1. Commentary
2. Straddle’s Part 2 (Amazon Keeps on Rolling)
3. Financial Sector (open positions)
4. Akamai Technologies
5. Current Trades
6. Earnings
7. Closing Thoughts

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1. Commentary

The market had an outstanding week and it has been a minute since I have said that. For all of the gloom and doom from 2008 that followed us in 2009, it was put aside as the Dow had its biggest week of the year. The Nasdaq and S&P 500 posted better returns but the general public and Wall Street worry more about the health of the Dow.

For the week, the Dow added 280 points and finished at 8,280, or 3.5% higher. The S&P 500 tacked on 43 points and closed at 868, up 5.2%. The big story though is the Nasdaq which zoomed 115 points, or 7.8%, to end the week just shy of 1,600. Yes, Tech is back and the rally helped put the Nasdaq in the green YTD by 0.9%. The Dow is still down 5.6% while he S&P 500 is off by 3.8%.

Cisco Systems (CSCO, $17.04, up $0.69) and Walt Disney (DIS, $19.45, up $0.74) reported earnings and both stocks held up well despite some unsettling news. Cisco managed to beat expectations by six cents but revenues and net income were down. The company also said sales could be down 20% for the current quarter. However, Cisco did say that they expect to grow between 12%-17% a year.

Disney missed on their revenue expectations of $10 million which came in at $9.6 billion, down 9% over the year. The company earned $0.41 while Wall Street had expectations of $0.50. There were other hit and misses on the earnings front and most of the who’s-who has announced.

The rally was uplifting for the bulls and came in the wake of some really crummy unemployment numbers. The number of people losing their jobs continues to rise and hit 600,000 in January, which was the largest monthly loss in over three decades. In case you are wondering, there have been nearly 1.8 million jobs lost in the last three months alone. The unemployment rate stands now stands at 7.6%.

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2. Straddle’s Part 2 (Amazon Keeps on Rolling)

Last week in the Weekly Wrap, we talked about using straddles as another way to use options in your trading account. Specifically, I had profiled Amazon.com (AMZN, $66.55, up $3.37) after they announced earnings and how the stock jumped nearly $9 the next day. Amazon added another $8 this week which was huge for the call options I profiled.

The day before Amazon announced, the February 50 calls (ZQNBJ, $16.75, up $3.50) and the February 50 puts (ZQNNJ, $0.16, down $0.08) were at $4.10 and $4.15. I talked about the returns had you closed out just the call side of the trade which would have made 15% in a day.

But if you had left the position open, you are now at a double. The total cost of the trade would have been around $825 ($410 + $415). As it stands now, the total position is worth nearly $1,700 ($1,675 + $16). You would get $1,675 for the calls and $16 for the puts right now.

Amazon piggy-backed the Nasdaq and had a monster week. There are a lot of investors who shy away from playing earnings annuncements and I’ll admit, they are risky. But, if you feel like a stock is going to make a huge move of 10% or more, figure out your profits for the straddle. If it looks too risky for you, then don’t do it.

Not all straddles will work out this well but I wanted to follow-up on the returns they can provide if the stock continues to move in one direction. The beauty is that the calls still have about two more weeks before they expire. You could set a stop of $15 for the calls and then ride the puts all the way to expiration or sell them and get another $15 for each contract.

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3. Financial Sector (open positions)

The financial sector put in a good effort and gained 6% for the week led by Friday’s huge gains. There has been on-going talk about what the government is planning to revive the nation’s banks and that topic of conversation picked up steam on Friday.

Word is there is a new “comprehensive” plan that the government is expected to announce on Monday and it will likely be a market mover. The plan is expected to allow select banks to write-off bad mortgage assets,other losses and maybe more even give them more cash. The Senate also met over the weekend to hammer out details on the government-stimulus package that is expected to cost more than $900 billion. Just say a trillion plus and be done with it.

We got into some call options on Friday and kept them open over the weekend. This is always dangerous but some of you may have closed out a portion of your trades to take some money off the table. Nothing wrong with that….

