As we head to lunch, here’s some tidbits on some of the stocks we are currently following.

On September 2, I did a piece on McDonald’s (MCD, $63.88, up $1.46) saying the company would be reporting great same-store sales. At the time, the stock had lost its hype because the Olympics had finished and Wall Street grew bored with the stock. It was a great time to go long some calls options and that we did. Although these calls doubled shortly after I mentioned them, then traded lower, today is another payday. Same-store sales rose 8% in August.

The September 65 calls (MCDIM, $0.65, up $0.30) are up 86% this morning and could have been bought for 40 cents on 9/2. The October 65 calls (MCDJM, $1.65, up $0.45) are up 38% and were going for $1.25. This is the second time the market is begging you to take profits so manage your positions accordingly.

Research in Motion (RIMM, $104.27, up $1.60) has rebounded nicely and has traded as high as $106 today. Apple (AAPL, $158.40, up $0.48) is introducing new and cheaper iPods in a couple of hours.

Lehman Brothers (LEH, $10.18, down $3.97) hit a low of $8 earlier in the session after buyout talks with the Korea Development Bank have ended. I’ve been hesitant to make an option trade on Lehman but a strangle is looking more and more like a possibility. If you want to pull the trigger on one here is the play. The October 12.50 calls (LYHJV, $2.41, down $1.44) and the October 7.50 puts (LYHVU, $2.34, up $1.55) look like the perfect fit. As sure as the sun will come up tomorrow, you can almost bet Lehman is going to move $5 in either direction by October, if not within the next day or two.

The DryShips (DRYS, $53.30, down $4.12) October 60 puts (DQRVL, $9.70, up $3.20) continue to soar. If you recall, we did a strangle trade on DryShips on August 25. We sold the calls shortly after the trade and the puts were trading for $2.60 at the time. They have more than tripled and are working on a “quad”. As you can see, some of the strangle trades we have been using are providing us with monster returns.

Rick Rouse
Rick@OptionsMentoring.com

There has been a slew of takeover offers or ones in the works that I wanted to mention this morning. There may be one or two option trades worth researching but the easy money has already been made. However, it is still nice to see the M&A activity picking up. (All quotes are from Friday’s close)

SanDisk (SNDK, $17.64, up $4.18) had a huge day Friday on news that Samsung Electronics is considering an offer for the company. The Korean semiconductor giant already supplies flash memory chips to SanDisk and figures it is getting a great deal. There were twice as much action in the calls than puts and buyers and sellers of these contracts were targeting the 17.50 and 20 strike prices. The September 17.50 calls (SWQIW) closed at $1.30 while the October 20 calls (SWQJD) closed at $1.00.

UST (UST, $67.55, up $13.55) jumped 25% after Altria Group (MO, $20.95, up $0.29) appears set to acquire the chewing tobacco and wine maker for about $10 billion. More than 31,000 contracts of the September 60 calls (USTIM) were traded as they closed at $3.80. The October 70 calls (USTJN) traded nearly 30,000 contracts and could be a sleeper if we get a higher bid. They closed at 90 cents on Friday.

Lehman Brothers (LEH, $16.20, up $1.03) continues to look for a partner as it seeks to secure a much-needed capital infusion. Although Blackstone Group (BX, $16.43, down $0.31) and Kohlberg Kravis Roberts & Company are said to be looking at parts of Lehman’s business model, I still think Lehman gets and oversees bid. The September 18 calls (LYHIL) closed at $1.05 and could see some action this morning. The October 20 calls (LYHJD) could also be worth a second look and are going for $1.10.

Aside from the M&A activity, don’t forget we still have a “half position” open on Citigroup (C, $19.07, up $0.77) and Wachovia (WB, $16.75, up $1.22). The Citigroup January 20 calls (CAD, $2.10) were profiled at $1.37 and we got 50% on the first half of our position. The Wachovia January 15 calls (WBAC, $4.40) were recommended at $3.00 on 8/20 and half was sold at $3.80 on 8/29.

Citigroup, Lehman and Wachovia should all get a pretty good pop at the open as the Dow looks poised to start the session with at least a triple-digit gain. It would be wise to probably sell the other half of our positions as soon as the market opens. I have a feeling people will be selling into the rally as we go.

