com

Tags: book value, Deere earnings, P/E's
Posted in Company Commentary, Earnings | No Comments »

What The Fed Is Going On?

Wednesday, November 26th, 2008

$8,500,000,000,000.00

That’s the number…$8.5 trillion. That’s how much the our government is preparing to provide on behalf of you and I after guaranteeing another $300 billion to Citigroup (C, $6.08, up $0.13) and another $800 billion today for consumer debt and mortgage loans. And we ain’t done yet.

To put this in perspective, the government is pledging about $25 grand from every man, woman and child that is currently living in the country. I’m not sure what the “average” income for America is but what this is basically saying is that many of us will be working an extra year.

Want some more gruesome numbers? The $8.5 trillion is nearly 10 times the amount that we have spent on the wars in Iraq and Afghanistan. It also represents about half of what it would take to pay off the country’s mortgages. Wow.

The bailout cash that our government is throwing around like monopoly money is intended to rescue the financial system but I say let nature take its own course. The market has rallied for three straight trading sessions and that hasn’t happened since late August. However, I’m a little concerned that this rally may be lost in a purple haze of government money. Its a risky game we are playing but so far the market has shrugged these alarming figures off.

As a result, the Dow rose 36 points to 8,479 but hit a high of 8,600. The S&P 500 also traded higher by 5 points and finished at 857.39. The Nasdaq was the weak link as it fell 7 points to close at 1,464.

Futures are pointing to a lower open this morning ….

Rick Rouse
Rick@OptionsMentoring.com

Tags: Citigroup, Government bailouts, market summary
Posted in Economic News, Market Analysis | No Comments »

Google Up, Time To Short

Tuesday, November 25th, 2008

Google (GOOG, $277.68, up $20.24) is trading higher this morning after saying it is “significantly” reducing the number of contract workers it uses, but has no plans at this time to lay off its own employees. Wall Street is applauding the news but I think it represents a great time to short the stock.

The company did not say how many contract workers might get the ax but the fat lady is singing and it could be one hell of an opera. Look, we all knew the economic slowdown would hit Google in some way, shape or form but if the company starts laying off its own employees it will make many Google bulls turn into bears.

There is no word on how fast Google would terminate some contractors but considering the firm has nearly 10,000 contractors I would expect the cuts to come swiftly.

The stock has been in a downtrend and failed to rally with the market yesterday as the Dow gained over 400 points. The break below $300 was a huge breakdown for Google and now that area will likely serve as resistance. We took advantage of this and recently closed a Google trade but today’s action is providing us with another opportunity to make some money. There have been numerous “Sell” recommendations by analysts on Wall Street who have joined the party since I mentioned Google looked poised to fall below $300 and there could be more on the way.

The chart is telling me Google could test $200 but how soon that comes is not yet clear. There are still some catalysts that make this stock a bargain to some but if today’s rally fails and the stock heads back lower than we could get a test of $250 again which might lead to another breakdown.

The December 200 puts (GOUXT, $3.50, down $2.20) are active today and yes, they are way out-of-the-money. It would hardly be shocking if Google falls to $200 and that is where I really think the bulls would come in and by in bulk but we are only playing these options for a quick trade. They will likely be closed by Friday.

For insurance, you could also buy one December 340 call (GGDLE, $3.10, up $1.20) for every two December 200 puts you buy. This will cut into some of your profits but will provide protection in case the stock continues higher.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Google December options, Google layoffs
Posted in Google | No Comments »

Market Opens Higher

Tuesday, November 25th, 2008

The market is extending its gains this morning after the government announced it is willing to provide up to $800 billion to help the market for consumer debt and mortgage loans. The goal is to help make loans cheaper and more available for the companies that issue credit cards, make student loans and finance car purchases so that they can get the credit markets going. Credit lenders have been charging higher rates and are being more stringent in making loans.

As a result all the indexes have opened higher but the bulls have got to be frustrated. Before the announcement, the futures had been pointing to a lower open and while they will take it, the bulls have to be worried that the only reason the market has been rallying is because of bailout news.

In early action, the Dow is up over 120 points to 8,564. The index is up 1,000 points from last Thursday’s close of 7,552 but there have been no other real catalysts that have helped fuel the market higher.

