It’s official. After a week of haggling, the House finally approved the $700 billion government bailout of the financial industry on Friday with President Bush quickly putting his John Hancock on the bill. It was almost a foregone conclusion that the bill would get passed and the bulls on Wall Street were hoping for a snap-back rally but their hopes were dashed once the vote was approved. The market had been higher by 300 points heading into the tally but reversed course once the decision was announced.

The Dow finished Friday lower by 157 points to close at 10,325. The Nasdaq dropped nearly 30 points and closed at 1,947 while the S&P 500 fell 15 to settle at 1,099. For the week, the Dow lost 800 points. The “rally” that was suppose to follow after the approval of the bailout was wishful thinking by the bulls. The market gave us so many signs that there wasn’t going to be a rally as it quickly turned its attention on what lies ahead.

So what is next for the market? Of course, the big picture in the whole scheme of things is that the housing market will have to get better before we can ever have a sustained rally but the here and now will be earnings. Yeap, earnings season is here and they will start trickling in this week. The heavy-hitters, companies that will certainly move the markets, come in the following week.

As far as the financial stocks, they retreated as well. Goldman Sachs (GS, $128,00, down $3.54) was trading as high as $142 before falling 14 points after the announcement. The October 135 calls (GSJG, $6.90, up $0.10) were profiled on September 24 at $6.90 and reached a high of $12.00 before the sell-off. I’m sure we will be trading this one again.

JPMorgan Chase (JPM, $45.90, down $3.95) was also doing well heading into the bailout vote, trading over $50 but fell 8% afterwards. The October 47.50 calls (JPMJW, $2.20, down $2.40) were profiled at $2.75 on Wednesday and reached a high of nearly $5 before dropping 50%. I warned you of this on Thursday and if you didn’t take profits then or on Friday then shame on you.

There’s much to debate about the bailout but now that the market has gotten this out of the way, it’s all about earnings for the next few weeks. Expect much of the same volatility we’ve been seeing but remember, October is always full of tricks and treats when it comes to the market.

Rick Rouse
Rick@OptionsMentoring.com

Research in Motion (RIMM, $97.53, up $0.82) reported earnings after the bell and they weren’t pretty. Wall Street was eager to hear the news but punished the stock in after-hours trading when the company missed earnings by a penny. I mentioned on Monday that analysts were looking for revenues of $2.6 billion and earnings-per-share of $0.87. RIMM also missed revenues by $20 million.

We also talked about RIMM’s September numbers which were a little funny but this could have been because consumers are waiting for the arrival of the company’s new Bold smartphone. The company said new subscriptions were 2.6 million, which matched expectations but new devices sold only reached 6.1 million, not the 6.3 million Wall Street was expecting. So maybe consumers were/ are holding out or just buying the iPhone instead.

In after-hours trading as I write this, RIMM is down $18.88 to $78.65. Yikes. I was hesitant to recommend another strangle option trade on RIMM because I thought we would only see a 10% move in the stock either way. We had used the October 120 calls (RULJD, $1.20, down $0.36) and the October 80 puts (RFYVP, $2.06, down $0.54) as a strangle on September 16 and closed both sides of the trade within a week. We made a gain of 40% with that trade. The after-hours drop of 20% for RIMM should hold up to make this trade profitable if you put this strategy on before earnings.

Rick Rouse
Rick@OptionsMentoring.com

Lehman Brothers (LEH, $3.99, down $3.26) is dropping another 45% within the first 30 minutes of trading this morning. Lehman did nothing yesterday to please Wall Street and looked baffled when reporting earnings. With no real “backup” plan or turnaround in place, the company reported a loss of $3.9 billion for the quarter and slashed its dividend. Yeah, way to give the Street confidence in saving your company’s stock price.

Lehman’s current crisis forced the company to report earnings earlier than expected but the company had to say something after its shares plunged almost 45% Tuesday. Add on today’s 45% drop and it’s easy to see why the stock has gone from $10 to $4 good buddy.

