It was another historic day on Wall Street. Unfortunately, this is happening all too often as of late. Today's record tumble in the Market intensified after the House of Representatives voted down the $700 billion bailout legislation. By the end of the session, the Dow had its worst point loss in over 100 years of its existence.

While the early trading certainly wasn't bullish trading, the reaction to the bill failing in the House sent a shockwave across the Street. Besides the monumental drop on the indices, probably the best gauge of today's action was the VIX. The Street's fear index spiked to a record high at the closing bell with it settling at 46.72.

The jump in the VIX is bad news for our spreads because it has caused the price of our options to skyrocket. Keep in mind that we want to enter the spreads when the VIX is high and then want to see the index come down and deflate the price of the options. Obviously this hasn't happened this cycle. However, the optimistic view when looking at the weekly chart is that spikes in the index have marked a bottom in the Market. Hopefully one is just around the corner for us (preferably in the next couple of weeks).

Today's panic led to a day of extreme selling with traders selling now and asking questions later. Keep in mind this dramatic move down while the "short" ban on financials is still in effect. While traders came into the day not in love with the bailout plan, it seems that its failure to pass in the House has them now clamoring with hope that we'll see a re-vote later in the week. Right now it looks like they'll take it up on Thursday.

There weren't too many safe places for investors to hide in today's trading. From tech to commodities, everyone was hitting the sell button across the board. The only haven was in the Treasury market or gold.

The Nasdaq appeared to lead the indexes lower with its 9.14-percent decline today, marking its third worst percentage decline in its history. Unfortunately for us, Apple was one of the instigators of the decline early in the session. We find the best way to explain the move in Apple today was a post by Jim Goldman on CNBC.com (listed below).

It's not often--like almost never--that you see a downgrade parade like the one for Apple this morning, that doesn't follow earnings or some kind of catalyst.

But such is the case today for Apple, from the likes of RBC Capital , Morgan Stanley and Barclays (though Barclays merely reinitiated with a lower price target.) Morgan Stanley took its target from $178 to $115. RBC went from $200 to $140.

So why now, why all of a sudden and why so much pessimism around these shares?

Well, first things first: fundamentals be damned. I don't think this is necessarily about what Apple itself might be doing wrong. It seems to be far more "macro" than "micro." I spoke to one analyst this morning who says the economy is such a mess right now with so much concern about the consumer, that a year from now no one wants to look back and say "how could you have possibly missed that?" Whether Apple products are still selling well or not.

In essence, Apple was a casualty of the environment that we now find ourselves in. Of course, Apple wasn't our only concern today as our MNX spread also went underwater and the rest of the positions aren't sitting that far off.

The bright side for us is that we have plenty of time left in this option cycle. With the option prices inflated because of the anxiety, we feel that our best plan of attack is to ride out this week's volatility and wait for the inevitable snap back in the Market that should be coming. Of course this could always change if we continue in a free-fall.

If our strategy changes, we'll send out an alert. But for now, let's try to sit on our hands and ride out the hurricane that we now find ourselves in the middle of. Below we are going to list some charts of the indices and our current positions. We are doing so without any commentary because we mentioned above that our battle right now is the trading environment itself. As of tonight, the futures are looking positive, probably because today's selling was dramatically overdone.

Dow Jones Industrial Average Monthly Chart

S&P 500 Monthly Chart

Nasdaq Composite Monthly Chart

CURRENT OCTOBER SPREADS

MNX 160-155 BULL PUT SPREAD (15 contracts entered on 09/12/08)

$50.00 per contract profit potential (put spread)

AAPL 125-120 OCTOBER BULL PUT SPREAD (15 contracts entered on 09/11/08)

$60.00 per contract profit potential (put spread)

RUT 650-640 BULL PUT SPREAD (10 contracts entered on 09/22/08)

$80.00 per contract profit potential (put spread)

As always, Trade Happy and Trade Smart

The Market remained in check on Friday but all eyes were intensely focused on Washington D.C. With negotiations in Washington on again off again, traders seemed to be counting on something getting done this weekend. These expectations kept most traders from wanting to bet against an upward surge in the Market. This helped two of the major indices rise for a second straight session on Friday, but it didn't lead to any gains for the week.

Despite equity traders giving the politicians the benefit of the doubt, the credit markets didn't seem to give them the same grace. Perhaps it was the fear factor, which kept traders flocking to the safety of Treasurys. The high demand dropped yield sharply early in the day, but at the end of the session the one-month bills were just under 0.3-percent. It didn't matter that there was hardly any return on purchasing these bills because investors were more concerned about capital preservation. The longer time frame 10-year Treasury was certainly better, but nothing to write home about with a yield of only 3.84-percent. Meanwhile the 30-year bond moved up slightly to a yield of 4.361-percent.

The fear was still evident in the commercial paper on Friday with credit becoming nearly non-existent. At the same time, the credit default swaps still showed intense fear of more collapsing financials.

