Google (GOOG, $578.47, up $20.00) continues its steady climb after its earnings announcement on the 18th. The stock is up another 3+% today after the company’s CEO had some positive things to say. Here is all you need to know. In an interview, he said, “In our case, we focus on quality, and we have a very simple model. If we show fewer ads that are more targeted, those ads are worth more. So we’re in this strange situation where we show a smaller number of ads and we make more money because we show better ads. And that’s the secret of Google”. I love that last sentence.

I have been mentioning over the last few weeks how Google could continue to climb based on Microsoft’s (MSFT, $29.15, up $0.51) and Yahoo’s (YHOO, $27.15, down $0.21) ugly battle. The stock is making a big push at $600 and that would mean a $150 move since their earnings announcement. Wow!

I had also mentioned that traders were active in the May 500 calls (GOPEO, $81.00, up $20.10) before Google announced earnings. They were selling for $7 at the time. It’s hard to believe a 10 contract option trade that would have cost you $7,000 would now be worth $81,000 in two weeks. Now that’s making money.

Google is well aware of just how much they stand to benefit from the Microsoft/ Yahoo stand-off. When a fire gets low, you throw more wood on it. If it gets too low, it’s likely to go out or smolder. It looks like Yahoo and Microsoft are smoldering and its no wonder that Google stoked the fire today.

Rick Rouse
Rick@OptionsMentoring.com

Merck (MRK, $37.14) has always been a tough stock to trade. It’s an investment in the Drug sector which carries extra risk due to the nature of their business. Drug and Biotech stocks trade on product announcements and development of their pipeline. Once different drugs are announced or “created” and start Phase I, II, and III of their process for FDA approval, these stocks can make huge volatile swings based on the news.

Merck fell more than 10% yesterday after the company said its cholesterol drug Tredaptive was not approved by the FDA. The company didn’t say what the FDA’s problem(s) were with the drug, but it’s likely it had something to do with safety concerns. This was a total shock to the market which had figured the drug would get approved.

Merck’s meltdown started in January and you can tell by the chart once the stock broke through its 50, 100 and 200-day moving average it was in trouble. Trading near $60 to start the year, the stock is now sitting at 52-week lows. That’s well over a 30% drop. Take a look at the chart and you will see exactly what I’m talking about.

The best option trade certainly would have been a put play on Merck once it broke through these averages back in January for three or four months out. Charts aren’t a sure fire way to make money but they are the single most important aspect of an option trade. There are numerous “other factors” we must consider when we trade options but it is imperative that you learn some aspect of how to read a chart.

We can teach you how to read charts and find option trades to where your success rate is 90% or greater. Click here to learn more.

Rick Rouse
Rick@OptionsMentoring.com

With tax refunds hitting consumer pockets over the next few days and weeks, Wal-Mart (WMT, $57.96, up $0.61) could be the “Retailer of Choice” as people spend their rebates on the 800-pound discount gorilla. The company is offering to cash the checks for free and said no purchase will be necessary.

Wal-Mart offers the best of both worlds. It’s a one-stop hub for all of your household, grocery and even your gas needs. It’s no coincidence the company is cutting prices on key grocery and other items to coincide with the distribution of the rebates. Wal-Mart really wants to grab a bigger piece of the grocery segment although margins aren’t that great. However, Wal-Mart has superior cost-cutting structures in place that they are able to pass on to the customer.

Option traders are placing bets on the May 57.50 calls (WMTEY, $1.43, up $0.30) and the May 60 calls (WMTEL, $0.44, up $0.12) which are up 26% and 37%, respectively, that the stock continues higher.

Wal-Mart usually doesn’t make big, dramatic moves in its stock price but the bulls seem to want to push this one up to the $60 level. If Wal-Mart can get to $61 by May 16th then the May 57.50 and 60 calls would double from current levels with the 57.50’s returning slightly more. Either way, this is a very aggressive play on a stock that Wall Street has fallen back in love with.

Rick Rouse
Rick@OptionsMentoring.com

10:00AM

(MSFT, $28.69, down $0.30) and Yahoo (YHOO, $26.22, down $0.21) continue to trade lower today. Microsoft lost $0.84 yesterday while Yahoo fell $0.37. With no deal in place in only makes sense that both stocks have suffered. I can only imagine what Microsoft’s “war room” is planning next. As each stock falls lower, Google (GOOG, $554.34, up $2.22) continues its uptrend (the stock was up $8 Monday) and has to be loving every minute of this battle.

