The ride for the financial stocks has accelerated to the downside over the past few weeks and some big names are trading near 52-week lows again. We all know that there are some trading opportunities that come with these names and we have played them both ways.

The option gains have ranged anywhere from 50%-100% and we have used both calls and puts. I’m not sure if it’s time to go long again but here’s what we’re watching:

Citigroup (C, $17.13, down $0.06) hit a high of $20.50 a week ago and is down 15%. The January 20 calls (CAD, $1.37, down $0.12) were profiled at $1.25 and sold at $2.60 the first time around. Let’s target an entry price of $1.25 again.

Merrill Lynch (MER, $23.65, down $0.15) has been good to us on the long side so far but it remains a question mark if we can go long again on this company. We made a 50% profit buying the January 35 calls (MERAG, $0.87, down $0.06) at $1.90 and got out in the $2.65-$2.75 range. There’s no way I’d get back into these particular calls but I’m feeling like Merrill has more skeletons in the clost. The January 25 calls (MOJAE, $3.55, down $0.05) look expensive to me and Merrill looks like it’s wants to go below $20.

A week ago, Fannie Mae (FNM, $5.02, down $0.98) was at $9 and Freddie Mac (FRE, $3.44, down $0.73) was at $6. These two have been the headline makers again and have dropped roughly 50% on renewed concerns of a government bailout. The option activity is insane for Fannie and Freddie and the jury is still out on wheather or not they survive. The Fannie May January 5 calls (NJWAA, $2.40, down $0.60) would be a monster trade if Fannie can get back to $10. The Freddie Mac January 5 calls (FREAA, $1.20, down $0.15) would double if Freddie trades up to $7.50. That is a big “if” for both of these trades.

Wachovia (WB, $13.99, down $0.31) is back below $15 and we made a 50% profit on the January 15 calls (WBAC, $3.00, down $0.30) at lower levels. Out of all of the financials, I like Wachovia the best and still think it will be the first to go as far as an acquisition target. If Wachovia can back to $20 these calls could double.

There are plenty more brand names out there to trade in the financials. Lehman Brothers (LEH, $12.60, down $0.47) looks cheap down at these levels. The January 20 calls (LYHAD, $1.40, down $0.15) look mouth-watering. I’d buy them here and try to sell them at $2.00 for a quick 40% profit.

Pick your entry points for these plays carefully and set stops early on any gains.

Rick Rouse
Rick@OptionsMentoring.com

We might as well get accustomed to talking about oil on a regular basis, as if we haven’t already, right? There are so many things that oil effects right now that change has become inevitable to find cheaper, alternative fuels. That’s a good thing as far as trading oil goes although I believe the change should have happened 15-20 years ago.

Ten years ago the hype was fuel-cell battery stocks and look what they have done. Wall Street was banking on names like Ballard Power (BLDP, $4.46, down $0.09) and Fuel Cell Energy (FCEL, $7.62, down $0.27) to carry us to a new wave of energy investments. In March 2000, Ballard was trading at $130 a share and Fuel Cell Energy was going for nearly $50 the same year.

Of course, 10 years later there are now dozens more companies that do the same thing that Ballard and Fuel Cell have been involved in for years. The point being is that oil was around back then, still is today, and will be in the future no matter what technology brings.

As far as today’s oil prices, oil set a record high of $147.27 on July 11. Yesterday, oil jumped above $115 per barrel as Tropical Storm Fay approached Florida. The storm is not expected to disrupt operations in the Gulf of Mexico but nonetheless, the market was nervous yesterday. Oil finished the session at $112.87 a barrel.

The recent retreat has given the market a boost over the past month but we didn’t start the week off on a good note. Oil has been a problem for the market in the past and it seems like the latest rallies are stalling because of the financial companies. Even if you’re not the gambling type, a small bet on higher oil prices could actually lower the risk of your portfolio, since the price of oil has lately tended to move inversely to stocks and bonds.

But that’s not the trend right now. Lots of traders have been betting on lower prices and some have done well while others have been scorched. With so much action around us, I wanted to mention a couple of ways that traders are playing oil.

