Baidu.com (BIDU, $134.09, down $44.80) took a pounding today as the China-based Internet search engine company saw its shares decline 25%. A report that Baidu sold paid listing links to unlicensed medical sites with unproven claims for their products weighed heavy on the stock.

The news crippled an already weak stock to begin with and the fact that China has been hit by scandals related to contaminated food and drugs was a one-two punch that floored Baidu. The reaction may have been extreme but when Baidu fell below $200 last week, the damage was done. The news just accelerated Baidu’s quick ascent to what now appears like a test of the $100 level.

The break below the $200 level was big for Baidu and today’s test of the $130 level was the last line of support for Baidu until $100. Just how serious is a threat of $100 a share? Considering there was plenty of action in the November 100 puts (BDQWT, $2.50, up $2.45) there are some option traders who say the chances are pretty good. Believe it or not, these put options were up an astounding 4,900% as over 7,000 contracts traded hands. Open interest stood at less than 1,000 contracts for these contracts before today. The puts opened for less than a quarter…

The December 100 puts (BDQXT, $8.75, up $7.15) also had a monster day as they opened at $2.60 and were up 450% from Friday’s close of $1.60. Both options are a little expensive now as you would imagine and there may be a snap-back rally in the stock before it tests the $100 level. Then again, the stock could hold support here and never test $100.

Either way, the easy money has already been made with Baidu but there may be another opportunity for us down the road. Let’s stay on the sidelines for this one until we get a clearer picture.

Rick Rouse
Rick@OptionsMentoring.com

Abercrombie & Fitch (ANF, $15.99, down $1.80) is trading lower again this morning following Friday’s disappointing earnings report. The company missed Wall Street’s expectations and offered a bleak outlook on holiday sales as it cut its fiscal-year numbers and sees results for the current quarter well below expectations.

I mentioned the stock Friday morning when it was trading at just under $20 and said that it had a good chance of testing $17 and then $10. I’m not interested in riding Abercrombie down to $10 because the first level of support I had mentioned for the stock has been broken.

There is some nervousness that ANF’s CEO might not be brought back to run the company and if he isn’t then there is a good possibility that the stock heads below $15. If you entered any of the trades from Friday’s blog, take advantage of the breakdown and close the November puts today or at least half of them.

The Abercrombie November 22.50 puts (ZWRWX, $6.00, up $1.60) were profiled at $3.30 but I was high on the December 17.50 puts (ZWRXW, $3.00, up $0.80) which were trading for $1.70 at the time. I mentioned if we got the drop to $17 then these calls would double. Well, we are not exactly at a double because the weekend knocked some time premium out of the trade but either way we got some nice gains.

You can set stops on the December puts at $2.50-$2.60 or even sell half of them today at current prices. The selling could increase as the day progresses and if there is a rebound in the stock, the stops will protect your profits.

Rick Rouse
Rick@OptionsMentoring.com

The market looks to have an uphill battle this week as it tries to break a two-week losing streak. After ending Friday’s session with a 338 point loss, the Dow is at 8,497 but bulls have to feel deflated after Thursday’s 550 point gain in the Dow did not carry over.

There will be key economic and earnings reports due out this week but the direction we go from here could hinge on what happens with the auto makers. There is talk that they will get a $25 billion rescue package but that is not going to be enough to save them. Even if a bill is rushed through the House and the auto’s get some relief, I still think they are in trouble. Nobody is buying cars these days.

There is some chatter that if General Motors (GM, $3.01) doesn’t get a bailout then the Dow is headed much lower. That really wasn’t hard to figure out because the Dow has been trending lower since the election was settled. The charts have been right on and as we witnessed last week, a test of the lows is inevitable.

The problem with the market is that it has to make a low on its own and the bailout package has just delayed the process of old companies dying and new ones coming aboard. The auto makers are a dying breed and instead of giving them the money for a bailout package, give to the companies who are on the leading edge of technology.

