Like a tide that lifts all boats, the market’s recent rally has helped push shares of Potash (POT, $84.71, up $5.31) higher over the past three trading sessions. The stock hit a low of $60 last Friday and has quickly reversed course and held above $80 all day.

On October 21 and 22, I profiled the November 80 calls (PVZKP, $11.30, down $3.50) and the 2010 January 180 calls (WPTAW, $6.10, up $3.50) as high risk/ high reward trades. The November 80 calls have returned 140% as they were trading for $4.70 at the time. The January 180 calls are way out-of-the-money but have value simply because Potash can be an explosive stock. These calls were trading for $3.00 at the time of the blog and have easily doubled.

The trade was balanced so that if the November calls did not perform up to expectations then we still had insurance with the January 2010 calls which do not expire for another 16 months. Today, we got the best of both worlds as Potash looked strong all day.

The market has shown some strength this week and it looks like we may get out of October without another bomb dropping. The short-term oulook is up especially with the election right around the corner. This is normally a bullish time for the market and this rally could continue into next week. However, place stops accordingly, at least 75%-100% above your entry prices.

Rick Rouse
Rick@OptionsMentoring.com

Exxon Mobil ($72.96, down $1.69) reported earnings that smashed its own record for the biggest profit from a U.S. company, earning an astounding $14.9 billion in the third quarter. That makes back-to-back quarters that Exxon has broken its own record.

The company reported revenues of $138 billion and net income came in at $2.86 a share, versus $9.4 billion, or $1.70 a share, a year ago. Wall Street was expecting Exxon to earn $2.39/ share on revenue of $131 billion.

So let’s get this straight. For the last six months, Exxon has made over $26 billion. That is amazing. Of course, Exxon will justify these hefty profits by saying that the costs of exploration and technology continue to rise and that they are putting most of this money back into the company, but man, that is a ton of cash. Makes you wonder what the real cost of oil should be, huh? Oil companies are coming off a quarter where oil prices had reached an all-time high of nearly $150/ barrel.

The stock is trading lower today despite the record profits because production was down when compared to last year’s quarter. The stock jumped nearly $9 on Tuesday from $66 to $74 so the “big” move had already been made. There’s that classic buy the rumor, sell the news trade.

The chart for Exxon is improving and today’s slight decline should help fill in some of the gaps it made from Tuesday’s strong push. If we can get a strong base here, the stock could make a run to $80 where it would face some resistance. Short-term option traders are targeting the November 80 calls (XOMKP, $1.85, down $0.35) while longer-term option traders are focusing on the January 85 calls (XOMAQ, $2.75, down $0.75).

I like a few other sectors more than oil right now (like the casino stocks) but there has been plenty of action in Exxon’s options today.

Rick Rouse
Rick@OptionsMentoring.com

It was only a matter of time before the casino stocks got a lift. The sector has taken a beating as consumers continue to cut back on everything as the ongoing housing downturn, diminishing credit, rising food costs and recession worries continue. Gambling was taking a back seat to all of the aforementioned issues but not today.

Last Thursday I mentioned a slew of casino stocks that looked good for a trade as many of the stocks had fallen 50%-75% off their 52-week highs. The short sellers are in the market today buying back stock as many of them are getting “squeezed”.

A short squeeze happens when a stock starts to rise rapidly and the short sellers want to get out. Supply and demand comes into play when short sellers start to cover and for many of these casino stocks that is what appears to be happening. There was some good news that came out of the sector today which was enough for short sellers to start buying back the stock. The price of a stock can be pushed even higher if there aren’t enough shares to go around.

Here is the list from last Thursday with a few LEAP options I had mentioned. I have also listed some November options that did well today.

Las Vegas Sands (LVS, $8.91, up $3.96)
November 10 calls (LJJKB, $1.70, up $1.25, or 277%)
January 2010 10 calls (LNUAB, $4.60, up $2.39, or 108%) — these calls do not expire until January 15, 2010.

