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

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

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

The market is down halfway through the session and Bernanke is on deck and should be speaking any minute now.

The Dow is down 324 points to 8,987.

It’s frustrating to see the market down for those who are bullish but be patient. The sledding will be choppy but until the Dow and Nasdaq get on a mini winning streak, it’s going to remain that way.

Google (GOOG, $347.71, down $15.00) will be announcing earnings after the close on Thursday. I’m telling you, this one could get interesting. Google’s 52-week low is $310, its high - $747. For a possible strangle earnings trade on Google look at these options.

The October 400 calls (GOPJT, $5.10, down $2.90) and the October 290 puts (GGDVR, $3.40, up $1.15). Together, they would cost $8.50. A 60 point move in Google could give you an 8%-10% gain for a two-day trade.

Have a Coke and a smile brother. Coca-Cola (KO, $45.73, up $2.00) announced a 15% jump in earnings and is eating PepsiCo’s (PEP, $53.51, down $0.89) lunch.

Bernanke just hit the podium and we have headed lower. The Dow is now down over 400 points. He looks nervous.

Good to see Apple (AAPL, $104.28, up $0.19) above $100 again. The November 120 calls (QAAKD, $6.05, down $0.05) should be bought two-to-one against the Novemebr 80 puts (QAAWP, $3.90, up $0.20) if you bullish. Vice-versa if you are bearish.

Chipotle Mexican Grill (CMG, $41.63, down $3.92) has made another 52-week low. Earnings are due out on October 22. Regular readers of the blog know all about this stock first hand. It’s been our own personal ATM over the past year. Numerous negative analyst reports have popped up this week on the restaurant sector which has pushed Chipotle down to ridiculously cheap levels as some would like to think. That may be so, but if they miss earnings, then we could see Chipotle in the low $30’s.

The October 45 puts (CJYVI, $4.40, up $2.25) are getting some love and have doubled this morning. Sometimes it pays to get out of bed early. They opened at $2.15.

Chipotle could still have some more downside risk but if they do miss earnings, the stock may be too cheap to pass up if it get in the $20’s.

Rick Rouse
Rick@OptionsMentoring.com

Apple (AAPL, $91.07, down $6.00) is below $100 and is tanking along with the rest of the market. The Dow is down 454 points to 9,871 and is below 10,000 for the first time in four years. I’ve been mentioning over and over that the market could be headed lower and that September and October could be brutal. Here we are with the good possibility of going even lower.

While everyone runs for cover, it’s important to remember what type of market we are in. We have had success by shorting the market and we’ve protected ourselves by leveraging our trades. With Apple, I mentioned on September 29 that we could see another big move as the stock was sitting right at $100.

The October 120 calls (QAAJD, $0.52, down $0.33) were at $5.85 and traded as high as $9.00 the very next day as Apple rebounded to $115. They should have been closed then which allowed us to wait for another breakdown in Apple.

The October 100 puts (QAAVT, $13.00, up $4.80) were at $5.35 and are up nearly 60% today as Apple has continued its breakdown. The puts have traded as high as $15.20 when the stock hit a low of $87.54 earlier this morning and should also be closed sometime today.

Even if you left the calls open, with today’s big gain in the puts the trade is still profitable. The total cost to enter the position was $11.20 for one call and one put. I was hoping for a 10%-20% gain so the trade has reached our target. If you closed out the call at $9.00 and if you close the puts at $13.00 today your return is nearly 100%. Either way, it’s nice to know some of you are making money.

I’ll be back tonight with a recap of the market. I’ve been mentioning the VIX (^VIX, 53.45, up 8.31) for a few weeks now and I said the index could be headed to the 50’s and maybe even the 60’s. We are getting close to a market bottom but calling a “bottom” is usually pretty tough. The market can get cheaper if people continue to panic which signals that we are going to be bargain hunting here shortly.

