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

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

$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

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

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

Citigroup (C, $6.27, up $2.50) got its wish over the weekend and we got ours. News that the government will give $20 billion to the struggling bank and guarantee $300 billion in troubled mortgage assets has the stock rolling today. In exchange, the government gets $27 billion in Citigroup preferred stock while the taxpayer once again gets the wrong end of the stick.

I spent the majority of Friday watching the action in Citigroup and talked about the December 5 calls (CLP, $2.30, up $1.36) which closed under a $1 on Friday. The calls have traded to a high of $2.50 today. Obviously, if you got into these calls then you don’t need me to tell you to close half the position.

The financial stocks are having a stellar day as you might expect but don’t get caught up in the rally. There are likely more bailouts to come with other banks and I wouldn’t be surprised if Citigroup hits the coffee can again down the road. Remember, Citigroup got $25 billion last month and now another $20 billion. Meanwhile, the auto companies must be scratching their heads and wondering what the heck is going on. They pretty much left Congress with a brown nose and no cash.

Truth is, the banks will get money before the auto companies although a collapse of one or more of the auto makers could have major negative implications on the economy. However, a Citigroup bankruptcy would have an even greater effect on an already fragile financial system.

Rick Rouse
Rick@OptionsMentoring.com

The market is so amazing. There are so many moving parts and subplots happening at the same time that is making this market so incredible to trade right now. There are people losing their shirts and there are the others making a killing. It’s that simple.

The Dow managed a furious comeback in the final hour of trading as the cat got let out of the bag on who President elect Obama would likely nominate for treasury secretary. His name is Timothy Geithner and he was responsible for the 500 point pop in the Dow. Wall Street cheered the New Yorker’s current role and pushed the Dow above 8k to 8,046. The Nasdaq jumped 68 points to finish at 1,384 while the S&P 500 surged 47 points to close at 800 on the button.

The one story I want to jump right into is Citigroup (C, $3.77, down $0.94). Remember on Tuesday when I said “let’s see how this one turns out”? Citigroup had just issued a “Buy” rating on AutoZone (AZO, $92.41, up $3.32) which hit a low of $84.66 today when the stock was at $104.

I questioned the “analyst upgrade” because Citigroup was a $9 stock and had been sinking like the Titantic yet AutoZone was at a serious technical breakdown. Yeap, we made some dough with the AutoZone put options but the real deal has been Citigroup. There was a fortune being made this week as Citigroup dropped from $9 to $3 in just three days. Think about that for a second. Citigroup was a $20 stock just six weeks ago.

So here is the dilemma with Citigroup. Can you trust it? My take is that Citigroup will survive because it is part of the “good ‘ol buddy” system. Citigroup was one of the nine initial banks to sell preferred stock and warrants to the government last month. They also received $25 billion in the process which happens to be more than the company’s current market value right now. How crazy is this getting?

Here’s the kicker. The November options expired today but there was plenty of trading in the December contracts. The December 5 calls (CLP, $0.94, down $0.31) saw 100,000 contracts trade hands. That is phenomenal. Period.

If you bought 10 of these call options today then basically you have entered into a lottery ticket. Ten contracts would have cost under a $1,000 although the calls did trade to a low of 60 cents when the stock hit $3. So let’s say $600 if you had bought at the low.

Now, if Citigroup can rally, which to be quite honest could, then the calls could see some super-duper returns. The contracts expire on December 19 and if the stock can rally to $6 then the calls would be worth $1. If you got in at 60 cents that’s a 67% return. If you got in around a buck, you break even.

But what if Citigroup can get back to $7 or $8? At $7, you got a double on your investment, at $8 your return is 200% if you’re in at $1. If the stock is under $5, you lose your entire investment. Of course the returns or losses could come quicker depending on the outcome but that is how playing these call options will shake out.

You can bet I’ll be following this one.

Rick Rouse
Rick@OptionsMentoring.com

What a long strange trip it has been. Well, we are Grateful and the market has been left for Dead. Thursday’s market action could certainly be summed up by one of the most famous lines in music history and today’s “songs” from the stock market will be enjoyed for many years to come that’s for sure.

Although there are numerous topics to discuss and never enough time, I’ll try and be brief about the market. To start, you have to realize that the current market environment is the quickest downturn, correction, or oversold market that we may ever see. Ever. If you have followed the market closely then you may be one of the lucky ones making money because this market has become easily predictable.

The drop in America’s 401k plans, pensions, and other investments have caused a wave of cascade selling that is hitting the market like a cannon ball going through a wet napkin. There is no support and there is no buying. There are no leaders. Everybody is selling.

That scares everybody and the natural reaction is to “save what you have left”. This sort of reaction or over-reaction has provided us many opportunities to buy puts on stocks that are sinking. As option traders, you buy call options in a bull market and puts in a bear market. And because you always have both bull and bear markets, it is the main reason why I don’t own a single share of stock.

With options you control more shares with less money and the returns are 10x more powerful. Once you discover these secrets then you will understand why I love both bull and bear markets. I really don’t care. “The trend is your friend” has been providing us with triple-digit profits for quite some time now.

The point I’m trying to make is now that we have tested the market lows and broken through those levels, it is going to get a little tougher to predict what is going to happen…to a degree. I still think we go below 7,000 if the auto companies fail but something dramatic is about to happen. That I can feel.

