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

$8,500,000,000,000.00

That’s the number…$8.5 trillion. That’s how much the our government is preparing to provide on behalf of you and I after guaranteeing another $300 billion to Citigroup (C, $6.08, up $0.13) and another $800 billion today for consumer debt and mortgage loans. And we ain’t done yet.

To put this in perspective, the government is pledging about $25 grand from every man, woman and child that is currently living in the country. I’m not sure what the “average” income for America is but what this is basically saying is that many of us will be working an extra year.

Want some more gruesome numbers? The $8.5 trillion is nearly 10 times the amount that we have spent on the wars in Iraq and Afghanistan. It also represents about half of what it would take to pay off the country’s mortgages. Wow.

The bailout cash that our government is throwing around like monopoly money is intended to rescue the financial system but I say let nature take its own course. The market has rallied for three straight trading sessions and that hasn’t happened since late August. However, I’m a little concerned that this rally may be lost in a purple haze of government money. Its a risky game we are playing but so far the market has shrugged these alarming figures off.

As a result, the Dow rose 36 points to 8,479 but hit a high of 8,600. The S&P 500 also traded higher by 5 points and finished at 857.39. The Nasdaq was the weak link as it fell 7 points to close at 1,464.

Futures are pointing to a lower open this morning ….

Rick Rouse
Rick@OptionsMentoring.com

The market is so amazing. There are so many moving parts and subplots happening at the same time that is making this market so incredible to trade right now. There are people losing their shirts and there are the others making a killing. It’s that simple.

The Dow managed a furious comeback in the final hour of trading as the cat got let out of the bag on who President elect Obama would likely nominate for treasury secretary. His name is Timothy Geithner and he was responsible for the 500 point pop in the Dow. Wall Street cheered the New Yorker’s current role and pushed the Dow above 8k to 8,046. The Nasdaq jumped 68 points to finish at 1,384 while the S&P 500 surged 47 points to close at 800 on the button.

The one story I want to jump right into is Citigroup (C, $3.77, down $0.94). Remember on Tuesday when I said “let’s see how this one turns out”? Citigroup had just issued a “Buy” rating on AutoZone (AZO, $92.41, up $3.32) which hit a low of $84.66 today when the stock was at $104.

I questioned the “analyst upgrade” because Citigroup was a $9 stock and had been sinking like the Titantic yet AutoZone was at a serious technical breakdown. Yeap, we made some dough with the AutoZone put options but the real deal has been Citigroup. There was a fortune being made this week as Citigroup dropped from $9 to $3 in just three days. Think about that for a second. Citigroup was a $20 stock just six weeks ago.

So here is the dilemma with Citigroup. Can you trust it? My take is that Citigroup will survive because it is part of the “good ‘ol buddy” system. Citigroup was one of the nine initial banks to sell preferred stock and warrants to the government last month. They also received $25 billion in the process which happens to be more than the company’s current market value right now. How crazy is this getting?

Here’s the kicker. The November options expired today but there was plenty of trading in the December contracts. The December 5 calls (CLP, $0.94, down $0.31) saw 100,000 contracts trade hands. That is phenomenal. Period.

If you bought 10 of these call options today then basically you have entered into a lottery ticket. Ten contracts would have cost under a $1,000 although the calls did trade to a low of 60 cents when the stock hit $3. So let’s say $600 if you had bought at the low.

Now, if Citigroup can rally, which to be quite honest could, then the calls could see some super-duper returns. The contracts expire on December 19 and if the stock can rally to $6 then the calls would be worth $1. If you got in at 60 cents that’s a 67% return. If you got in around a buck, you break even.

But what if Citigroup can get back to $7 or $8? At $7, you got a double on your investment, at $8 your return is 200% if you’re in at $1. If the stock is under $5, you lose your entire investment. Of course the returns or losses could come quicker depending on the outcome but that is how playing these call options will shake out.

You can bet I’ll be following this one.

Rick Rouse
Rick@OptionsMentoring.com

Let’s see how this one turns out.

Citigroup (C, $8.89, down $0.63), whose stock has been in shambles recently, initiated coverage of AutoZone (AZO, $104.59, down $1.17) yesterday with a “Buy” rating on the stock. Citigroup blew its chance to close a deal for Wachovia (WB, $5.27, down $0.22) and when that fell through, its stock started collapsing. The nearly 50% drop in Citi since then has pushed the stock below $10 thus limiting our downside potential.

Here’s where it gets interesting.

