The market powered higher on Monday following news that President-elect Obama will increase infrastructure spending to lift the economy once he takes the keys to the White House. The Dow blasted though the all-important 9,000 barrier but closed slightly below this level. Still, its 300-point gain to 8,934 put the Dow at its highest level in a month.

The Nasdaq was the clear winner though as the index jumped 62 points, or 4%, to 1,571. Technology may not be leading the way in today’s market but history shows never count the sector out. The S&P 500 advanced 33, or nearly 4% as well and finished at 909.

Some of the noticable movers from Monday’s trading session included Alcoa (AA, $9.58, up $1.43) which zoomed 17% while Caterpillar (CAT, $42.42, up $4.16) gained over 10%. The economic stimulus was welcomed news to the bulls as will put 2.5 million people back to work by 2011.

The Alcoa January 10 2009 calls (AAAB, $1.20, up $0.55) were up 85% and the Caterpillar January 40 calls (CXJAN, $4.80, up $2.15) were up 80%. The December call options for these two companies did way better of course but there was heavy buying in the aforementioned options.

Ford (F, $3.38, up $0.66) and General Motors (GM, $4.93, up $0.85) didn’t quite make it back to their morning highs but were making a run at them when word leaked that the government was making progress on a $15 billion bailout package which could be approved as early as Wednesday.

Let’s see if the Dow can hold 9,000 before we get too bullish.

Rick Rouse
Rick@OptionsMentoring.com

The bulls seem to be getting behind DryShips (DRYS, $6.50, up $1.75) this morning as the stock is rallying 40%. Shares are down from an all-time high of $116 as dry bulk rates have plummeted over the past few months.

In early September, we did a strangle option trade on DryShips which returned over 300%. Click here to read about the trade. At the time, the stock was at $60 and the chart for DryShips showed another move lower was in the works.

The Baltic Dry Index is at a 22-year low, and I’m not sure if the strength in DryShips will last. The company recently issued 20 million shares for the purchase of 9 Capesize drybulk carriers and is selling up to an additional 25 million shares to raise capital. Although shipping rates will eventually pick back up, I’d like to see a couple of solid quarters before we can call it a recovery.

Perhaps the bulls are a little early and there is some heavy action in the December 7.50 calls (OOCLU, $0.90, up $0.70) which are up 350%. It’s a risky trade but bulls are trying to push these calls in-the-money.

Rick Rouse
Rick@OptionsMentoring.com

Ford (F, $3.20, up $0.48) and General Motors (GM, $5.06, up $0.98) both opened higher this morning as hopes of a bailout continue to get lifted. Although there will be strings attached it now appears the auto companies could get a life-line of $15 billion to start with. However, one of the possibilities is that some or all of the current CEO’s will have to step down.

One of the senators who is also the chairman of the Banking Committee said Monday that overhauling the top brass of Ford, GM, and Chrysler is necessary. Out with the old in with the new is what the public wants to see.

Of course, the details of a bailout plan are still being hammered out, but some of the early leaks include a Cabinet-level oversight board, along with a provision to withdraw the money if the board decides the companies are not doing enough to get back on track.

Even if this bailout package fails, the government could use some of the TARP funding to carry the automakers over to the Obama administration. Either way, Ford and GM could continue higher this week as we move closer to some kind of resolution.

The Ford December 3 calls (FLG, $0.44, up $0.18) are up nearly 50% from the 31 cents they were selling for on Black Friday while the GM December 5 calls (GMLA, $0.75, up $0.33) are about 25% cheaper. The December contracts expire in 11 days so manage your positions accordingly.

Rick Rouse
Rick@OptionsMentoring.com

The market returned to its “normal” ways after a see-saw week in which the Dow had three up days and two down. Normal meaning volatility. After a solid winning streak to close November above 8,800, the Dow struggled to hold 8,000 and finished Friday at 8,635. All things considered it was a pretty impressive feat considering the number of crappy economic news reports we got.

