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

From $185 to $98 in 10 days. That’s what has or is happening to Potash (POT, $97.91, down $30.13) today. Blame it on whatever you want but these are unprecedented moves. Talk about throwing the baby out with the bathwater. After all the bullish arguments we have heard from Potash, Wall Street is bailing out of this stock because the dollar is higher today and demand is weakening?

Potash has dropped so fast that the lowest October put option quotes I’m finding are the October 95 puts (PSPVS, $8.40, up $6.95). The October 130 puts (PSPVF, $33.50, up $21.30) which were slightly in-the-money are up 200%. For diehard bulls, the November 120 calls (PYPKD, $9.00, down $12.50) are now 60% cheaper than they were yesterday.

General Electric (GE, $22.23, down $2.27) isn’t in the same business as Potash but its stock is also getting crushed despite Warren Buffett stepping up to the plate again. Latest news out of Camp Buffett is that he is going to buy $3 billion of preferred shares of GE which carry a 10% dividend. He also has the option to buy $3 billion worth of GE common shares for $22.25 each.

Just last week his Berkshire Hathaway company (BRK-A, $138,000, up $1,000) invested $5 billion in preferred Goldman Sachs (GS, $128.67, down $5.83) stock with the same 10% dividend. He also reserves the right to buy an additional $5 billion in Goldman common stock for $115 per share at any time over the next five years.

Add it all up and Mr. B has basically pledged $16 billion to GE and JP. That’s making a statement folks. BTW, the General Electric January 30 2010 calls (WGEAF, $2.00, down $0.20) are getting some action this morning and open interest stands at nearly 100,000 contracts.

Apple (AAPL, $102.08, down $7.04) could be below $100 by the end of the day. I don’t believe in all the hype of Apple hurting because of a slowing economy and consumer spending weakening. When Apple’s iPod Touch went from $399 to $229, I was all over it. I wasn’t worried about the price because I’d rather pay $1.99 for the latest music instead of spending $10 to buy the whole CD. While there are some CD’s that are good from beginning to end, buying the iPod is actually saving me money down the road. Just saying.

I bring these things to light because if you are an investor and your time horizon is five years, these stocks are dirt cheap. Maybe. If you are an option trader, then we can exploit these situations into making huge profits with the right options.

Rick Rouse
Rick@OptionsMentoring.com

Here we go again. The futures are down sharply this morning and it’s looking like the Dow is going to start the session with a triple digit loss. Last night, the the Senate added tax cuts and other deal sweeteners to the $700 billion rescue/bailout/whatever-you want-to-call-it plan and it passed easily. Now it’s up to a House vote on Friday.

This thing has more spin than a Tiger Woods bring-back. Once the package was approved at 9:30 PM Wednesday, futures immediately turned weaker. Really it was no surprise because the market is looking forward and it doesn’t care what is happening now. This doesn’t mean we won’t get a rally but the uncertainties are still there.

The real problem is credit and banks trusting one another again. The current crunch for credit means that auto-dealers can’t get their inventory on credit, or retailers can’t get their inventories for the fall season and on and on. The government says it is buying all of these mortgage-backed assets that are worth something in hopes of actually making a profit.

The fact that they are worth something and the talking heads are saying they are worth nothing has spooked the market. And it sucks. I say that because the general public is so nervous right now because the market is heading lower and everybody is pulling out for safer havens.

If the average investor knew how to play the market on the way down, then they wouldn’t panic. The fact that not a lot of investors know how to “short” the market or protect their assets is a problem. If you are one of those investors, don’t feel bad because it is hard sometimes for someone to picture in their head that if they buy a stock they want it to head lower. That is called “shorting” and people don’t ever try it.

With options, it is so much easier to see the difference because basically it means this. If you are bullish and you buy a call option, then you are hoping to “call” it away from them. If you are bearish and you buy a put option, you are hoping to “put” it to the other investor. When Enron was tanking and the employees who worked there knew it, most of them sat back and watched their portfolios evaporate. When the stock was in the $60’s, they could have bought cheap out-of-the-money put options and made a fortune.

I know I went down a beaten path but I am trying to tell you it is not a bad thing when the market is tanking. Be proactive and learn how to trade call and put options. Here at OptionsMentoring.com we have plenty of courses that take the emotion out of the market and generate you returns of 8%-10% a month! Not 5% in a year which is where most people are trying to move their money to.

