1. Commentary
2. Gold and Platinum
3. Trading Bank of America
4. 2008/ 2009 Portfolios
5. Current Trades
6. Earnings
7. Closing Thoughts


1. Commentary

If 666 is the number of the beast, it must be that of a bear because it roared its ugly head at the market. The market was nervous all of last week which led to a big decline in the three major indexes. After taking Monday off, the mood was no better Tuesday on Wall Street with the market still waiting for more details on how the government would deal with the toxic assets that have plagued banks’ balance sheets. On Friday, those fears reached panic as talk of nationalizing the banks reached a frenzy.

When Senate Banking Committee Chairman Christopher Dodd said banks may have to be nationalized for a short time, the market was underwater and sinking fast. The rebound off the lows came after the Obama administration said they support a privately held banking system. If that weren’t bad enough, there was talk of Europe’s recession being worse than expected.

As a result, we got 6% losses across the board for the week. The Dow fell 485 points to finish at 7,365 while the Nasdaq skidded 93 points to close at 1,441. The S&P 500 was punished for a 57 point loss and settled at 770. YTD, the Dow is off 16%, the S&P 500 is down 15% and the Nasdaq has lost about 9%.

That fact that the market couldn’t rally despite President Obama announcing the details of the Homeowner Affordability and Stability Plan shows the uncertainty the market is facing. Usually, this type of event would have moved the market significantly higher but the market appears to be more concerned with the toxic assets on the banks books, and until they are removed from their balance sheets, pressure will remain on the sector and the market as a whole.


2. Gold and Platinum

The hot topic of late has been gold which broke through the $1,000 mark and finished at $1,002/ ounce, up nearly $26, or 2.6%, on Friday. Naturally, there are gold bulls calling for $1,500 and even $2,000 an ounce but lets not get ahead of ourselves.

Gold peaked at $1,033 and fell as low as $750 in November. From those lows we have already rallied 50% so that tells me gold has become overbought in the short-term. However, that doesn’t mean gold can’t continue higher. Over the last couple of years, gold has had a pretty good run from late January until the end of February and history seems to be repeating itself this year.

With the market lacking a clear direction since the passage of the stimulus package and bank bailout plans, gold could continues to benefit as a safe haven. We have done well playing gold’s surge as you will see in the “Current Trades” section but don’t be surprised if we get a little breather in the rally.

Elsewhere, silver gained 55 cents and is at $14.50/ ounce while platinum added $13.60 to close the week at $1,096/ ounce. Copper lost 6 cents and is at $1.42/ pound.

I haven’t mentioned platinum that much but I’ve been researching it here of late. Platinum is 3x rarer than gold and is a key component in automobile emissions controls, jewelry, electronics and lab equipment. Platinum was at $2,000 around this time last year and historically trades at a much higher multiple versus gold. As far as platinum stocks go, they have been hammered. Stillwater Mining (SWC, $4.40, down $0.21) and North American Palladium (PAL, $1.55, down $0.05) are a couple of names that come to mind but you see where their stock prices are at. Stillwater is down from a 52-week high of $23 while North American is down from $9+.

Platinum metals biggest market is the automotive industry, where platinum and palladium are used in the manufacture of catalytic converters for exhaust systems. Naturally, these two stocks have suffered as the drop-off in auto sales have hurt their business. This has not helped the market for platinum although the demand for the metal remains strong. It’s used heavily used in catalytic converters, which control engine emissions, and with emissions standards tightening, the demand will be there.

There is no platinum ETF’s (exchange traded funds) but there are ETN’s (exchange traded notes) you can watch. The iPath Platinum Sub-Index (PGM, $26.71, up $0.37) and the E-TRACS UBS Long Platinum (PTM, $13.26, up $0.14) are a couple ways to play the sector.

I’m more interested in gold at the moment as the uncertainty of the auto industry is still front and center. Platinum could move another 20%, however, I’m sticking with gold for as long as the rally lasts.


3. Trading Bank of America

Bank of America (BAC, $3.79, down $0.14) hit a record low on Friday and Citigroup (C, $1.95, down $0.56) tanked to nearly a 20-year low as both companies were under heavy selling pressure on talks of them being nationalized.