MasterCard (MA, $265.62, up $23.12) is hitting 52-week highs this morning after reporting profits more than doubled during its latest quarter. I have been telling you that stocks can often see swings of 8%-10% or even 20% on earnings announcements. Yesterday, the stock closed at $242.50 and if you would have factored a 10% move either way you would have gotten roughly $266 to the upside and $218 to the downside. MasterCard is up nearly 10% today and the May 270 calls (MALEX, $6.80, up $4.20) are up 160%. On the other hand, the May 220 puts (MALQD, $0.20, down $3.30) fell 94% on the news. See why betting on earnings can be so risky? If you had predicted MasterCard’s stock would suffer after a lousy report or bad market conditions then you would have basically lost your entire investment overnight if you had bought the puts.

Now, if you would have placed what is called a “strangle” option trade and bought equal amounts of the May 270 calls and the May 220 puts, then you would have came out slightly ahead. The previous close of the calls were $2.60 and the puts were $3.50. This gives you a total cost of $6.10. If you were to sell both of these positions now, you would get roughly $6.80 for the calls and maybe $0.20 or $0.15 for the puts for a total of about $7.00. That’s roughly a 10% gain in one-day just by hedging your trade. Sure, it may not pack the power of getting you a 100%-200% gain but it also protects you from losing all of your money on a trade.

Sohu.com (SOHU, $70.82, up $0.01) was up $9 yesterday and I had mentioned that they may be one of the better China Internet plays. The May 70 calls (UZKEM, $7.30, unchanged) were up nearly 150% after earnings quadrupled on strong advertising and online game revenue. Online gaming continues to grow at mind-boggling numbers as online video games are expected to triple by 2012 according to some industry analysts.

One last tidbit…Ballard Power Systems (BLDP, $4.16, up $0.06) is a fuel cell manufacturer that makes equipment for hydrogen production. The company announced earnings this morning but the stock isn’t getting much of a pop. Hard to believe this was a $125 back in the day…

Rick Rouse
Rick@OptionsMentoring.com

Ford Motor’s (F, $8.21, up $0.71) stock has been active over the past few trading sessions after better-than-expected earnings and news that billionaire Kirk Kerkorian will expand his stake in Ford to 5.6%.

Last Thursday, Ford Motor said it recorded a $100 million profit which pushed the stock up 12% to close at $8.40. Then on Friday, Bear Stearns (BSC, $10.60, down $0.12) downgraded the stock and it promptly closed at $7.50. Volume was heavy both days as 241 million shares traded on Thursday and another 227 million shares traded on Friday. Average trading volume is about 61 million shares. Bear Stearns wasn’t the only firm that issued a downgrade as three other different analysts downgraded the stock despite what appears to be a turnaround story.

Yesterday the stock traded another 170 million shares on news Kerkorian’s investment company, Tracinda Corporation, is offering $8.50 per share in cash for up to 20 million additional shares. Tracinda already owns 100 million Ford shares which it began accumulating in early April at an average cost of $6.91 a share. If this latest offer is accepted, Kerkorian’s stake will increase from 4.7% to 5.6%. A takeover is unlikely because the Ford family controls 40% of the voting rights.

I’m not a big believer in Ford or any auto stocks at the moment due to the uncertainties ahead that face the auto industry. GM (GM, $21.94, up $0.56) and Toyota (TM, $101.96, down $0.10) are ahead of Ford when it comes to design and technology but the economy continues to weaken and gas is going through the roof. Given the risk/ reward scenarios, I’d rather invest elsewhere.

Rick Rouse
Rick@OptionsMentoring.com

Refund checks hit consumers bank accounts today and here a few stocks that could trade higher over the next few weeks. Of course, there’s no guarantee that these stocks will trade higher but if consumers do decide to spend their rebates here’s where they may go:

Best Buy (BBY, $45.32, up $0.23)
Home Depot (HD, $29.78, unchanged)
Kohl’s (KSS, $50.09, down $0.56)
Kroger (KR, $26.40, unchanged)
Sears Holdings (SHLD, $100.46, up $0.71)
Wal-Mart (WMT, $57.72, up $0.07)
Wendy’s (WEN, $28.96, up $0.65)

Kroger and Sears are offering discounts and other incentives for people who turn rebates into gift cards. Home Depot is running advertising campaigns that suggest ways for you to spend your money and Kroger expects many people could “stock up” with food prices continuing to climb.