Last week, the Dow lost 5%, while the S&P 500 dropped 6%. The Nasdaq was hit the hardest as the index fell nearly 8%. For the year, the Dow is down 36%, while the S&P 500 is off by 40%. The Nasdaq is down 43%.

Good news will be hard to find and I expect us to start the week lower. November options expire this Friday so there will be plenty of battle grounds being tested.

Rick Rouse
Rick@OptionsMentoring.com

If today’s earning reports are any indication for the retail sector’s Christmas shopping season then they are in t-r-o-u-b-l-e. Don’t shoot the messenger but Abercrombie & Fitch (ANF, $19.61, down $2.83) and JC Penney (JCP, $17.40, down $1.88) are getting walloped this morning after reporting disappointing earnings.

Abercrombie profits fell 45% to $64 million, or $0.72 a share, from $118 million, or $1.29 a share, a year earlier. Stores sales are falling as the company reported an overall 8% drop to $896 million. Wall Street was expecting a profit of $0.71 cents per share on revenue of $909 million.

It was worse at JC Penney’s as the company saw its quarterly profit fall over 50% to $124 million, or $0.55 cents a share, from $261 million, or $1.17 a share, a year earlier. Sales fell 9% to $4.3 billion, while same-store sales decreased 10%. Wall Street was looking for $0.53 cents a share in the third quarter and $1.32 for the fourth quarter.

Wall Street’s estimates were already trimmed for these two retailers and the fact that they reported a mixed bag is not good news. We got a retail sales report this morning that October was the worst decline ever recorded as sales fell by 2.8% last month. That was a much larger decline than the 2.65% drop in November 2001 which was right after the terrorist attacks.

Abercrombie is down from a high of $84.54 while JCP is down from a high of $51.42. Wow. There has been heavy activity in the options on both of these stocks. The Abercrombie November 22.50 puts (ZWRWX, $3.30, up $1.50) are up 83% today while the JC Penny November 17.50 puts (JCPWV, $1.05, up $0.20) are up over 20%. If you got into these plays yesterday before these two companies reported earnings then you have done well today.

I mentioned Abercrombie here in the blog back in August when the stock was at $50. I said at the time it could be headed much lower before it returns to its glory days and some of you may have gotten into the September put options I recommended. They did well but probably not as well if we had bought a November put option instead. Abercrombie has fallen 30 points since then and we certainly left some money on the table.

Ambercrombie could test $17 and if that level fails it could be headed to $10. If this is the case then the December 17.50 puts (ZWRXW, $1.70, up $0.45) could double.

Rick Rouse
Rick@OptionsMentoring.com

Futures are trading lower this morning, which could lead to a potentially negative start this morning. The market rallied big-time on Thursday as the Dow managed to gain a little over 550 points, or nearly 7%, to finish at 8,835. The “snap-back” rally came on the heels of the market testing its 52-week lows. At one point, the Dow was trading at 7,947 and headed towards its October 10 low of 7,773. In fact, it was the first time the Dow had fallen below 8,000 since then.

The Dow had lost 14% in the week since Election Day and yesterday’s rally carried over to the other indexes. The Nasdaq rallied 100 points and finished at 1,596 while the S&P 500 closed higher by 60 points, to close at 911.

Intel (INTC, $14.43), General Motors (GM, $2.95) and Wal-Mart (WMT, $54.93) formed the three-headed monster that took the market lower in the morning as each had negative headlines. However, the market made a huge reversal, pushing stocks sharply higher after testing the lows reached last month.

I’m not buying.

The 1,000 point swing in the Dow is telling us something. The retest of the lows is telling us something. What that is remains to be seen. The next big battle for the bulls and bears will be the “G20″ meeting. The Group of 20 international leaders could bring decisions on how to help the troubled global financial system and there will be juicy details that bulls and bears will argue over which will move the market.

The cautious tone on Wall Street this morning could lead to another choppy session.

Rick Rouse
Rick@OptionsMentoring.com

Apple (AAPL, $88.90, down $1.22) is trending lower this morning after a price target cut on its shares. Credit Suisse reduced their target for Apple to $120 from $135 as it sees weakening demand for the PC market. They maintained an “Outperform” rating on the stock.