I only say this because most people that ask me about the market seem worried and ask my opinion. I say “I love it” and they get this bewildered look on their face. That’s because I really don’t care which way the market is going, I trade the trends.

Rick Rouse
Rick@OptionsMentoring.com

Historic times indeed. Tuesday’s 485 point climb for the Dow was the third largest ever after dropping 777 points on Monday. The Dow’s close of 10,850 puts the index down 18% YTD. The Nasdaq jumped nearly 100 points to close at 2,082 but its 5% jump still leaves it off by 20% YTD. The S&P 500 rallied 60 points to finish at 1,166 and is also down 20% for the year.

NewsFlash. Despite the market’s gyrations, there are a few stock out there making new 52-week highs. Tough times call for tough choices and when you have to sell something for money where do people go? Yeap, pawn shops are hot (no pun intended)…EZCorp (EZPW, $18.80, up $1.32) hit a 52-week high of $19.25. There was a little action in the October 17.50 calls (ULPJT, $1.95, up $0.90) which jumped 85% but open interest is relatively low.

Other stocks to add to our “Pawn Shop” watch list: Cash America International (CSH, $36.04, down $0.06) and First Cash Financial Services (FCFS, $15.00, up $0.27) are a couple of other players but their stock was hit by Hurricane Ike recently.

JPMorgan Chase (JPM, $46.70, up $5.70) did not set a 52-week high yesterday but the 14% surge has me believing it could be the one to “buy” if a bailout is approved. There was heavy action in the October 47.50 calls (JPMJW, $2.73, up $0.54). If you have some “house money” to play with you’re getting 50/50 odds. Either the financial stocks get a short-term lift with the bailout or they plunge even further.

Keep an eye on the HealthCare sector. One of my favorite plays could be UnitedHealth Group (UNH, $25.39, up $4.39) which has been slammed recently. There was huge volume in the October 25 calls (UHBJE, $1.50, up $0.20) but I’d go way out to the January 35 2010 calls (WUHAG) which closed at $2.05 if the stock can hold $20 for a few months. This would give us an entire year to play a rebound.

Other potential names include Aetna (AET, $36.11, up $0.85), Cigna (CI, $33.98, up $0.65), Humana (HUM, $41.20, up $0.50) and WellPoint (WLP, $46.77, up $2.31).

It’s a tough market right now but an exciting one. Novice traders will get “smothered and covered” in these types of markets and it’s best to leverage trades and take profits until we get back to “normal”. That might take a while though.

Rick Rouse
Rick@OptionsMentoring.com

The market posted is worst ever point decline after Congress rejected the $700 billion bailout plan that looked like a sure thing to everyone on Wall Street. That was the problem. As the day wore on it was apparent that the market was nervous and about 1:30 p.m. all hell broke loose after it was clear that the bill would fail.

The Emergency Economic Stabilization Act lost by a vote of 228 (against) to 205 (for). A total of 218 votes were needed to pass. This sent the market into panic mode because the plan was expected to get approval.

By the end of the day, the Dow was down a staggering 777 points and finished at 10,365. The 7% decline was the biggest for the Dow in over 20 years. The Nasdaq fell 9%, or a whopping 200 points, and closed at 1,983. The S&P 500 dropped 9% as well, falling 107 points and ended the session at 1,106.

Talk about getting beat like a rented mule. A sell-off was expected if the bill got shot down but no one on Wall Street expected 10% across the board. They were so sure that the bill would get passed but the market kept giving us great signs that a deal would not get done quickly. Wall Street simply ignored the signs and is now left to deal with the uncertainties. Yes, there will be another meeting on Thursday and yes there is a chance something still gets done.

Look. Something will get done but it will be modified and it will get done when Congress wants to get it done, not Wall Street. I think it was a good move but I still also believe Congress is doing this for the publicity. To be honest though, it is looking like the “good ‘ol buddy” system is in play here because there are too many companies failing at a time when something should have been done by now. It’s like the government is picking and choosing which companies survive and which ones don’t.

Not that it matters, but I would like to see no bailout and let nature run its course. The companies that got into this mess are the ones that should go under for not doing their due diligence. Or, if someone has to pay for it, why not some of the bigger corporations in Amercia? Geez, what did Exxon (XOM, $74.06, down $6.59) make in profits in one quarter? $10 billion. There’s a study out there that shows if the top 20 banks cut their dividend it would pay for the bailout. So yes, there are better ways of doing this.