Although Citigroup theoretically only has about $9 to go before it reaches $0, AutoZone has way more potential than a $9 move because it is a $100 stock. Now we have to determine if we are bullish or bearish.

The bulls will argue that AutoZone will benefit from a slowdown in the car industry because people will be fixing up there cars instead of buying new ones.

The bears will argue that AutoZone will fall just like many other retailers because of declining same-store sales. There’s even been “whispers” on Wall Street that some of the auto industries’ partners are looking for a “bailout bonus” and that could mean quite a few things.

The important thing to focus on is the chart for AutoZone. The stock made a run from $80 to $140 from mid-2006 to mid-2007. Since then it has bounced between $110 and $140 and even tested its all-time high this past summer.

It’s been a slow drip since the start of November as the stock has fallen over $20 a share and has broken major support levels. The $100 level will be the first major battle ground that the bears will try and overtake. If successful, they could take the bulls all the way down to $80.

The November 95 puts (AZOWS, $0.90, up $0.05) saw a few darts thrown their way but options traders really went after the December put options. Although the November 95’s had decent volume (300 contracts traded), traders weren’t really placing huge bets on strike prices below this level.

By contrast, the December 95 puts (AZOXS, $5.40, up $0.60) and the December 75 puts (AZOXU, $1.80, up $0.75) each had volume of nearly 3,000 contracts. There was scattered buying in the strike prices between 75 and 95 but these were the two that were getting smothered and covered. And it happens to coincide with what the chart is telling us.

Another morsel to munch on is the fact that the company will be reporting earnings on December 9. The December options expire 10 days later. Lottery option players may wish to gamble on the December 75 puts with an entry price of up to $2.00-$2.10.

If we can get a drop to $90 this week in AutoZone’s stock then these calls should double.

Rick Rouse
Rick@OptionsMentoring.com

Part of options trading has to do with “a gut feeling” and there are some trades you make based on what you really believe will happen. And there are some you don’t make because of that same feeling. For the past few months, we have done a lot of trades with financial stocks as we have bought call options on sell-offs and put options on rallies in hopes of riding the stock higher or lower.

Wachovia (WB, $1.84, down $8.16) was one of the stocks we played after it sold-off but for some reason I had a feeling Wachovia was in trouble and wasn’t going to bounce higher again. The stock was down 20% Friday and I mentioned the heavy option put buying as a reason not to go long. At the time, I didn’t think Wachovia would fall that hard, that fast but it has. The October 5 puts (WBVQ, $3.20, up $1.70) were going for 85 cents and hit a high of $4.50 when the stock traded as low as a penny. Wachovia shares did not open until much later in the trading session and when they did, the stock reached a low of $0.01. Wow.

The October 7.50 puts (WBVY, $5.70, up $3.20) stood at $1.50 on Friday when we went to press and they have also done well. The put option activity that was going on in Wachovia was a clear warning signal that something was up. In fact, it almost makes you wonder if Wall Street knew this was coming.

Most stocks go up when they are bought out. However, when the company’s not worth as much as its stock you will see these types of things. I was a big believer in Wachovia getting bought and that came true. Thankfully, I still did my research and knew about Wachovia’s trouble mortgage business.

Citigroup (C, $17.75, down $2.40) agreed to acquire Wachovia’s banking operations in a deal that was helped by the Federal Deposit Insurance Corporation. Citi got a great deal and will be able to expand its business while the FDIC could be responsible for loan losses. Sounds like a win-win for Citigroup as Wachovia’s shareholders are left holding the bag. Wicked game this Wall Street, huh?

Citigroup was actually positive at one point today but collapsed with the rest of the market when the $700 billion bailout failed. More on that Tuesday.

Rick Rouse
Rick@OptionsMentoring.com

You know your stock has got to be “cheap” or “undervalued” when Warren Buffett steps in. That is exactly what happened after the market closed on Tuesday as Berkshire Hathaway (BRK-A, $128,800, down $2,200) announced it is investing at least $5 billion in Goldman Sachs (GS, $125.05, up $4.27). This is a pretty big deal and the market must have gotten wind of this before the final bell.

I had mentioned that some of the financial stocks were getting near our targeted areas yesterday and Goldman was quickly becoming my favorite one out of the bunch for a couple of reasons. First, best of breed. When it comes to owning an investment firm, Goldman tops my list. Secondly, Goldman Sachs (and Morgan Stanley) was one of the last two independent investment banks on Wall Street.