Citigroup hit a low of $1.61 while BofA hit a low of $2.53. I had mentioned last week that the action in BofA was going to be intense and you can have taken advantage of the chaos on Friday. Although we have a few active trades in BofA there was an opportunity to trade the March options off their lows.

This is a true story. As the talks of BofA and Citigroup intensified the BofA March 4 calls (BYOCD, $1.06, up $0.21) were trading at 67 cents a little after 1PM. There was a friend of mine who I was teaching the market to because he had just opened an options account. He was anxious to make a trade and I told him there are opportunities to trade but you have to be quick and not get caught up in the emotion.

As I was explaining to him what was going on with BofA’s stock, I was showing him the March 4 calls and explaining to him how they work. (I also couldn’t believe he paid $4,000 for an options course that does not mentor you but that’s another story). He didn’t know I worked for one of the best options mentoring sites out there…

Anyway, when news hit that the government “supports a privately held banking system”, BofA started rallying shortly after 1:30PM. He bought 10 contracts of the March 4 call options at 67 cents and you could see the excitement as he watched the calls trade higher over the next couple of hours. I told him to exit the trade no matter what by the end of the day and he couldn’t figure out why.

I told him the stock would likely rally for the rest of the day but the uncertainty of nationalization still hangs in the balance. Although we don’t know if this is going to happen for certain, it was too big of a risk and I told him if the market gives you a 35% return in a day, take it. He did and sold at 99 cents. In 2 1/2 hours he made $300.

The comments from the White House helped shares of Citigroup and Bank of America recover some of their losses but I don’t know if it will be enough. Bank of America’s stock was up another 23 cents to $4.02 after the close.

We will have to see how this one plays out but BofA did say that it was told by Washington that nationalization wasn’t an option under consideration. The U.S. government has injected more than $100 billion into the nation’s largest banks last year and Citigroup and Bank of America have received the most support. That is something to think about despite the fact of what Washington is saying.


4. 2008/ 2009 Portfolios

I have gotten a lot of requests to post a “track record” of the options trades I cover in the blog and in the Weekly Wrap. I have been spending the past few weeks researching the blog and I’m excited to say that I should have the results by the end of the month.

When I started the log last April, it was a way for us (OptionsMentoring.com) to keep you up to date on the market while at the same time teaching you about options. The research and daily blogs have even helped my trading skills too as I try and recommend trades that are easy to understand and follow. I also explain the trades in more detail which has also
helped me keep focused.

Please realize that I don’t personally do every trade I blog about but I do trade some of my recommendations. The portfolios should be used for informational purposes only but you will notice how I stick to stocks that I know and ones whose trends I can easily recognize. I covered well over 100 trades in 2008 and so far in 2009, there are almost 50.

You will notice that I like to keep positions between $1,500-$2,500 a trade which usually gets me 10, 20, or 30 contracts at a time. If you start an options account with $2,000, then obviously, your purchasing power will not be as great and you have less room for error. A couple of bad option trades means you might have to put more cash in your account. I usually recommend you have at least $5,000 when you start an account but if you only have $2,000 then realize commissions could eat a lot of your profits if you are only buying 1 or 2 contracts at a time.

Once these are posted, I will let everyone know…


5. Current Trades

Akamai Technologies (AKAM, $17.71, up $0.15)

Akamai Technologies held its own despite the market’s uncertainty although we were stopped out of the March 17.50 calls (UMUCW, $1.25, unchanged) at $1.10. The stock opened at $17.28 on Tuesday and the options opened at $1.10. The trade was technically a loss but I didn’t mind taking a 10% because I didn’t want to fight it. Yes, the calls are still trading at their original entry price and even hit a high of $1.80 on Thursday when the shares hit $18.49. However, I wanted to take advantage of some of the other opportunities in the market.

I mentioned if we are stopped out that maybe we would re-enter the trade at a later date and cheaper price. That still holds true but let’s concentrate on what is open.