The Manufacturing report on Monday was a dozy, dropping the Dow nearly 9% from 8,829 to 8,149. Prior to that, the Dow had a six-session winning streak that saw the index rally from 7,400 to a high of 8,840. For the week the Dow lost 2.2%.

The Nasdaq finished at 1,509, or -1.7%, while the S&P 500 closed at 876, or 2.3% lower.

The Dow is facing near-term resistance at 9,000 and a break below 8,000 is what we’re watching. The Nasdaq’s struggle will be to hit 1,600 and stay above that while a break below 1,400 could lead to another run lower. As for the S&P 500, a rally to 1,000 certainly appears unlikely which would be bullish and a break below 800 would bring the bears out in force.

We could get some clarification this week on what the government plans to do for Ford (F, $2.72, up $0.06) and General Motors (GM, $4.09, down $0.03). There are still talks of a GM-Chrysler merger but more importantly Washington will throw the dogs a few bones. Auto sales were dismal in November, highlighted by a 41% decline in GM’s sales and things aren’t going to get any better. I don’t see how any bailout money is going to help or save either of these companies because buying cars is not on the top of anyone’s list.

Despite the uncertainty that still clouds the market, we did really well with a few of our trades.

Chesapeake Energy (CHK, $11.32, down $0.52) dropped every day of the week, starting at $17 and falling to a low of $9.84 on Friday. The December 17.50 puts (CHKXW, $6.45, up $0.25) are technically still open as our $5.75 stop was never hit on Friday. However, when the stock fell below $10, the options traded to a high of $7.70 and that was the signal to get out. I profiled these puts at $1.65 and we sure had the tiger-by-the-tail. If you are still in the trade, raise stops to $6.20.

Potash (POT, $53.39, up $3.79) rebounded sharply and was another position that I had said to keep tight stops on. The December 50 puts (PVZXJ, $2.65, down $1.95) traded to a high of $5.40 which represented nearly a 100% gain with entry prices averaging $2.75. The December 40 puts (PVZXH, $0.55, down $0.65) made a run to $1.50 and most of you got in for 75 cents. This trade was also a double.

The Exxon Mobil (XOM, $76.60, up $0.33) December 75 puts (XOMXO, $2.50, down $0.70) made a high of $4.95 before falling back as the Dow rallied. The volatility was intense but nimble traders still made 50% as these options were profiled at $3.25 last Thursday.

There are a few familiar names reporting earnings this week. H&R Block (HRB, $20.18, up $0.39) kicks things off on Monday.

We were recently successful in an AutoZone (AZO, $121.48, up $7.10) put option trade which announces earnings on Tuesday. We rode the stock down on November 19 when it was at $100, all the way to $85 a few days later. Since then, the stock has added 35 points. The December 75 puts (AZOXU, $0.40, down $0.20) went from $1.80 to over $6.00 and we got out when the stock started to rebound. It’s too risky to enter a trade before earnings but if AutoZone disappoints, the December 100 puts (AZOXT, $1.65, down $1.65) could be a homerun. For what it’s worth, Pep Boys (PBY, $4.53, up $0.16) also reports on Tuesday.

Wednesday we get CKE Restaurants (CKR, $8.01, up $0.30) and FuelCell Energy (FCEL, $3.93, up $0.15) while Thursday will be a big day for Costco Wholesale (COST, $55.58, up $2.83). Krispy Kreme Doughnut (KKD, $2.50, up $0.01) and Lululemon Athletica (LULU, $10.79, up $1.22) will also be in the mix.

The volatility has made one thing clear. Any “aggressive” positions you take in the market should only be expected to last a week and sometimes less than two days or 24 hours. Of course, we’ve known this for quite some time and like a chameleon, we’ve adapted.

Rick Rouse
Rick@OptionsMentoring.com

We knew it was going to be nasty and the release of this morning’s unemployment report is taking the Dow lower by 241 points to 8,134 a little over an hour into the trading session. The unemployment rate now stands at 6.7% but the fact that 533,000 jobs were lost in November is alarming. Another report this morning showed that delinquencies in the home loan market are also on the rise.