The rebates went out a week earlier then planned and there’s no doubt people are looking forward to the rebate to help with rising gas and food costs. Some may pay down credit cards but more than likely most people are planning to spend a good portion of their refund.

Rick Rouse
Rick@OptionsMentoring.com

The weekend has come and gone without a deal getting done between Microsoft (MSFT, $29.83) and Yahoo (YHOO, $26.80). Microsoft had given Yahoo’s board of directors until Saturday to agree to its proposal or face a the possibility of a tender offer and proxy battle. Although Microsoft hasn’t revealed its next move, I would expect some kind of response within the next day or two.

The stakes are high for both sides and Microsoft has already hired a major proxy solicitation firm. It has also been reported that the company has prepared its own board of directors to replace Yahoo’s board, so we’re likely to see Microsoft pursue the deal.

On the other hand, questions abound as to if this deal is what’s best for Microsoft. It has been leaked that Microsoft’s higher executives do not want this deal to go through and mergers are always a tough thing to get done anyway.

If Yahoo is successful in fending off Microsoft then shareholders are going to want to see results. Will Yahoo’s stock hold up if Microsoft walks away and what will happen to Microsoft’s shares?

In the meantime, the one company that is benefiting the most is Google (GOOG, $544.06) which is the same company that both Microsoft and Yahoo are trying to catch.

Rick Rouse
Rick@OptionsMentoring.com

MasterCard (MA, $237.39) and Visa (V, $75.10) report earnings this morning. Both of these companies had huge IPO’s. MasterCard become public two years ago at $40 and is up six-fold since its debut. Visa went public March 19th and closed at $56.50 on its first day of trading. In early-morning trading, Visa is up nearly 3%, or $1.90, to $77.00. MasterCard is up $2.05.

Plum Creek Timber (PCL, $42.65) is a timber company and operates as a REIT (real estate investment trust). A month ago, the company lowered its earnings outlook as residential construction activity remained week. Plum Creek pays a 4% dividend.

Sohu.com (SOHU, $61.84) was up $2 Friday ahead of earnings. I expect strong earnings from them this morning and believe they are one of the better China Internet plays out there. The May 70 calls (UZKEM, $2.90) were heavily traded on Friday and could get a big pop with a good report.

Also, William Wrigley Jr. Co. (WWY, $62.45) is up 26% to $79 before the bell as Mars candy, with the help of Warren Buffett, is buying the gum maker for $23 billion.

Rick Rouse
Rick@OptionsMentoring.com

The clock is ticking on Yahoo (YHOO, $26.59, down $0.71) to accept Microsoft’s (MSFT, $29.73, down $2.07) bid. The deadline is Saturday and we’re likely will see some high action drama. The stakes are high for both sides but the real pressure is on Yahoo which really has no other options.

If Microsoft doesn’t get a deal done the company could go “hostile” with its bid. A takeover is considered “hostile” if Yahoo’s board rejects the offer and Microsoft continues to pursue the deal or if Microsoft would have made a bid without informing Yahoo’s Board beforehand then it would also have been considered a hostile takeover bid.

So what does this all mean? Yahoo’s isn’t opposed to a merger but wants a higher price. Both companies reported less-than-stellar earnings results so there is no leverage there on either side. Microsoft has said it will not raise its offer and Yahoo wants a higher one. It looks like its going come down to who’s word is the strongest and I’d go with Microsoft.

If that happens, then Yahoo could fall below $20. If Microsoft pulls out or goes hostile its stock could also slip as well. Here’s where it gets really interesting. The put volume in Yahoo is exploding and we are only halfway through the trading session.

Take a look at the action in the Yahoo May Puts:

May 25 Put (YHQQE, $1.04, up $0.40) up 63%, 32,000 contracts traded
May 22.50 Put (YHQQX, $0.54, up $0.24) up 70%, 16,000 contracts traded
May 20 Put (YHQQD, $0.24, up $0.12) up 100%, 23,000 contracts traded

Before I close, let’s throw this out there. What if Microsoft pulls out of the deal sending Yahoo’s shares down below $20? If that were to happen the stock could fall even further to the low to mid-teens where Microsoft could then aggressively buy Yahoo’s shares in the open market for half the price.

I can’t wait to see how this all unfolds.

Rick Rouse
Rick@OptionsMentoring.com