This doom and gloom continued to drive up the price of gold. It jumped another $5.20 on Friday and closed at $882.90 an ounce. Meanwhile, the dollar fell against the yen but rose against the euro.

On the economic front, the Commerce Department lowered its estimate for second-quarter GDP (gross domestic product) down to 2.8-percent. The agency originally reported a reading of 3.3-percent for the quarter.

Today's Economic Reports

The big drag on the Nasdaq premarket was the poor news out of Research in Motion. The company disappointed the Street with its second quarter earnings that were slightly below expectations. Not to mention projections for the next quarter that were also below analysts' projections. But the main reason the stock tumbled 27.5-percent was that the Street was concerned about the company's transition into the consumer market from its corporate market focus. Analysts started raising red flags about the possibility that RIMM would be facing tighter margins and a spending increase. Regardless of the cause, the effect was a huge downdraft at the opening bell on all tech stocks.

Of course there was anxiety in the financials as the largest bank in the country, Washington Mutual, was taken over by the government who turned around and sold it to J.P. Morgan. This weekend it looks like Wachovia is the next one facing the possibility of failure. According to reports, the bank has been holding talks with multiple firms in an attempt to sell itself. The stock dropped 27-percent on Friday with investors worried about the company's high number of mortgages.  

Also moving down on Friday was the price of crude. It shed $1.13 and settled at $106.89 a barrel on the New York Mercantile Exchange.

The Dow Jones Industrial Average was able to gain 121 points on Friday and finish the session at 11,143. However, it still lost 245 points on the week, which was a 2.2-percent decline over the five sessions. The Dow closed just below an old support level on the chart, which might cause the index some problems if there's not a resolution on Capitol Hill. So far on the year, the Dow is off 16-percent.

The S&P 500 also was able finish in the green on Friday with a 4-point gain. This took the index up to 1,213 and an old support level on the chart. Despite its gains on Thursday and Friday, the index still lost 3.3-percent last week and remains off 17.4-percent on the year.

The Nasdaq Composite wasn't as fortunate as the other two indexes on Friday. Instead of a gain, it lost 3 points and finished at 2,183. For the week, it gave back 90 points and remains down 17.7-percent on the year.  

After pulling back on Wednesday and Thursday, the VIX (Chicago Board Options Exchange Volatility Index) shot up 1.92 points on Friday and settled at 34.74. With the unease felt everywhere on the Street, the VIX has held steady at an extremely high level. Unless there is some clarity coming out of Washington, it's likely to remain elevated on the chart.

With everyone counting on a bailout being around the corner, the Market sat in a holding pattern towards the end of the week. While the trend has certainly been lower, the sharp jump in stocks just a week prior (when word of a bailout hit the Street) tells us that the Market will get a big pop once the plan is approved. This is the reason we've held off just rolling out a bunch of new call spreads. At the same time, this is precisely why we've ridden out the pressure that we've been facing in our put spreads.

Our thought is that the unveiling of the plan will ignite a very good rally across the board. However, we're not sure if this will be a lasting trend. Instead, stocks will likely get a big boost and then settle into a range bound pattern until the economic data comes back into play. Of course, this could easily change if the current plan makes a big detour or we get more unforeseen casualties in the Market.

Of course, the unveiling of the plan tonight has not caused futures to skyrocket. Instead, we haven't seen that much of a reaction so far. According to newly released details on Sunday night, it appears that the Treasury is getting its $700 billion, but it's going to come in two tranches with half of it coming immediately. However, it appears the Treasury is going to have the authority to set up the mechanics of the operation while having the ability to decide what assets to buy. This clarifies that the Treasury will have the authority to purchase more than just mortgage-related assets if need be. It also will have the ability to help a full range of financial related institutions, not just banks.

However, Congress is setting some restrictions for the Treasury. It has a "golden parachute" provision for firms that participate. It also allows the government to recoup funds from executive bonuses that might have been awarded from misleading financial statements. We would like to know if this will apply to Fannie and Freddie? This is where we would start! Also in the proposed legislation, the government would get non-voting common stock or preferred stock in firms that participate in the program. There would also be an oversight committee for the new program.

Keep in mind that the main goal of the bailout is the government replacing toxic debt on balance sheets with a big cash infusion. At the same time, the move by the government should help to increase the value of these assets, which in turn would attract some private money to come in and also purchase these assets. Hopefully, the result would be that financial institutions could in turn take those funds and start lending money to get the liquidity back in the system.

Despite the good news tonight, there is also some unrest in the world markets after a major European bank nearly collapsed over the weekend. European bank Fortis got a lifeline from three different governments that agreed to bailout the lender. This just shows that the problems in the system are a worldwide issue.

With so much uncertainty on Monday's reaction, we're gong to sit tight in our current spreads for tomorrow morning. After we get a good sense of how things are going to pan out, we'll probably come back with a couple new trades on Monday or Tuesday night. Until then, let's sit tight and keep a close eye on everything taking place.