I’m a huge Apple fan but I play the stock both ways. When Apple was making new all-time highs, we were going long by buying call options. When Apple begun to break down, we purchased put options. Over the past few months Apple has been stuck in a mini-trading range of $90-$100 with an occasional run to $110.

Where the stock goes from here depends on a few variables. To start, if PC demand is falling, Apple may have to cut prices to move Macs. That may help sales but their gross margins would take a hit. I’m sure iPod and iPhone sales are going to be “OK” but I don’t think they will be as robust as past quarters.

Wall Street is preparing for a weak holiday sales season, and Apple could suffer if that’s the case. The other factor to the equation is that Apple has no plans to release any new products for the biggest shopping season of the year which could weigh on the stock.

I don’t like betting against Apple but the stock has fallen below its 20, 50, and 100-day moving averages and could test its 52-week low of $85.00. Short-term traders are targeting the November 85 puts (QAAWQ, $3.15, up $0.35) and the November 80 puts (QAAWP, $1.73, up $0.17) which expire next Friday.

I feel safer playing the December 80 puts (QAAXP, $5.10, up $0.20) because it gives us more time for a breakdown but the November puts will give you more bang for your buck. Remember though, the November puts are like a double-edge sword. If Apple bounces back and reverses course, you could lose a significant amount of capital.

If you use the December puts, place a 25% stop loss from your entry price and target a 50% return or better. If you are doing the November puts, do a 50% stop loss on your entry and target 50%-100% gains.

Rick Rouse
Rick@OptionsMentoring.com

The bubble gum used on Google’s (GOOG, $284.12, down $6.88) attempt to hold the $300 dam did not hold yesterday as the bears gushed in. The stock had been testing new 52-week lows and $300 was providing the last line of support for Google. Now that shares are below that level, it will probably act as major resistance going forward.

I pointed out that Google looked poised to fall through $300 and that level was broken yesterday afternoon. To take advantage of the situation I profiled a couple of put option plays.

The November 280 puts (GGDWP, $12.20, up $2.00) were going for $6.00 at the time and I said they had a shot at $10. Bingo. The options closed above $10 yesterday and are up another 20% this morning. Set stops at $11.00.

The December 240 puts (GOUXH, $10.30, up $0.90) were trading at $6.60 and also have a shot of doubling. Set initial stops at $9.00.

The plan is too roll out of the November puts by Friday and you can also close half of the December puts if you wish. The November puts expire next Friday so if you keep them open over the weekend, you run the risk of losing some time premium and you run the risk of a major news announcement Monday morning. I’m not saying Google is going to buy someone out or anything but I’d rather close the November options instead of risking a “good news” bounce. See what I’m saying?

Google has always been a volatile stock and if it continues lower we will profit from the December puts.

Rick Rouse
Rick@OptionsMentoring.com

Nah, Nah, Nah, Nah…Hey, Hey…Goodbye!

It’s in the books. Shareholders of Anheuser-Busch (BUD, $66.33, down $0.51) approved the $52 billion sale of its beer business to Belgium-based InBev today. The two companies will create the world’s largest brewer.

The was the last step needed step to form the company that will be now be known as Anheuser-Busch InBev. Yeah, its sucks to loose an American icon but the shareholders got a great deal. Not to mention the beer list the company touts. Bud/ Bud Light, Stella Artois and Beck’s. Gee, I wonder if they will create a variety pack.

I’ve been mentioning this deal for months and we actually went long on some Anheuser-Busch option calls when the rumor was floating around. I also mentioned in late October when the stock was in the upper $50’s that you should consider a stock trade because the deal was expected to close by the end of the year. Although the merger is subject to regulatory approval in the U.S., Britain and China, the buyout offer is $70 a share.