If you are an oil bear and think oil is headed lower you could trade the ProShares UltraShort Oil & Gas (DUG, $39.35, up $0.97) ETF (exchange traded fund). When oil falls, the shares go up. DUG is currently above its 200-day moving average and began moving higher in early July. If you want to double your bet you could also take a look at the new Powershares DB Crude Oil Short (DBO, $42.88, down $0.38) ETN (exchange traded note).

If you are a oil bull and think oil is headed higher you could go with the U.S. Oil Fund (USO, $91.26, down $0.54) which tracks prices of West Texas light, sweet crude oil. You could also take a look at the iPath Crude Oil ETN (OIL, $67.15, down $0.66) as well.

All of these ETN’s and ETF’s have options you can trade so play on paper first if you don’t understand them.

Rick Rouse
Rick@OptionsMentoring.com

Wow. Just when it appeared gold was “off to see the wizard..” and was headed for $1,000 an ounce it is now trading for under $800 an ounce. The 20% drop has happened in just six weeks. On July 1, gold was going for $940. This morning, gold was trading at $795. There is support for gold at $770-ish, but a break below $770 could take the precious metal down to $750.

Meanwhile, oil is down 25% from its high of $147 a barrel as it is going for $111. I had mentioned the $110 level as a battle line but I’m in the camp of oil going back to $120 before it tests the $100 level.

Then there is the dollar. In dollar has hit a six-month high versus the euro as the currency was down 0.7% to $1.47. The dollar has gained 5% this month and continues to rally as inflation will restrict the Fed’s ability to cut rates. The weaker growth in Europe has started to hit the euro hard and it could get worse before it gets better for the euro.

A firmer dollar typically pressures gold which is often seen as an alternative investment or safe haven to the U.S. currency. A stronger dollar also makes dollar-priced commodities more expensive for holders of other currencies. They work hand-in-hand and it’s good to know these things. When the market was tanking in early July and oil was rising, we were able to hop into the gold stocks for a quick bullish play on gold. We set stops, made money and got out.

I’m not ready to go long just yet on the gold stocks or call options but there will come a day when we do. Just be patient. Take a look at our gold watch list and see where we were then compared to now. The comparisons are from July 1 and the options are the ones we will watch. Do not take any action, yet.

Barrick Gold (ABX, $32.49, down $1.09), was $46. January 35 calls (ABXAG, $3.10, down $0.60).

Goldcorp (GG, $29.95, down $0.97), was $48. January 32.50 calls (GGAZ, $3.30, down $0.70)

Gold Fields (GFI, $8.83, down $0.26), was $12.70. January 10 calls (GFIAB, $0.88, down $0.17.

Newmont Mining (NEM, $41.92, down $0.98), was $53. January 45 calls (NEMAI, $3.35, down $0.60).

It will be interesting to see if the market can hold its recent rally if oil heads back up. Over the short-term, I still see a firmer dollar and lower oil prices. This means the outlook for gold remains cloudy.

Rick Rouse
Rick@OptionsMentoring.com

Talk about waking up to good news. There’s no better feeling as an option trader then to start you day off by learning that one of your option plays is up 700% for the day. No that is not a typo. But that is exactly what is happening today as word hit Wall Street that Bristol-Myers Squibb (BMY, $21.17, down $0.34) has made a $4.9 billion bid to purchase ImClone Systems (IMCL, $63.85, up $17.41).

The proposed deal is worth $60 a share and represents about a 30% premium from where Imclone last closed. We made a Biotech Watch List Sunday night and I updated a few of them last night. However, today’s news is so much better. If you’ll notice, Imclone’s stock price is above the $60 offer which could indicate an even higher bid may be needed.

Bristol-Myers Squibb already owns a 17% stake in ImClone and the two companies have been partners since September 2001 in developing Erbitux. Bristol-Myers has felt an “urgency” to do something after its industry-leading cancer treatment Taxol was overtaken by numerous generics brands. The pitch for ImClone was a way for Bristol-Myers to beef up its pipeline not only with Erbitux but other exciting drugs as well. Erbitux is amphibious in way because it treats “land or water”. The drug is approved for treating advanced colorectal cancer and head and neck cancers. And more uses for the drug could be on the way.

