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

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

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

Here’s a quick update on what is going on with our Chesapeake Energy (CHK, $14.25, down $0.75) trade. The stock lost 5% today and over $2 on Monday after Wall Street seemed disappointed with OPEC having deferred a decision on cutting crude oil production over the weekend.

Other energy stocks have been falling in sympathy as oil futures continue to plunge. Oil fell 10% on Monday and another $2 and change today to settle at $47 a barrel. OPEC’s “decision” to delay a decision on output until later this month has driven oil prices to nearly a four-year low and has helped our bearish position in Chesapeake Energy.

The December 17.50 puts (CHKXW, $3.85, up $0.65) opened at $1.65 last Friday and have easily doubled. These calls were selling for $2.65 yesterday morning when I mentioned them again as we were targeting a run to $3. We got that by yesterday’s close. We are now well above our $3 stop so let’s raise it to $3.50.

The 52-week low for Chesapeake is $11.99 and all signs are pointing to a retest of those levels. However, if by some chance the stock rebounds our stop will protect our profits.

Rick Rouse
Rick@OptionsMentoring.com

Despite what was initially thought as a “successful” start to the holiday season, the Dow is down over 400 points as we hit mid-day. The figures from Black Friday were higher than what many analysts had been expecting as sales rose 3% to $10.6 billion. However, this is supposedly the biggest shopping day of the year and it is clear Wall Street is certainly concerned the news isn’t indicative of the rest of the weekend.

As a result, the Dow is down 435 points to 8,394 while the S&P 500 is skidding 53 to 853. The Nadaq is down nearly 90 points to 1,446.

Most consumers spent November waiting for Black Friday and many of the deals that come along with it as stores try to lure in customers. It has been quite apparent that people are bargain hunting and will continue to right up until Christmas. The strength from Friday will probably not be enough to carry the rest of the weekend, as reports also surfaced that business fell off sharply on Saturday.

There were a couple of economic reports that were also released this morning that has also added to the negative sentiment. The Institute for Supply Management said its index of manufacturing activity fell to a 25-year low in November and another said construction spending fell by a larger-than-expected amount in October. No surprises here.

On the bright side, Ford (F, $2.86, up $0.17) and General Motors (GM, $4.94, down $0.30) have held up well although GM has slipped after trading as high as $5.75. I mentioned the option activity in these two companies on Friday and today is no different…it is heavy.

Citigroup (C, $6.88, down $1.43) is getting an 18% haircut after surging all last week. The December 5 calls (CLP, $2.25, down $1.20) hit our stop of $3 on the way down this morning. Here is yet another example of why sell stops are so crucial. I had mentioned the short-term target for Citigroup was $8 and we got to $8.48 on Friday. The stock opened this morning at $7.90 and has been drifting lower ever since. The trade was good for a 200% return. Citigroup could get cheaper again and there will certainly be another trade coming.

I also mentioned Chesapeake Energy (CHK, $15.95, down $1.23). The December 17.50 puts (CHKXW, $2.60, up $0.55) opened at $1.65 on Friday and are up over 25% today. We are targeting $3.00 for the puts but set stops at $2.25.

Rick Rouse
Rick@OptionsMentoring.com

The market is closing at 1PM today and we’ve got about a half hour to go. Here’s what we’re watching:

Citigroup (C, $8.27, up $1.22) has moved above $8. This was my near-term target for the stock and the December 5 calls (CLP, $3.40, up $1.00) are now deep-in-the-money and are trading in tandem with the stock. Many of you got into this position for under a $1 as the calls traded to a low of 60 cents last Friday. Set stops at $3.00.

Chesapeake Energy (CHK, $16.95, down $3.29) is down over 15% as they plan to sell stock to raise nearly $2 billion in cash. Talk about diluting shareholder value. The December 17.50 puts (CHKXW, $2.10, up $1.15) are up 120% and opened at $1.65.

Yahoo (YHOO, $11.00, up $0.42) is up today on news that Carl Icahn is increasing his stake in the company. Apparently he has been buying shares this week and has plunked another $70 million down. More on this story next week.

Ford (F, $2.68, up $0.53) and General Motors (GM, $5.29, up $0.48) are getting nice pops. I’m hearing the two companies could be meeting around December 8 with Congress again and there’s a good chance they get some bailout bucks.

