8:40am (EST)

I’ve been talking about the Tech rally for over a month now which has helped the Nasdaq post a 6% gain YTD. Sure, some stocks deserve to trade at higher multiples than other Tech stocks but when you have good companies getting punished for great earnings while bad companies get rewarded for lousy earnings, it can be frustrating.

That’s exactly how I feel with Yahoo (YHOO, $14.38, up $0.72) right now. It’s a pretty tough job trying to outsmart the market and finding trades that work but when you get a market in transition, funny things happen.

As an option trader, one of the best ways to see if a new “trend” is developing is by looking over your trading history. For instance, in January and February I was recommending both calls and put options as the market came screaming into the New Year and started fading. Then, at the beginning of March, the call buying picked up and it has only been recently that I have thrown in a few put option plays.

After March 6th, I have profiled about 50 option trades and the win/loss record has been fantastic. In fact, there were only 10 trades for a loss which means we were right 80% of the time. In options trading, that kind of track record is what you are striving for. Actually, if that number is only 60% or 70%, then you are on well on your way to a successful option portfolio.

Of those 48 trades since the first week of March, only 3 have been put options. One of them was a put option on the PowerShares QQQ ETF (QQQQ, $32.69, up $0.45) which was stopped out at a 50% loss and the other was a Toyota Motor (TM, $76.47, up $0.68) trade which slapped us in the face for a two-day loss of 50%.

The point being is that the market is in transition while we are trying to figure which way the next move will be. Usually when that happens, I limit my exposure until we get clearer signs.

I said yesterday we are still in a trader’s market but these are the times where you have to be careful. That means tighter stops and quicker profits.

That being said, we were stopped out of Onlin (OLN, $14.14, down $0.64) yesterday. Now I know why the stock dropped 7% on Monday. In the Sunday night Weekly Wrap I had set entry prices on the May options well-below the closing price of where they had been on Friday. With Monday’s drop we were in by default. Then, on Tuesday we get another 4% drop. An analyst who covers the stock said its chemical business was hurtin’ for certain and the “chemical margins” were something I had baked into the lowered entry prices and talked about Sunday night.

When putting the trade together over the weekend, I had set an entry price of $1.20 for the May 15 calls (OLNEC, $0.50, down $0.40) which at the time was 25% lower than the $1.60 closing price from where there were on Friday. When I did the Monday morning blog, they were at 90 cents so stops should have been set at 50-60 cents.

The May 17.50 calls (OLNEW, $0.15, down $0.07) had an entry price target of 30 cents which was a 40% discount from where they had closed on Friday. So stops should have been set at 10-15 cents.

Look, these things happen and when I did the update I said we might be catching a falling knife. That was two trades on my win-loss record and I’m not happy about it. I felt good when I did the research over the weekend and how the company had reaffirmed the higher range of earnings but this “research note” was a whammy. When the news finally hit the tape, this analyst’s clients had been dumping shares for much of the past few days.

Hey, sometimes these things happen so we will see where this one ends up for bragging rights.

As far as the other positions; NetApp (NTAP, $18.04, up $0.25) is up 30% and ValueClick (VCLK, $9.87, up $0.59) is flat. We are going to give IBM (IBM, $102.31, up $1.88) and Yahoo a little more time. Yahoo is a mess but there is buzz about a takeover. The stock jumped in after-hours but gave back some gains by the 8pm cut-off. This morning, shares are higher by 35 cents in pre-market trading.

Of course, Dendreon (DNDN, $19.74, up $0.22) continues to perform well and Amazon.com (AMZN, $78.74, up $1.17) reports earnings on Thursday. Some of you wrote me and said you got in the Amazon May 90 calls (ZQNER, $1.60, up $0.05) at $1.40-$1.50 on Monday so I will keep track of the trade. The target was $1.30 but some of you couldn’t resist. The calls hit a high of $1.80 yesterday but I would set stops at your entry points and close at least half of the position before earnings if you are up.

As the market decides its next move, we may have to start using straddles or strangle option trades to help with the volatility.

Oh, before I forget, we are working hard on getting all of the trades from 2008 and 2009 from the blog into a PDF file. Once we have everything ready, I will let you know. When the portfolio is available you can go by the dates of the trades and follow why I was bullish or bearish on a stock by accessing the blog archives on the right of the page.

Stay tuned….

Rick Rouse