And wouldn’t you know it. Our buddy Carl Icahn just made a fortune on this news. Gotta give the dude credit though. He has been investing in ImClone since 1999 and owns nearly 14% of the company’s stock. He took over the board after the infamous securities scandal that I told you about Sunday night involving Martha Stewart.

But here’s the best part of this story. I told you the August 45 calls (QCIHI, $18.87, up $16.52) would be worth $5.00 if ImClone can hit $50 by August 15. I profiled these calls at $2.40 and on Monday they were actually cheaper as ImClone’s stock fell $1.27 by the end of the day. A 10 contract investment of about $2,500 is now worth a stunning $18,500 in just four days. Wow. Now you can see why the option market is one of the single biggest ways to make money in this world. Of course I had no way of knowing that a buyout offer was in the cards for ImClone but the action in the Biotech sector has been noticable.

Another company I talked about was Amylin Pharmaceuticals (AMLN, $31.07, up $3.59) which I said could be headed back above $30 despite reporting a wider-than-expected quarterly loss. Amylin is up on the ImClone news obviously. This has helped the August 30 calls (AQMHF, $2.00, up $1.50) which were profiled at $1.35. The calls were taking a big hit and looked as though they may expire worthless but today’s move took care of that. I would sell the entire position today and book profits.

As far as ImClone, it should be easy to manage stops from here. We can hold out for a higher premium but set stops at $16.00. The calls have a $15 premium built-in based on the buyout offer of $60 and they expire in a couple of weeks. Either way, I’d say we are in good shape.

Rick Rouse
Rick@OptionsMentoring.com

The Financial stocks look like they may be setting up for another run higher. The sentiment for these stocks can change daily but the recent developments with Merrill Lynch (MER, $27.13, up $0.88) may actually be a good things. Merrill has been raising capital and selling troubled investments which will greatly reduce risk to the company moving forward. Other banks may follow suit.

News this morning that the Federal Reserve is going to extend its emergency borrowing program for investment banks could also lead to a small rally. The program will also be available to commercial banks as well and will allow bids on cash loans that last for 84 days, along with the 28-day loans that are now available. The previous plan was set to expire in September but has now been extended through January 30, 2009.

I had profiled a few longer-term call options a couple of weeks ago and we were able to ride most of them for average gains of 50% in less than a week. I’m going with the same plays again although our holding period may be longer. The market could be setting up for another rally and Friday’s unemployment report will have a huge impact on the market. If all is well, we could be starting August with some sort of rally.

I still don’t trust Merrill Lynch as a company so we will see. The January 35 calls (MERAG, $2.00, up $0.20) were first profiled at $1.90 and we exited them in the $2.65-$2.75 range. Some of you may have gotten out at even higher prices as the calls hit a high of $3.35. I like entry points here at these levels as this could be a “trading bottom” for Merrill Lynch.

Citigroup (C, $18.87, up $0.42) has traded as high as $19.50 this morning but many of the financials popped at the open. The January 20 calls (CAD, $2.30, up $0.27) were originally profiled at $1.25 and were sold at $2.60 the first time around. I like them again even at current prices. The January 22.50 calls (CAA, $1.42, up $0.19) can also be considered.

Wachovia (WB, $16.85, up $1.15) is the first bank I think will eventually get bought and maybe a bid from Goldman Sachs (GS, $183.74, up $2.11) will surface down the road. The January 15 calls (WBAC, $4.70, up $0.60) were first mentioned at $1.30 and $2.60 was our exit point. The stock went on a wild ride the day it announced earnings, trading lower before skyrocketing higher. These calls are much higher than our original entry price so we are going to move to the January 20 calls (WBAD, $2.25, up $0.25).

The average cost to buy one contract for any of these plays is around $200. They are all still considered “lottery plays” but I’d rather be picking on where their stock prices will be in six months instead of trying to pick a 3-digit number for a daily draw.