MGM Mirage (MGM, $13.75, up $3.42)
November 10 calls (MGMKB, $4.70. up $2.75, or 141%)
January 2010 10 calls (YDMAX, $8.50, up $4.40)

Wynn Resorts (WYNN, $41.05, up $8.17)
November 40 calls (UWYKH, $8.00, up $5.65, or 240%)
January 2010 40 calls (YPWAH, $15.20, up $5.00, or 49%)

Boyd Gaming (BYD, $5.63, up $1.25)
November 5 calls (BYDKA, $1.05, up $0.80, or 320%)
January 5 calls (WWAAA, $2.50, up $0.90, or 56%)

Pinnacle Entertainment (PNK, $4.42, up $1.67)

The trading volume for the options on Pinnacle are thinly traded, that is why I didn’t list them. The November calls for these stocks could trade higher by the time they expire and are worth a small gamble. However, I believe the January 2010 call options for these stocks are compelling.

Rick Rouse
Rick@OptionsMentoring.com

The market has been in and out of positive territory following yesterday’s huge rally, as the bulls and bears position themselves ahead of today’s decision on interest rates from the Federal Reserve. The Fed is expected to cut rates by a 1/2 or 3/4 of a point but Wall Street also taking bets on a smaller or wider cut. The current rate stands at 1.5%.

If we get a 1/2 point then we are right back where Greenspan had us. The big arguement is that this is why we are in a “recession” because money got so cheap to borrow. That is a can of worms that I’d rather not open because all we care about is figuring out which way the market is going to move.

Depending on the rate cut number, the market could rally, have a major sell-off or simply remain flat. I highly doubt the latter will happen because of the recent volatility. In fact, the market has made at least a 400 point swing in 20 out of 21 trading days this month. Many of the moves have been in a much higher range and we have probably averaged something like 700 points swings for the Dow.

Yesterday’s 900 point rally was impressive but we should know real soon if it was a bear market rally or if it is a rally that has legs. The Dow is up 63 points to 9,128 and we are about an hour away from the rate cut news. If we get anything less than a 1/2 point cut, it’s hard to say how the market will take it. Many expect a sell-off but it doesn’t really matter what the rate cuts are. Money is already cheap and the entire banking system is a mess. However, today’s news should move the market by triple digits one way or the other.

Rick Rouse
Rick@OptionsMentoring.com

The market staged a furious rally on top of the one it had going in the final hour of trading that lifted the Dow to its second-largest point gain ever. The Dow rose 890, or 11%, to finish at 9,065.12. The biggest point gain for the Dow was 936 back on October 13. In the final hour alone the Dow doubled its 450 point gain it had going for the day.

The market surge came on no real newsworthy event although the bulls are expecting an interest rate cut on Wednesday by the Federal Reserve. The bounce could be attributed to testing a bottom but the Dow hasn’t tested its October 10 low of 7,773 (yet). For now its looks as though 8,000 is providing support and the close above 9,000 was bullish. Very bullish.

The rally was also surprising given the weak consumer confidence report that came out earlier in the day. The index fell to a record low of 38 for the month, well below 51 which was what Wall Street had expected.

Of course, with today’s rally we saw some huge moves in quite a few of the Dow stocks. Alcoa (AA, $10.78, up $1.74), Exxon Mobil (XOM, $74.86, up $8.77) and Chevron (CVX, $70.02, up $8.31) all had oustanding days rising 13%-20%. Verizon Communications (VZ, $31.65, up $4.04) added another 15% on top of Monday’s 10% gain. The oil stocks zoomed higher despite another drop in the price of crude which is now at $62/ barrel.

If we can get through this week without a test of the October lows then we could be setting up for a decent rally. The bulls seem to be charging ahead as if the market has made a bottom. One thing I can say about the bears. They might not be spitting in the wind but they may tug on Superman’s cape (meaning the bulls) one more time before we are officially out of October.

Rick Rouse
Rick@OptionsMentoring.com

The straw that might break the camel’s back could be falling today as the market is struggling halfway through the trading session. Other markets around the world plummeted Friday as world governments and central banks seem helpless in stopping the inevitable — a global recession. I’ve mentioned all week how we look poised to test the market’s lows and we may get that in the afternoon session.

