On September 5, I mentioned Goldman Sachs (GS, $157.00, down $4.67) had downgraded Merrill Lynch (MER, $22.75, down $2.01) to a “sell” rating on concerns of more write-downs. Merrill Lynch is down another 8% this morning and our put positions are gaining momentum.

The 52-week low for Merrill is $22.00 and I’ve been targeting a move below this level and possibly into the teens. However, even if we don’t get below $20 this trade has already been a huge winner in just five days.

The September 25 puts (MOJUE, $3.22, up $1.36) were profiled at $1.30 are up 150%. (I told you the homeruns will keep coming). The October 25 puts (MOJVE, $4.59, up $1.54) are up 50% today and were profiled at $2.56. They have nearly doubled.

The September puts expire NEXT Friday. Set a stop of $3.00 on them and a stop of $4.00 on the October puts.

I also wanted to mention the PowerShares QQQ Trust (QQQQ, $43.66, down $1.46) again this morning. The day before the Merrill trade I had been talking about how the Nasdaq could be headed lower over the short term. The quad Q’s are a great way to play the Nasdaq and the technology sector. As we head to lunch the Nasdaq is up about 20 points, or 0.75%, to 2,229.

The September 45 puts (QQQUS, $2.25, down $0.35) are down 13% but were profiled at $1.73 and traded at $2.60 earlier this morning. The October 45 puts (QQQVS, $2.78, down $0.19) were at $2.27 and have hit a high of $3.00. I just wanted to point this out because they have posted some decent returns. I feel comfortable holding them but selling half right now might not be a bad idea if the risks are too great for you.

And finally, we have been monitoring Potash (POT, $140.60, up $0.34) for an attractive entry point and I thought $145 represented good support for the stock. The shares plowed through that level with yesterday’s $13 smackdown. The October 175 calls (PYPJO, $2.24, up $0.46) were going for $3.58 on September 4 and did well for a couple of days but we were on the sidelines. Let’s keep it that way for the time being. There may be a good strangle trade for Potash but I wouldn’t go long just yet without some protection.

Rick Rouse