Rick Rouse
Rick@OptionsMentoring.com

The market is on the upswing as we head to lunch following yesterday’s huge loss. Oil is down a little over $3 to $121 level and the talk is it could be on its way to $100 a barrel. Just a few weeks ago we were approaching $150 so the continued slide in oil is having a positive affect on the market.

The market also got some good economic news as the Conference Board’s July index of consumer confidence rose slightly to 51.9 from 51 in June. Consumer spending accounts for more than two-thirds of U.S. economic activity so the uptick was welcomed news.

The next stop for oil would be the $117 level which could pave the way for a slick road to $100 a barrel. Of course, the market may be getting ahead of itself but comments from OPEC’s president that oil’s current price is “abnormal” and could fall to $70 or $80 is fueling the fire. Oil is at a 10-week low and the recent slide has also coincided with a stronger U.S. dollar.

The dollar is at a 5-week high and a stronger dollar is pushing commodities prices lower. Copper, gold, and natural gas are all significantly off their highs of just two weeks ago. Barrick Gold (ABX, $42.63, down $1.57), Goldcorp (GG, $39.55, down $1.40), Gold Fields (GFI, $11.97, down $0.09) and Newmont Mining (NEM, $47.70, down $1.41) are all trading lower today.

Today’s rally can certainly be contributed to the fact that oil is lower. But any sustained rally is only likely to occur if oil continues to retreat. It’s tough to say if we get a straight drop to $100 a barrel for oil but if we do and it can stay at $100 a barrel or below, it will certainly help stabilize the market over the near term.

Rick Rouse
Rick@OptionsMentoring.com

We’ve been talking about a few Biotech and Drug stocks over the last few months and I wanted to talk about a few more that have been making noise. There is always downside risk to drug stocks. They may not have much of a pipeline or if they don’t get FDA approval for a drug then the stock will likely get creamed. Clinical trials can have a big impact on the stock as well. Either way, given the recent activity in the sector, there appears to still be a shift into some of these stocks.

I mentioned Johnson & Johnson (JNJ, $69.03, up $0.37) a few weeks ago as it headed into its earnings report. I said if we got a good earnings report, J&J could challenge its 52-week high of $68.85 back in May. The company beat Wall Street’s expectations by five cents and raised its full-year profit forecast by the same amount, to a range of $4.45 to $4.50. The August 65 calls (JNJHM, $4.20, up $0.05) were profiled at $2.30 and although they aren’t up 100%, they’re pretty close. Set stops at $3.80.

Pfizer (PFE, $18.89, up $0.08) is showing signs of life. The stock was just under $20 back in May and Wall Street seems to have all but forgotten this company. I mentioned then that the stock has been in a 5-year downtrend after hitting a high of nearly $50 in 2000. The stock hit a low of $17.12 about a month ago but has rebounded after reporting decent earnings. I only say decent because they only reported 2% growth. This is one of the reasons why we haven’t gone long with a LEAP call or anything because Pfizer just isn’t a growth stock anymore. I do like the safety of the stock (to a degree) and the 7% dividend but I don’t like Pfizer as far as options go.

Biogen Idec (BIIB, $69.50, down $1.78) fell 2.5% Friday but the stock has been on fire since the start of July, rising from $55 to $72. The 52-week high is $84.75. The August 70 calls (IHDHN, $2.30, down $1.20) fell 34% but could be back in play if Biogen Idec can make a run at its highs. The company has a great pipeline, has been raising estimates and has a partnership with Genentech with the drug Rituxan.

Gilead Sciences (GILD, $54.51, up $1.83) is also challenging its 52-week high. In early June the stock hit a high of $56.95 and looks to have a second wind. Volume was brisk in the August 55 calls (GDQHK, $1.35, up $0.62) as traders continued to like the news the company has started a late-stage study of a new HIV treatment candidate.

