Talk about fireworks. Google (GOOG, $465.25, up $1.96) came out like a rocket this morning after the debut of its Internet Chrome browser only to fizzle at the end. The stock was up 19 and change to $482 within the first 30 minutes of trading and briefly traded below Friday’s closing price of $463.29 before finishing the session slightly higher.

The four-year development of Chrome finally came to fruition today as the company takes direct aim at Microsoft’s (MSFT, $27.10, down $0.19) Internet Explorer. Folks, it doesn’t get any bigger than this. Simply put, the risk and rewards are that great for Google.

Microsoft currently controls a little over 70% of the Internet browser market. Mozilla’s Firefox and Apple’s (AAPL, $166.19, down $3.34) Safari fight for the rest of the market share which are the only real two competitors Microsoft has. Until now.

Of course Google claims Chrome is simplier and faster and is not only trying to get you to use it but to sign up for new services. The web based service market is expected to grow big-time by 2011 and Google wants in. And here’s a little gas for the fire. Eric Schmidt, who is Google’s CEO, once worked for Novell (NOVL, $6.40, down $0.03) and Sun Microsystems (JAVA, $9.00, unchanged). He was in charge of Java, Sun’s platform-independent programming technology, which never had much success taking on Microsoft. So the two companies he has worked for have been thwarted by Microsoft in the past. You get the picture (sly grin).

I’m not sure how successful Chrome will be and only time will tell if this will be a major victory for Google or another side distraction. The euphoria sure wore off as the day progressed. Once again, this is why “most” of the time you shouldn’t buy options at the open. (I say “most” of the time because I did profile some McDonald’s call options this morning). The Google September 500 calls (GOPIO, $3.70, up $0.40) opened at $6.00 this morning and traded as high as $7.00 before closing substanially lower. Imagine buying into the hype at $7.00 only to lose 50% of your cash by the end of the trading day.

Meanwhile, if you had bought the Google September 450 puts (GOPUJ, $8.50, down $0.37) shortly after the market opened, you could have bought these puts at $4.00 or $5.00 and doubled your money by the end of the day. Oops. I just told you how Wall Street works again. Shame on me. But seriously, both of these trades were risky and this is how a lot of individual investors lose their money and get frustrated with options.

Google has basically been below $500 a share since it disappointed Wall Street with its earnings back in July. The stock had a nice run in mid-August to $510 but is still trading below all of it major moving averages (i.e, 20, 50, 100 and 200-day). It shows the market is being risk-adverse when it comes to Google. There will be a time when the stars are aligned just right for us to go long or short Google but right now is not that time.

Rick Rouse
Rick@OptionsMentoring.com

The “timing is everything” quote couldn’t have had more meaning today with a few of our trades. The bears had thoughts on taking the financial sector lower until the bulls stepped in and took over. The earlier blog this morning couldn’t have come at a better time although it’s a little too early to tell if the trades will pay off big.

To start, there were a few trades I mentioned this morning involving Citigroup (C, $17.49, up $0.30), Lehman Brothers (LEH, $13.73, up $0.66) and Wachovia (WB, $14.90, up $0.60). All three stocks had a volatile session and were all over the map providing traders with plenty of good entry points.

The Citigroup January 20 calls (CAD, $1.52, up $0.03) traded as low as $1.30 and were a nickle off from our target entry price of $1.25. Some of you may have pulled the trigger at $1.30 which was close enough and are now looking at a 15% gain. You could set stops at your entry price if the volatility is too much for you to bear.

Trading Lehman Brothers could be like catching a falling knife, eventually, because the “bankruptcy” rumors are flying around this company like pigeons on a boardwalk. Lehman could be in serious trouble unless it sells some of its assets which is being considered. I said the January 20 calls (LYHAD, $1.80, up $0.25) were “mouth-watering” at $1.40 and low and behold, they were. The calls made a nice 30% gain by the end of the day. We are targeting the $2.00 level as an exit for a quick 40% profit and a stop of $1.60 gets you a 15% return.

Wachovia shares rebounded 6% from the morning blog after news broke that a private real estate company had bought some of the bank’s troubled land and construction loans. The January 15 calls (WBAC, $3.50, up $0.20) were trading for $3.00 and ended the day 17% higher than our entry price. The stock really got some legs after the news and was looking at busting through $15 before the final bell sounded. If the stock can back to the $17-$18 range over the next week or so, we could be looking at 50%+ returns.

