Research In Motion (RIMM, $122.82, up $3.60) was just what the doctor ordered. The stock opened Thursday’s trading session at $119.69 and the September 140 calls (RULIH, $2.75, up $0.90) opened at $1.85. The opening allowed us to get in the calls immediately as we had a limit order to buy them up to $2.00-$2.10.

RIMM was strong all day despite a nasty day for the market. The Dow has a miserable day, falling 200 points to close at 11,378. RIMM’s strength could be contributed to the Nasdaq which posted only a four point loss and finished at 2,325.

Another contributing factor was the surprise earnings report out of Motorola (MOT, $8.64, up $0.96). The company posted a profit of $4 million in income which amounted to break-even on a per-share basis. The Street had expected the company to report a loss of $66 million, or $0.03 a share.

Friday will be a HUGE day for the market as the unemployment numbers roll in before the market opens. If we can get a decent report, the RIMM call options and the other call positions we have should continue to do well. The RIMM trade is already up 50% and we can go ahead and set an early stop of $2.00 which gives us at least an 8% profit should the stock retreat.

Rick Rouse
Rick@OptionsMentoring.com

Talk about waking up to good news. There’s no better feeling as an option trader then to start you day off by learning that one of your option plays is up 700% for the day. No that is not a typo. But that is exactly what is happening today as word hit Wall Street that Bristol-Myers Squibb (BMY, $21.17, down $0.34) has made a $4.9 billion bid to purchase ImClone Systems (IMCL, $63.85, up $17.41).

The proposed deal is worth $60 a share and represents about a 30% premium from where Imclone last closed. We made a Biotech Watch List Sunday night and I updated a few of them last night. However, today’s news is so much better. If you’ll notice, Imclone’s stock price is above the $60 offer which could indicate an even higher bid may be needed.

Bristol-Myers Squibb already owns a 17% stake in ImClone and the two companies have been partners since September 2001 in developing Erbitux. Bristol-Myers has felt an “urgency” to do something after its industry-leading cancer treatment Taxol was overtaken by numerous generics brands. The pitch for ImClone was a way for Bristol-Myers to beef up its pipeline not only with Erbitux but other exciting drugs as well. Erbitux is amphibious in way because it treats “land or water”. The drug is approved for treating advanced colorectal cancer and head and neck cancers. And more uses for the drug could be on the way.

And wouldn’t you know it. Our buddy Carl Icahn just made a fortune on this news. Gotta give the dude credit though. He has been investing in ImClone since 1999 and owns nearly 14% of the company’s stock. He took over the board after the infamous securities scandal that I told you about Sunday night involving Martha Stewart.

But here’s the best part of this story. I told you the August 45 calls (QCIHI, $18.87, up $16.52) would be worth $5.00 if ImClone can hit $50 by August 15. I profiled these calls at $2.40 and on Monday they were actually cheaper as ImClone’s stock fell $1.27 by the end of the day. A 10 contract investment of about $2,500 is now worth a stunning $18,500 in just four days. Wow. Now you can see why the option market is one of the single biggest ways to make money in this world. Of course I had no way of knowing that a buyout offer was in the cards for ImClone but the action in the Biotech sector has been noticable.

Another company I talked about was Amylin Pharmaceuticals (AMLN, $31.07, up $3.59) which I said could be headed back above $30 despite reporting a wider-than-expected quarterly loss. Amylin is up on the ImClone news obviously. This has helped the August 30 calls (AQMHF, $2.00, up $1.50) which were profiled at $1.35. The calls were taking a big hit and looked as though they may expire worthless but today’s move took care of that. I would sell the entire position today and book profits.

As far as ImClone, it should be easy to manage stops from here. We can hold out for a higher premium but set stops at $16.00. The calls have a $15 premium built-in based on the buyout offer of $60 and they expire in a couple of weeks. Either way, I’d say we are in good shape.

Rick Rouse
Rick@OptionsMentoring.com

It’s been a month since we’ve really looked at Research In Motion (RIMM, $119.22, up $3.16) but it looks as though the stock could be headed on the way back up. The stock got hammered after the company missed Wall Street’s estimates by a penny but after testing the $100 level, traders seem to be warming up to the company again.

The sell-off in RIMM may have been a little too much but let’s step back and review what happened. When the company missed earnings, yeah, they missed by a penny, 84 cents versus expectations of 85 cents. Revenue was off $30 million, $2.24 billion versus $2.27 billion. And they lowered their outlook. The number that was really “overlooked” by Wall Street was that revenues grew 20% and their earnings miss was due to slightly higher expenses and a slight decline in gross margins (-0.4%). That slight “point four” decline is from a gross margin of 51.8%. Not too many companies out there can claim gross margins of 50%.

