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

The market has just opened and the financial stocks look like they will be trading lower. I’ve been mentioning four trades that we have going and how they should be closed today. If you still believe these stocks may go higher then you could sell half of your positions and hold onto the rest.

The four trades we looked at involved Citigroup (C, $18.86, down $0.22), Wachovia (WB, $15.67, down $0.32), Fannie Mae (FNM, $7.38, down $0.57) and Freddie Mac (FRE, $4.82, down $0.46)

The Citigroup January 20 calls (CAD, $1.95, down $0.10) were at $1.37 and had posted gains of 50% before this morning’s slight decline. The Wachovia January 15 calls (WBAC, $3.80, down $0.20) were recommended at $3.00 and should do well as Wachovia remains a buyout candidate.

The Fannie May January 5 calls (NJWAA, $4.00, down $0.10) were profiled at $2.40 and are have posted gains of 70%+. The Freddie Mac January 5 calls (FREAA, $1.85, down $0.15) were profiled at $1.20 and are showing a 50% gain.

Again, I’d close half of each position ahead of the holiday weekend. The market is closed on Monday so I’ll be back Tuesday with some fresh ideas.

Rick Rouse
Rick@OptionsMentoring.com

Citigroup (C, $18.80, up $0.68) and Wachovia (WB, $15.73, up $1.18) continue to rally today as the Dow is up an impressive 171 points shortly after lunch. There’s no specific news concerning these two companies, they are just along for today’s ride. As we head towards the end of the week it’s good to see that some of our trades are going to be huge winners before the holiday weekend.

We will close either close them on Friday and simply look for more trades next Tuesday or we will sell half of our positions and let the rest ride. It all depends. Don’t forget we get the Personal Income and Outlays and the Consumer Sentiment reports tomorrow and they will either help extend the market gains or stop us out of our trades.

The Citigroup January 20 calls (CAD, $2.00, up $0.30) were at $1.37 and are up 50%. The Wachovia January 15 calls (WBAC, $4.00, up $0.70) were profiled at $3.00 so they are up 33%. Set stops on the Citigroup calls at $1.75. For Wachovia, set stops at $3.50.

These trades would have shown even bigger gains had we played the September or October option calls but the risk would have been much greater had these stocks headed the other way. I’ll provide another update before Friday’s closing bell.

Rick Rouse
Rick@OptionsMentoring.com

A week ago, we scaled into a few positions in the financial stocks hoping for a quick rebound. In the 8/20 blog I talked about how some of the mid to major financial stocks were getting at their 52-week lows and we could play a quick bounce to the upside.

The danger with trading some of these stocks is that if those 52-week lows are broken they could head even lower. However, we have a pretty good grasp of what’s going on out in the market place and we can now turn our attention to taking some more profits off of the table.

We already closed the Lehman Brothers (LEH, $13.78, up $0.35) trade for a 70% profit in two days and like a tide that lifts all ships, today’s rally has taken our other positions into positive territory as we head to lunch and halfway through the trading session. Fannie Mae (FNM, $5.82, up $0.63) and Freddie Mac (FRE, $4.01, up $0.72) are having another big day, up 11% and 20%, respectively. Here’s our bounce so let’s take advantage of it.

The Fannie May January 5 calls (NJWAA, $3.20, up $0.50) were profiled at $2.40 and are up 33%. The Freddie Mac January 5 calls (FREAA, $1.35, up $0.35) were spotted at $1.20 and are up a little over 10%.

The other two trades we looked at involved Citigroup (C, $17.90, up $0.29) and Wachovia (WB, $14.12, up $0.20).

The Citigroup January 20 calls (CAD, $1.60, up $0.10) were at $1.37 and are showing about a 20% gain. The Wachovia January 15 calls (WBAC, $3.00, up $0.10) are trading exactly where they were profiled at.

How you manage your profits from here is up to you but they should all be closed before Friday regardless of where they are trading at. If you continue to see gains, great. But don’t press your luck with the long holiday weekend coming. The market never dances with the same partner and the risks are too great to expect much more from these plays.

Rick Rouse
Rick@OptionsMentoring.com

The “timing is everything” quote couldn’t have had more meaning today with a few of our trades. The bears had thoughts on taking the financial sector lower until the bulls stepped in and took over. The earlier blog this morning couldn’t have come at a better time although it’s a little too early to tell if the trades will pay off big.

To start, there were a few trades I mentioned this morning involving Citigroup (C, $17.49, up $0.30), Lehman Brothers (LEH, $13.73, up $0.66) and Wachovia (WB, $14.90, up $0.60). All three stocks had a volatile session and were all over the map providing traders with plenty of good entry points.