However, just two days ago both companies got the A-okay from the Federal Reserve to change their status to “bank holding companies.” This move gave Goldman broader access to borrow money and the ability to build a base of solid deposits.

Berkshire Hathaway’s investment in Goldman could double as the company also got warrants to buy another $5 billion in Goldman’s common stock. The first $5 billion is in Goldman’s “preferred stock” which will pay 10% and can be bought back by Goldman at any time for a 10% premium. The warrants allow Berkshire to buy $5 billion in common stock at $115 per share any time over the next five years. Goldman also said it would raise another $2.5 billion in its own public stock offering. Basically, Goldman just got the green light to print money.

The $115 tag is exactly what the shares were trading for when I did the blog yesterday. The point is not to toot my own horn but to let you know what is working in this market and what isn’t. The news sent shares of Goldman Sachs higher and the futures soared last night on a day the Dow posted another triple-digit decline.

Goldman reacted well in after-hours trading, up $9.70 to $134.75. That’s a 20-point move from lunchtime yesterday. The October 135 calls (GSJG, $6.90, up $0.10) traded as low as $3.80 yesterday. They will certainly see a big pop if last night’s gains hold.

Goldman Sachs’ shares had been falling at a rapid pace before the government announced its rescue plan. The bears were obviously targeting Goldman as they figured it would be the next General to fall during this financial war of bad debt. Now the question is if the SEC and/ or the government will have to look into Wall Street cashing in on our taxpaying money.

Here is what Mr. B said of the company…”Goldman Sachs is an exceptional institution. It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.”

Maybe the Geico lizard is showing up on Goldman early but rarely does Mr. B make a mistake. Especially one of this magnitude. You think he is risking $10 billion on a stock going nowhere? His favorite quote of mine is: “I will tell you how to become rich…Be fearful when others are greedy. Be greedy when others are fearful.”

Is that what we are seeing now? I mentioned back in August that September and October were historically bad months for the market and so far that has played out like Charlie Daniel’s fiddle. I’m not sure how bad October will be because no one has a crystal ball for the market. What I think could happen is a lower market into October and then a huge rally. And again, I’m just going by history and how this the market appears to be setting up.

I think once the details of how this $700 billion is going to be taken care of, the market will rally. And it could rally big-time. We also have the election which is usually bullish plus earnings season is right around the corner and we could get some surprises. Wall Street has lowered the bar so far that many companies could easily blow-away expectations.

As far as the other financial stocks, they rebounded as well:

Citigroup (C, $19.99, down $0.02) was at $18

Morgan Stanley (MS, $28.00, up $0.91) was at $25.36

Wachovia (WB, $14.75, down $1.85) hit a low of $14.01 but still ended lower by over 10%.

Of the three, Morgan Stanley looks to be the “safest”. Although risky, I think Morgan could ride Goldman’s coat tail on this one. Watch the Morgan October 30 calls (MSJF) this morning. They closed at $2.55.

Note: I gave a quote for Berkshire Hathaway’s Class A stock which is correct, it is currently going for $128,800 for ONE share but the Class B shares are a little cheaper…(BRK-B, $4,300, down $55.00) a share…

Rick Rouse
Rick@OptionsMentoring.com

The market has been moving slightly higher this morning as Congress debates the $700 billion financial rescue package for the troubled credit markets. Wall Street is watching like a hawk to find out the details and there’s a lot riding on how this thing is set up. The Dow is up 22 to 11,038 after rising more than 120 points in the morning. The S&P 500 is trading higher by 2 points to 1,209, and the Nasdaq is in the green by 5 to 2,184.

Our buddy Bernanke urged Congress to get this package through in a hurry and warned “the implications for the broader economy could be quite adverse”…perhaps the biggest understatement of the year. Look, Congress will make this thing work, no matter what the consequences because they can’t announce this big of a package and then not have it go through quickly.

The government is taking some steps in the right direction but the fundamentals for many of the bank stocks and financial institutions are still weak. Yes, there could be a “cleansing” of the books but there will be more pain before it’s full steam ahead.

The dollar is also rebounding today, while gold stocks are taking a breather after Monday’s big advance. Some of the financial stocks we follow are getting to our targeted areas again:

Citigroup (C, $19.15, down $0.87)

Goldman Sachs (GS, $115.94, down $4.84)

Morgan Stanley (MS, $26.84, down $0.25)

Wachovia (WB, $15.04, down $1.56)

If we can get another 10%-20% drop it will be time to go long again on some of these names.