The Ford December 3 calls (FLG, $0.31, up $0.09) have traded over 20,000 contracts while the GM December 5 calls (GMLA, $1.00, up $0.15) have traded nearly 6,000 contracts. These two options could post huge gains if Ford and GM continue to rally. If Ford can get to $4 over the next week or two, the December 3 calls will be worth at least $1, or a triple from current levels. If GM can get to $8, same return. Big risk but big reward if you get in these options but I do like them.

Looks like the Dow is headed for its fifth straight winning session.

Rick Rouse
Rick@OptionsMentoring.com

Yahoo (YHOO, $13.92, up $0.57) was back in the news again on Wednesday. The stock had a strong day despite the fact that Google (GOOG, $342.24, down $24.70) backed out of its advertising outsourcing agreement with the company. At one point, Yahoo traded as high as $14.84.

There were many on Wall Street who had speculated this deal would fall through mainly because Google didn’t want to have to deal with the anti-trust issues. That was loud and clear when Google’s legal rep had this to say:

“We’re of course disappointed that this deal won’t be moving ahead but we’re not going to let the prospect of a lengthy legal battle distract us from our core mission. That would be like trying to drive down the road of innovation with the parking brake on.”

Sweet analogy.

Of course the bulls and bears immediately began to battle as bulls are hoping for another bid from Microsoft (MSFT, $22.08, down $1.45) while the bears are saying this is the end for Yahoo. What? You think it’s a coincidence that Yahoo’s CEO Jerry Yang had this to say after the closing bell: “To this day, I believe the best thing for Microsoft to do is to buy Yahoo,” ..

Yeah, that dude is drowning and begging Microsoft for a life jacket. Yahoo had an easy $33 a share, or nearly $48 billion in its back pocket when Microsoft was really wanting to buy the company and Yang held out for a few dollars more a share. It’s amazing sometimes how egos can get in the way of doing what is right for a company. This is a clear example of why America needs more shareholder rights. Afterall, you are not just buying stock of a company, you own part of the company when you buy stock. Shareholders could have gotten $33 a share a few months ago, now they will be lucky to get $20. It is what it is but Yahoo blew its chance of doing what was right for its shareholders.

The January 17.50 calls (YHQAW, $1.25, up $0.35) were one the plays we had in our Lottery portfolio. These calls were profiled around the same price that they are trading at now but did trade as high as $1.40. The November 15 calls (YHQKC, $1.30, up $0.80) were certainly a huge winner as they advanced 150+%. They traded as high as $1.38.

Yahoo’s rally was driven, in part, by rumors that Yahoo and Microsoft are close to an agreement of $17 to $19 a share — speculation that both companies denied. I had mentioned that companies are getting “cheap” again that would could see some M&A (merger and acquisition) activity. Chesapeake Energy (CHK, $24.83, up $1.88) and Yahoo are making the rounds and there is even fodder that Disney (DIS, $24.23, down $1.79) should buy Electronic Arts (ERTS, $22.37, down $1.03). M&A is coming and when it does it could be fast and furious.

I think Microsoft will make another run at Yahoo and I would expect it to be sooner rather than later. Microsoft still wants Yahoo but is trying to get it as cheap as it can. Microsoft is a cash cow and it needs Yahoo’s search engine and huge audience if it ever wants to mount any serious threat to Google.

The November options are a big risk as time would be working against you waiting for this marriage to happen. The contracts expire in 15 days and I don’t think anything will get done that quick. It could but that is why we went out to the January options from the get-go. If Yahoo gets a minimum $20 bid then the January 17.50 calls would be worth at least $2.50 or a double from current levels if Microsoft comes in with that kind of bid.

Maybe by Christmas a deal gets done but I have been telling you the $33 bid from Microsoft six-months ago would continue to haunt Yahoo shareholders once Yang blew it.

Keep holding the Yahoo call options and remember that they are a lottery play. You could take the profits you have now but it would be like winning $5 on a $5 lottery ticket. We are at least trying to double our money.

Rick Rouse
Rick@OptionsMentoring.com

With a half-hour left to go in today’s trading session, the Dow is down 400 points to 9,225 but there are some pockets of strength in certain sectors. Chesapeake Energy (CHK, $26.10, up $3.15) is having a monster day as Wall Street seems to believe that Chesapeake and other natural gas producers will thrive because of Barack Obama’s historic victory.

The theory is that a Democrat-led Congress will lead to huge tax breaks for petroleum producers and that Obama will likely push for use of compressed natural gas (CNG) in automobiles. How long and how fast it takes for CNG stations to start popping up around the country remains to be seen but they are coming.