Rick Rouse
Rick@OptionsMentoring.com

Home Depot (HD, $29.33, up $1.26) had another big day Wednesday, rising 4.5% ahead of the August same-stores sales figures due out today. There are different opinions on what Home Depot’s numbers will be or how the market will react so let’s go over a few “educated guesses” in our head and how they may have an affect on our current trade.

Home Depot is dropping hints that home-owners are fixing up their homes more which could lead to a surprise number above Wall Street’s expectations. With home sales still falling harder than a drunken sailor, people seem to be “sprucing” up their homes not necessarily to sell them whenever home prices go up but to stay in them. I still think we haven’t seen the bottom for housing and so it could be another couple of years before we see a noted pickup. Why not make your house more comfortable if you’re gonna be there a while?

The flip side of this coin is that home-owners are buying the cheaper items instead of the big-ticket items. If so, Home Depot could report a number Wall Street doesn’t like which could send the stock lower. How much lower will be key.

The only other possibility of where this trade could be headed is where the stock stands on a technical level. A quick look at the chart shows a strong resistance at $30 which could mean one of two things. Either we break through $30 and our calls go higher OR the stock hits resistance and heads back down.

The January 2010 25 calls (WHDAE, $7.35, up $0.65) were mentioned at $5 on August 19. At the time, the reason we were going long the 2010 January call options is because we were trying to get in as Wall Street kept punishing the stock. But we needed to give ourselves plenty of time for Wall Street to notice just how beaten down this stock really was before the action started coming back in.

If you’ll recall, back in May, Home Depot reported a whopping 67% drop in profits and I wrote about the mood of the market back then and we knew earnings estimates were going to be lowered. In August, just three months later, Home Depot beat Wall Street’s estimates but the stock closed lower for the day. This time around Home Depot reported a 24% drop in profits. The market always takes a stock to an extreme high or an extreme low based on valuations by analysts. By looking at just these two numbers, the smart investors saw an “improvement” in the quarter to quarter numbers and started buying Home Depot again. And here we are knock, knock, knocking on $30’s door.

I know I went deep on the analysis this morning but the simple fact is this is another easy one to figure out. Many of you have a 50% profit. If you sell now, then you don’t have to worry where the stock goes. If the stock goes higher, you miss some more profits, if the stock trades lower, then you saved some profits. As Steve Miller would say, “go on take the money and run”.

Rick Rouse
Rick@OptionsMentoring.com

The market has just opened and the financial stocks look like they will be trading lower. I’ve been mentioning four trades that we have going and how they should be closed today. If you still believe these stocks may go higher then you could sell half of your positions and hold onto the rest.

The four trades we looked at involved Citigroup (C, $18.86, down $0.22), Wachovia (WB, $15.67, down $0.32), Fannie Mae (FNM, $7.38, down $0.57) and Freddie Mac (FRE, $4.82, down $0.46)

The Citigroup January 20 calls (CAD, $1.95, down $0.10) were at $1.37 and had posted gains of 50% before this morning’s slight decline. The Wachovia January 15 calls (WBAC, $3.80, down $0.20) were recommended at $3.00 and should do well as Wachovia remains a buyout candidate.

The Fannie May January 5 calls (NJWAA, $4.00, down $0.10) were profiled at $2.40 and are have posted gains of 70%+. The Freddie Mac January 5 calls (FREAA, $1.85, down $0.15) were profiled at $1.20 and are showing a 50% gain.

Again, I’d close half of each position ahead of the holiday weekend. The market is closed on Monday so I’ll be back Tuesday with some fresh ideas.

Rick Rouse
Rick@OptionsMentoring.com

Citigroup (C, $18.80, up $0.68) and Wachovia (WB, $15.73, up $1.18) continue to rally today as the Dow is up an impressive 171 points shortly after lunch. There’s no specific news concerning these two companies, they are just along for today’s ride. As we head towards the end of the week it’s good to see that some of our trades are going to be huge winners before the holiday weekend.

We will close either close them on Friday and simply look for more trades next Tuesday or we will sell half of our positions and let the rest ride. It all depends. Don’t forget we get the Personal Income and Outlays and the Consumer Sentiment reports tomorrow and they will either help extend the market gains or stop us out of our trades.