CURRENT OCTOBER SPREADS

MNX 160-155 BULL PUT SPREAD (15 contracts entered on 09/12/08)

$50.00 per contract profit potential (put spread)

MNX faltered on Friday, after two straight positive sessions in a row. The index spent the final trading day of the week much lower than its $1.56 loss at the close. That's the positive aspect of Friday's session for the index. It closed near its high at $167.20, which puts the MNX over 7 points above our put spread with three weeks left in this cycle. Although it's not an ideal situation, we'll take it compared to where it was sitting earlier in the week.

AAPL 125-120 OCTOBER BULL PUT SPREAD (15 contracts entered on 09/11/08)

$60.00 per contract profit potential (put spread)

Apple fell below our "short" strike price on Friday, but was able to gain some strength during the session. It finished well above its opening price, however, it still lost $3.69 on the day. Apple's 2.80-percent loss on the final trading day of the week left the stock just above our put spread at $128.24. Our $125 strike price continued to be strong support for the stock last week, but we're going to need something to light a fire under this stock in order to get Apple moving north again. For now, let's sit tight and see what unfolds this week.

RUT 650-640 BULL PUT SPREAD (10 contracts entered on 09/22/08)

$80.00 per contract profit potential (put spread)

The Russell 2000 had an ugly start to the week, but was able to stabilize on Thursday and Friday. Although it lost $0.95 on Friday, it closed at its high of the session while producing only a mere fractional loss. Keep in mind that it was dramatically lower intraday. The question now is: did Friday's candle marked a bottom for the index? As we said earlier, the answer is certainly going to be out of our hands and more likely in the hands of Washington. Despite this, we still have a decent cushion of over 50 points in this spread with the RUT sitting at $704.79.

As always, Trade Happy and Trade Smart

All eyes are on Washington D.C. With anxiety still at extremely high levels, the trading has been all over the board this week as traders anxiously await a decision out of Congress. The fear on the Street was evident in the credit markets this morning when liquidity started to dry up to levels that we saw last Thursday. At the same time, investors flocked once again to Treasuries, which brought down the yields. Until things start to get settled in Washington, we are likely to remain in very choppy waters on Wall Street.

The Market got an early boost this morning from news that Warren Buffett's Berkshire Hathaway was taking a $5 billion stake in Goldman Sachs. The action gave a boost to confidence in the financial system that perhaps we are nearing a turning point in the financial crises. Buffett said that he made this investment because he believes that Congress was going to approve the bailout. He also said that ""If I didn't think the government was going to act, I would not be doing anything this week." Instead, he said if Congress wasn't going to approve the bailout he would likely be trying to undo things this week.

Existing home sales for August came in as expected for the month of August with a 2.2-percent drop. According to the National Association of Realtors, sales are on pace to reach 4.91 units on an annual basis. Perhaps the best news in the data was the inventory of unsold homes dropped to a 10.4 month supply, which was down from 10.9 months in July. However, the report also showed a decline in median home prices to $203,100 for August, which brings the price down 9.5-percent over last year's median price.

In its weekly inventory report, the Energy Information Administration announced a 1.5 million barrel drop in inventories. The drawdown was less than expected, but brought the weekly supply down to 290.2 million barrels. During the same period, gasoline inventories also dropped by 5.9 million barrels, which was more than analysts had expected. The EIA also informed the Street that refineries were only running at 66-percent last week due to issues relating to Hurricane Ike. The price of oil ended the session down $0.88 at $105.73 a barrel on the New York Mercantile Exchange.

Today's Economic Reports

It was "easy come, easy go" for the Dow Jones Industrial Average this week. After making huge gains at the end of last week, the large-cap index has given back most of those gains this week and appears to be headed back towards last Thursday's low. Today's trading wasn't quite as negative as the first two days of the week, but the Dow still lost 29 points and finished at 10,825. The next decent support level for the index appears to be at 10,600.

The S&P 500 wasn't quite as negative in today's session, but it still lost 2 points and closed at 1,185. The index remains above last week's low, but is still drifting lower towards those levels.

The Nasdaq Composite held up the strongest in today's session and was actually able to finish the day in positive territory. The index closed up 2 points at 2,155. But even with this gain, the Nasdaq has lost all of Friday's advance and has been faltering on the chart.

In Sunday's newsletter we were very concerned about how the VIX (Chicago Board Options Exchange Volatility Index) closed out trading on Friday. It appears that was a precursor for the rise in the index this week. It has worked its way back up the chart and is sitting near the same levels we were at towards the end of last week. With the VIX sitting at 35.19, it's very evident that the fear remains at extremely high levels.

Traders spent most of the day focused on Congressional hearings involving the $700 billion bailout. With legislation currently up in the air, traders were unwilling to take any type of a bet in either direction. The prospect of Congress passing legislation has kept the indices in check. But if it appears that it's going to be held up for change dramatically, things could once again turn ugly very fast. With so much at stake, we just can't see the government not taking action. There's just too much downside risk to the economy by not acting.