The Citigroup January 20 calls (CAD, $1.52, up $0.03) traded as low as $1.30 and were a nickle off from our target entry price of $1.25. Some of you may have pulled the trigger at $1.30 which was close enough and are now looking at a 15% gain. You could set stops at your entry price if the volatility is too much for you to bear.

Trading Lehman Brothers could be like catching a falling knife, eventually, because the “bankruptcy” rumors are flying around this company like pigeons on a boardwalk. Lehman could be in serious trouble unless it sells some of its assets which is being considered. I said the January 20 calls (LYHAD, $1.80, up $0.25) were “mouth-watering” at $1.40 and low and behold, they were. The calls made a nice 30% gain by the end of the day. We are targeting the $2.00 level as an exit for a quick 40% profit and a stop of $1.60 gets you a 15% return.

Wachovia shares rebounded 6% from the morning blog after news broke that a private real estate company had bought some of the bank’s troubled land and construction loans. The January 15 calls (WBAC, $3.50, up $0.20) were trading for $3.00 and ended the day 17% higher than our entry price. The stock really got some legs after the news and was looking at busting through $15 before the final bell sounded. If the stock can back to the $17-$18 range over the next week or so, we could be looking at 50%+ returns.

And finally, there’s Yahoo (YHOO, $19.17, down $0.25) which continued lower throughout the rest of the day. The October 20 calls (YHQJD, $1.30, down $0.20) and the January 22.50 calls (YHQAX, $1.35, down $0.10) provided us good entry points today because…after the closing bell Yahoo announced an Internet-TV deal with Intel (INTC, $23.39, down $0.20) that will provide users a new and unique way of using the Internet.

The Widget Channel could be Yahoo’s wild card that saves the company’s stock. Intel’s chip, called Intel Media Processor 3100, will start appearing in televisions, set-top boxes and other television-connected gizmos as early as next year. Yahoo will then bring the Internet to TV by using bite-sized snippets, or widgets, rather than the whole Internet.

The technology sounds exciting although the news did not do much for Yahoo’s stock in after-hours trading. The shares are up only two cents but Yahoo should open higher on Thursday after the talking heads pump up the news.

Rick Rouse
Rick@OptionsMentoring.com

The ride for the financial stocks has accelerated to the downside over the past few weeks and some big names are trading near 52-week lows again. We all know that there are some trading opportunities that come with these names and we have played them both ways.

The option gains have ranged anywhere from 50%-100% and we have used both calls and puts. I’m not sure if it’s time to go long again but here’s what we’re watching:

Citigroup (C, $17.13, down $0.06) hit a high of $20.50 a week ago and is down 15%. The January 20 calls (CAD, $1.37, down $0.12) were profiled at $1.25 and sold at $2.60 the first time around. Let’s target an entry price of $1.25 again.

Merrill Lynch (MER, $23.65, down $0.15) has been good to us on the long side so far but it remains a question mark if we can go long again on this company. We made a 50% profit buying the January 35 calls (MERAG, $0.87, down $0.06) at $1.90 and got out in the $2.65-$2.75 range. There’s no way I’d get back into these particular calls but I’m feeling like Merrill has more skeletons in the clost. The January 25 calls (MOJAE, $3.55, down $0.05) look expensive to me and Merrill looks like it’s wants to go below $20.

A week ago, Fannie Mae (FNM, $5.02, down $0.98) was at $9 and Freddie Mac (FRE, $3.44, down $0.73) was at $6. These two have been the headline makers again and have dropped roughly 50% on renewed concerns of a government bailout. The option activity is insane for Fannie and Freddie and the jury is still out on wheather or not they survive. The Fannie May January 5 calls (NJWAA, $2.40, down $0.60) would be a monster trade if Fannie can get back to $10. The Freddie Mac January 5 calls (FREAA, $1.20, down $0.15) would double if Freddie trades up to $7.50. That is a big “if” for both of these trades.

Wachovia (WB, $13.99, down $0.31) is back below $15 and we made a 50% profit on the January 15 calls (WBAC, $3.00, down $0.30) at lower levels. Out of all of the financials, I like Wachovia the best and still think it will be the first to go as far as an acquisition target. If Wachovia can back to $20 these calls could double.

There are plenty more brand names out there to trade in the financials. Lehman Brothers (LEH, $12.60, down $0.47) looks cheap down at these levels. The January 20 calls (LYHAD, $1.40, down $0.15) look mouth-watering. I’d buy them here and try to sell them at $2.00 for a quick 40% profit.

Pick your entry points for these plays carefully and set stops early on any gains.