As far as the market goes, the rest of the week will be crucial if the market hopes to regain any footing.

Rick Rouse
Rick@OptionsMentoring.com

The market is down sharply this morning as concerns related to the government’s $700 bailout package continue. Congress and the White House did reach an agreement over the weekend but it seems that Wall Street is disappointed that is still has to go to vote. The House is slated to vote later today and there is some nervousness in the market.

This is a difficult vote because it comes in an election year and there is a chance that the unpopular bailout package is not approved. President Bush was cheer-leading lawmakers to pass the bill, saying it is needed to “keep the crisis in our financial industry from spreading” across the economy.

There are many provisions that are unknown but one that is known is that the government will be authorized to purchase the assets from some of these financial firms and will help financial institutions to resume lending to individuals and businesses.

There is some heavy skepticism with this bill and that is why the market is being jittery. The Dow is down 275 points to 10,868. The Nasdaq is slipping 85 to 2,100 while the S&P 500 is lower by 40 points and is at 1,172. We should know something in a couple of hours concerning the status of the bill but I don’t expect we are going to see the big rebound everyone was hoping for. In fact, if the bill fails we could get a huge drop in the market.

Rick Rouse
Rick@OptionsMentoring.com

Well, we all knew there would be drama when it came to getting the $700 billion banking bailout package approved by the government. Instead of fighting to get this thing done, both sides seem to be tripping over their own two feet to be the first in line to take credit for it. On Thursday, in what looked like a sure thing to get it passed, Republican lawmakers rejected the emergency financial rescue package last night after both parties pretty much had announced they were near an agreement on a deal. I guess that’s why they call it politics…

Anyway, as far as the market, we opened 150 points lower on the Dow this morning but as the day has progressed the market has rebounded but is still down 60 points. Part of the big drop at the open was news that the FDIC had seized Washington Mutual (WM, $0.16, down $1.53) on Thursday and then sold the assets to JPMorgan Chase (JPM, $44.30, up $0.84) for nearly $2 billion. Yeap, as Queen said it best…Another One Bites the Dust.

WaMu was the largest financial firm in history to collapse under the mortgage debt market and it shows just how serious the housing market has crippled our economy. Of course, the news isn’t earth-shattering by any means and it was almost excepted. WaMu joins the ever growing list of companies disappearing and I’m sure there’s more to come.

Wachovia (WB, $10.75, down $2.95) is getting a 20% haircut this morning as volume has hit 100 million shares. The options for Wachovia are also trading at a furious pace with huge positions being taken in the October 5 puts (WBVQ, $0.86, up $0.66, or 325%). Volume has swelled to 33,000 contracts thus far. The October 7.50 puts (WBVY, $1.50, up $1.05, or 233%) are also active. I’m not sure if Wachovia will trade down to $5 but there is growing open interest at the 2.5 through 10 October puts strike prices. We have traded Wachovia in the past but let’s stay on the sidelines with this one. Something doesn’t feel right with Wachovia anymore.

Change is good and and the way the market is acting it looks like it is smelling a deal. It still remains to be seen but we can almost bet the farm a deal will get done and that should help the market over the near-term.

Rick Rouse
Rick@OptionsMentoring.com

It looks like the financials are getting close to being “rescued” by the government as both the Democrats and Republicans have made “tremendous progress” in negotiations over the $700 billion rescue for Wall Street. Let the debate begin on whether this is a good idea or not but it looks like it will happen over the weekend. In other words, Monday morning’s open could be huge. I say that with reservation but that is how the market should react.

There is so much riding on this package that many analysts believe that if this thing doesn’t go through then we are in big, big trouble. I’m not so sure of that because I believe there are many other solutions that would work that have not been heard. It’s just a timing issue and for the stock market it needs an infusion.

The market took a huge dive last Wednesday and Thursday as the Dow hit a low of 10,400 and was on the brink of a total collapse. Word of this bailout package helped stabilize the market and as you can see, if it fails, the market fails. Of course, the market still has a number of issues to work through and October is just around the corner. October has been the month where we have had some of the most historic corrections ever.