Bank Of America (BAC, $3.79, down $0.14)

I unwillingly kept these open on Friday mainly due to the fact that they were cheap out-of- the-money call options and the fact that BofA was making strong statements in the market while its stock was tanking. The only thing I regret about the March 6 calls (BYOCF, $0.45, up $0.14) and the March 7 calls (BYOCG, $0.32, up $0.13) is that I didn’t buy protection or that I didn’t make the trade a straddle. We could have made more than enough to cover the call side of the trade if we had evened it up with put options. That’s why they call it hindsight…

Anyway, these positions were entered at 90 cents and 60 cents, respectively, on 2/12. The stock was up another 23 cents to $4.02 in Friday’s after-hours session.

Dow Jones Industrial Average Index (DJX, $73.66, down $1.00)

The March 75 puts (DJXOW, $3.85, up $0.45) were profiled Tuesday night in the blog and again Wednesday morning. We entered the trade at $3.10 and these put options traded as high as $4.50 on Friday. That was almost a 50% profit and you could have closed the trade if you did not feel comfortable holding it over the weekend.

The March 74 puts (DJXOV, $3.50, up $0.50) could have been bought for $2.75 on Wednesday’s open and hit a high of $3.65 on Friday.

I had mentioned on Friday in the blog that the Dow could slip below 7,300 and that it did. That was my “immediate” target for the Dow but we have to be careful of a “snap-back” rally. If you left the trades open, be cautious of this and don’t give back your profits if the market starts to rally. However, we could be looking at future gains if the Dow continues to crack.

Genentech (DNA, $85.02, up $0.26)

Well, this was not one of my better trades and I’ll be the first to admit. Out of nearly 50 trades I have profiled this year, this was going to be the first one that was headed for a loss until Akamai Technologies beat it to the punch. Look, everybody has a losing trade and I’m no different but this one really frustrates me.

The February 95 calls (DWNBS) ended up expiring worthless and were profiled at 85 cents back in January. I could have gotten out at 40 cents but I kept the position open because the March 95 calls (DWNCS, $0.30, up $0.05) are my backup. Granted, they haven’t performed well either but they still have value. They actually lost 10 cents for the week.

I’m not so sure anything will get done between Roche and Genentech by the time the March call options expire but Roche is still trying to get the cash together. Meanwhile, Genentech’s stock performed well for the week despite three people taking one of Genentech’s drugs are believed to have died of a rare brain infection. Given the uncertainties, it would be wise to cut our losses and move on. However, I’m stubborn with this one and am still holding out hope that $100/ share offer is coming from Roche.

Research in Motion (RIMM, $39.15, down $2.94)

We took advantage of the continued weakness in the stock and I profiled a couple of put options on Wednesday when the shares were at $43.22. The stock closed 10% lower from that original write-up and hit a low of $38.44 on Friday.

Research in Motion fell from $57 to $49 after lowering guidance which pushed the stock below its 10 and 20-day moving averages. I mentioned the next level it appeared likely to test was its 50-day. RIMM took care of that. The next support lies at its 52-week low of $35.09. I’m not sure if we get there or not because the bulls might be ready to make a statement. However, it sure feels like that low will be taken out.

The March 40 puts (RUPOH, $3.70, up $1.35) were profiled at $2.15 and hit a high of $4.15 on Friday. The March 35 puts (RUPOG, $1.60, up $0.20) were recommended at 85 cents and hit a high of $1.90!

In the blog on Friday, RIMM was at $40 at 11AM and broke down like a rented mule afterward. Obviously, both put options could have been closed for 100% profits. I don’t always tell you exactly when to close positions but if you have followed the blog my rule of thumb is 50% stops and 100% profits.

If RIMM reaches news lows again this week, set stops there or exit the trade if the stock starts to head back up.

Spider Gold Shares (GLD, $97.80, up $2.03)

The ETF added $5 for the week as gold continued its surge. At one point, shares hit a high of $98.99. I’ve been talking about two key levels with this trade. Gold hitting $1,000 and this ETF hitting $100. Both parts of that equation have basically happened as both call options hit 100% returns.

The March 99 calls (GLDCU, $3.50, up $0.80) were profiled at $2.05 and hit a high of $4.20 on Friday.

The March 100 calls (GLDCV, $3.20, up $0.70) were recommended at $1.90 and traded to $3.80 before falling back.