Companies that are in this field will likely see incentives to install CNG pumps at stations which should encourage Americans to buy CNG-powered cars. CNG is an exceptionally efficient fuel for return-to-base fleets, as analysts believe it produces 50% to 70% fewer pollutants and saves $5,000 to $20,000 in fuel costs annually per vehicle than diesel, the fuel most commonly used today.

There are a couple of pure-plays on this sector like Clean Energy Fuels (CLNE, $7.35, down $1.74) and Sinoenergy (SNEN, $3.22, down $0.13) but they are both trading lower today after California voters struck down Proposition 10, which would have paid rebates for fuel-efficient cars and cars that run on natural gas. T. Boone Pickens, the company’s founder, is obviously not having a good day. Not only is the stock taking a hit, he is the one who paid for nearly all of Proposition 10’s $22.5 million campaign fund.

Meanwhile, Chesapeake is getting some action despite the weakness in the energy sector today, amid reports that it could be a takeover target. I mentioned the stock back in October and at the time it was good for a quick trade as it made a run from $20 to $24ish.

The November 25 calls (CHKKE, $2.75, up $1.90) were trading for $2.10 at the time of the blog and I said the stock had a chance of getting to the $24-$27 range quickly. It did and faded but now the stock is gaining momentum again. The November calls have hit a high of $3.60 today and I encouraged many of you to keep holding them.

The January 25 calls (CHKAE, $3.90, up $1.15) which were profiled at $3.70 and they are only slightly higher than where they were profiled at. They hit a high of $5.00 when Chesapeake shares hit a high of $26.95 earlier in the day. It’s hard to say just how serious the takeover talks are but it does show that others think this stock is cheap.

Rick Rouse
Rick@OptionsMentoring.com

Chesapeake Energy (CHK, $23.32, unchanged) managed to escape the market’s bad day and finished the session even. I had mentioned a short-term trade Monday morning when the stock was at $22.32 and the target for one of the option plays was almost triggered.

The November 25 calls (CHKKE, $2.20, unchanged) were trading for $2.10 at the time of the blog and I said the stock had a chance of getting to the $24-$27 range quickly. Today the stock hit a high of $24.61 and the calls hit a high of $2.90. I had predicted $3.00 and some of you may have left the trade open in hopes of getting that target.

If you held onto the call options then I can see why but remember when we get that close to a target, it’s okay to cash out. So the gain wasn’t 50%, it was 45%. There is a difference between 45% and 50% but the point I’m trying to make is that when you get that close to a target price, don’t get greedy, especially in this market.

I think the November calls still have a shot at $3 again and I would continue to hold them and the January 25 calls (CHKAE, $3.90, unchanged) which were profiled at $3.70. They hit a high of $4.40 today. Target $6 or better for the January options with a stop of $3.00.

Rick Rouse
Rick@OptionsMentoring.com

Chesapeake Energy (CHK, $22.32, up $1.85) is rebounding this morning following this month’s sell-off. There are numerous factors that have brought the stock down from $35 to a low of $11.99 but investors seem to be building positions in hopes of a recovery.

One of the biggest reasons for the decline is the fact that the company’s CEO (and largest shareholder) was forced to sell most of his 5% stake in the company after a margin call. For those of you who don’t know what a margin call is, it’s something you don’t ever want to have happen to you. Basically, it is when you buy stock with borrowed money and are “forced” to liquidate your position because the stock is going lower.

Chesapeake is the nation’s largest natural gas producer and because it’s stock price is considered “low” there are already takeover talks swirling. There is also concern that the company could have trouble getting financed although it does have $1.5 billion in cash. Chesapeake did secure a new $450 million line of bank credit and is seeking up to $750 million to stay cash flow positive.

The company plans on maintaining its aggressive drilling plan which I think is a good idea and it wouldn’t mortgage its future without a plan. Chesapeake has a 52-week high of $74. I don’t think the stock is going to zoom back that high any time soon but I do think it could get back to the $24-$27 range over the near-term.

The November 25 calls (CHKKE, $2.10, up $0.55) are up 35% today and opened at $2.05. The low has been $1.80. I think they have a shot at trading up to $3 before the options expire which would be another 50% gain from current levels. The November options expire November 21.

For those of you who want to go further out, check out the January 25 calls (CHKAE, $3.70, up $0.90) which do not expire until January 16, 2009.

The options are a little expensive because of the volatility but these are short-term plays designed to take advantage of a rebound.

Rick Rouse
Rick@OptionsMentoring.com