The deal or non-deal that fell through with the Korea Development Bank has pushed Lehman to the brink. We examined a strangle option trade on Lehman and here’s how we look. The October 7.50 puts (LYHVU, $4.40, up $1.80) have nearly doubled from Tuesday. The October 12.50 calls (LYHJV, $0.44, down $0.86) have gone the other way. If you sell the puts today, it covers the cost of the entire trade and you once again have a “free” trade. I mentioned we could get a $5 move in Lehman when the stock was at $10 on Tuesday so the trade is reaching its limit.

Rick Rouse
Rick@OptionsMentoring.com

It doesn’t look like Dell (DELL, $25.21, down $0.42) is going to have a good Friday. After the bell, the company reported a 17% drop in earnings after lowering prices and taking some restructuring charges for the quarter.

Dell earned $616 million, or $0.31 a share, versus $746 million, or $0.32 a share, in the year ago quarter. Wall Street had forecast a profit of $0.36. Although sales grew over 10% to $16.4 billion (Wall Street expected $15.9 billion) the lower prices for their computers cut into earnings.

The company has done a great job of growing its business in retail stores and the price cuts helped Dell gain a bigger piece of the market share pie. Its laptop shipments grew 44% year-over-year the company reported.

However, Wall Street is taking the stock out to the woodshed in after-hours trading as shares are down nearly $2. The stock could recover a little bit but there’s a good possibility Dell will open Friday’s session lower than today’s closing price. There was whispers that the company would report a blowout quarter but today’s news is another example on why you shouldn’t play earnings with options.

Rick Rouse
Rick@OptionsMentoring.com

Home Depot (HD, $26.20, down $0.76) reported a 24% drop in profits and reiterated its downbeat outlook for the rest of the year. The weak housing market that shows no signs of recovery continues to plague Home Depot but once again, in the scheme of things, their earnings report was not all that bad.

For the quarter, the company said earnings fell to $1.2 billion, or $0.71 a share. This was down from $1.59 billion, or $0.81 a share, during the same period last year. Given the backdrop for housing, I’d say Home Depot did all right. Revenue slipped a little over 5% to $21 billion, down from $22.2 billion last year. Although same-store sales fell nearly 8%, a 10% drop on certain levels doesn’t sound as bad as the 24% drop in profits.

The results easily beat Wall Street’s expectations of $0.61 a share on revenue of $20.6 billion. The better-than-expected results indicate a slight pick-up from an earlier slowdown by consumers who had postponed home improvement projects. Home Depot also projected full-year sales should decline by 5% which means the stock is not out of the woods. However, the bottom is near for Home Depot and if the stock falls back to the $20-$21 level, I’d be a buyer of some longer-term options.

The January 2010 25 calls (WHDAE, $5.00, down $0.70) don’t expire for another 18 months which gives the company five or six quarters to turn things around. The key for us is that we will want to be in the trade before Wall Street notices the turnaround. If these calls can get below $4.00 we will take another look at them.

Rick Rouse
Rick@OptionsMentoring.com

In a day that saw the Dow drop 180 points, Lowe’s (LOW, $24.54, up $0.04) reported 2Q earnings that beat Wall Street’s estimates and its stock held steady. We all knew the housing market would still have an affect on Lowe’s but considering the circumstances, Lowe’s earnings report was actually pretty sweet.

The company reported a profit of $938 million, or $0.64 a share, down about 8% from $1.02 billion, or $0.67 a share, a year earlier. The key that bulls focused on was that sales rose 2.4% to $14.5 billion as the company opened more locations. The flip side of that coin was that same-store sales, or sales at stores open at least a year, dropped 5.3%.

Wall Street was expecting Lowe’s to post a profit of $0.56 a share on sales of $14.1 billion for the quarter. The company expects 3Q profits of $0.27- $0.31 a share with same-store sales expected to drop around 6%. The silver-lining was that Lowe’s said full-year earnings would come in around $1.48-$1.56 a share which was higher than the company’s earlier projection of $1.55.