We did a strangle trade on RIMM before they announced earnings. I had factored in a huge move in the stock price but was unsure of the direction. The strangle trade provided us a safety net in either direction but the move in the stock had to be 15%-20%. Which is exactly what we got when the stock dropped 20 bucks after the announcement. The trade was good for a 10% return and it was only a one-day gig.

What would have happened if RIMM had exceeded expectations? The stock was in the $140’s before the earnings miss and if RIMM would have beat expectations then maybe it would have traded higher. There were a lot of negatives Wall Street gave the company with their earnings but when you step back and look at the big picture, now may be the best time to get into a trade.

The company has a slew of new devices coming to the market and one of them is right around the corner. When RIMM announced earnings it also said at the time that the BlackBerry Bold would be delayed from late July to early August. Well, August will be here Friday. Other smartphones coming to market are the Kickstart and the Thunder. The Thunder is expected to give Apple’s (AAPL, $159.88, up $2.80) iPhone a run for its money.

The bulls seem to be rallying the troops for another run to $150 ahead of the release of these products. The good thing here is there will not be an earnings announcement anytime soon. The only news that will be coming out of the company should be good news about their upcoming products. I say “should be” because you always have to prepare for anything.

I’m not recommending a strangle trade this time around, instead I’m going with the September 140 calls (RULIH, $1.80, up $0.53). If by chance RIMM opens higher this morning, wait 30 minutes after the opening bell to go long. I would buy them up to $2.00-$2.10. The August option contracts expire in 16 days so this is why I’m going into September. We will target the $3.00 area as our first exit point but we have to get there first. I’m going to set a “mental” stop loss at $1.00 for RIMM due to the volatility but its not a hard stop loss. Let’s give the trade time to develope and go from there.

Rick Rouse
Rick@OptionsMentoring.com

We were stopped out of the Johnson & Johnson (JNJ, $68.08, down $0.40) August 65 calls (JNJHM, $3.20, down $0.30) at $3.80 on Tuesday. J&J has failed to rally with the market but the calls were profiled at $2.30 so our return was 65%.

Biogen Idec (BIIB, $71.27, up $0.77) has traded higher the past two days and has pushed through $70. The August 70 calls (IHDHN, $2.85, up $0.45) are now in-the-money by $1.27 and they were profiled at $2.30. As you can see, there is some time premium still built into the calls but let’s go ahead and set stops at $2.50 which gives us about a 10% gain should the stock stall.

Qualcomm (QCOM, $55.64, up $0.72) set a new 52-week high on Wednesday. After starting the week lower, Qualcomm has also put in a solid two days. The October 50 calls (AAOJJ, $7.15, up $0.35) are now up a whopping 250% from an entry price of $2.05 well in-the-money. Let’s set stops at $6.15 which guarantees a 200% profit.

Rick Rouse
Rick@Optionsmentoring.com

Walt Disney (DIS, $31.27, up $0.35) reports earnings after the closing bell today and all signs are pointing towards a good quarter. Disney’s profit jumped 18% to $1.1 billion, or $0.58 a share when they reported last time out. This time around Wall Street is expecting a profit of $0.61 a share on revenue of $9.1 billion for the quarter.

Disney has a solid film and broadcasting division producing such hits as National Treasure: Book of Secrets, Enchanted and its Hannah Montana/Miley Cyrus: Best of Both Worlds Concert Tour. The studio entertainment division saw its revenue jump 61% to $377 million with the success of these films and analysts expect growth to continue.

The company also owns theme parks, ABC television, ESPN, and radio stations, which should also contribute to the bottom line. Options traders are targeting the August 32.50 calls (DISHZ, $0.60, up $0.15) and the August 30 puts (DISTF, $0.60, down $0.15). Volume in the puts is nearly double the action in the calls as 13,000 contracts have traded thus far.

Rick Rouse
Rick@OptionsMentoring.com

The Financial stocks look like they may be setting up for another run higher. The sentiment for these stocks can change daily but the recent developments with Merrill Lynch (MER, $27.13, up $0.88) may actually be a good things. Merrill has been raising capital and selling troubled investments which will greatly reduce risk to the company moving forward. Other banks may follow suit.

News this morning that the Federal Reserve is going to extend its emergency borrowing program for investment banks could also lead to a small rally. The program will also be available to commercial banks as well and will allow bids on cash loans that last for 84 days, along with the 28-day loans that are now available. The previous plan was set to expire in September but has now been extended through January 30, 2009.

I had profiled a few longer-term call options a couple of weeks ago and we were able to ride most of them for average gains of 50% in less than a week. I’m going with the same plays again although our holding period may be longer. The market could be setting up for another rally and Friday’s unemployment report will have a huge impact on the market. If all is well, we could be starting August with some sort of rally.