Bank of America (BAC, $6.13, up $1.29)

The February 6 calls (BYOBF, $1.15, up $0.50) traded 110,000 contracts on Friday. The calls opened at 90 cents and traded as low as 80. The high was $1.50. I told you there would be a ton of action in the call options Friday morning. Nimble traders did very well but the rally could continue. BofA was up another $0.25 in after-hours trading.

Goldman Sachs (GS, $96.57, up $3.72)

We entered the February 100 calls (GSBT, $4.00, up $1.20) for under $3 and they traded as high as $4.10. Goldman looked strong for most of the day and got stronger right into the close. Goldman was up another $1.50 in after-hours trading to $98.

JPMorgan (JPM, $27.63, up $3.09)

The February 25 calls (JSABE, $4.00, up $1.90) opened at $2.45 and JP added over 12% for the day. The stock was up another 41 cents in Friday’s extended trading and was above $28.

Visa (V, $55.41, up $1.67)

The February 55 calls (VBK, $2.10, up $0.70) hit a high of $2.15 and were entered the day before earnings at 60 cents. At current levels that is a 250% gain.

The world is still moving to plastic and getting away from cash. Ten years ago, 60% of purchases were done with cash, now it’s the other way around. Visa and Mastercard (MA, $162.50, up $2.66) are the kings of the industry and each had a stellar week.

All of these positions still carry risk but hopefully we can get a higher open on Monday and we will see where we are at. There are no stops listed but you should know by now how the smart money works. Watch the open and manage your positions from there. I’ll give an update first thing Monday morning in the blog.

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4. Akamai Technologies

Akamai Technologies (AKAM, $17.41, up $0.68) is suddenly hot again after reporting better-than-expected earnings. The stock added 25% after the company said it earned $0.44 a share which beat expectations by four cents. There were three upgrades to “Buy” this month alone.

I have been covering Akamai since joining OptionsMentoring.com over three years ago but most of the articles are in our article section and not the blog. Of course, back then Akamai was in the $50′s and I was talking about the company’s prospects.

Akamai provides the technology (content-delivery networks or CDNs) used to stream video and multimedia content on the Web. It is by far the Ace of Spades when it comes to the CDN market commanding nearly 70% of the market share. That number may have changed since my last update and is hottly debated but you get the picture.

Akamai has been on both sides of the earnings surprise and had a string of beating earnings estimates up until last year. There’s a fine line between reporting “in-line” numbers and beating expectations and Akamai has been able to hold up well during the economic downturn.

Although the stock can be volatile and is prone to large swings, Akamai’s biggest customers include Apple (AAPL, $99.72, up $3.26), FedEx (FDX, $55.27, up $2.69), Microsoft (MSFT, $19.66, up $0.62), Viacom (VIA, $18.12, up $0.87), and XM Satellite Radio (SIRI, $0.12, down $0.03). Content delivery is an area that is attracting a lot of attention and Akamai is certainly benefitting from Apple’s iPhone and Research in Motion’s smartphones.

This means Akamai will help deliver high-bandwidth online content, like YouTube which you may have seen in Apple’s commercials for the iPhone. Akamai should continue to drive incremental revenues, not like in the past but online sales are still expected to grow 11% in 2009, and over time this will help the bottom line.

As far as Akamai’s top competitors goes, there’s no need to mention it in converstaion. Competition from the likes of Limelight Networks (LLNW, $3.33, up $0.16) and Level 3 Communications (LVLT, $0.99, up $0.07) hasn’t been serious enough to take away major market share.

Think of Akamai dominating the market with its content delivery the way Apple dominates the market when it comes to music and the iPod. The real growth for Akamai will be online video where the market is just beginning. Most videos are still viewed on the TV but the trend is shifting.

When Akamai was in the $50′s, it was richly priced as it carried a price-to-earnings (PE) ratio of 138. That fat was trimmed in 2008 and now the stock has a PE of 22.

So is the company a good investment? From the aforementioned numbers, maybe. But you know I’m not really a stock guy. I’m not sure if the rally can last but keep an eye on the March 17.50 calls (UMUCW, $1.25, up $0.30). If the stock can rally to $20 by March 20th, the calls will be worth at least $2.50. If Akamai continues its rally this week, that target could be hit a lot sooner.