I didn’t expect much from Lowe’s today and I didn’t think the stock would make any significant move to the upside anyway. I also didn’t think the stock would sell-off either. Lowe’s pretty much said and did what every other company has done so far. They beat lowered earnings and gave a cautious outlook.

If I had to pick between Lowe’s and Home Depot (HD, $26.96, down $0.57), I’d would probably go with Home Depot. In fact, look for a deep-in-the-money long call trade for Home Depot in the next few days.

Rick Rouse
Rick@OptionsMentoring.com

Nvidia (NVDA, $13.00, up $0.74) is up 25% for the month despite reporting a lousy quarter. You know when the company CEO says their quarter was “disappointing” not too much good can come from that. However, it has.

Nvidia reported a 2Q loss of $121 million, or $0.22 a share, versus a profit of $173 million, or $0.29 a share, in the year-earlier period. Revenue came in at $893 million, down from $935 million. When you go from that big of a swing within a year, you can see why the stock has fallen from a 52-week high of nearly $40 to a low of $10. So why the recent bounce?

Although the company said it expects an increase in revenues and slightly higher gross margins in the coming quarters, it was the stock repurchase program that has bulls kirking. Nvidia upped its plans to buy back more of its stock by $1 billion and may purchase up to $3 billion of its stock in the future.

The company has a little over $1.5 billion in cash and said repurchases will be funded from working capital. They won’t be doing this all at once so it will take a year or two (or more) for the whole $3 billion. At current prices, that’s about 40% of the company’s market cap.

Nvidia is in the GPU business (graphics processing units) and makes chips that do cool things. The stock has seen its shares of ups and downs as you can tell from the chart. The company has even emerged from bankruptcy before. The business has been that volatile for Nvidia.

The earnings and buy-back news came Wednesday but on Thursday over 25,000 contracts of the September 12.50 calls (UVAIS, $1.28, up $0.44, or 50%) changed hands. It was 8x that of the September 12.50 puts (UVAUS, $0.70, down $0.30) which fell 30%.

It’s hard to go long with a company that is losing money and Nvidia just reported a loss of 22 cents. Yeah, that really makes you want to rush out and buy the stock or call options, right? I’m on the side of the fence that says the buy-back means nothing right now. It’s a nice gesture for management to say that but if you’re losing $125 mil a quarter, then you might want to hold off.

Nvidia has shown the ability to adapt in the past but when you step back and realize the company is losing money, it would be such a reach to hope for a quick turnaround. However, you have to respect the option action. For you diehard believers of the company, the January 20 2010 calls (KEVAD) are going for $4. That means the stock would have to be trading at $24 by January 2010, or post nearly a double from current levels for you just to break even on the options.

With competition coming from Intel (INTC, $24.36, up $0.24) and AMD Micro Devices (AMD, $5.30, up $0.15), it’s just too risky in my book. I’m not doing an apple to oranges comparision but the Intel January 25 2010 calls (WNLAE) are going for $3.70 which means Intel would have to be at $28.70 by the same time the Nvidia calls expire. I would much rather bet on Intel going from $24 to $29 than Nvidia jumping from $13 to $24.

I don’t have an “easy button” but the choice is clear. Don’t believe the hype with Nvidia, go witht the best in the industry, Intel.

Rick Rouse
Rick@OptionsMentoring.com

Abercrombie & Fitch (ANF, $53.62, up $32.36) and Kohl’s (KSS, $48.85, up $1.26) have been all over the map this week as both companies prepare to announce earnings over the next 24 hours. Kohl’s will announce after the bell today, ANF before the bell Friday.

ANF has been trading between $50 and $55 all week and Kohl’s started the week at $51 and has traded as low as $46 (told you I didn’t trust Kohl’s). The volatility shows the 10% swings both stcoks can make so as I mentioned Monday, there’s no compelling reason to try and trade the retailers right now.

Wal-Mart Stores (WMT, $58.74, up $0.86) beat estimates by two cents today but issued the “cautious” word again. The stock is right where it started the week and Wall Street has once again kept Wal-Mart under $60.