The Citigroup January 20 calls (CAD, $2.00, up $0.30) were at $1.37 and are up 50%. The Wachovia January 15 calls (WBAC, $4.00, up $0.70) were profiled at $3.00 so they are up 33%. Set stops on the Citigroup calls at $1.75. For Wachovia, set stops at $3.50.

These trades would have shown even bigger gains had we played the September or October option calls but the risk would have been much greater had these stocks headed the other way. I’ll provide another update before Friday’s closing bell.

Rick Rouse
Rick@OptionsMentoring.com

Fannie Mae (FNM, $6.48, up $0.86) and Freddie Mac (FRE, $4.75, up $0.78) each gained 15% and 20%, respectively, on Wednesday. After the closing bell, Fannie Mae restructured its management team as traders continue to ride the massive price swings of both stocks. This week alone, Fannie shares are up 30% while Freddie’s stock has zoomed nearly 70%.

The catalyst today were the comments out of Merrill Lynch saying the companies may not need to raise additional capital to stay within levels mandated by regulators. The fact that Freddie was able to sell $2 billion in notes on Monday and Fannie was able to do the same on Wednesday was seen as a positive.

The girations these stocks are making is incredible and there are a lot of people making money from the volatility of both stocks. We’re one of them. The Fannie May January 5 calls (NJWAA, $3.30, up $0.55) were profiled at $2.40 and are up 38%. The Freddie Mac January 5 calls (FREAA, $1.70, up $0.35) were mentioned at $1.20 and are now up over 40% with yesterday’s 22% gain.

There’s also an interesting debate going around that maybe the two companies should merge. I’m not sure how feasable that would be but it doesn’t look the goverment is going to bail either of these companies out anytime soon. In the meantime, I still think we will have more opportunities to keep playing both stocks. Keep an eye on your exit points for the current trade and make sure you are out by Friday either way.

Rick Rouse
Rick@OptionsMentoring.com

Home Depot’s (HD, $27.40, up $0.38) stock has managed to trade higher since the company announced earnings despite a choppy market. The company beat Wall Street’s estimates by 10 cents and the better-than-expected results have seen buyers start to come in.

The stock managed to hold the $25 level and did not trade down to the $20-$21 level like we were hoping for. Even some not-so-great economic news about the housing market hasn’t stopped Home Depot from drifting higher.

I mentioned how we needed to get into Home Depot before the market realized how cheap the stock was getting and we were targeting the January 2010 25 calls (WHDAE, $6.00, up $0.25). These call options are considered LEAPs and don’t expire for another 18 months. After Home Depot’s earnings the calls were trading for $5.00 so they are now up 20%. Although we were hoping to get in at $4, the calls never traded down to this level.

Home Depot has been making changes at the top and recently announced a dividend of 22.5 cents. For you dividend buffs, Home Depot’s is payable September 18 to shareholders of record September 4.

Sometimes entry points don’t work out as we plan and the train ends up leaving us. For those of you who may have boarded early, keep riding the train and set you stops at $5.75.

Rick Rouse
Rick@OptionsMentoring.com

A week ago, we scaled into a few positions in the financial stocks hoping for a quick rebound. In the 8/20 blog I talked about how some of the mid to major financial stocks were getting at their 52-week lows and we could play a quick bounce to the upside.

The danger with trading some of these stocks is that if those 52-week lows are broken they could head even lower. However, we have a pretty good grasp of what’s going on out in the market place and we can now turn our attention to taking some more profits off of the table.

We already closed the Lehman Brothers (LEH, $13.78, up $0.35) trade for a 70% profit in two days and like a tide that lifts all ships, today’s rally has taken our other positions into positive territory as we head to lunch and halfway through the trading session. Fannie Mae (FNM, $5.82, up $0.63) and Freddie Mac (FRE, $4.01, up $0.72) are having another big day, up 11% and 20%, respectively. Here’s our bounce so let’s take advantage of it.

The Fannie May January 5 calls (NJWAA, $3.20, up $0.50) were profiled at $2.40 and are up 33%. The Freddie Mac January 5 calls (FREAA, $1.35, up $0.35) were spotted at $1.20 and are up a little over 10%.

The other two trades we looked at involved Citigroup (C, $17.90, up $0.29) and Wachovia (WB, $14.12, up $0.20).