Yes, it has been “dramatic” for many people because they feel as though their life savings are going up in smoke. However, they could have protected their 401k’s and pensions by buying put options as insurance to protect the stocks in their portfolios. That’s another subject but the point I’m trying to make is that you really need to learn how the market works and more importantly how option trading works. We offer some kick-butt courses that will make you money but you have to educate yourself.

On that note, I’ll get back to the market. The Dow fell 449 to close at 7,552 while the S&P dropped 54 to finish at 752. The Nasdaq tanked 70 points and is now at 1,316. Add that to Wednesday’s decline and you have the worst two days in the market since 1987. I predicted 7,500 for the Dow in yesterday’s morning blog and we got down to 7,506.

I swear I don’t have a crystal ball but I’m taking the clues the market is giving me and I’m just trading the trend. When the trend changes you will have losing trades but more often than not you can limit those losses. As we change over, you simply look for the next stocks that are to move the “new” trend.

If I’ve said it once, I’ll say it again anyway. The market never dances with the same partner twice. I have no idea where the market will close today but the futures are pointing to a higher opening. Today is option expiration day so we will have a crazy open and a crazy close.

Rick Rouse
Rick@OptionsMentoring.com

Here are some updates on the trades we are following.

AutoZone (AZO, $86.93, down $7.32)

November 95 puts (AZOWS, $8.60, up $4.80) were profiled at 90 cents and traded as low as 75 cents on Tuesday. Sell them right now. If you were brave enough to roll with these November put options your return is up over 800%. Close them today as the contracts expire on Friday.

December 95 puts (AZOXS, $14.70, up $3.30) were profiled at $5.40. Sell 75% of your position today and let the other 25% ride. The return is 175%.

December 75 puts (AZOXU, $6.20, up $1.70) were going for $1.80. I said to buy them up to $2.00 and if you got into this trade, you can bank the 250% return. Close 75%, keep the other 25% open.

Baidu.com (BIDU, $106.05, down $5.69)

November 100 puts (BDQWT, $5.40, up $1.90) were going for $2.50. Close the trade.
December 100 puts (BDQXT, $16.70, up $2.00) are up from $8.75. Close the trade.

Although we were on the sidelines with Baidu, some of you may have rolled the dice on this one. Take your profits and run to the hills.

Abercrombie & Fitch (ANF, $14.75, up $0.20)

The stock made another fresh 52-week low yesterday and this trade is pretty close to reaching max potential.

November 22.50 puts (ZWRWX, $7.80, up $0.30) were profiled at $3.30. Close the entire position today.

December 17.50 puts (ZWRXW, $4.00, up $0.30) are up from $1.70. These put options were our main focus and we have done well with them. We are up 135%. You could set stops at $3.40 but you would be giving up profits if ANF reverses course.

Apple (AAPL, $80.00, down $6.29)

I mentioned Apple last Thursday and although it has taken a little longer than expected, the stock is breaking down like a rented mule. The December 80 puts (QAAXP, $8.00, up $2.40) are up 57% from our entry price of $5.10. Set atops at $7.65 to ensure a 50% return.

Google (GOOG, $270.00, down $10.18)

On November 12, I had mentioned the November 280 puts (GGDWP, $16.00, up $7.40) at $6.00 and they traded above $12. We had set stops at $11.00 and we were stopped out of the trade earlier this week.

The December 240 puts (GOUXH, $15.00, up $3.70) were trading at $6.60 and we had set a stop of $9.00 for the position. Raise the stop to $12-$13 and sell 75% of the position if these levels are hit today.

The market looks like it is going to test its low as the Dow is down over 100 points to 7,820. The thing to watch for here is a bounce off the October 10 low of 7,773. If we don’t get a convincing bounce then we could be setting up for a faded rally. If we test the low, bounce, and come right back down then we can expect more weakness.

The market is at a pivital point and we should get a clear direction of which way we are heading by Friday’s close.

Rick Rouse
Rick@OptionsMentoring.com

I have been talking about the Volatility Index (^VIX, 74.26, up 6.62) on a monthly basis now and for those of you new to the blog, the VIX is the CBOE Market Volatility Index that measures market sentiment. The market has had a lot of downward momentum and when the market goes down, the VIX goes up. The value of the VIX decreases when the market heads higher.

At the end of September I had mentioned how the VIX had spent 10 trading sessions in the 30’s and looked poised to jump into the 40’s, which at the time was suggesting Wall Street was anticipating a dramatic price decline in the market. As we headed into October the VIX kept rising and we saw the market fall to a fresh low a few weeks later as the Dow hit 7,773.

The VIX hit a high of 90 once we bottomed and fell to a low of 44 right before the President election which is still high. For you history buffs, if the VIX is at 30 or more then it means the market is nervous. If the VIX is under 20, the market is confident. It’s not clear what the “new” standards should be for the VIX because the volatility has also been historic.

However, this week is getting worse by the trading day and we could see the VIX test its high. If that’s the case, be prepared for another leg down. If the VIX reaches 100 the Dow could easily fall below 7,500 which could trigger a massive sell-off

Rick Rouse
Rick@OptionsMentoring.com