And finally, there’s Yahoo (YHOO, $19.17, down $0.25) which continued lower throughout the rest of the day. The October 20 calls (YHQJD, $1.30, down $0.20) and the January 22.50 calls (YHQAX, $1.35, down $0.10) provided us good entry points today because…after the closing bell Yahoo announced an Internet-TV deal with Intel (INTC, $23.39, down $0.20) that will provide users a new and unique way of using the Internet.

The Widget Channel could be Yahoo’s wild card that saves the company’s stock. Intel’s chip, called Intel Media Processor 3100, will start appearing in televisions, set-top boxes and other television-connected gizmos as early as next year. Yahoo will then bring the Internet to TV by using bite-sized snippets, or widgets, rather than the whole Internet.

The technology sounds exciting although the news did not do much for Yahoo’s stock in after-hours trading. The shares are up only two cents but Yahoo should open higher on Thursday after the talking heads pump up the news.

Rick Rouse
Rick@OptionsMentoring.com

Yahoo (YHOO, $19.38, down $0.05) has dipped below $20 again and it may be time to start nibbling on a small position. The stock has taken a back seat to the financial sector right now and it may be a good time to take advantage of the drop below $20.

We all know when it comes to online search, Google (GOOG, $4865.99, down $4.51) is king. The numbers were just released for July and it showed that Google is increasing its share of the U.S. online search market. Google now commands 60% of the market, up 16%, as rivals Yahoo and Microsoft (MSFT, $27.39, up $0.07) each saw their respective shares decrease. Yahoo’s search share drop 11% from a year earlier to 17%, and Microsoft saw its share drop 10% to 12%.

Microsoft has seen this coming as it feverishly tries to play catch-up. The latest numbers show just how important it is for both companies to do something now in order to gain ground, or in this case reclaim lost ground, on Google in the lucrative online search advertising market. Yahoo can’t do it alone and there are other companies besides Microsoft who may jump back into the frey to acquire Yahoo.

Either way, Yahoo should get some interest from the market at current levels. Timing is everything and we are going to “layer” this trade in case we need more time for it to develop. The Yahoo October 20 calls (YHQJD, $1.50, unchanged) look attractive here for a half position and the January 22.50 calls (YHQAX, $1.45, unchanged) for the other half. I think Yahoo will make a move back above $20 once interest starts to pick back up in the stock.

Rick Rouse
Rick@OptionsMentoring.com

With the Dow slipping 110 points two hours into the trading session, one bright spot so far has been Microsoft (MSFT, $27.43, up $0.41). The stock is having a great week after touching a low of $25.11 Monday. There’s no real news concerning Microsoft. The fact that Carl Icahn has joined Yahoo’s (YHOO, $19.83, down $0.17) board is what’s moving Microsoft.

We all know Microsoft is the only straw stirring Yahoo’s drink right now and the recent blunders by Yahoo only confirm it. Yahoo is such a mess, I’m really surprised the stock’s not at $15 right now. It had already been pre-announced that Icahn would join the board on August 1 but when Yahoo announced there was an “error” in calculating the reporting votes from the shareholders, it just doesn’t look good. It fact it’s embarrassing.

Reporting votes are votes that show the approval or disapproval for members of the board. Yahoo’s Jerry Chang disapproval more than doubled what was previously reported, rising from 15% votes withheld to 34%. Chairman Roy Bostock saw his shares withheld rise from 21% to 40%.

Microsoft has always been strong when it touches $25 meaning it will hold this level and trade higher from there. This has been proven by the charts for the last few years. Do yourself a favor and pull up the two-year chart on Microsoft. The stock trades from $25 to $30 sometimes $33-$34 and then heads back lower.

I have some friends that don’t really trade options but took this advice and they buy a few hundred shares of Microsoft when it touches $24-$25 and they simply wait until it goes back to $30 or higher. If you buy at $24 and sell at $30, it’s a 25% gain pure and simple. Even through the turmoil that can come with the market, this trade has been golden. Sometimes when the stock gets to the $25-$26 level you can buy an option on the next month out and play Microsoft that way.

This method is a little riskier because of the different factors that affect the way the options will react. However, the option traders who bought the September 28 calls (MSQIT, $0.89, up $0.26) on Monday are up another 41% this morning. Something to think about in the future when you see Microsoft at $25 again.

Rick Rouse
Rick@OptionsMentoring.com

Yahoo (YHOO, $21.40, down $0.27) announced earnings after the closing bell yesterday and in after-hours trading the stock held up well. For Q2, the company reported earnings of $131 million, or $0.09 a share. This was a drop from $161 million, or $0.11 a share, in the year-earlier quarter. Wall Street was expecting $0.11-$0.12. Basically they missed by two or three pennies depending on who you talk with.

