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

Shares of General Electric (GE, $27.59, up $0.19) hit a 52-week low yesterday before rebounding to close in positive territory. The stock hit a new low of $27.20 and is now down 25% for the year. GE has been in a major downtrend since announcing crappy 1Q earnings back in April. The stock was at $36.75 before their April announcement and fell $4.70, or 12%, the day they reported on volume of 366 million shares.

The big issue with GE is that in mid-March it had reaffirmed previous 1Q and yearly earnings guidance before dropping the “disappointment bomb” on Wall Strret. Not only did GE miss 1Q earnings ($0.44 versus expectations of $0.51), they said full-year earnings would be well below what they had forecast.

GE gets half its profits from financial services unit, GE Capital, which was where earnings took a hit. Most figured GE had kept the subprime damage in check but when earnings were revealed this division accounted for $0.05 of the $0.07 on the miss. The company rarely misses its numbers and many on Wall Street were stunned at just how far off GE was from estimates.

GE makes a variety of energy products and that will be the key driver of earnings over the next few years. The company is enjoying double-digit growth from the Infrastructure division but other areas have been “soft”. GE is still treading water and it may be a little too early to put the toes in the water. The company will be reporting earnings in the next 2-3 weeks and all eyes will focused on their numbers.

Like I said before, I’m not ready to purchase any call options on the stock just yet but I am watching the 2009 January 30 calls (VGEAF, $1.25, up $0.10) and the 2010 January 30 calls (WGEAF, $2.67, up $0.10). It may take a quarter or two for the company to gain Wall Street’s trust back but this stock is getting pretty cheap. Besides trading at a five-year low, the stock is sporting a juicy 4.5% dividend.

GE’s price/earnings ratio is under 13 and its price/book value ratio is a little over 2x. These ratios often help determine whether a stock is undervalued or overvalued. The higher both are compared to other stocks means the stock could be overvalued. A lower P/E or P/B could be mean the stock is undervalued and that appears to be the case with GE right now. However, I still don’t believe the stock is out of the woods just yet and I will also be watching to see what GE says when it reports earnings in July.

Rick Rouse
Rick@OptionMentoring.com

General Electric (GE, $32.05, down $4.70) got punished Friday, falling 13% after reporting disappointing first-quarter earnings before the bell. Wall Street expected 51 cents a share and got 44 cents. There was no surprise in the sell-off, the surprise was that GE actually missed earnings. The kicker is that GE had reaffirmed as recently as last month that they would meet earnings.

GE’s got some good business’s and is a well diversified company. It’s got great “brand awareness” and is a cash cow. The sell-off has got many traders excited and I’m sure we’ll see some upgrades and buy recommendations this week. However, first-quarter earnings are getting off to a lousy start and GE could continue to struggle. Don’t buy into the hype and let’s see where GE is in a few weeks or a month from now.

Meanwhile, keep an eye on the January 2009 32.50 calls (VGEAY, $2.92, down $3.03) which dropped 50%. If GE stumbles below $30 these options may be worth a second look below $2.00.

Rick Rouse
TheOptionInvestor@yahoo.com