With the President calling a bipartisan meeting at the White House tomorrow, the Street will be looking for some major progress. We expect the Market to give leaders a day or two more. But if nothing is done by Sunday night, it could get very ugly on Monday morning. With this in mind, we're going to sit tight for now instead of issuing new spreads. We certainly don't want to come in with any call spreads because last week we saw how fast and furious the Market will rally if something is worked out. On the other hand, if Washington goes back to business as usual and can't get a deal done, we could easily go down another few thousand points in a heart beat. For now, let's sit tight and see what unfolds over the next few days.

CURRENT OCTOBER SPREADS

MNX 160-155 BULL PUT SPREAD (15 contracts entered on 09/12/08)

$50.00 per contract profit potential (put spread)

After sliding sharply over the first two sessions of the week, the MNX was able to gain $1.29 in today's trading and close at $166.13. Although it was nice to see the index make back some of its losses, it still remains weak and near its low from last week. After today's close, we are left with a cushion of just over 6 points in our put spread. Our plan is to sit tight in this spread and prepare for some more downward pressure on our "short" strike price.

AAPL 125-120 OCTOBER BULL PUT SPREAD (15 contracts entered on 09/11/08)

$60.00 per contract profit potential (put spread)

Apple was able to move to the upside in today's trading and finish the session up $1.87 at $128.71. Similar to our MNX spread, this one is also breathing down our put spread with only a little over 3 points of breathing room in this position. The question now is whether it can actually make it two days in a row to the upside. Even if it does, we definitely expect some more wild swings and additional pressure on our put spread. Just like the MNX, we are going to buckle our seatbelts tight and get ready for the bumpy ride.

RUT 650-640 BULL PUT SPREAD (10 contracts entered on 09/22/08)

$80.00 per contract profit potential (put spread)

The Russell 2000 followed up last week's gain with three ugly sessions this week. This downward spiral has taken the index through plenty of old support levels including its 50-day moving average (red line). In today's trading, it shed $11.42 and closed at $697.77. Wednesday's 1.61-percent decline easily outpaced the major indices to the downside. While this has eaten into a lot of cushion, the index is still sitting almost 50 points above our put spread. We'll continue to monitor this position closely as it closes in on more key support levels.

As always, Trade Happy and Trade Smart

The events that unfolded were simply Unbelievable. Last week was something that not even the oldest and wisest traders have ever seen before, a Market that was teetering on collapse. This led to the U.S. Government stepping in with an attempt to stabilize the Market and prevent the troubles on Wall Street from spreading to Main Street. Not to mention the fact that the crisis was spreading worldwide.

Although the Market handled the failing of Lehman Brothers and the government takeover of AIG earlier in the week, there started to be a mass panic on Thursday when investors were pulling funds from money market mutual funds. Not only were individual investors redeeming their funds, institutional money such as pension funds and sovereign wealth funds were also pulling their money out. According to some figures, there was a record $145 billion that was being liquidated on Wednesday. The money markets that were once thought of as being extremely safe were now showing investors' losses on their money. But more importantly, the freeze up in the money market posed an extremely serious risk for banks which use these funds for their short-term loans. Without a functioning market, commercial paper also started to fail, which provides businesses with the funds they need to operate. This is where it would spread to Main Street with real businesses and dire consequences for the worldwide economy.

With markets continuing to freeze up on Thursday, Treasury, Federal Reserve, and SEC officials saw extremely serious repercussions for the whole economy. This caused them to call an emergency meeting with leaders of Congress in order to take massive government intervention in the financial markets. According to members at the meeting, Federal Reserve Chairman Bernanke gave a chilling description of current conditions in which he told lawmakers that if they didn't take action they would risk an uncertain fate. Treasury Secretary Paulson wanted Congress to authorize a plan that would allow the Treasury to create a new facility to hold auctions and buy up distressed assets from financial institutions, taking the toxic mortgage-backed securities off the balance sheets. According to those at the meeting, Paulson told lawmakers that, "If it doesn't pass, then heaven help us all."

The Fed acted before U.S. markets opened on Friday, effectively coming to the rescue of the money-market mutual-fund industry by opening its discount window to the industry through the use of commercial banks. The Fed announced that it would lend over $200 billion against the now illiquid asset-based commercial paper.

At the same time, the SEC stepped in to take action against the now infamous short sellers. In the recent weeks, numerous investment-bank CEOs have complained that short sellers were causing the collapse of their stock price. Of course, this is the same excuse that Enron was giving us in the not too distant past. On Friday, regulators imposed a temporary ban on shorting 799 financial stocks over the next ten days but that could be extended for another 30 days. This was the same action that Europe took a day earlier.

But this action has many wondering if the rally on Friday was artificial because it was a one-sided market. In effect, there was the inability to take the other side of the trade, while also reducing market liquidity. Keep in mind that regulators attempted to take the same action to save Fannie Mae and Freddie Mac, but how well did that turn out?