Oil continues its freefall despite a decision by OPEC to slash production by 1.5 million barrels a day for next month. Believe it or not, oil is at $63/ barrel and looks headed to the $50’s. Good news for gas.

Gold is also taking a hit, falling as low as $680/ ounce. What has once always been considered a “safe haven”, gold is now at its lowest levels since January of last year.

The Dow is still currently trading above its October 10 lows but is still down 358 points to 8332. It was a scary pre-market environment this morning as the Dow futures had dropped 550 points. That would have been a 700-900 point bomb that would have hit the market at the open. It is extremely rare that futures drop this low before the opening bell which triggered a temporary halt to slow the decline.

Usually when the market reaches these chaotic levels the New York Stock Exchange could be forced to use “circuit breakers” that could lead to temporarily shutting down trading. This hasn’t happened in over 10 years but would take effect if the Dow drops 1,100 points before 2pm.

The VIX (^VIX, 77.93, up 10.13) popped up to 90 this morning. If you haven’t read my blogs about the VIX, type in “VIX” in the search box there on the right of this webpage.

The last hour of trading is likely to be something to behold. We did well playing the market bounce at the beginning of the week and I have been preparing us for another test of the lows. I’m not sure if we get there today but it looks as though the bears are holding pocket Aces. We will have to see how this plays out but the market is setting up nicely for us to get into a big, big pot.

Rick Rouse
Rick@OptionsMentoring.com

Baidu.com (BIDU, $212.54, down $36.55) tried to stay afloat after reporting spectacular numbers but ended the day 15% lower as Wall Street remained cautious about the Chinese economy. China’s leading search engine reported a profit of $51 million, or $1.46 a share, on revenue of $919 million.

Baidu is China’s version of our Google (GOOG, $352.32, down $3.35) although Google has a strong footprint there. Baidu controls about 60% of the Internet search engine market in China and Google is a distant second. However, the growth for both companies remains strong as Internet users are expected to grow at double-digit rates in China. Other parts of the world can’t match that growth.

Just like Google, Baidu’s share price has been cut in half from its 52-week high. It’s hard to believe that a stock prices continue to drop despite some companies reporting a 100% increase in profits. But that what happens when you are in a bear market.

Baidu’s business model is intact and we will have to see what kind of impact a slowing global economy will have on the company. I’m not ready to jump on the bandwagon but Baidu will have some days where it is going to bounce back strong. When the market gets out of its funk, the leaders will once again lead the market higher. Baidu is a premium name caught in the backdraft of the market.

Rick Rouse
Rick@OptionsMentoring.com

There are so many sectors of the market that are making 52-week lows and the casino stocks are no exception. We made a Watch List for the sector back in June and at the time they were cheap. Guess what? Cheap has become cheaper. But it was hard to go long because of rising oil and food prices.

Although oil has backed off to under $70/ barrel and consumers are adjusting, more and more people seem to be saving cash. This has not helped the gaming industry and these stocks continue to suffer. In fact, I was shocked at how much they have fallen in four months. Here is today’s action versus where these stock were in June.

Las Vegas Sands (LVS, $8.57, down $3.13), was $54

MGM Mirage (MGM, $10.22, down $2.22), was $42

Wynn Resorts (WYNN, $40.34, down $6.04), was $92

Boyd Gaming (BYD, $4.13, down $0.72), was at $16 (buyout candidate?)

Pinnacle Entertainment (PNK, $4.04, down $0.48) was at $12

Trump Entertainment (TRMP, $0.64, unchanged) was at $3

Most of these stocks are 50%-80% off their highs. Unbelievable. I haven’t checked the gaming revenues in a few months and I’ll try to get to it over the weekend. The market always overshoots to the high side when things are robust and tends to go to extremes when things are crappy.