As I go to post this, Lehman Brothers CEO is testifying before a House Oversight Committee. This ought to be interesting…

Rick Rouse
Rick@OptionsMentoring.com

From $185 to $98 in 10 days. That’s what has or is happening to Potash (POT, $97.91, down $30.13) today. Blame it on whatever you want but these are unprecedented moves. Talk about throwing the baby out with the bathwater. After all the bullish arguments we have heard from Potash, Wall Street is bailing out of this stock because the dollar is higher today and demand is weakening?

Potash has dropped so fast that the lowest October put option quotes I’m finding are the October 95 puts (PSPVS, $8.40, up $6.95). The October 130 puts (PSPVF, $33.50, up $21.30) which were slightly in-the-money are up 200%. For diehard bulls, the November 120 calls (PYPKD, $9.00, down $12.50) are now 60% cheaper than they were yesterday.

General Electric (GE, $22.23, down $2.27) isn’t in the same business as Potash but its stock is also getting crushed despite Warren Buffett stepping up to the plate again. Latest news out of Camp Buffett is that he is going to buy $3 billion of preferred shares of GE which carry a 10% dividend. He also has the option to buy $3 billion worth of GE common shares for $22.25 each.

Just last week his Berkshire Hathaway company (BRK-A, $138,000, up $1,000) invested $5 billion in preferred Goldman Sachs (GS, $128.67, down $5.83) stock with the same 10% dividend. He also reserves the right to buy an additional $5 billion in Goldman common stock for $115 per share at any time over the next five years.

Add it all up and Mr. B has basically pledged $16 billion to GE and JP. That’s making a statement folks. BTW, the General Electric January 30 2010 calls (WGEAF, $2.00, down $0.20) are getting some action this morning and open interest stands at nearly 100,000 contracts.

Apple (AAPL, $102.08, down $7.04) could be below $100 by the end of the day. I don’t believe in all the hype of Apple hurting because of a slowing economy and consumer spending weakening. When Apple’s iPod Touch went from $399 to $229, I was all over it. I wasn’t worried about the price because I’d rather pay $1.99 for the latest music instead of spending $10 to buy the whole CD. While there are some CD’s that are good from beginning to end, buying the iPod is actually saving me money down the road. Just saying.

I bring these things to light because if you are an investor and your time horizon is five years, these stocks are dirt cheap. Maybe. If you are an option trader, then we can exploit these situations into making huge profits with the right options.

Rick Rouse
Rick@OptionsMentoring.com

Apple (AAPL, $109.88, down $18.36) is down sharply this morning after a couple of analysts downgraded the stock. RBC Capital lowered Apple’s stock from “outperform” to “sector perform” while Morgan Stanley (MS, $22.41, down $2.34) shifted gears from “overweight” to “equal weight”. Morgan’s price target for the stock was also lowered from $178 to $115. RBC Capital dropped its target from $200 to $140.

It seems both analysts believe that a weaker economy will hamper the consumer which will lead to less demand for Apple’s products. Hmmm. I’m not sure demand for Apple’s products will suffer as much as its stock is today but the downgrades have hurt. Today’s whipping is the biggest drop in Apple’s stock in seven years.

I have written about Apple for quite some time as well as Research In Motion (RIMM, $66.48, down $4.28). Both stocks have been huge winners in the past and normally go through these wild price swings a few times a year. They have been leaders in the past and will be in the future but the current climate is punishing both stocks.

RIMM recently reported lousy numbers and its outlook scared Wall Street. The stock also got a downgrade this morning. Some of you may have put on an option strangle trade for RIMM based on your comments and emails and that trade has done extremely well.

The October 120 calls (RULJD, $0.03, down $0.01) were going for $1.20 the day earnings were announced and the October 80 puts (RFYVP, $14.85, up $3.50) were going for $2.06. The calls will obviously expire worthless but the puts are up seven-fold. The total cost to buy 10 calls and 10 puts would have been around $3,250. Even if the calls expire worthless, you would still have nearly $15,000 if you sold the puts today. Talk about ROI…

I don’t expect Apple to keep falling as low as RIMM but it could. The market is very irrational right now which means these types of options trades are working. If you wanted to look at Apple as a strangle trade you could follow the October 120 calls (QAAJD, $5.85, down $7.65 and the October 100 puts (QAAVT, $5.35, up $4.55). I think there will be enough movement in Apple that the trade could return 10%-20% over the next few weeks.