There's also another aspect that the SEC didn't even discuss on Friday, which is the use of credit-default-swaps (CDS). This is where the buyer of a credit swap receives credit protection, and the seller of the swap guarantees the credit worthiness of the product. By doing this, the risk of default is transferred from the holder of the fixed income security to the seller of the swap. But these are derivatives that aren't traded on public markets. Because of the lack of transparency and possible increase in volume (due to the ban on short selling) analysts are concerned about CDSs being the next problem for the financial markets.

Of course, there was already some collateral damage done to the options market due to the shorting ban. On Friday, several option-market makers announced that they will stop trading options on financial stocks. This was because the shorting ban made it impossible for them to hedge their option positions (normally they would just short shares of stock for the hedge of selling options).

There were also problems with some ETFs on Friday related to the financial sector. For example, the ProShares Ultra Short Financials (SKF), which gives traders the essence of being short the financial sector through the use of derivatives, had to suspend trading on Friday due to the surge in volume. The company has announced that it will not issue new shares after this issue, thus limiting any future use as a hedge. Keep in mind that these are just a few of the many side effects caused by the government's intervention on Friday. Of course, if it salvages the financial system, then perhaps these issues are quite minute in consideration of the alternative.

We now know the government's plan for rescuing the financial markets. The Street will now be closely monitoring Capitol Hill to see if the early bi-partisan action will continue this week. Unless there is quick action, it could be another wild ride.

The rest of the news from last week certainly was a non-event compared to what we already discussed. But there was renewed strength in oil prices last week, despite falling demand. On Friday, it climbed $6.67 and finished the session at its highest level in over two weeks. Crude finished the day up 6.8-percent at $104.55 a barrel on the New York Mercantile Exchange. This move was in spite of a report from the U.S. Energy Information Administration that showed that demand had fallen by more than 4-percent from last year.

After making a record surge higher last week, gold pulled back on Friday. The easing in anxiety surrounding the world markets led to a $21.10 decline in gold. It settled at $875.90 an ounce in New York trading. Meanwhile, the dollar finished the session mixed on Friday. The dollar fell against the euro to $1.4475 while it rose against the yen to 107.10.

Today's Economic Reports

The Dow Jones Industrial Average shed 449 points on the session and finished near a three year low at 10,609. All thirty components finished the day in the red, which wasn't too surprising considering that the index is already down over 7-percent on the week.

The S&P 500 got crushed in today's session with its 4.7-percent loss. The 57-point decline took the index down to 1,156. With this loss, the S&P is leading the other two indexes into negative territory this week with its 7.6-percent loss over the first three sessions.

The Nasdaq Composite lost 109 points and closed at 2,098. The 4.9-percent tumble took the index through multiple support levels and closed on its low of the session. Similar to the other two indexes, the Nasdaq is down over 7-percent so far this week. This was the largest point decline in the Nasdaq since the days following 9/11.

Last week was an amazing run in the VIX (Chicago Board Options Exchange Volatility Index). It topped the 42-point level during trading on Thursday until word leaked out of the possible Fed bailout. This helped lower the anxiety and caused a bull stampede. Friday it continued its fall, but closed well off its low of the session. On the day, it declined 1.03 points and settled at 32.07. It was encouraging to see it move lower, but its close near its high of the session was not a good sign for this week.

The weekly chart for the VIX shows the extreme move the index made last week. Fear hit a level that we haven't seen since 2002. The elongated shadow on the top of last week's candle is a bearish sign, but based on the daily chart we're hesitant about any predictions for the upcoming week.

We all know that initial reaction to the government's rescue plan was a mere 1,000-point U-turn on the Dow. The likes of which has our necks still in pain over the massive whiplash that we suffered last week. It also did significant damage to our trading accounts last week. After all, if the government could have announced their plans just a little bit earlier, it would have saved us a lot of greenbacks. We don't mind trading off of fundamentals or technicals, but it becomes very difficult to trade against government intervention. I guess it needed to live up to the notion that it's "lender of last resort."

Because of the massive trading volume the last two days of the week, we're still waiting for a few of the brokers to give us final tallies on our fills from Thursday and Friday. It's quite understandable considering what took place in the Market. Of course, we certainly don't need the exact numbers to know how painful the month was. As one member's email put it, "we just couldn't catch a break this month." That pretty much sums up this cycle for us. The end result was some of the most significant losses that we've ever encountered. With that said, let's go ahead and take a look at the totals that we do know as of today.

EXPIRED SEPTEMBER SPREADS

RUT 650-640 SEPTEMBER BULL PUT SPREAD (10 contracts entered on 08/21/08)

$60.00 per contract profit (put spread)

GOOG 370-360 SEPTEMBER BULL PUT SPREAD (5 contracts entered on 09/10/08)

$55.00 per contract profit (put spread)

CLOSED SEPTEMBER SPREADS

GOOG 440-430 SEPTEMBER BULL PUT SPREAD (10 contracts closed on 09/09/08)

$625.00 per contract loss (put spread)

AAPL SEPTEMBER BULL PUT SPREAD (15 contracts closed on 09/11/08)

$390.00 per contract loss (put spread)

MNX 180-175 SEPTEMBER BULL PUT SPREAD (15 contracts closed on 09/11/08)

$329.00 per contract loss (put spread)

GOOG 460-470 SEPTEMBER BEAR CALL SPREAD (5 contracts closed on 09/19/08)

Waiting for closeout costs (call spread)

AZO 120-115 SEPTEMBER BULL PUT SPREAD (15 contracts closed on 09/19/08)

Waiting for closeout costs (put spread)

While we don't know that final tally, we do know that it was ugly. But that gives us very little to dwell on as to what could have been or what should have been. Instead, let's take a look at where we're sitting now and how do we get back on track for next month. The huge rally on the final two sessions helped give us back some breathing room in two of our October spreads, which was definitely needed.