The gambling/ casino business is still a growing industry and new legislation is allowing more and more states to participate. Plus the market abroad has even bigger potential. Given the reduced stock prices and lowered expectations, this is one sector that may be worth looking into buying some LEAP call options.

Rick Rouse
Rick@OptionsMentoring.com

Potash (POT, $67.10, down $6.26) continued its slide today which allowed for some nice entry points for a couple of call option plays. The stock fell nearly 10% and touched a new 52-week low of $63.58 in the process. We can pretty much blame the decline on the horrendous day the Dow had (down 500+) and the fact that everyone is fearing a global recession.

I had mentioned Tuesday night that the November 80 calls (PVZKP, $4.70, down $2.20) and the 2010 January 180 calls (WPTAW, $3.00, down $1.00) were high risk/ high reward trades. Potash opened near $70 and both calls were naturally lower than where they were from Tuesday’s close.

The market downtrend was intact from the opening bell which may have scared some of you away from the trade. That was not the purpose. The trade has been balanced so that if the November calls do not perform up to expectations then we still have insurance with the January 2010 calls which do not expire for another 16 months.

Potash could continue lower and I still think the Dow has another 1,000 to go on the downside so the risks are there. We still have seven more trading days for the month of October and the aforementioned calls could become even cheaper. That is why we are doing half positions on a lot of trades and even hedging a few because I still expect us to test the market’s lows again.

Rick Rouse
Rick@OptionsMentoring.com

Apple (AAPL, $91.49, down $6.95) reported earnings after the bell Tuesday and they pretty much followed the script we had written. Yeap, Apple knocked the cover off the ball as it reported a 25% jump in quarterly profits. The company reported earnings of $1.1 billion, or $1.26 a share, versus $904 million, or $1.01 in the year-ago period. Wall Street was expecting $1.11 a share. Revenue came in at $7.9 billion which was just shy of the $8 billion Wall Street had predicted.

Now for the bigger story. They were expected to do 2.9 million in Macs sold, 4.5 million for iPhones and 10.5 million in iPods. Apple did 2.6 million Macs, 11.1 million iPods and…6.9 million iPhones. (I knew that Atlantic City trip would pay off. I saw multiple iPhones at every poker table). How big was the iPhone number?

Research in Motion (RIMM, $50.53, down $3.38) reported that it sold 6.1 million BlackBerry smart phones in its quarter. Not only did Apple knock-out the 800-pound gorilla of the smart-phone market, they did it Buster Douglas style. Although James “Buster” Douglas delivered one of the most shocking upsets in sports history, his stay on top was short lived as he lost his next fight and retired. I doubt Apple will suffer the same fate as the company looks prepared to defend its title for many years to come. RIMM is right at 52-week lows.

The problem with Apple’s report was its guidance going forward. I told you they would sandbag and that they did. Here is the cat-and-mouse Wall Street and corporate America play…Apple expects to earn $1.06-$1.35 a share on sales from $9-$10 billion. That is a 29 cent and a billion dollar range. Wall Street had been expecting $1.65/ $10.57 billion. Geez.

The guidance is what may have spooked traders as the stock started the after-hour session lower as it traded in the $80’s. However, things quickly turned around as buyers started flocking in. Maybe Apple in the $80’s was just what the bulls were looking for. The stock finished after-hours trading at $103.61, up $12.12.

That is why there is so much risk trading around earnings. Although Apple looks like it may open over $100, the guidance could have wrecked havoc on any call positions if buyers didn’t step in last night. Yeah, I was more bullish than bearish on Apple but I told you that the guidance would be lowered and it would depend on how Wall Street reacts. That’s a 50/50 flip in this market. I was calling for a one or two-day rally and we might get it. But even if Apple opens at $102 or $103, it will still be trading under last week’s high of $116.

There will be a time when Apple provides us with another trading opportunity but let’s wait until we see a clearer trend. Right now there is still too much “choppiness” going on in this one.

Oh yeah. The dude that Buster beat? Mike Tyson. The dude that beat Buster? Evander Holyfield.

Rick Rouse
Rick@OptionsMentoring.com