Note: XM Satellite Radio had back-to-back days of huge volume. On Thursday, 157 million shares traded. Friday, 188 million. For a 12 cent stock, it sure has gotten a lot of action. Penny stocks are penny stocks for a reason…stay away by the way.

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5. Current Trades

I put the financial trades in a section by themselves because there were four of them and I wanted provide some additional commentary. It’s unusual that I have this many trades open but the financial plays were something we had to take advantage of on Friday. Here are the other options we are tracking.

Amgen (AMGN, $58.03, up $0.92)

The stock added nearly $3 for the week and traded higher every day. Amgen looks poised to break $60 but we already have some monster profits with a the March call options.

The March 60 calls (YAACL, $1.85, up $0.30) were recommended last Tuesday at $1.20 and have returned a little over 50% thus far. We could set stops at $1.80 but this gives us no room to work with in case we start Monday off lower. These calls still have about 6 weeks left so initial stops could be placed at $1.25. If Amgen stalls from here we can move the stop up.

Netflix (NFLX, $37.00, down $0.47)

The stock managed to test $38 for most of the week but faded on Friday as the stock hit a low of $35.72. In the process, our stops were hit.

The March 35 calls (QNQCG, $4.00, down $0.10) were closed out at $3.90. They were profiled two weeks ago at $2.60 so the return was 50%. The March 40 calls (QNQCH, $1.55, down $0.20) had a stop of $1.35 and were entered at 90 cents. We also got 50% on this one as well.

Genentech (DNA, $83.00, up $0.60)

Don’t get me started on this one. The stock basically did nothing all week and I have mentioned that the Roche bid is keeping a lid on the shares. The February 95 calls (DWNBS, $0.05, unchanged) and the March 95 calls (DWNCS, $0.30, down $0.05) are going down the tubes quick. The February 95 call were profiled at 85 cents, and the March 95 call at $1.50 back on January 12. These are the first two losing trades that I have profiled this year.

The good news is that the call options haven’t expired yet, so there is hope. Albeit, slim and none. If Genentech rejects the offer which I believe they will, then we could get the rally we have all been waiting for. If, and that’s a big if, the stock can make it to $100 a share, the March calls would be worth $5 which would offset the losses in the February calls. So there was protection from the original write-up but I didn’t plan for things to go this way. That is why I recommended both options because the history between these two hasn’t always been peachy.

Google (GOOG, $371.28, up $17.56)

Last Monday, I mentioned that the action in Google was heating up as the company was set to give an update on Google Earth. The February 370 calls (GGDBN, $12.20, up $7.80) were profiled at $2.30 and I thought it would only be good for a one of two day trade. Man, was wrong on that one but sometimes in this game you get lucky. The return on this trade is at 430% if you rode it higher. Talk about lightning in a bottle…

The stock made a $30 move for the week and these out-the-money calls are now in-the-money but look at how much premium is built in the stock. In others words, if Google stayed flat from here on out until February 20, these options will technically only be worth $1.28. So there is over $10 in premium built into these call options. Set stops at $10. Otherwise, ride Sally ride…

Spider Gold Shares (GLD, $89.59, down $0.53)

The ETF (exchange-traded fund) traded lower for most of the day and I lowered the entry prices for the March 99 calls (GLDCU, $1.85, down $0.20) and the March 100 calls (GLDCV, $1.65, down $0.20).

These positions were slightly positive until Friday. We got into the March 99 calls at $2.05 and the March 100 calls at $1.90. Both positions were slightly positive until the ETF slipped back under $90. Set stops at half the entry level prices.

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6. Earnings

Monday: Beazer Homes (BZH, $1.00, up $0.12), Hasbro (HAS, $23.54, up $0.22), Infinity Pharmaceuticals (INFI, $8.19, down $0.04), Lions Gate Entertainment (LGF, $5.50, up $0.05), Rohm and Haas (ROH, $56.50, up $1.73) and SOHU.com (SOHU, $45.61, up $2.73).