The mortgage snafu started two years ago when adjustable-rate loans starting resetting to higher interest rates for home owners who never should have been home owners. Now with unemployment skyrocketing, the latest wave of delinquencies is coming from the surge in people losing their jobs.

Job losses are also having an impact in rising delinquency rates for traditional 30-year fixed rate loans made to borrowers with strong credit. To sum it all up, a record one in 10 American homeowners with a mortgage are at least a month behind on their payments. Wow.

And I haven’t even mentioned my thoughts on the commercial mortgage market. That is the next crisis that the market may have to fight. We’ve all seen store closing on the rise and there will be many, many more.

A number of our trades continue to do well and the Exxon Mobil (XOM, $73.32, down $2.95) December 75 puts (XOMXO, $4.50, up $1.25) I mentioned last night at $3.25 could be our next winner. The puts opened at $3.25 and are up 40% right out of the gate. I’m not too keen on holding oil puts over a weekend because you never know what kind of news could come out from OPEC or other world events. However, you could close half the position and let the rest ride with the type of return we have already been given.

The CEO’s of the auto industry are about to speak…

Rick Rouse
Rick@OptionsMentoring.com

Wall Street would probably feel safer hanging out with Plaxico Burress at a night club than bet money on Friday’s November unemployment report. The Labor Department is expected to report the jobless rate rose to 6.8% and that another wave of jobs cuts will be coming.

As unemployment goes up so do the number of claims. Last week unemployment benefits reached 4 million…the highest level in over 25 years. The report comes out before the market opens so it will likely have a major influence in the early going.

Oil closed below $44 a barrel and could be headed below $40. Hard to believe that oil is down nearly 70% from its $147 peak in the summer. Oil and oil stocks don’t always trade in tandem but there was some serous action in the Exxon Mobil (XOM, $76.27, down $2.66) put options.

Specifically, the December 75 puts (XOMXO, $3.25, up $1.25) opened at $2.65 and hit a low of $2.05 as Exxon traded in positive territory for a few minutes after the opening bell. Nearly 12,000 contracts traded hands.

The big wigs of Ford (F, $2.66, down $0.19) and General Motors (GM, $4.11, down $0.79) will appear before the House committee again. They will get some cash but it’s a shame how they must squirm when the goverment has thrown billions and billions to other industries. We cannot lose the auto industry but something has gotta happen quick.

Rick Rouse
Rick@OptionsMentoring.com

Potash (POT, $49.60, down $3.21) continued its slide today as the stock lost 6% and set a fresh 52-week low in the process. The stock traded as low as $48.99 suggesting even further weakness. Looking at the chart, Potash now looks poised to test $46 and if that level fails it could fall even further.

The bulls tried to keep Potash above $50 as shares rallied to a high of $54.89 shortly after the market opened for trading. For those of you that weren’t in our bearish trade, it represented a great time to jump in below our original entry points.

The December 50 puts (PVZXJ, $4.60, up $1.30) traded to a low of $2.50 and I liked entry points up $3.00. If you got in at $3.00 then you are already looking at a 50% gain. I liked the December 40 puts (PVZXH, $1.20, up $0.10) up to 80 cents and they traded to a low of 55 cents today. If you got in at 60 cents you’re looking at a double.

There are a lot of moving parts in the market right now and what is hot one day is cold the next. Keep your stops tight on this one because Potash will continue to make wild price swings.

Rick Rouse
Rick@OptionsMentoring.com

Chesapeake Energy (CHK, $11.84, down $2.26) continued its free-fall today and is feeling the pinch from falling energy prices and increased inventories. Last Friday I mentioned the company was issuing more shares to raise nearly $2 billion in capital which would dilute shareholder value. Chesapeake plans to use the proceeds for core operations and acquisitions but the current environment has left the company short on cash.

The company is in the process of developing “shale sand projects” but has been forced to cut its budget through 2010. These projects are aimed at retrieving natural oil and gas but with demand dropping, Chesapeake may have to hold off on such projects.

Option implied volatility on the stock continues to rise and I had mentioned all signs were pointing to a break below $11.99. We witnessed that today as the stock hit a low of $11.50 and closed below its previous 52-week low. Not a good sign if you are bullish.

