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

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

What a morning. As I mentioned in the blog last night, Google (GOOG, $536.40, up $86.86) was up over $80 in after-hours trading and settled at $525 by 8PM. Those gains held as the stock opened at $535.

The April 500 calls (GOPDO, $39.00, up $38.45) and the May 500 calls (GOPEO, $47.61, up $40.61) made a few people a small fortune today. The April calls represent nearly a 7000% return from yesterday’s close of 55 cents. This certainly would have been a lottery option play but as you can see they do pay off. If you had bought 10 contracts for $550 yesterday, you would now be sitting on $39,000! The May 500 calls returned a solid 515% but pales in comparison to the April call ROI (return on investment).

I wanted to illustrate these two examples because if Google would have failed to impress Wall Street and was trading lower, your April calls would be worthless and your entire investment lost. The May calls would have lost a significant amount of money although they do not expire until next month.

For example, for those who thought Google was going to fall below $400 on a bad earning report most likely would have bought the April 400 puts (GOPPT, $0.05, down $1.30). Although they still have an ask of five cents, the bid is zero. If you would have bought 10 contracts yesterday for about $1400, it is now worthless. The May 400 puts (GOPQT, $0.22, down $6.78) have lost 96% of their value. It would have cost you $7,000 to buy 10 contracts and now that would be worth a whopping $220.

The best play on this would have been a strangle option trade. You could have bought the April 400 puts and the April 500 calls for virtually a risk free trade based on your assumption of at least a $50 move in the stock. As you become better traders you will see these opportunities in the market. However, today’s example is rare but as you can see, totally possible. Google’s move today is its highest dollar move ever since becoming a publicly traded company.

Rick Rouse
Rick@OptionsMentoring.com

Google (GOOG, $454.73, down $0.30) is set to report earnings after the market closes today and analysts are expecting $4.52 per share on revenue of $3.6 billion. The last time the company reported they disappointed the Street and the stock got nailed falling from $584 to a low of $519 that day before finishing the session at $548. Google is down another 100 points since so today’s earnings will be key if the stock can resume its uptrend it had on its march to $750.

Google has faced challenges in the past and could in the future if Microsoft (MSFT, $29.04, up $0.09) and Yahoo (YHOO, $28.09, down $0.22) team up. Their online search numbers will be digested closely. Investors will want to know more about the company’s update on getting into the TV commercial business which is seen as being more effective than traditional TV ad-buying. This is a huge market and it will be interesting on how Google plans to attack it.

Here’s another earnings play that is extremely risky if you are considering going long or short the stock or options heading into earnings. You could almost bet the house on the company’s earnings in the past and expect a pop but after Google disappointed Wall Street once that is no longer a given.

Rick Rouse
Rick@OptionsMentoring.com