Here are some updates on the trades we are following.

AutoZone (AZO, $86.93, down $7.32)

November 95 puts (AZOWS, $8.60, up $4.80) were profiled at 90 cents and traded as low as 75 cents on Tuesday. Sell them right now. If you were brave enough to roll with these November put options your return is up over 800%. Close them today as the contracts expire on Friday.

December 95 puts (AZOXS, $14.70, up $3.30) were profiled at $5.40. Sell 75% of your position today and let the other 25% ride. The return is 175%.

December 75 puts (AZOXU, $6.20, up $1.70) were going for $1.80. I said to buy them up to $2.00 and if you got into this trade, you can bank the 250% return. Close 75%, keep the other 25% open.

Baidu.com (BIDU, $106.05, down $5.69)

November 100 puts (BDQWT, $5.40, up $1.90) were going for $2.50. Close the trade.
December 100 puts (BDQXT, $16.70, up $2.00) are up from $8.75. Close the trade.

Although we were on the sidelines with Baidu, some of you may have rolled the dice on this one. Take your profits and run to the hills.

Abercrombie & Fitch (ANF, $14.75, up $0.20)

The stock made another fresh 52-week low yesterday and this trade is pretty close to reaching max potential.

November 22.50 puts (ZWRWX, $7.80, up $0.30) were profiled at $3.30. Close the entire position today.

December 17.50 puts (ZWRXW, $4.00, up $0.30) are up from $1.70. These put options were our main focus and we have done well with them. We are up 135%. You could set stops at $3.40 but you would be giving up profits if ANF reverses course.

Apple (AAPL, $80.00, down $6.29)

I mentioned Apple last Thursday and although it has taken a little longer than expected, the stock is breaking down like a rented mule. The December 80 puts (QAAXP, $8.00, up $2.40) are up 57% from our entry price of $5.10. Set atops at $7.65 to ensure a 50% return.

Google (GOOG, $270.00, down $10.18)

On November 12, I had mentioned the November 280 puts (GGDWP, $16.00, up $7.40) at $6.00 and they traded above $12. We had set stops at $11.00 and we were stopped out of the trade earlier this week.

The December 240 puts (GOUXH, $15.00, up $3.70) were trading at $6.60 and we had set a stop of $9.00 for the position. Raise the stop to $12-$13 and sell 75% of the position if these levels are hit today.

The market looks like it is going to test its low as the Dow is down over 100 points to 7,820. The thing to watch for here is a bounce off the October 10 low of 7,773. If we don’t get a convincing bounce then we could be setting up for a faded rally. If we test the low, bounce, and come right back down then we can expect more weakness.

The market is at a pivital point and we should get a clear direction of which way we are heading by Friday’s close.

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

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

Here’s a look at some of the companies that will reporting earnings this week:

Abercrombie & Fitch (ANF, $54.11, up $3.73) announces earnings Friday. The stock fell nearly 10% when the company said same-store sales were down 7% last week. The stock rebounded on Monday after hitting a low of $48.21 on Friday. The August 55 calls (ANFHK, $1.55, up $1.10) were up 244% yesterday. This 55 strike price could be the battle line between the bulls and bears and the options expire this Friday. Too risky to join that trade battle.

JCPenney (JCP, $37.50, up $1.75) is scheduled to report earnings on Friday. The company also announced weaker-than-expected July sales but raised its quarterly earnings guidance on Thursday. JC now expects earnings of $0.50-$0.52 a share, versus its previous guidance of $0.38 a share. The August 40 calls (JCPHH, $0.45, up $0.30) traded over 8,000 contracts yesterday. Maybe there was a lot of selling of these calls because I don’t think JC has the energy to make a push to $40.

Kohl’s (KSS, $51.00, up $4.13) is expected to report earnings on Thursday. Yesterday’s 9% move was impressive. A favorite back-to-school play every year around this time. I’ve never trusted Kohl’s when it comes to predicting their earnings and I have no reason to start. I just hate the way this stock trades.

Macy’s (M, $21.65, up $0.92) reports Wednesday before the bell. The company did not give a 2Q outlook but Wall Street is looking for $0.19 a share on revenues of $5.8 billion. I’ve never followed Macy’s and don’t plan to start now.

TJX Companies (TJX, $37.00, up $0.13) will announce earnings this morning before the bell. The retailer recently raised its 2Q guidance to $0.46-$0.47 a share. TJX said July same-store sales were up 3%. The stock actually set a 52-week high of $37.52 on Monday.

Wal-Mart Stores (WMT, $58.56, up $0.70) reports earnings on Thursday. Wall Street is expecting a profit of $0.83 a share on sales of $102 billion. I’ve mentioned Wal-Mart numerous times here and how it always has trouble holding $60. The stock hit a 52-week high of $61 last Wednesday and quickly gave back those gains by the end of the week. The August 60 calls (WMTHL, $0.33, up $0.11) were heavily traded yesterday and if the stock can make another push above $60, these calls should do well. Be careful though, the $60 mark is acting like quicksand and the trade should be closed before Thursday.

Rick Rouse
Rick@OptionsMentoring.com

Tough day for Abercrombie & Fitch (ANF, $50.51, down $5.22). The stock is shedding 9% after reporting same-store sales were down 7% in July. Same-store sales are sales at stores open at least a year. Wall Street was expecting a decrease of 1.4%.

The company also owns the Hollister and RUEHL chains and the sell-off has pushed the stock to a fresh 52-week low. Although total sales for the month rose to $303 million, up 2% from a year earlier, the strength is coming from their London and New York City locations.

There were some who thought Abercrombie was a screaming buy in the $60’s but the stock was down nearly 30% before the recent downturn. Now it’s off 40% from it’s 52-week high of $85. Abercrombie & Fitch has been controlling its inventories to avoid excessive markdowns and the earnings outlook is actually pretty good for the company.

Here’s a case where it is so mouth-watering to go long the stock by buying some call options. Then again there’s the sour taste that you can feel if the stock continues lower from here. There are too many factors that can affect this trade. The stock dropped 10% on July 25 when its CEO left and consumers seem to be cutting back on those mall trips and buying nicer clothing.

Amercrombie could be a good longer-term investment but it appears the stock could be headed lower before it returns to glory. The September 50 puts (ANFUJ, $3.90, up $2.20) are up 129% on today’s news.

Rick Rouse
Rick@OptionsMentoring.com

We had a few more retailers report earnings today. Nordstrom (JWN, $38.44, up $1.15), and Abercrombie & Fitch (ANF, 76.19, up $0.11) each announced better-than-expected earnings results for the most recent quarter while Kohl’s (KSS $49.27, down $1.22) reported a decline in its 1Q results.

ANF reported earnings of $62 million, or $0.69/ share, compared to $60 million, or $0.65/ share, last year. Total revenue jumped 8% to $800 million from $742 million. The company beat on earnings per share but came up short in sales from what Wall Street was expecting.

Nordstrom said its sales fell 3.8% to $1.9 billion as profits came in at $119 million, or $0.54/ share, a 10% drop compared to last year. However, because Nordstrom bought back some of its shares over the quarter, they beat Wall Street’s estimates of $0.49/ share.

Kohl’s reported income of $153 million, $0.49/ share, versus $209 million, or $0.64/ share a year ago. Although Kohl’s had sales of $3.6 billion, an increase of 1.5% for the quarter, the company lowered earnings per share for the year to $2.95 to $3.15.

The theme was common all week in what the Retailers are saying. All of them are proving vulnerable to higher food, gas, and commodity costs.

Rick Rouse
Rick@OptionsMentoring.com