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Week in Review

Last weekend (4/12) we discussed the Airline Sector and I was pretty negative on it. Here are the big three with their closing stock price from Friday (4/11) to Friday (4/18):

AMR Corp’s (AMR, $9.48, $8.77)
Delta (DAL, $10.01, $8.75)
Northwest (NWA, $10.96, up $9.69)

Delta and Northwest announced a proposed merger Tuesday. After an initial pop, the Airline stocks got hammered throughout the week before bouncing back Friday with 2%-3% gains. The biggest winner though were the Delta April 10 puts (DALPB) which could have been picked up for 40 cents on Tuesday and eventually finished $1.25 in-the-money. All April options expired Friday.

General Electric (GE, $32.69, up $0.67) held steady dispite missing earnings and putting the market in panic mode. I thought the January 2009 32.50 calls (VGEAY, $2.88, up $0.28) would make a nice buy at $2.00 if the stock continued to fall but they never got that low. That is why it is always good to have targeted entry prices instead of buying an option blind. Of course, there’s a lot of research that goes into any given option trade but knowing the little things will keep you in the game and make your more successful. We may revisit this story in the future…

The financials had a good week. Again, quotes are Friday to Friday closing prices.

US Bancorp (USB, $31.67, $33.56)
JPMorgan Chase (JPM, $41.50, $45.76)
Wells Fargo (WFC, $27.20, $30.40)
Merrill Lynch (MER, $42.88, $47.35)

These companies reported lousy earnings with a painted brighter picture and the market bought it. While I’ll agree the Financials are a bit oversold, these stocks rallied despite the mixed news we got. Like a tide that lifts all boats, I believe the rally in these stocks were on the coattails of Intel and Google which really propelled the market higher. I still don’t trust them, yet. The financial sector was up 5% for the week. Having said that, I wouldn’t be surprised if American Express (AXP, $45.53, up $0.83) rallied as well. Earnings out Thursday. The May 47.50 calls (AXPEW, $1.24, up $0.11) were active Friday.

Crocs (CROX, $10.22, down $0.01) fell below $10 after we mentioned their earnings miss at $11.67.

Potash (POT, $204.67, up $10.12) easily topped $200 and we talked about the momentum when we said “Potash Looks Strong Heading Into Earnings”. The May 200 calls (PYPEX, $18.00, up $5.40) could have been picked up for under $6.50 a contract.

Google (GOOG, $539.41, up $89.87). All I can say is WOW! Reread blog posts…Keep an eye on Baidu (BIDU, $341.00, up $31.25) this week, it is trending up. Can it hit its 52-week high of $429? Baidu’s earnings come out Thursday. The May 400 calls (BPJET, $9.10, up $4.20) were up 85% Friday.

The market has reacted well despite the mixed earnings we are getting. There’s no slowdown this week as more high-profile names announce. Tech rallied 6% for the week and it was good to see a rally in the market — it just creates more volatility as we reach serious resistace levels.

Rick Rouse
Rick@OptionsMentoring.com