I still don’t trust Merrill Lynch as a company so we will see. The January 35 calls (MERAG, $2.00, up $0.20) were first profiled at $1.90 and we exited them in the $2.65-$2.75 range. Some of you may have gotten out at even higher prices as the calls hit a high of $3.35. I like entry points here at these levels as this could be a “trading bottom” for Merrill Lynch.

Citigroup (C, $18.87, up $0.42) has traded as high as $19.50 this morning but many of the financials popped at the open. The January 20 calls (CAD, $2.30, up $0.27) were originally profiled at $1.25 and were sold at $2.60 the first time around. I like them again even at current prices. The January 22.50 calls (CAA, $1.42, up $0.19) can also be considered.

Wachovia (WB, $16.85, up $1.15) is the first bank I think will eventually get bought and maybe a bid from Goldman Sachs (GS, $183.74, up $2.11) will surface down the road. The January 15 calls (WBAC, $4.70, up $0.60) were first mentioned at $1.30 and $2.60 was our exit point. The stock went on a wild ride the day it announced earnings, trading lower before skyrocketing higher. These calls are much higher than our original entry price so we are going to move to the January 20 calls (WBAD, $2.25, up $0.25).

The average cost to buy one contract for any of these plays is around $200. They are all still considered “lottery plays” but I’d rather be picking on where their stock prices will be in six months instead of trying to pick a 3-digit number for a daily draw.

Rick Rouse
Rick@OptionsMentoring.com

Amgen (AMGN, $62.28, up $1.80) continued its recent hot streak today following Monday’s 12% gain on better-than-expected quarterly earnings and a raised 2008 forecast. There was a lot of action last Friday as traders were positioning for the company’s earnings report. The biggest news, however, wasn’t the company’s numbers so to speak. Late Friday, the company also reported Phase 3 clinical trial results that showed its bone drug, Denosumab, reduced the risk of bone fracture in post-menopausal women.

Amgen reported earnings per share of $1.14 on revenue of $3.76 billion. Net income fell nearly 8% to $941 million but the decline was smaller than expected and overlooked when the company raised its full year earnings forecast. Amgen provided revenue guidance for 2008 in a range of $14.6-$14.9 billion versus Wall Street’s expectations of $14.4 billion. Earnings are expected to be in the $4.25 to $4.45 range versus $4.19 a share which is what analysts were expecting.

The company is counting on Denosumab as its next biggest money-maker over the next few years with analysts predicting sales of $1.7 billion by 2012. The positive results from its latest study could push those numbers higher. As usual, the parade of upgrades on Monday should have been expected. Three brokerage firm raised the stock to a “Buy” rating while another initiated coverage with the same rating. Their price targets were anywhere from $70-$80 a share but the drug will still need FDA approval.

The August 60 calls (YAAHL, $3.15, up $0.75) have provided some stellar gains for those of you who may have bought them on Friday or Monday. However, there was heavy volume in the October 65 calls (YAAJM, $2.85, up $0.70) as nearly 18,000 contracts traded hands. Also noteworthy is the open interest in the October 50 puts which could suggest that option traders are looking to protective their positions as well should Amgen stumble from here.

Rick Rouse
Rick@OptionsMentoring.com

The market is on the upswing as we head to lunch following yesterday’s huge loss. Oil is down a little over $3 to $121 level and the talk is it could be on its way to $100 a barrel. Just a few weeks ago we were approaching $150 so the continued slide in oil is having a positive affect on the market.

The market also got some good economic news as the Conference Board’s July index of consumer confidence rose slightly to 51.9 from 51 in June. Consumer spending accounts for more than two-thirds of U.S. economic activity so the uptick was welcomed news.

The next stop for oil would be the $117 level which could pave the way for a slick road to $100 a barrel. Of course, the market may be getting ahead of itself but comments from OPEC’s president that oil’s current price is “abnormal” and could fall to $70 or $80 is fueling the fire. Oil is at a 10-week low and the recent slide has also coincided with a stronger U.S. dollar.

The dollar is at a 5-week high and a stronger dollar is pushing commodities prices lower. Copper, gold, and natural gas are all significantly off their highs of just two weeks ago. Barrick Gold (ABX, $42.63, down $1.57), Goldcorp (GG, $39.55, down $1.40), Gold Fields (GFI, $11.97, down $0.09) and Newmont Mining (NEM, $47.70, down $1.41) are all trading lower today.

Today’s rally can certainly be contributed to the fact that oil is lower. But any sustained rally is only likely to occur if oil continues to retreat. It’s tough to say if we get a straight drop to $100 a barrel for oil but if we do and it can stay at $100 a barrel or below, it will certainly help stabilize the market over the near term.