Rick Rouse
Rick@OptionsMentoring.com

Fannie Mae (FNM, $0.73, down $6.31) and Freddie Mac (FRE, $0.88, down $4.22) did their best Enron imitation on Monday as both stocks plunged to under a dollar. Sure, the government bailout was huge for the market but check out the true winners from yesterday. The Fannie Mae September 2.50 puts (NJWUB, $1.80, up $1.75) were going for a nickle on Friday and they were up a mind-boggling 3,500%. The Freddie Mac September 3 puts (FREUF, $2.20, up $2.05) were up 1,367%. Crazy.

Now that I have you back on Earth, in other news…Citigroup (C, $20.32, up $1.25) and Wachovia (WB, $18.99, up $2.24) both had a pretty decent day. The Citigroup January 20 calls (CAD, $2.57, up $0.47) hit a high of $3.00 which gave many of you a double on the other half of the open trade. These calls were profiled at $1.37 and we got a 50% return on the first half of our position and now a 100% return. The baby should have been put to bed yesterday as this option trade is now closed.

The Wachovia January 15 calls (WBAC, $6.00) also doubled from our entry price of $3.00. We closed half at $3.80 on 8/29 and the other half should have also been closed yesterday. The calls traded as high as $6.50 and I hated to close this one out. For the 2,347th time, Wachovia is my dark horse to get bought out. Let’s watch the January 20 calls (WBAD, $3.00, up $1.00) and see if they can come back to $2.

Research in Motion (RIMM, $102.67, down $4.28) had a little bounce after yesterday’s afternoon blog, gaining about $2 but still finishing lower for the day. We did the 2-for-1 special, buying two October 120 calls (RULJD, $3.65, down $0.95) for every one October 80 put (RFYVP, $2.07, up $0.87). The calls were at $3.22 so we gained 40 cents. The puts also traded higher from our entry price of $1.82 as the premiums got some extra juice due to volatility.

We are targeting $5.50-$6.00 for the calls and the puts we will have to play it by ear. We don’t want to sell them too early in case RIMM breaks down from here. Keep checking back throughout the day for more updates.

Rick Rouse
Rick@OptionsMentoring.com

There has been a slew of takeover offers or ones in the works that I wanted to mention this morning. There may be one or two option trades worth researching but the easy money has already been made. However, it is still nice to see the M&A activity picking up. (All quotes are from Friday’s close)

SanDisk (SNDK, $17.64, up $4.18) had a huge day Friday on news that Samsung Electronics is considering an offer for the company. The Korean semiconductor giant already supplies flash memory chips to SanDisk and figures it is getting a great deal. There were twice as much action in the calls than puts and buyers and sellers of these contracts were targeting the 17.50 and 20 strike prices. The September 17.50 calls (SWQIW) closed at $1.30 while the October 20 calls (SWQJD) closed at $1.00.

UST (UST, $67.55, up $13.55) jumped 25% after Altria Group (MO, $20.95, up $0.29) appears set to acquire the chewing tobacco and wine maker for about $10 billion. More than 31,000 contracts of the September 60 calls (USTIM) were traded as they closed at $3.80. The October 70 calls (USTJN) traded nearly 30,000 contracts and could be a sleeper if we get a higher bid. They closed at 90 cents on Friday.

Lehman Brothers (LEH, $16.20, up $1.03) continues to look for a partner as it seeks to secure a much-needed capital infusion. Although Blackstone Group (BX, $16.43, down $0.31) and Kohlberg Kravis Roberts & Company are said to be looking at parts of Lehman’s business model, I still think Lehman gets and oversees bid. The September 18 calls (LYHIL) closed at $1.05 and could see some action this morning. The October 20 calls (LYHJD) could also be worth a second look and are going for $1.10.

Aside from the M&A activity, don’t forget we still have a “half position” open on Citigroup (C, $19.07, up $0.77) and Wachovia (WB, $16.75, up $1.22). The Citigroup January 20 calls (CAD, $2.10) were profiled at $1.37 and we got 50% on the first half of our position. The Wachovia January 15 calls (WBAC, $4.40) were recommended at $3.00 on 8/20 and half was sold at $3.80 on 8/29.

Citigroup, Lehman and Wachovia should all get a pretty good pop at the open as the Dow looks poised to start the session with at least a triple-digit gain. It would be wise to probably sell the other half of our positions as soon as the market opens. I have a feeling people will be selling into the rally as we go.

Rick Rouse
Rick@OptionsMentoring.com