Amylin Pharmaceuticals (AMLN, $29.49, up $1.48) could be headed back into the $30’s despite reporting a wider-than-expected quarterly loss last week. That’s the first red flag for this one. It’s hard to buy call options on stocks that are losing money but Amylin could hit it big with its diabetes drug Byetta. The company could have a blockbuster on its hands and the good news is that it has nearly $900 million in the bank to invest in its pipeline and survive. For extreme risk takers, the August 30 calls (AQMHF, $1.35, up $0.50) rose 59% Friday.

And look who’s back in town…ImClone Systems (IMCL, $46.37, up $1.19). You know, the stock Martha Stewart got a federal indictment for? To make a long story short, she avoided a loss of $45,000 by selling nearly 4,000 shares, or her entire position, in late 2001 after receiving an insider tip. That tip cost her five months in prison, and her stock, Martha Stewart Living (MSO, $7.80, up $0.71) continues to trade under $10. Back to ImClone.

The stock can be volatile and is capable of make breath-taking moves. Lately they have been up. ImClone is up 15% for July and on Thursday reported earnings that Wall Street “accepted.” The company has several drugs in development that are pretty far along though Erbitux remains its bread-and-butter. There are other possible treatments with Eribitux so stay tuned. The 52-week high for ImClone is $49.18. The August 45 calls (QCIHI, $2.40, up $0.25) would be worth $5.00 if ImClone can hit $50 by August 15.

Rick Rouse
Rick@OptionsMentoring.com

Let’s go over the report card for the Financial sector and see where we stand as far as it concerns some of our LEAP options. Wells Fargo (WFC, $27.86, up $0.03) started things off by beating Wall Street’s expectations and actually reported pretty decent numbers. The stock was at $21 on Monday. JPMorgan Chase (JPM, $40.02, down $0.78) is back over $40 again after starting the week at $31.

Merrill Lynch (MER, $30.91, up $0.18) rallied $5 for the week despite posting a $5 billion loss. This was a bigger-than-expected loss of $4.7 billion but nonetheless Merrill pretty much made out okay don’t you think?

Citigroup (C, $19.35, up $1.38) posted a second quarter loss of $2.5 billion but the loss was considerably lower than what the Street was expecting. Goldman Sachs (GS, $182.84, up $1.60) also made a nice $30 recovery after touching $152 on Tuesday. Fannie Mae (FNM, $13.40, up $2.47) and Freddie Mac (FRE, $9.18, up $0.85) also had big weeks as both DOUBLED off the lows they hit Tuesday.

Here is an update on the 2009 LEAP call options we looked at. While these options don’t expire for another six months, we would be foolish not to ensure at least a profit of 50%. Notice the stops put in place.

The Citigroup January 20 calls (CAD, $2.35, up $0.60) were at $1.25. These calls are almost in-the-money and if the stock can get over $20 the options should trade hand in hand with the stock. Set stops at $1.90.

Goldman is the one stock I want to trust but it would be a push for the stock to test its 52-week high of $250 anytime soon. The Goldman Sachs January 260 calls (GPYAC, $1.28, down $0.44) were at $1.07 but fell 25+% Friday although the stock was slightly up. These calls really should have been sold already as they are way out-of-the-money but even a stop of $1.25 gets a 20% return.

Like a tide that lifts all boats, the Merrill Lynch January 35 calls (MERAG, $2.85, up $0.12),which were at $1.90, benefitted from the rally. Merrill is doing its best to shore up its balance sheet and the calls are up exactly 50%. Set stops at in the $2.65-$2.75 area.

Wachovia (WB, $12.97, down $0.47) lost a little momentum Friday after hitting a high of $14.36 but the January 15 calls (WBAC, $1.93, down $0.47) are still up about 50% from a $1.30 entry price. Stops should be set at $1.75.

It would be nice to see these gains extended but if we don’t you shouldn’t let it bother you. It’s nice to hit a few singles instead of hoping for the homerun. The homer may still come but at least if we are stopped out we score some respectable gains.

Rick Rouse
Rick@OptionsMentoring.com

We’re moments away from testimony from Federal Reserve Chairman Ben Bernanke who will speak before the Senate Banking Committee any moment now. The market is getting crushed again today as Wall Street tries to get a grip on the financial sector. The Dow is down nearly 200 points and is currently trading at 10,855 just 30 minutes into trading.

