9:00am (EST)

Futures are actually positive this morning as I prepare this post for Tuesday’s Tidbits (my time is 1:30am now…). Pretty amazing since we got a 300-point drop on the Dow yesterday.

A few updates. Amazon.com (AMZN, $77.57, down $0.48) dipped to a low of $76.83 on Monday and we were trying to get into the May 90 calls (ZQNER, $1.59, up $0.21) for $1.30 or better. The calls opened at $1.43, hit a high of $1.83 and never got below $1.41. If you got in below $1.50, set stops at 75 cents. I’m not sure if the calls get back down to our target price of $1.30 because Amazon.com looked strong yesterday. The company reports Thursday and if you didn’t get in on Monday, do not chase or start new positions.

Dendreon (DNDN, $19.52, up $1.53) continues to do well after an upgrade to “Buy” from an analyst with a price target of $25. Is it me or is everyone starting to jump on the Dendreon Bandwagon? That could be both good and bad and we will have to see if the trade becomes “too crowded”. In the Weekly Wrap Sunday night, I mentioned a $25 “target” so now we have company a day later. Welcome aboard “Lazard” (the brokerage firm who upgraded the shares) but the train left at $7, bro…

I don’t want to get anyone too excited but there are some traders out there guessing the stock could be worth as much as $75 a share based on sales of $3 billion or more. Whoa, Nelly! As we get closer to next Tuesday which is when we get the devil in the details, this thing could already be in the $20’s. The last thing I said was that if the data is so unbelievably good, then there is a chance we go higher than $25. The other thing to consider is the current short squeeze.

Dendreon has nearly 100 million shares outstanding and 20 million of those shares are currently sold short. I go into more detail in the trading manual on how this works but basically 20% of the “float” is short and at current calculations it would take 8 days for the shorts to cover their position based on the average daily volume.

The potential for a major “short squeeze” could come into play and this, my friends, could be the mama of all short squeezes. When short sellers get busted betting on a price drop with borrowed stock there is sometimes a mad dash to find shares in the open market. If everybody is trying to get in because of a “good news” event and short sellers are trying to buy back the stock to replace the ones they have borrowed, you have a recipe for an explosive price move.

Does anyone remember when Volkswagen zoomed over 300% in 5 days back in October 2008? That was a result of a short squeeze. Actually, the stock was up five-fold from when the short squeeze started until the time it ended. I’m not saying Dendreon will follow those footsteps but I thought it would be good story to tell this morning. Especially after there was one analyst who put a $1 share price on the stock before the news broke last week. That analyst had written a note to his “clients” with a “Sell” rating and was issued just hours before the stock was halted on Monday. Within 48 hours, the “Sell” rating and $1 price target on the stock was lifted and replaced with a “Hold” and a N/A target.

NetApp (NTAP, $17.79, up $0.20) also performed well on the heels of it being the next takeover target. The May 17.50 calls (NULEW, $1.40, up $0.30) and the May 20 calls (NULED, $0.60, down $0.30) gained some ground and both positions are up from our entry level prices. The 17.50’s are up 25% and the 20’s are up 50%. If the market continues to sell-off, protect your profits.

Okay. Here comes the curve balls. We could get stopped out of the IBM (IBM, $100.43, down $0.84) and ValueClick (VCLK, $9.28, down $0.74) trades today and keep a close eye on Olin (OLN, $14.78, down $1.19). I listened to the IBM conference call (and so can you) and was impressed with their guidance going forward. This company is going to earn $10-$11 a share in 2010, and $9.20 this year. In other words, they are talking the talk and as of late, they had been walking the walk. The stock is up 20% YTD and any pullback below $100 could find buyers. If we can get out of the woods with the stock closing at $98-$99 on Tuesday, we might be okay.

As far as our put options, the Yahoo (YHOO, $13.66, down $0.73) position started off on a good note. We set a limit price of $1.10 for the May 14 puts (YHQQP, $1.31, up $0.27) which was hit shortly after the market opened. Yahoo will report after the closing bell today.

Since we are talking about put options, I keep mentioning 800 as major support for the S&P 500 and yesterday’s 37 point drop has the index at 832. It looks like the bears were buying the May 800 puts (SPXQT, $18.80, up $9.20) which opened at $12.00 Monday morning. The May 750 puts (SPZQJ, $8.00, up $4.00) opened at $4.80 and traded 20,000 contracts. The May 700 puts (SPZQT, $3.50, up $1.80) opened at $2.15 and traded over 25,000 contracts.

I didn’t mentioned these yesterday but when you see down days like the one we had yesterday then take advantage of it. It was one of those days where you could almost feel the pulse of the market and one where you knew it could be a nasty day. The opposite is true on bullish days.

The trading manual I’m working will show you how to find trades like this and how to add them on your Watch List. Once you learn the flow of the market and how things work then you will be able to find these trades on your own. And isn’t that the whole purpose of learning to trade? Once you see money moving out of a sector, use your Watch Lists to find out where it is going.

For instance, the gold stocks did well on Monday and might be worth watching. Barrick Gold (ABX, $29.07, up $1.54) jumped nearly 6% while Goldcorp (GG, $28.20, up $1.19) gained over 4%. Barrick could be the stronger play and bulls were buying the May 30 calls (ABXEF, $1.35, up $0.50) right from the jump for 85 cents when they opened. The options gained nearly 60% for the day but don’t chase these either. Gold closed at $887.50/ ounce.

Footnote: I was stunned when I heard that stocks can down in value up to 200% and 300%. Yeah, at first, I didn’t get it either. I was watching one of the business channels early Monday morning to get a feel for the global markets to see how the U.S. market might open. One of the commentators said that while some of the banks stocks have gained 200% or more, “we have to remember that some of them have also fallen 200% and 300%”.

To clear the air, the most a stock can lose is 100% of its value. Obviously, that dude didn’t stay at a Holiday Inn Express before going on the show.

Futures are sharply lower as we head towards the opening bell..

Rick Rouse