Rick Rouse
Rick@OptionsMentoring.com

Just when it looked like the market had turned a corner, the bears once again seized control. Oil had a little bit to do with the sell-off but the financial sector was once again the center of attention.

The financial sector got off to a good start although market sentiment wasn’t all that great. There was some news over the weekend that a few more regional banks were shut down which brings the number to seven (and counting). The selling intensified in the afternoon session when the Treasury Secretary spoke.

When the dust settled, the Dow finished the session 239 points lower to 11,131. The 2% drop was paced by the financial sector which ended the session down 4.5%. The Nasdaq also lost 2%, or 46 points, and closed at 2,264. The S&P 500 took a 23 point hit and finished the day at 1,234.

Merrill Lynch (MER,$24.33, down $3.19) is on its way back down after spending most of last week above $30. The selling in Merrill started on Friday when the stock lost $1.50 and continued yesterday. There was no “big” news during the trading session but after the bell Merrill said it plans to raise $8.5 billion by selling new common stock. Hmmm. Reminds me of the Lehman Brothers Holdings (LEH, $15.27, down $1.78) debacle. Lehman sold $4 billion of common stock priced at $28 back in June and you see where its share price is.

In Merrill’s case, Singapore’s Temasek Holdings has already agreed to buy $3.4 billion of the new shares. Gee, imagine that. What is unbelievable is the fact that institutions, foreign companies, investors, hedge funds, or whoever is putting so much money into these inflated of deflated stocks. The knuckleheads who bought Lehman are looking at nearly a 50% loss and Vegas may soon be taking bets on where Merrill is eventually headed.

The fact that the financial sector is so volatile right now is great for us. I profiled some Merrill Lynch July 32.50 puts at the end of June when Merrill was on the way down. The puts went from $2.15 to $7.00 a few weeks later and we were eventually stopped out. But not before we booked 200%+ gains. Then the financial sector started to rally and we bought four different call options on four different companies, held them for a week, made money and were stopped out. The gains weren’t as big as the Merrill put option trade but many of you made 50% or more.

The point is, and although it is tricky, we can keep playing the same trends over and over. Sure, we will have to make some adjustments but the price swings are allowing us enough time to go both long and short and the market is giving us plenty of clues on which way the pendulum is swinging.

Here’s how the other stocks we continue to watch ended on Monday:

Citigroup (C, $17.43, down $1.42)
Wachovia (WB, $13.63, down $0.87)
Goldman Sachs (GS, $172.90, down $5.76)
Fannie Mae (FNM, $10.31, down $1.24)
Freddie Mac (FRE, $7.72, down $0.55)

We could be getting close to another bottom for these stocks which may provide another chance to go long. However, the financial sector could also be setting up for another major move to the downside.

Rick Rouse
Rick@OptionsMentoring.com

Chipotle Mexican Grill (CMG, $66.04, down $0.27) has continued its downtrend today following last week’s drubbing. The stock was hit hard last Thursday despite an outstanding 2Q earnings report. The biggest reason for the sell-off was the fact that the company said that sales growth had softened through July and that higher food and labor costs could pinch profits.

On Thursday morning, there were a bevy of downgrades on Chipotle. Jefferies & Company lowered its rating on the stock from “Buy” to “Hold”, JP Morgan downgraded the stock from “Overweight” to “Neutral” and RBC Capital Markets chimed in with a “Sector Perform” rating, a step down from “Outperform”. Don’t get me started. The analysts that made these calls were totally late to the party. The breakdown in Chipotle has been building for weeks and all an investor had to do was look at the charts.

If I had no idea Chipotle was announcing earnings and that the stock was on the verge of a major breakdown, I could have lost a lot of money. What would have happened if I was a new investor and I did some research and my first investment was going to be in Chipotle? I would have seen that three other “Wall Street” analysts agreed with my analysis and if I would have bought 100 shares at $80, I’d be showing nearly a 20% loss. That’s one of the problems I have with stock upgrades and downgrades.

Of course, we don’t rely on upgrades and downgrades for our trades but they can have an affect on our positions. This time, those downgrades are holding the stock in the $60’s for the time being. The August 70 puts (CMGTN, $5.80, unchanged) were profiled at $1.60 in the blog and should have been closed Friday for gains upwards of 200%. This was only a one to two day trade but some of you may have left some on the table hoping for another leg down.

The trade was another homerun and its best to close the trade instead of trying to squeeze a few more dollars out of it. I can tell you from experience, sometimes keeping a trade open for just a day or two longer can have a dramatic impact on your returns. There is support for Chipotle here in the mid-$60’s and further support in the upper-$50’s but it looks like the mid-$60’s are going to hold through the August expiration date.

Rick Rouse
Rick@OptionsMentoring.com