The S&P 500 is up 18 points, to 866.20 while the Nasdaq is higher 5 points, to 1,477.

The government’s latest effort to jump start the economy is being cheered by the market but we can’t ignore the fact consumers slashed spending by the most in nearly 30 years. The nation’s overall economic output shrank in the July-September quarter faster than initially estimated and it shows that we are all hoarding cash.

Maybe some of this “savings” will flow in the marketplace but I really don’t expect consumers to be spending as much on the holidays like years past. In fact, I think the retail numbers will be lousy when companies start to report earnings in January.

Rick Rouse
Rick@OptionsMentoring.com

Tags: Consumer Spending, Market Commentary, Retail Sales
Posted in Market Analysis | No Comments »

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No fancy spreads. No iron condors. No need to watch the markets all day long.

LAWRENCE O.
Hey Rick! Here is an update on what your picks have done in my accounts.

1) Great call on the JoyG March 55. I bought when you said, then bought again on one of the dips. Booked 80+% profit. Made enough to pay for your service for years to come.

2) Also booked profits on your Berk Feb 74 (80%) and threw a major chunk of change at the March 75’s (190+%). I would have never known that Buffet's stock had split if it weren’t for your service. Bought the shares also for the long haul. Won’t look at them for another 20 years. Great job on getting us in before the indexes did.

3) Took profit on your Imax March 12.5. 20 cent trailing stop at 1.90 yesterday. Not sure what the profit on that was, but profit is profit.

I see that you took a loss on some of these. It’s all good. I look to trade your “ideas” not your exact calls. I THANK YOU! For your ideas and commentary. Keep up the good work. And keep those ideas coming.

C.J.
Loving this subscription so far! I got into the BRK feb 76 calls the day you talked about right before the split...now up over 300% (0.70 to 2.475)! Keep the good picks coming and let's see some OSIS and EMC upside soon! Just wanted to share my positive enthusiasm on your newsletter...it gives us individual investors great ideas on not only the options market, but also the broader equity market! Case in point is BRK...I can't always read the breaking business news but its easy to read your twice daily updates on my smartphone...helped me get some BRK shares immediately after the split which I will hold for the long haul! Thanks again!

SHAUN
Aloha Rick - Thank you so much for the great CL pick. I am not sure if there was buy-out/merger news or what but at 3PM today Colgate-Palmolive absolutely EXPLODED to the upside, and my calls turned into green candy when they went from 1.40 to 3.8 in a matter of seconds! I even sold a few for over 4.0! Much thanks and keep the solid picks up my friend, honestly. Only a fool would scoff at 267% gains... Peace!

MICHAEL K.
I like the fact that you ask for comments from subscribers. Good customer service. By the way, am enjoying the service so far. Some good
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PARAG P.
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NOEL
I got into the Nike 60 Call at 1.85, sold at 5.00, also bought a 55 put at 1.05, but got stopped out at .35. What a ride! $2830.00 in the black even with the put. It's right at 100% return. I hope earnings season coming up is going to look like this trade.

TODD F.
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NOEL
“Limit order was set at 1.60 on RIMM so it sold. I may have left some money on the table but you can't go broke making a profit. That was a fun trade. Thank you. Good call. I’ve been watching and trading Rick's advice since March. It’s usually a fun ride, but I give him heck when it's wrong to. :) ”

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GREG
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KEN
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GARETT
“Hi Rick, thanks for the encouragement to play the dendreon calls! did freaking great! Got in the first lot at $1.44 on 3-24-09, sold at $2.45, 70% not bad. Bought it back at $2.30 on 4-7-09 closed out on 4-14-09 for 454% gain! Wow! I love it when that happens. So, thanks the encouragement to get back in when others were saying sell, sell, sell. Keep up the good work.”

TERENCE
“Rick – Thanks for Dendreon – it has made all the headlines today! I missed on RIMM earlier, but I’ve been holding onto DNDN calls since 3rd week March. Of course today it all paid off today, as DNDN rocketed up.”

Archive for November, 2008

Black Friday Update

Deere Disappoints Again

What The Fed Is Going On?

Google Up, Time To Short

Market Opens Higher