Rick Rouse
Rick@OptionsMentoring.com

Research in Motion (RIMM, $97.84, down $5.60) fell back below $100 on Monday ahead of its scheduled earnings report on Thursday. The stock has been making $10 swings almost on a daily basis which leads me to believe the stock will make a substantial move by the end of the week.

There are some analysts who expect RIMM to post solid quarterly results, with revenues of $2.6 billion and earnings-per-share of $0.87. Although early October’s availability of the company’s 3G Bold and Kickstart have acted as a near-term catalyst, there’s a report out that says RIMM’s September sell-through numbers are looking “slightly disappointing” ahead of the new product launches. This was on top of a “flat” August.

There are too many variables to consider a trade for RIMM, especially with earnings coming out. To me, it is looking as though RIMM’s new products are going to have a bigger impact on the company’s next quarter, not this one.

Worldwide smartphone sales grew nearly 16% in Q2 from a year earlier and smartphones control about 11% of the mobile device market. That’s good news for RIMM because it shows there is still plenty of market share to capture. However, with so many competitors coming into the fray, RIMM will be fighting for that market share with the likes of Apple (AAPL, $131.05, down $9.86) and even Google (GOOG, $430.14, down $19.01).

The stock hit a low of $88 on September 18 which tested multi-year support. I profiled a RIMM strangle option trade earlier this month that netted us a 35%-40% profit. I would almost go out on a limb and recommend the same trade but it’s just too risky. The recent low has me leaning towards RIMM testing those lows again but a good earnings report may help the shares from sinking.

Rick Rouse
Rick@OptionsMentoring.com

As we head to lunch, here’s some tidbits on some of the stocks we are currently following.

On September 2, I did a piece on McDonald’s (MCD, $63.88, up $1.46) saying the company would be reporting great same-store sales. At the time, the stock had lost its hype because the Olympics had finished and Wall Street grew bored with the stock. It was a great time to go long some calls options and that we did. Although these calls doubled shortly after I mentioned them, then traded lower, today is another payday. Same-store sales rose 8% in August.

The September 65 calls (MCDIM, $0.65, up $0.30) are up 86% this morning and could have been bought for 40 cents on 9/2. The October 65 calls (MCDJM, $1.65, up $0.45) are up 38% and were going for $1.25. This is the second time the market is begging you to take profits so manage your positions accordingly.

Research in Motion (RIMM, $104.27, up $1.60) has rebounded nicely and has traded as high as $106 today. Apple (AAPL, $158.40, up $0.48) is introducing new and cheaper iPods in a couple of hours.

Lehman Brothers (LEH, $10.18, down $3.97) hit a low of $8 earlier in the session after buyout talks with the Korea Development Bank have ended. I’ve been hesitant to make an option trade on Lehman but a strangle is looking more and more like a possibility. If you want to pull the trigger on one here is the play. The October 12.50 calls (LYHJV, $2.41, down $1.44) and the October 7.50 puts (LYHVU, $2.34, up $1.55) look like the perfect fit. As sure as the sun will come up tomorrow, you can almost bet Lehman is going to move $5 in either direction by October, if not within the next day or two.

The DryShips (DRYS, $53.30, down $4.12) October 60 puts (DQRVL, $9.70, up $3.20) continue to soar. If you recall, we did a strangle trade on DryShips on August 25. We sold the calls shortly after the trade and the puts were trading for $2.60 at the time. They have more than tripled and are working on a “quad”. As you can see, some of the strangle trades we have been using are providing us with monster returns.

Rick Rouse
Rick@OptionsMentoring.com

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