The gains from making that trade were about 20% but the key was that it was a safe trade in a volatile market. As option traders, yeah, we like to trade options but there are times where you have a situation like this one and you have to buy the stock instead of trading options. True, it would have tied up a lot more capital - buying 100 shares would have cost $5,700 - but the return was pretty much guaranteed with the buyout priced at $70. When the stock was at $57 you should have realized that there was still $13 to go which gives you a 23% return.

The stock may have been down today but eventually it will get to $69-$70 a share. Even at today’s closing price there is still 8% to go. It’s what is know as arbitrage on Wall Street, a risk-free profit. Although I always prefer options over stocks this is one time where the stock was a better bet.

Rick Rouse
Rick@OptionsMentoring.com

Google (GOOG, $304.92, down $6.54) has been hovering the $300 mark for the past couple of days and it looks as though it’s just a matter of time before the stock falls below this level. Google is at a three-year low after a couple of analysts downgraded the stock this week amid the global slowdown.

Shares of Google started its slide on Monday after Goldman Sachs trimmed their growth forecast and target price. Goldman still rates the stock a “Buy,” but expects the company’s current quarter revenue will grow just 1% sequentially, down from an earlier expectation of a 4% quarter-over-quarter increase. The new price target for the stock is $475, down from $520.

Not do be outdone, Citigroup cut its earning estimates for the company but also kept a “Buy” rating on the stock. Their new price target for Google is $450. Citigroup’s channel checks are revealing the same information Goldman has learned. One, ad revenue is being curbed by corporations and two, consumer clicks on paid advertisement links are declining.

On Tuesday, the stock hit $300.52, its lowest point since 2005. The question with Google is can it do well in other markets beside search and search advertising? The company has its finger in a lot of pies and although phone and video are some great platforms, I don’t think Google has the muscle to overtake Apple (AAPL, $92.17, down $2.60) but then again, you can never underestimate what Google might have up its sleeve.

Wall Street rode Google to a high of $724 and has since abandoned ship. Looking at the chart, if Google fails to hold $300 then it could get nasty. The “floor” for Google appears to be $200 where there is a solid foundation. I’m not saying Google gets a straight drop to $200 but I do think the stock breaks below $300.

Short-term traders are targeting the November 280 puts (GGDWP, $6.00, up $1.00). The puts have traded as high as $7.20 and have a shot at $10 if Google continues lower. The November puts expire next Friday.

The December 240 puts (GOUXH, $6.60, up $1.22) are getting some activity as bears prepare for the drop below $300. The overall market sentiment is still down and Google has a big bull’s eye on its back. Bears are throwing darts looking to score…

Rick Rouse
Rick@OptionsMentoring.com

Las Vegas Sands (LVS, $6.65, down $1.35) still hasn’t “officially” opened this morning for trading although it was down 17% in premarket activity. The stock has been halted as the market prepares for the company’s public offering of 182 million shares of stock that will be hitting the floor when trading gets underway. The company priced the shares at $5.50 so look for a much lower open.

LVS is trying to raise $1 billion in cash and the company’s president is either gonna hit it big or go broke trying to save the struggling casino operator. The company warned last week that it was in danger of violating loan agreements and, as I mentioned earlier, the company suspended construction in Macau.

The only problem I have with this is that LVS gets two-thirds of its revenue from its China joints so why wouldn’t you finish them first? Not only are they diluting shareholder value, they aren’t even concentrating on where their biggest profits come from. Geez.

Las Vegas Sands is scrambling to raise cash and is in trouble of defaulting on $5 billion worth of debt. The November 7.50 puts (LJJWU, $1.90) I mentioned earlier will likely open a lot higher than $2.00. Be careful with them. If they are higher than $2.00, stay away until the stock rebounds. If you can get into the puts for under $2.00 after the stock opens than we could get a quick ride to $3.00.

The fall from grace has been swift for LVS as its stock traded as high as $150 a little more than a year ago. The market may except the offering wth open arms and who knows if this band-aid is gonna work. At least LVS is trying to raise cash instead of going to the government.

Rick Rouse
Rick@OptionsMentoring.com