Merrill Lynch (MER, $24.60, down $1.28) is once again trading lower and the July 32.50 puts (MERSA, $8.00, up $1.75) are having another field-day. I mentioned yesterday that the $4.50 stop could get hit and that you could only sell half of your position. What a great call. Merrill hit a high of $28 on Monday but quickly reversed course after that brief one-hour rally we had yesterday. Merrill reports earnings Thursday so we will be out by Wednesday no matter what. The puts have nearly tripled from our entry price of $2.15 as we have rode Merrill lower like a rented mule. Although there is no-way Merrill will pull a rabbit-out-of-the-hat trick with its earnings, it’s better to be safe than sorry. Raise stops to $7.00.

Elsewhere, Wachovia (WB, $8.22, down $1.62) is now trading below $10 a share. Citigroup (C, $14.22, down $1.00) is headed there. Fannie Mae (FNM, $7.60, down $2.13) and Freddie Mac (FRE, $5.25, down $1.86) are having a race to see who goes bankrupt first. Goldman Sachs (GS, $152.85, down $5.82) looks poised to test its 52-week low of $140.

Rick Rouse
Rick@OptionsMentoring.com

Over the weekend, the Federal Reserve and the Treasury Department announced a plan to help hurting mortgage giants Fannie Mae (FNM, $10.25, down $2.95) and Freddie Mac (FRE, $7.75, down $0.25). I can name quite a few stocks, and we’ve witnessed them here in the blog, that have lost 70%-80% of their values but they should get a big bounce today.

Lehman Brothers Holdings (LEH, $14.43, down $2.87) continues to commit highway robbery. There’s no other way to explain it. It was exactly one month ago I mentioned the company had raised $6 billion through an offering of common and preferred stock. What was the name of that analyst who “upgraded” Lehman on the eve of the offering priced at $28? The stock was $30 at the time.

Merrill Lynch (MER, $27.61, down $1.10) hit a new 52-week low of $26.50. Merrill’s high? 89 bucks. Merrill is set to raise capital (after saying new funds weren’t needed) as it expects the write down for its 2Q could exceed $6 billion. I mentioned Merrill was selling stakes in Bloomberg and BlackRock (BLK, $174.71, up $1.76) which are considered two of the largest holdings of the firm. Merrill has their fingers in other pies that aren’t as lucrative but these investments could also produce some much-needed capital.

We set stops on the Merrill Lynch July 32.50 puts (MERSA, $5.20, up $0.75) at $4.50 on Friday and this will probably get hit this morning. Merrill could be volatile and you could just sell half in case this suppose “rally” doesn’t hold. Either way we should net a great return from an entry price of $2.15 on 6/30. Merrill should trade higher due to the Fannie and Freddie news.

Wachovia (WB, $11.54, down $1.59) and Citigroup (C, $16.19, down 0.09) also set new lows Friday and they should rebound too. Even Goldman Sachs (GS, $162.48, down $7.68) was starting to have its armor chinked at.

Hopefully this is not another smoke-and-mirror show to fix something that can’t be fixed. We should get a clearer picture this week as dozens of financial institutions report 2Q results which are widely expected to be awful. What this news really means though is that our tax money could be used by the government as “we” help bail out Fannie and Freddie. The call options for both should zoom today. Keep an eye on Fannie’s July 10 calls (NJWGJ) which closed at $2.45. Freddie’s July 10 calls (FREGB) closed at 80 cents. The key will be if they hold their gains.

Although both are saying they don’t need to raise money at the moment, the funds are there in case they do. The rally this morning will be due to the short-covering from those who have shorted these stocks. Let’s see how much off a rebound we get and how much is due to short-covering. If we get a quick faded rally it won’t be a good sign. Either way you slice it, the fundamentals for these companies still don’t change. A $6 billion loss is a $6 billion loss in the case for Merrill.

Rick Rouse
Rick@OptionsMentoring.com