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

DryShips (DRYS, $58.47, down $3.06) has plunged through $60 and I wanted to update the trade from August 25. I mentioned quite a few stocks within the sector but targeted DryShips as a strangle option trade. This option strategy is created when you buy both a call and put with different strike prices but with the same expiration date on a stock. This play is profitable only if there are large movements in the price of the stock and that is what has happened with DryShips.

The stock was right around $70 and I penciled in at least a $10 move in the stock within a few weeks. At the time I said “the stock is volatile and it could test $60 before it tests $80 again.” Knowing this I put us in a trade to take advantage of the price move.

The October 80 calls DQRJP ($0.50, down $0.20) were trading for $3.60 and the October 60 puts (DQRVL, $6.30, up $1.70) were trading for $2.60 at the time. Together the total cost for both contracts was $6.20. The stock made it to a high of $74 a few days later which is when the calls should have been sold for about $5.50. The puts were showing a loss but we took profits on the calls. All we had to do was wait for the stock to fade which is exactly what is happening.

Now, if you sold the puts today for $6.30 our total for both options would come out to $11.80 ($5.50 for the call, $6.30 for the put). Our entry price was $6.20 so if you did close the put side of the trade today you would nearly double your money. Don’t make the mistake of holding out for a little more profit. Sure, the puts could keep going higher if the stock continues lower but the stock has already reached our target. Some people hold on to these types of trades because there is so much time left until the options expire.

What usually happens is that the stock remains volatile and investors give back a lot of their profits waiting for a 200% gain instead of taking the 100% gain. Don’t make this same mistake.

Here’s how the other stocks from the sector are doing for the day and since August 25: Diana Shipping (DSX, $23.22, down $1.01) was at $29, Eagle Bulk Shipping (EGLE, $21.55, down $1.00) was at $25.80, Excel Maritime Carriers (EXM, $25.98, down $1.37) was at $32.77 and Navios Maritime Holdings (NM, $8.22, down $0.36) was at $9.90. We’ve seen violent moves in many stocks this week and you gotta love the action.

Rick Rouse
Rick@OptionsMentoring.com

I’ve been getting a few emails on DryShips (DRYS, $71.18, up $0.09) lately and I though today would be a good time to talk about the stock. The company recently reported 2Q earnings of $300 million, or $7.10 a share, up from $111 million, or $3.12 per share, during the same period a year ago. Impressive results but they fell well short of Wall Street’s estimates.

DryShips results were helped by the sale of the three ships for a $136 million but when that was factored out of estimates along with “valuation of interest rate swaps”, the company really earned $152 million, or $3.60 a share. Wall Street was expecting an adjusted profit of $4.57 per share so they missed by nearly a buck.

The company is continuing with its fleet renewal and expansion plan to replace older ships with newer and larger vessels but the stock has been in a downtrend in recent months. After a rally that saw the stock hit a high of $130 back in October and $116 in May, shares have been hit especially hard on concerns of a slowing global economy and a future glut in the number of vessels potentially leading to lower spot rates.

The concerns are real but may be somewhat overblown as the worldwide boom in the consumption of physical commodities isn’t likely to come to a complete halt. In fact, we should see a pick-up in demand sooner rather than later and now may be a good time to take a look at the dry bulk sector. Other stocks include: Diana Shipping (DSX, $29.00, down $0.15), Eagle Bulk Shipping (EGLE, $25.80, down $0.43), Excel Maritime Carriers (EXM, $32.77, down $0.44) and Navios Maritime Holdings (NM, $9.90, down $0.17).

As far as DryShips, the stock is volatile and it could test $60 before it tests $80 again. The October 80 calls DQRJP ($3.60, up $0.10) and the October 60 puts (DQRVL, $2.60, unchanged) could be used as a strangle to take advantage of the price swings. If one side of the trade doubles, sell, and then you have a risk-free trade on the other side.

Rick Rouse
Rick@OptionsMentoring.com