When others start rushing in, that is when we start heading for the exits. No one knows how far gold will rally and it’s all about supply and demand right now. Here is another position where 100% profits could have been taken before the weekend.

I’ll provide updates as usual in the blog and I’ll be looking to close some of these out to enter new trades. The market never dances with the same partner twice so we could get some new candidates this week.


6. Earnings

Monday: Campbell Soup (CPB, $29.45, down $0.11), Forest Oil (FST, $15.78, down $0.49), Healthcare Realty Trust (HR, $14.63, up $0.90), Kaydon (KDN, $25.91, up $0.48), Nordstrom (JWN, $11.89, up $0.06) and Texas Roadhouse (TXRH, $8.45, up $0.28).

Tuesday: Domino’s Pizza (DPZ, $6.55, up $0.33), DreamWorks Animation (DWA, $19.41, down $0.14), First Solar (FSLR, $134.01, up $2.71), FirstEnergy (FE, $47.39, down $0.83), H.J. Heinz (HNZ, $32.56, down $0.39), Home Depot (HD, $19.46, down $0.70), Macy’s (M, $7.86, up $0.20), Marvel Entertainment (MVL, $23.81, down $0.83), Office Depot (ODP, $1.51, down $0.02), Papa Johns International (PZZA, $21.19, up $1.21), RadioShack (RSH, $11.26, down $0.05), Target (TGT, $29.75, down $0.14) and Wynn Resorts (WYNN, $24.95, up $1.95).

Wednesday: Del Monte Foods (DLM, $6.57, down $0.13), Dollar Tree Stores (DLTR, $35.18, up $0.81), Express Scripts (ESRX, $56.27, down $0.07), Garmin (GRMN, $15.17, down $0.75), J. M. Smucker (SJM, $41.54, up $0.14) and Washington Post (WPO, $390.30, down $1.20).

Thursday: Autodesk (ADSK, $15.26, down $0.59), Boyd Gaming (BYD, $3.52, down $0.03), Cinemark Holdings (CNK, $8.19, down $0.36), Cooper Tire & Rubber (CTB, $4.61, down $0.17), Deckers Outdoor (DECK, $57.60, up $2.44), Dell (DELL, $8.41, up $0.29), Gap (GPS, $11.55, down $0.01), Kohls (KSS, $34.84, up $0.13) and Safeway (SWY, $20.90, up $0.56).

Friday: Magellan Health Services (MGLN, $35.54, down $0.51), Republic Services (RSG, $23.81, down $0.03), Shanda Interactive Entertainment (SNDA, $31.49, up $1.10) and Westar Energy (WR, $17.22, down $0.67).

I’m watching First Solar, Home Depot, Wynn Resorts and Dollar Tree Stores for possible trades.


7. Closing Thoughts

It is kind of scary watching the market go down if you are clueless to what is going on with Wall Street. I understand a lot of people don’t have the luxury of watching ticker tape or following the news on a daily basis but if there is a way you can, then I encourage you to start. For me, the breakdown in the market last week was like waiting for snow in a grey-filled sky. It was cold, I knew the snow was coming and I was anxious to go out and play in it. If you are an option trader or a market watcher, there are certain times where you can feel the pulse of the market which allows you to get into some good trades. The market’s mood was clearly evident last week and there were opportunities to make money despite the negative sentiment on Wall Street.

With today’s technology, it is easy to track stocks or options using your phone. If you have a brokerage account you can trade stock or options by using a regular phone or a smart-phone.

With email, you can set alerts on certain stocks and get something in your inbox when that stock hits your alert. The point I’m trying to make is that I often hear people don’t have to follow the market. They only seem to follow it when stocks go up because they don’t know how to short a stock or buy a put option when opportunity knocks.

As you have seen, there are 100%-er’s out there every week. It’s up to you to have the committment to grow your portfolio. When things are at there worse, don’t panic. Get in there and look for trades that make sense.

No one knows where the market will close on Monday or next Friday or in May. My number one tip for people that ask me about the market is that I tell them to trade the trend. And as long as the trend remains volatile, the more opportunity there is to make money. Should be another volatile week…

Rick Rouse