Rick Rouse
Rick@OptionsMentoring.com

Wachovia (WB, $18.32, up $1.20) is the top performer among financial stocks today as we get closer to the Federal Reserve meeting to decide U.S. interest rates. The company’s CEO went on record saying that Wachovia would not need to raise anymore capital and that management changes are done for the time being.

Shares of Wachovia gained 7% at the open and have traded as high as $18.54. On July 30, we picked up some of the January 20 calls (WBAD, $3.30, up $0.40) at $2.25. We are approaching a 50% gain ahead of the Fed meeting so I wouldn’t blame any of you for taking profits ahead of such a volatile event. We moved to the January 20 calls after riding the January 15 calls (WBAC, $6.20, up $0.80) for a 100% profit. They were originally profiled at $1.30 on July 17 and continue to do well.

Citigroup (C, $19.51, up $0.67) is trying to get back over $20 again. The January 20 calls (CAD, $2.50, up $0.22) were profiled at $2.30 and are a work-in-progress. I say that because we are experiencing gains or losses of about 10% on any given day. These same calls were originally profiled at $1.25 and were sold at $2.60 the first time around. The January 22.50 calls (CAA, $1.50, up $0.15) were also mentioned on the 30th at $1.42.

And finally, when I wrote “I still don’t trust Merrill Lynch as a company”, that should have been a warning sign for myself. The first time around with Merrill Lynch (MER, $27.55, up $1.16) we made a 50% profit buying the January 35 calls (MERAG, $1.50, unchanged). They were first profiled at $1.90 and we exited them in the $2.65-$2.75 range. This time around we got in at $2.00 so we are currently looking at a 25% loss. These calls can get back above $2.00 or higher if Merrill makes a push at $30. In any event, set a stop loss at $1.00 just in case.

Overall, all three positions together would be producing a decent profit in less than a week. If we can get a continued rally after the Fed meeting in the financials, the profits will get even better.

Rick Rouse
Rick@OptionsMentoring.com

I’ve covered Citigroup (C, $21.47, down $0.64) in the past like grass on dirt but lost interest in the stock and any trading opportunities in it after its fall from $55 to $20. The ride on the way down was thrilling to write about and when Citigroup fell below $20, I figured there was not much further it could fall.

While this has been true, it has been interesting to watch how Citigroup now trades. If you’ll notice, the stock seems to trade 20% higher or lower every two weeks or so. The stock spent the earlier part of the year bouncing between $25-$30 and now seems locked on trading between $18-$20 to $25 a share here lately.

And it all has to do with the hype and the way the market spins things. One week “Citi’s recovering nicely” and that “Financial stocks are cheap.” Next week it’s “Financial stocks aren’t out of the woods yet” type quotes.

This is why it can sometimes be difficult to call a stock’s direction with so much debate going on about the stock or sector but it is good for price action. However, there are safer and better ways to take advantage of situations like this by using more advanced options like credit or debit spreads and even iron condors to limit your risk instead of buying calls or puts straight-up. These strategies don’t provide as much bang for the buck but they do limit your losses in case the trade goes against you.

Rick Rouse
Rick@OptionsMentoring.com

The Financial sector could get even more volatile with earnings reports coming out from the heavy hitters this week. US Bancorp (USB, $31.67, down $0.95) gets the ball rolling Tuesday before the bell and Wall Street is expecting the company to report earnings of 61 cents a share. US Bancorp is viewed as a “safer” play in the industry because it didn’t have as much exposure to the mortgage lending business like many other firms. However, yesterday’s drop of 3% could be a sign that a break below $30 is possible.

JPMorgan Chase (JPM, $41.50, down $1.03) reports Wednesday. The stock has performed well since the company announced its plans to buy Bear Stearns about a month ago rising from $34 to a high of $47 but has drifted lower over the last seven trading sessions. Average estimates call for the company to earn 66 cents per share. Wells Fargo (WFC, $27.20, down $0.77) also reports Wednesday, Merrill Lynch (MER, $42.88, down $0.80) on Thursday and Citigroup (C, $22.51, down $0.85) will announce its earnings Friday.

I have covered Citigroup and Bear Stearns (BSC, $10.11, down $0.11) in our free trading articles area on OptionsMentoring.com. Here is a link to enjoy more in-depth articles that cover other trading strategies and ideas:

http://www.optionsmentoring.com/stockoptions/index.shtml

The news from the Financial sector will certainly impact the market and likely set the mood for the next couple of weeks. If negativity remains in the headlines, the Dow could be headed below 12,000.

Rick Rouse
TheOptionInvestor@yahoo.com