Tuesday: Applied Materials (AMAT, $10.45, up $0.22), Bob Evans Farms (BOBE, $20.50, up $1.26), Coventry Health Care (CVH, $16.64, up $0.30), Genworth Financial (GNW, $2.32, down $0.02), The DIRECTV Group (DTV, $22.58, up $0.06) and UBS (UBS, $11.20, down $0.20).

Wednesday: Activision Blizzard (ATVI, $9.96, up $0.23), Buffalo Wild Wings (BWLD, $22.67, up $0.66), Chipotle Mexican Grill (CMG, $51.31, down $0.22), Dean Foods (DF, $19.66, up $0.11), iRobot (IRBT, $7.93, up $0.02) and Toll Brothers (TOL, $19.88, up $1.69).

Thursday: Coinstar (CSTR, $24.84, up $0.78), McAfee (MFE, $30.13, up $0.15), Panera Bread (PNRA, $47.54, up $0.23), Rio Tinto (RTP, $121.36, up $12.34, ValueClick (VCLK, $7.00, up $0.11), Viacom (VIA, $18.12, up $0.87) and Waste Management (WMI, $29.75, up $0.27).

Friday: Abercrombie & Fitch (ANF, $20.96, up $0.98) and Pepsico (PEP, $53.53, up $1.18).

There are a couple of names to keep an eye on in this group. There could be some huge winners (or losers) in the bunch and the others will hold keys to certain sectors. We are well represented with a diverse group of stocks that will provide us details on what their company’s earnings will be and what the future holds.

I list the earnings so that if you have any exposure to these stocks, you can plan accordingly. Most of the notable names have already been heard from but there will still be some movers and shakers.

Chipotle Mexican Grill has been a favorite of ours in the past and Panera Bread will likley move a few points this week. I’m surprised that somebody hasn’t scopped up ValueClick in an acquisition yet. Perhaps in 2009? UBS is not you and us anymore. Rohm and Haas is in a battle with Dow Chemical (DOW, $10.88, down $0.03) after Dow pulled out of a merger agreement. It’s in court and it could get ugly.

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7. Closing Thoughts

The Nasdaq was impressive last week and was led higher by Apple, Google and Research in Motion (RIMM, $59.17, up $2.37) and is now positive for the year. So does the rally continue? The first hurdle the index must clear is 1,650. If that level is taken down this week, then the next target would be 1780ish. That would be another 10% from current levels.

The Dow will face resistance at 8,375 and 8,500 and the big test will come at 9,000. For the S&P 500, resistance awaits at 930 and some at 950. The mini-mountain it needs to climb is 1,000.

The next few days will gives us big clues on where the market is headed but it would take an act of Congress (no pun intended) to say we are on ur way to a full-fledged rally. We are still in some obvious trading patterns but bulls are eyeing higher ground while the bears aren’t quite ready for hibernation.

The longer the battle which is what we have been locked in, the greater the chance for a serious move in one direction or another. I ain’t Dwayne Wayne but here’s What’s Happening (that quote was courtesy of Kid Rock), watch what the market does when these two huge announcements by the government come out. Digest what is going on and think outside-the-box instead of following the herd. There will be clues on our next trades on which ones will be looking good and which ones won’t.

Rick Rouse
Rick@OptionsMentoring.com

Note: Send me an email if you got the newsletter this week, please. We are testing our sign-up list and we wanted to make sure you got the Weekly in a timely fashion. I won’t be able to answer all of the emails but I do read them all. Send me your thoughts, comments, or questions on what you would like to see in the Weekly.

Also, I’ve had a lot of demand to create a “track record” for the options I mention in the blog. If you’ll notice, I am trying to make the blog to where you learn as go. If you are new to options and new to trading, check it out. I’m researching everything I wrote about in 2008 and there are some juicy tidbits I will be sharing with you over the next few weeks. Like the analysts who were calling for gold to run to $1,500-$2,000 by May 2009. I’ll also bring you the trades from 2008 with a percentage rating.