JCPenney (JCP, $37.68, up $2.16) also reports before the bell Friday.

Rick Rouse
Rick@OptionsMentoring.com

Shares of Deere (DE, $61.24, down $8.11) are getting hammered this morning after the company missed Wall Street’s expectations once again. The company reported profits of $575 million, or $1.32 a share compared to last year’s quarter of $537 million, or $1.18 a share. Wall Street had expectations of $1.36 a share. The four cents miss comes after the penny miss from last quarter.

The company’s revenue of $7.7 billion was well above expectations of $7.2 billion but Deere’s raw materials costs have been much higher than expected. Deere also went on to say that raw material costs continue to increase and would have an impact on margins in the upcoming quarter as well.

When a company misses on a quarter, it’s normally a good idea to wait another quarter or two to see how the company rebounds before buying the stock or longer-term call options. That was the case with Deere back in May when I mentioned their penny miss the last time they reported earnings. Although Deere has been able to report an increase in profits quarter over quarter, Wall Street is simply punishing this stock right now.

Deere’s stock fell from $90 to $81 that day and for three weeks it held above $80. I mentioned if key support levels of $79 and $76 were broken that the stock could really breakdown. This kind of “homework” was key for me NOT taking a longer-term play on Deere even though I felt Wall Street had over-reacted to a pretty decent earnings report.

Sometimes the trades you never make are the best ones and the homework you do can not only make you money but save you money as well. 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.

They may come a time where we take another look at Deere but for right now, I’d stay out of the headlights.

Rick Rouse
Rick@OptionsMentoring.com

Here’s a look at some of the companies that will reporting earnings this week:

Abercrombie & Fitch (ANF, $54.11, up $3.73) announces earnings Friday. The stock fell nearly 10% when the company said same-store sales were down 7% last week. The stock rebounded on Monday after hitting a low of $48.21 on Friday. The August 55 calls (ANFHK, $1.55, up $1.10) were up 244% yesterday. This 55 strike price could be the battle line between the bulls and bears and the options expire this Friday. Too risky to join that trade battle.

JCPenney (JCP, $37.50, up $1.75) is scheduled to report earnings on Friday. The company also announced weaker-than-expected July sales but raised its quarterly earnings guidance on Thursday. JC now expects earnings of $0.50-$0.52 a share, versus its previous guidance of $0.38 a share. The August 40 calls (JCPHH, $0.45, up $0.30) traded over 8,000 contracts yesterday. Maybe there was a lot of selling of these calls because I don’t think JC has the energy to make a push to $40.

Kohl’s (KSS, $51.00, up $4.13) is expected to report earnings on Thursday. Yesterday’s 9% move was impressive. A favorite back-to-school play every year around this time. I’ve never trusted Kohl’s when it comes to predicting their earnings and I have no reason to start. I just hate the way this stock trades.

Macy’s (M, $21.65, up $0.92) reports Wednesday before the bell. The company did not give a 2Q outlook but Wall Street is looking for $0.19 a share on revenues of $5.8 billion. I’ve never followed Macy’s and don’t plan to start now.

TJX Companies (TJX, $37.00, up $0.13) will announce earnings this morning before the bell. The retailer recently raised its 2Q guidance to $0.46-$0.47 a share. TJX said July same-store sales were up 3%. The stock actually set a 52-week high of $37.52 on Monday.

Wal-Mart Stores (WMT, $58.56, up $0.70) reports earnings on Thursday. Wall Street is expecting a profit of $0.83 a share on sales of $102 billion. I’ve mentioned Wal-Mart numerous times here and how it always has trouble holding $60. The stock hit a 52-week high of $61 last Wednesday and quickly gave back those gains by the end of the week. The August 60 calls (WMTHL, $0.33, up $0.11) were heavily traded yesterday and if the stock can make another push above $60, these calls should do well. Be careful though, the $60 mark is acting like quicksand and the trade should be closed before Thursday.

Rick Rouse
Rick@OptionsMentoring.com