On tomorrow's open, we are going back to the RUSSELL 2000 INDEX (RUT). This spread has been money in the bank for us over the last several months and we believe it has another good setup for us this month. As a matter of fact, we are coming back with the same exact put spread that we entered last month. Once again, the strike prices will be at very conservative strike prices which should help us if there are any more wild swings in the Market. The small-cap index has easily outpaced the major indices this year and remains only down a little over 1-percent for 2008. Last week, it posted a strong 4.6-percent gain while the major indices barely budged.

Please Note: This is a limit order and day order.

NEW TRADE ALERT (1)

RUSSELL 2000 INDEX (RUT)

OPENING 650-640 OCTOBER BULL PUT SPREAD (10 contracts)

Sell 10 October Puts at 650 strike price

Buy 10 October Puts at 640 strike price

Total Credit 0.80 per contract

Potential Profit $800.00

RUT DAILY CHART

CURRENT OCTOBER SPREADS

MNX 160-155 BULL PUT SPREAD (15 contracts entered on 09/12/08)

$50.00 per contract profit potential (put spread)

After giving us an ulcer on Thursday, the MNX finally reversed with a wicked U-turn intraday. Friday the index tacked on another $4.77 to the upside and finished the week at $174.51. This puts the MNX just a little short of where we started last week. We would like to say that we now have a comfortable 14-point cushion in this spread. But we now realize that is probably about enough breathing room for two sessions. Let's see how things play out this week.

AAPL 125-120 OCTOBER BULL PUT SPREAD (15 contracts entered on 09/11/08)

$60.00 per contract profit potential (put spread)

Apple also dipped below our "short" strike price on Thursday before the unbelievable reversal. On Friday, it gained another $6.82 and closed at $140.91. The question now is whether this rally has any steam left in it. We now have a safety net of over 15 points in this spread, but that doesn't give us much relief in this type of trading environment. The company was in the news on Friday when it reported that it will exchange power adapters sold with 3G iPhones for a new redesigned adapter due to risk of electric shock. The company said it received reports about metal prongs breaking and remaining in a power outlet. We'll see if this has any effect on the stock price this week.

As always, Trade Happy and Trade Smart

Google has moved higher and is pressuring our September call spread. Due to this, we are going to close out the call spread.

Please Note: The closing out of the current call spread only applies to those members in this position.

GOOG TRADE ALERT

Google Inc. (GOOG)

CLOSING 460-470 SEPTEMBER BEAR CALL SPREAD (5 contracts)

Buy 5 September Calls at 460 strike price (calls we previously sold)

Sell 5 September Calls at 470 strike price (calls we previously bought)

We suggest using a Market Order to get filled quickly

AZO has continued to weaken this morning. Due to this, we are going to close out the September Bull Put spread.

Please Note: The closing out of the current bull put spread only applies to those members in this position.

AZO TRADE ALERT

AutoZone Inc. (AZO)

CLOSING 120-115 SEPTEMBER BULL PUT SPREAD (15 contracts)

Buy 15 September Puts at 120 strike price (puts we previously sold)

Sell 15 September Puts at 115 strike price (puts we previously bought)

We suggest using a Market Order to get filled quickly

The Fed takes over AIG, but fear sweeps the Street. After two days of speculation, the government stepped in to bailout AIG late Tuesday night. While the futures market initially spiked after the announcement, by the time the opening bell rang stocks were heading the other direction....in a hurry.

After spending yesterday's session on death watch, the government threw AIG a lifeline late last night. However, there's still a lot up in the air as to the structure of the $85 billion bailout because the government has attached plenty of strings that will now put the taxpayer in control of the company's future. Evidently, the deal will give the federal government close to an 80-percent stake in the company, essentially putting the taxpayer in charge of one of the world's largest insurance companies. Of course as taxpayers, we're already in charge of one-half of the mortgage industry with our stakes in Fannie and Freddie. There's also plenty of unrest on the Street because of the Fed's decision to not take a similar action as when the 158-year-old Lehman Brothers Holdings failed.

With the dollar falling and uncertainty in the Market, traders ran to the safety of gold, which boosted the commodity to its biggest one-day gain ever. It jumped $70 an ounce to settle at $850.50 in the regular session. However, traders didn't stop there as it spiked even higher in after hours trading, hitting over $870 after the closing bell. It will be interesting to see if this continues rising overnight as investors run to security.