The Citigroup January 20 calls (CAD, $1.60, up $0.10) were at $1.37 and are showing about a 20% gain. The Wachovia January 15 calls (WBAC, $3.00, up $0.10) are trading exactly where they were profiled at.

How you manage your profits from here is up to you but they should all be closed before Friday regardless of where they are trading at. If you continue to see gains, great. But don’t press your luck with the long holiday weekend coming. The market never dances with the same partner and the risks are too great to expect much more from these plays.

Rick Rouse
Rick@OptionsMentoring.com

Lehman Brothers (LEH, $15.82, up $2.10) is trading higher this morning on news that the Korea Development Bank was considering a bid for the company although nothing is official. According to the story, the Korean bank didn’t reach an agreement with Lehman because it is still worried about the company’s debt. Lehman’s stock has been punished as it struggles to raise capital due to the subprime exposure mess on its books.

There’s also chatter that Lehman discussed the sale of a 50% stake with KDB or China’s CITIC Securities on Thursday, but those talks are said to have failed because both companies felt the asking price was too high. Wall Street is also saying that Lehman’s is trying to find a buyer for some of the bank’s business and was looking for a $20 per share acquisition price.

I don’t know if that’s going to happen but the pressure cooker is on. Either way, we have already been rewarded with one of our call option plays. Lehman opened up this morning at $15.80 and I’m not sure if we will go much higher than that today. Usually these types of events give a stock a big pop in the morning and it slowly drifts lower the remainder of the day.

The January 20 calls (LYHAD, $2.40, up $0.40) opened this morning at $2.40 which is well over our exit target of $2.00. The calls were profiled at $1.40 and a $2.00 stop would have given us a 40% profit. We are now looking at a 70% profit and it would be wise to close the position or at least half of it. I’ll provide an update later in the day on our other positions.

Rick Rouse
Rick@OptionsMentoring.com

We created a Mining Watch List back on May 22 for a few companies that provided us with some trades to go long. By mid-June we were out and since then, all four of the stocks have been hammered to levels where I think it’s time to go long again.

I will list some call options that will require you to do your own homework because the only ones I really like are the copper plays. The other sectors like steel and aluminum have been hit but I think cooper is the better play. We will compare prices from May to where these stocks are now and go from there.

BHP Billiton (BHP, $70.89, up $1.42). The stock was trading at $92. The stock set a 52-week high of $95.61 on May 19 but it has been all downhill since up until now. BHP is the world’s largest miner and recently posted record profits of $15 billion on revenue of $60 billion for the quarter. However, it fell short of Wall Street’s estimates of nearly $16 billion. Although many now believe its bid for rival Rio Tinto (RTP, $388.60, up $10.01) may be in trouble, the stock may have bottomed. The October 70 calls (BHPJN, $4.50, up $0.60) and the January 80 calls (BHPAP, $3.90, up $0.80) were active today.

Alcoa (AA, $32.12, up $0.43). In a little over two months, Alcoa has dropped 10 points and is a stone’s throw from its 52-week low of $26.69. I don’t know if the sell-off in the stock is warranted but I do know that demand for steel hasn’t diminished totally. I’m still on the fence with Alcoa but the October 35 calls (AAJG, $1.25, up $0.11) were the most active in the October call chain.

Freeport-McMoRan (FCX, $93.66, up $2.57). This stock was at $117 and made it up to $127 before falling to a recent low of $75.81 on August 5. Since then, the recovery has been swift and fast. Take a look at the October 100 calls (FCXJT, $5.50, up $0.85) which jumped 18% today.

Southern Copper (PCU, $26.30, up $1.75) is another stock that we can add to our list. The stock has been taken down to attractive levels and we can play the bounce. The October 25 calls (PCUJE, $2.85, up $0.95) were up 50% today while the October 30 calls (PCUJF, $0.80, up $0.35) were up nearly 80%. Long-term bullish traders may also want to look at the January 30 calls (PCUAF, $1.60, up $0.45).

The market did well with oil going jumping over $5 today. The Dow ended the day with a 12 point gain and closed at 11,430, a 100 points higher off its lows. The Dow is 200+ points lower from where we started the week and I don’t think we will have a 200 point rally on Friday with all of the rhetoric going on right now. However, I do think it’s a good time to give copper another look.

Rick Rouse
Rick@OptionsMentoring.com