Th good news is that we weren’t bullish on Chesapeake Energy as we were expecting more downside. The December 17.50 puts (CHKXW, $6.20, up $2.25) are deep-in-the-money which means the options will trade dollar for dollar if the stock continues lower.

These options opened at $1.65 last Friday and continue to add on big gains for us. We have raised our stop along the way and at last check we had it at $3.50. Let’s go ahead and take it up to $5.75. The December options expire in two weeks so there is still time for the stock to drop even further before the puts expire. However, if the stock rebounds we will close the position if our stop is taken out.

Rick Rouse
Rick@OptionsMentoring.com

I’m not all that excited about the “movie” stocks but there may be an opportunity to make some trades within the sector as we head into a festive time of the year. Thanksgiving through Christmas is movie heaven and there’s a chance some of these beaten down stocks could recover.

The one player I do like in the sector is Imax (IMAX, $2.73, down $0.08) and I have mentioned this stock before at much higher levels. I do not trust the stock enough to by any longer-term options but Imax could be a force in the movie industry down the road.

Although we were successful in riding Imax to its 52-week high, the stock has dropped nearly 70% from a peak of $8.28. The stock is cheap enough to the point where instead of making an option trade it might be better off to buy the stock. It eliminates the risk of an option expiring worthless and if Imax can get to $10, you would easily triple your money.

Imax has its fingers in a lot of pies and is developing some solid business partners and relationships with some top-tier names. The company recently inked a deal with Walt Disney (DIS, $21.94, up $0.48) and is strategically building the “Imax Experience” into a tidal wave.

Carmike Cinemas (CKEC, $2.56, down $0.24) and Cinemark Holdings (CNK, $8.22, up $0.35) and Regal Entertainment Group (RGC, $9.52, up $0.68) all stand to benefit as Imax leads the charge into the digital format age.

National CineMedia (NCMI, $8.26, up $0.98) could also do well if movie theaters stay packed and they can jack-up their advertising prices. The company also distributes business meetings and digital programming event services.

Marvel Entertainment (MVL, $29.61, up $1.05) and DreamWorks Animation (DWA, $23.38, up $0.79) are a couple other names worth mentioning.

Again, not much to get too excited about but if the timing is right there is a chance to make 10%-20% in some of these names as we witnessed today.

Rick Rouse
Rick@OptionsMentoring.com

The market is rebounding after a lower opening this morning as Wall Street has shrugged off some bad economic news and is focusing on keeping the Dow above 8,000. Aside from Monday’s dramatic 680 point debacle, the Dow had been on a nice winning streak. This has raised the bulls hopes that some stability might be returning to Wall Street. However, despite today’s turnaround there are still quite a few stocks heading lower.

Chesapeake Energy (CHK, $13.93, down $0.32) continues to be a huge winner for us and hit a low of $13.43 earlier this morning. The December 17.50 puts (CHKXW, $4.00, up $0.20) have traded as high as $4.50. Many of you got in at $1.65-$2.65 and we have our stop at $3.50. Go ahead and raise it to $3.70.

Potash (POT, $53.08, down $2.02) has had one of its legs taken off on the way down from $240 and there other leg is broken. The market is leaning heavy on the stock and the December 50 puts (PVZXJ, $3.20, up $0.50) and the December 40 puts (PVZXH, $0.80, up $0.05) are off to a good start.

Research In Motion (RIMM, $37.65, up $0.33) hit a low of $35 but is rebounding. Like I mentioned earlier, the first half-hour of trading would be dicey for the stock. Those December puts (RUPXG, $2.50, down $0.70) I told you not to chase on the pre-earnings announcement opened at $4.05 and now look at them. A lot of novice option traders will “chase” this type of news as soon as the market opens and find themselves 50% in the hole 30 minutes later. RIMM may collapse from here but I wanted to point this out because the market doesn’t care about your experience level.

And yes, I did stay at a Holiday Inn Express last night…

Rick Rouse
Rick@OptionsMentoring.com