Some are saying the results were disappointing while others are saying Yahoo is getting a break because it could have been worse. The fact that the company did not change its full-year forecast is probably the silver lining that is holding the stock up.

That’s not really much to go on though. It’s amazing that Wall Street is so critical on some companies while giving others a kitchen pass. Yahoo gave a range so wide that you could drive a tank through it when it kept its full-year forecast in the $7.35 billion to $7.85 billion range, sorta.

The way this really went down was that Yahoo raised the bottom end of its previous revenue outlook to $7.35 billion but lowered its top end to $7.85 billion. The earlier forecast was even wider as it called for $7.2-$8 billion. How’s that for smoke-and-mirrors?

The wild card is Yahoo’s relationship with Google (GOOG, $477.11, up $8.31) which could add up to $800 million in revenue. But even that is still under regulatory review. Yahoo shareholders have suffered enough and their earnings report has more holes in it than a slice of swiss cheese. Still, the stock got some love and was up $0.59 to $21.99 in after-hours trading.

Rick Rouse
Rick@OptionsMentoring.com

Yahoo (YHOO, $23.91, up $2.56) put in another big day as talks with Microsoft (MSFT, $26.03, up $0.05) heated up once again. Microsoft is now on board with Carl Icahn’s plan to oust Yahoo’s board and said if that were to happen the company would renew its bid for Yahoo. Yahoo’s options were heavily traded as you would expect and I’ve been flooded with emails on what this all means. Well, I’m going to try and simplify it as best I can based from my point of view. First, let’s take a look at some options. Quotes are from Monday’s close with the percentage gain following:

July 22.50 call (YHQGX, $1.96, up $1.26) 180%
July 25 call (YHQGE, $0.69, up $0.40) 138%

August 22.50 call (YHQHX, $2.95, up $1.41) 92%
August 25 call (YHQHE, $1.65, up $0.79) 92%

For beginning option traders, notice the difference of return on the near-term July options compared to the return for the August options. I wanted to point this out so you can see how options react. The July options expire in 10 days while the August options expire in 38 days. Although the strike prices are the same, the difference between the July and August calls is the time premium. That’s another subject (one we teach in our Option Mentoring courses) too long to tackle in a blog but hopefully you get the idea.

Yahoo has been on a roller-coaster ride since Microsoft announced its bid for the company. There is a ton of action in Yahoo right now and has been for quite some time. However, if you are wrong on either side of the trade, Yahoo can cost you a bunch of money in a hurry.

I was asked the question the other day, “what do you think will happen with Yahoo and what is the “best” way to play it”. I pondered the thought and showed someone who has never traded options the difference in buying the stock and buying an option. It was last Thursday and I pointed out these same four options to them.

I said to buy 100 shares of Yahoo would cost you about $2,200. To buy an option contract for the July 25 calls would have cost about $30 per contract. I told them they could control 7,000 shares of Yahoo for the same price. Each option contract controls 100 shares and they could have bought 70 option contracts for $2,100. As of yesterday’s close, those same option contracts are now worth $4,900.

That sounds exciting right? The flip side of that is if Microsoft would have said over the weekend that a deal was off (again). Remember, we’ve been through this how many times now? Exactly. Over the past few months, Yahoo has been up and down more than Robert Downey Jr. can count and there’s no telling if these current talks will materialize or not.

Back to my story. The bottom line is that I told them if they expected Yahoo would get bought for $30 or higher then the July or August 25 calls would be like playing the lottery. If Yahoo doesn’t get bought and the stock doesn’t recover to $30-$31 then they just blew some money on a Pick 3 number that didn’t hit. It’s as simple as that.

Rick Rouse
Rick@OptionsMentoring.com

1:10PM EST

It looks like Microsoft (MSFT, $27.82, down $0.15) and Yahoo (YHOO, $22.43, up $0.98) are crying “wolf” again. Yahoo was getting spanked earlier in the session after a downgrade out of Thomas Weisel Partners. The stock was headed below $20 after the firm said Yahoo’s “outlook remains cloudy at best and potentially could worsen.” Well, it appears the sun came out quickly after the downgrade as reports have surfaced that both parties are back at the negotiating table.

Volume in the Yahoo July 22.50 calls (YHQGX, $0.80, up $0.03) is picking up steam and could easily double on the news. They were trading for 55 cents before the rumor broke. Be careful because there are conflicting reports saying there is no deal in place. The July 22.50 puts (YHQSX, $1.50, down $0.23) are also active and could get some heavy action as traders line up on both sides of the fence.