I’m leaning towards a rally but remain cautious as many investors keep selling into the rallies. If we can get a mini-rally for the market on the news of an approved bailout package then we could go long by buying options on any of the indexes. I prefer to use the PowerShares QQQ Trust (QQQQ, $41.52 up $0.66) when going long or short the market.

The October 43 calls (QQQJQ, $0.81, up $0.12) are up 17% this morning and could be worth a roll of the dice based on the belief the market will rally next week. It is clearly a lottery play.

Rick Rouse
Rick@OptionsMentoring.com

The market has been moving slightly higher this morning as Congress debates the $700 billion financial rescue package for the troubled credit markets. Wall Street is watching like a hawk to find out the details and there’s a lot riding on how this thing is set up. The Dow is up 22 to 11,038 after rising more than 120 points in the morning. The S&P 500 is trading higher by 2 points to 1,209, and the Nasdaq is in the green by 5 to 2,184.

Our buddy Bernanke urged Congress to get this package through in a hurry and warned “the implications for the broader economy could be quite adverse”…perhaps the biggest understatement of the year. Look, Congress will make this thing work, no matter what the consequences because they can’t announce this big of a package and then not have it go through quickly.

The government is taking some steps in the right direction but the fundamentals for many of the bank stocks and financial institutions are still weak. Yes, there could be a “cleansing” of the books but there will be more pain before it’s full steam ahead.

The dollar is also rebounding today, while gold stocks are taking a breather after Monday’s big advance. Some of the financial stocks we follow are getting to our targeted areas again:

Citigroup (C, $19.15, down $0.87)

Goldman Sachs (GS, $115.94, down $4.84)

Morgan Stanley (MS, $26.84, down $0.25)

Wachovia (WB, $15.04, down $1.56)

If we can get another 10%-20% drop it will be time to go long again on some of these names.

Rick Rouse
Rick@OptionsMentoring.com

Ditto. The market is up ANOTHER 400 points shortly after lunch and for the week the Dow is actually positive. In a week that will go down as one of the most volatile we have seen in quite some time, the market has rallied in stunning fashion on more good news that the government plans to wipe off billions and billions of bad debt off the banks books.

Another factor helping to propel the market higher is the new ban on short selling. I knew the short sellers would eventually get nabbed and today they are paying a heavy price. The SEC placed a temporary ban on the short-selling of nearly 800 financial stocks.

Short-selling is when you think a stock’s price will fall and you borrow the stock from someone else then sell the shares in the open market.

I haven’t even mentioned that today is “quadruple witching” day.

In fact the news is so good right now I can’t believe I waited this long to tell you about Morgan Stanley (MS, $29.60, up $7.05) and Wachovia (WB, $19.40, up $4.90).

Morgan went on a wild ride yesterday and by the afternoon the stock had dipped to a low of $11.70 after hitting a high $24.82. Stop and think about that for a minute. Morgan went from $24 to $12 to now nearly $30 in 24 hours…

I profiled the October 20 calls (MSJD, $10.90, up $3.70) which were at $5 and have now doubled and traded as high as $13.40. The January 25 calls (MSAE, $8.85, up $3.95) were at $4.00 and were over $10 earlier today. I don’t now much higher Morgan can go because the run-up has been huge. You could set stops at $10 for the October calls and easily get taken out due to volatility. You could set one a $7 to allow for some of this but also risk not taking a “double” off the table. Note: I always set stops at a double once the trade is officially over 100%.

Wachovia shares are up over 35% today and the longer-term call options we profiled are also doing well…real well. Wachovia actually OPENED at $23.86 and hit $24. I was pounding the table, beating the drum, and hollering at the top of my lungs that Wachovia was a serious buy-out candidate. The returns on the call options are also incredible.

The January 15 calls (WBAC, $5.80, up $2.48) were at $1.40 and have traded as high as $9.00. The January 20 calls (WBAD, $2.50, up $1.05) were at $0.65 and have traded as high as $4.50.

Obviously you should have closed some of these positions today to protect your profits and keep your bankroll growing. I’ll be wriiting articles here on the blog starting this weekend and my goal is to educate you on numerous option strategies and tidbits on the market. We might even do a mailbag…send me your questions.

Enjoy the rally but don’t fall in love it. As option traders we trade both up and down markets and this rally is being fueled by throwing gas on a fire. How long it burns remains to be seen.

Rick Rouse
Rick@OptionsMentoring.com