Seems like someone on Wall Street doesn’t trust Merrill Lynch (MER, $25.45, down $0.76) either. The stock is down 3% after a downgrade out of Goldman Sachs (GS, $159.34, down $1.56) on concerns of more write-downs.

We’ve been all over this like grass on dirt over the past few months playing both call and put options. However, today’s news only confirms what I’ve been saying about Merrill and financial stocks in general, I don’t trust them. This applied especially to Merrill. The firm has already written off $40 billion and there’s likely more to come. The analyst from Goldman reduced his 3Q estimate by $1 to a loss of $5.75. For the year he sees losses at $11.55 a share from $10.25. Wow.

Merrill’s is slated to report earnings on October 16. The upcoming quarterly loss will mean the fifth consecutive quarterly loss for the company. You might as well make it a six-pack because the fourth quarter will be a loss as well.

The 52-week low for Merrill is $22.00 and the stock has been treading water lately. This might not be the iceberg that sinks the Titantic but option traders are loading up on the September 25 puts (MOJUE, $1.30, up $0.35) and the October 25 puts (MOJVE, $2.56, up $0.43). Either one of these plays will be huge if Merrill is headed for the teens. That’s asking a lot from the September puts because they expire in two weeks but its could be a good possibility by the time October rolls around.

Rick Rouse