Rick Rouse
Rick@OptionsMentoring.com

Friday the 13th has been lucky for some, unlucky for others so far. Microsoft (MSFT, $29.32, up $1.08) and Google (GOOG, $5754.75, up $21.80) are trading higher while Yahoo (YHOO, $22.29, down $1.23) continues to get pounded. Microsoft and Yahoo failed at yet another attempt to get together forcing Yahoo to strike a deal with Google to sell search ads on its site.

The price targets and upgrades and downgrades on Yahoo and Google are in full force today but I’m not even going to mention them. I’ve mentioned that Google would ultimately be the big winner out of all of this and that appears to be the case. Microsoft’s bid reportedly was for $35 a share or $50 billion and it’s clear Yahoo just doesn’t want to merge with Microsoft.

The deal between Google and Yahoo was a big blow to Microsoft but it has once again created some interesting option plays. Yahoo fell 10% yesterday and the market is questioning the deal with Google. Yahoo is still trading above $19 which is where the stock was at before Microsoft made its original $45 billion offer, but far below the $33, now $35, a share Microsoft offered before finally leaving the table.

The deal Yahoo made with Google also leaves Carl Icahn in a pinch. The “corporate raider” had big plans to get Yahoo and Microsoft together but is now left with few apparent “options”. Remember, he owns 50 million shares of Yahoo at an average cost of about $25 a share. His losses are growing and he now stands to lose money if he can’t come up with another plan and decides to cut his losses.

I’m not sure where Yahoo goes from here but there seems to be some options traders buying the July 25 calls (YHQGE, $0.59, down $0.38) before the weekend in hopes of a quick trade and exit for next week. Yahoo had originally traded higher on the Google news last night and some are trying to play a possible small rebound in Yahoo. The Google July 610 calls (GOOGB, $12.90, up $3.80) are also getting some players.

Rick Rouse
Rick@OptionsMentoring.com

You really didn’t believe Microsoft (MSFT, $29.56, down $0.42) was totally “walking away” from Yahoo (YHOO, $27.85, up $0.19) did you? In case you haven’t heard, Microsoft has entered into discussions again about a deal with Yahoo. Although this doesn’t mean a full buyout is expected, Microsoft said it “reserves the right to reconsider that alternative depending on future developments and discussions.”

The timing of the announcement comes on the heels when many believe Yahoo is still trying to work out something with Google (GOOG, $583.71, up $3.64) perhaps as soon as this week. It is clear with the latest developments that Microsoft is trying to block a Yahoo/ Google partnership.

No doubt, things are heating up and Microsoft seems to be racing to the finish in its attempt to battle Google. It’s no surprise either that Yahoo’s call options are active today. The June 27.50 calls (YHQFY, $1.57, up $0.15) have traded over 18,000 contracts thus far and the June 30 calls (YHQFF, $0.52, up $0.08) have seen 14,000 contracts trade by lunchtime.

Rick Rouse
Rick@OptionsMentoring.com

It’s official, Carl Icahn confirmed he’s got a “team” in place for a proxy fight with Yahoo (YHOO, $26.98, down $0.18). It was revealed that Icahn acquired nearly 60 million shares of Yahoo stock over the past 10 days. Talk about a “Dream Team”, Icahn’s new board would include himself, Adam Dell (brother of Michael Dell) and Mark Cuban (famous sports owner of the Dallas Mavs).

In a letter to Yahoo, here is what Icahn wrote: “It is quite obvious that Microsoft’s bid of $33 per share is a superior alternative to Yahoo’s prospects on a standalone basis. I am perplexed by the board’s actions. It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer.”

Good stuff no doubt but can you ride this upcoming rally in Yahoo? What it boils down to is if Yahoo will get bought out at $30 or higher. I can tell you this, Icahn isn’t going to keep his money locked up for long. No way. Yahoo’s annual shareholder meeting is set for July 3 so there you go.

The action on Yahoo’s June 27.50 calls (YHQFY, $1.20, down $0.32) is ridiculous. So far, 42,000 contracts have traded. I can see the logic with this one. Option traders are betting $120 to make $250. If Yahoo is at $30 by June 20 then they double their money.

The July 27.50 calls (YHQGY, $1.91, down $0.12) have traded 15,000 contracts and these don’t expire until July 18.

I’m not getting on a soap box and yelling that these are good bets, all I’m saying is that the crowd seems to be following Icahn once again.

Rick Rouse
Rick@OptionsMentoring.com