In an attempt to cut down on short sales, the SEC issued new rules that will make it hard to short stocks. The new rules that require stricter action on broker dealers, will attempt to limit the profit that traders can make when stocks fall in price. The CEOs of troubled financial stocks have long claimed that abusive naked short selling has increased the pressure on their stocks and caused them to fall precipitously. We see this new ruling as only a token gesture and will have little if any real effect on the pressure that these stocks have faced. If the SEC was serious about this matter, they would reinstitute the uptick rule.

UPTICK RULE

A former rule established by the SEC that requires that every short sale transaction be entered at a price that is higher than the price of the previous trade. This rule was introduced in the Securities Exchange Act of 1934 as Rule 10a-1. The uptick rule prevents short sellers from adding to the downward momentum when the price of an asset is already experiencing sharp declines. The SEC eliminated the rule on July 6, 2007.

In an attempt to fend off the hard selling in its stock, investment bank Morgan Stanley announced its quarterly results a day early. Although it over-performed by beating analysts expectations handily, the stock got crushed in today's trading along with the other remaining independent broker Goldman Sachs, who came through with very good earnings itself just a few days ago. Both stocks were sold hard in today's session with the Street's distrust of these companies' balance sheets.

While the credit crisis has certainly rocked the U.S. Market, it really is a worldwide problem. In Russia, the Micex Stock Exchange was stopped from trading for the second straight session by the government after the index lost 10-percent within an hour. This comes after it lost 17-percent yesterday.

On the U.S. economic front, the embattled housing market continued its stretch of gloomy news on Wednesday when new home construction fell to a 17-year low. According to the Commerce Department, new homes declined by 6.2-percent in August. This number adjusted to an annual rate comes in at 895,000.

U.S. oil supplies fell by a larger-than-expected 6.3 million barrels last week. The weekly oil inventory report by the Energy Information Administration was much bigger than the 3.7 million barrel decrease that analysts had predicted. Meanwhile, gasoline inventories fell by 3.3 million barrels to 184.6 million barrels last week. On the session, oil jumped $6.01 and settled at $97.16 a barrel on the New York Mercantile Exchange.

Today's Economic Reports

The Dow Jones Industrial Average shed 449 points on the session and finished near a three year low at 10,609. All thirty components finished the day in the red, which wasn't too surprising considering that the index is already down over 7-percent on the week.

The S&P 500 got crushed in today's session with its 4.7-percent loss. The 57-point decline took the index down to 1,156. With this loss, the S&P is leading the other two indexes into negative territory this week with its 7.6-percent loss over the first three sessions.

The Nasdaq Composite lost 109 points and closed at 2,098. The 4.9-percent tumble took the index through multiple support levels and closed on its low of the session. Similar to the other two indexes, the Nasdaq is down over 7-percent so far this week. This was the largest point decline in the Nasdaq since the days following 9/11.

With fear running rampant on the Street, the VIX (Chicago Board Options Exchange Volatility Index) spiked 5.92 points in today's session and settled at 36.22. The daily chart below shows how the index easily took out July's high and then moved beyond the March high. The troubling part about these two previous highs is that on the day of reversal, we had nice reversal candles. This was not the case in today's trading. Instead, it suggests another move up in tomorrow's session.

To give us a better historical perspective, we're going to take a look at the VIX on a monthly chart. This shows that we have now surged to levels that we've rarely seen in the last two years. As a matter of fact, we've come nowhere close to these levels from 2003 to 2006. But, these are areas that we often frequented in the late 90's. We'll have to wait to see if it's a return to the wild volatility of the 90's or just a big spike that gives us a Market bottom. One thing is for sure, we need to buckle our seatbelts tight because it's going to be a wild ride the rest of the week.

Even after the close, it's been another action packed night of news. The pressure on financial institutions worldwide is evident with the U.K.'s two largest banks announcing a merger. Mortgage problems on their balance sheets have caused HBOS and Lloyds TSB to team up in order to avoid collapsing.

Meanwhile, reports tonight are saying that Morgan Stanley has been shopping itself around. Apparently it has had discussions with both Wachovia and a Chinese bank in an attempt to protect itself from fate that hit Lehman Brothers. At the same time, the country's largest savings and loan, Washington Mutual, is also shopping itself to Wells Fargo and Citigroup. One thing is certain, the amount of firms left standing after this crisis will be much fewer.

We came through today's trading still standing, but we certainly weren't able to avoid the pain that everyone else suffered. However, if we are able to avoid two more sessions like today, we should be in decent shape in our September spreads. Of course, that's a big IF based on the first three sessions of the week. For now, keep a very close eye on your email for any alerts in our September spreads heading into the final two trading sessions of the week. In our October spreads, our current plan is to ride out this week's move and then re-evaluate where we stand after this week's expiration. Of course, this could always change on a moment's notice.....especially in this Market. 

CURRENT SEPTEMBER SPREADS

CLOSED SEPTEMBER SPREADS

AZO 120-115 SEPTEMBER BULL PUT SPREAD (15 contracts entered on 08/21/08)

$50.00 per contract profit potential (put spread)

AutoZone wasn't able to withstand the downturn this week. Yesterday, the stock was able to close above its 50-day moving average (red line), but today's trading took it sharply below this line. AZO gave up $5.44 and closed at $128.19. Even with this downturn, we are still sitting with an 8-point cushion with two more days left. The key is for us to avoid two more sessions like we saw today. Let's keep an eye on it but our goal is to make it to the finish line with this one intact.

RUT 650-640 SEPTEMBER BULL PUT SPREAD (10 contracts entered on 08/21/08)

$60.00 per contract profit potential (put spread)

The small-cap index put together a very nice rebound yesterday, but then gave it all back and then some with today's 4.82-percent decline. The 34.27-point loss takes the index down to $676.38. Despite this loss, we're still sitting in decent shape in our put spread with only one full trading session left in this cycle. Keep in mind that this index settles on Friday's open. However, one more session like today would certainly not be good for our spread. With the index sitting 26 points above our position, we are going to keep a very close eye on this index tomorrow. If it shows stronger selling, keep a close eye on your email for an adjustment in this one.

GOOG 460-470 SEPTEMBER BEAR CALL SPREAD (5 contracts entered on 09/09/08)

GOOG 370-360 SEPTEMBER BULL PUT SPREAD (5 contracts entered on 09/10/08)

$70.00 per contract profit potential (call spread)

$55.00 per contract profit potential (put spread)

Today's action in Google wasn't all that bad for our iron condor. Yesterday it appeared that the stock was going to be putting some pressure on our call side. But today's drop of $28.44 took the heat off that spread and put the stock back in the middle of our position at $414.49. With two days left in this position we're actually sitting in pretty good shape. The important thing is to avoid two more consecutive positions like we encountered today.

CLOSED SEPTEMBER SPREADS

GOOG 440-430 SEPTEMBER BULL PUT SPREAD (10 contracts closed on 09/09/08)

$625.00 per contract loss (put spread)

AAPL SEPTEMBER BULL PUT SPREAD (15 contracts closed on 09/11/08)

$390.00 per contract loss (put spread)

MNX 180-175 SEPTEMBER BULL PUT SPREAD (15 contracts closed on 09/11/08)

$329.00 per contract loss (put spread)

CURRENT OCTOBER SPREADS

MNX 160-155 BULL PUT SPREAD (15 contracts entered on 09/12/08)

$50.00 per contract profit potential (put spread)

After moving out of our September spread and into October, we find ourselves taking some heat again after today's $9.16 loss in the index. However, unlike the September spread we now have a lot of time left in this cycle and plenty of time for the index to find its footing. We certainly don't like letting an index get this close to our strike prices, but with the MNX sitting at $163.25, we are going to give the Market a little bit of time to stabilize. Let's buckle up tight and not get spooked out of this position.

AAPL 125-120 OCTOBER BULL PUT SPREAD (15 contracts entered on 09/11/08)

$60.00 per contract profit potential (put spread)

It has been a terrible week for Apple, and the bad part is that we have two more session to go. The stock has tumbled $21.11 so far this week, taking the stock down to $127.83. Over one-half of the stock's loss was in today's trading when it lost $12.05 or 8.61-percent. The stock is now closing in on very strong support levels from February, which is precisely why we placed our strike prices at $125 and $120. As we mentioned before, we are expecting a strong bounce back and believe when the dust settles, we'll be ok in this one.

As always, Trade Happy and Trade Smart

The Street remains on edge with financial giants dropping like flies. Global fears intensified this weekend that Lehman Brother's collapse would stagger markets and undercut confidence in the U.S. financial system. At the same time, trouble at AIG and Washington Mutual also caused shockwaves around the world. Of course, we're getting used to Sunday nights being big on news and this week is no different.

Last week it was the collapse of Fannie Mae and Freddie Mac that kicked off the trading week. This week there's a much longer line of firms asking for help from Uncle Sam. Front and center in the financial meltdown this week is Lehman Brothers. All weekend long there were reports of multiple companies having serious conversations with the LEH and the federal government. But one by one each one seemed to fall through, leaving the company's future up in the air. Evidently, the government isn't interested in backing another Bear Stearns style bailout. It's very possible we could wake up to news that Lehman has filed for bankruptcy protection. This anxiety has sent futures straight down with expectations of a major fallout tomorrow morning.

Besides the problems with Lehman Brothers, two other companies were on the Fed's radar screen this weekend. According to reports, the assembled regulators were also very concerned about the severe losses at American International Group Inc. and Washington Mutual Inc. Both AIG and WaMu have encountered severe losses and are struggling to obtain enough cash to shore up their balance sheets. Reports out of AIG this afternoon point to a major restructuring plan being released tomorrow morning, which will include the disposal of major assets.

With everyone running to the Federal government with their hands out, the big three automakers might be the next in line. According to reports, Ford Motor is close to obtaining $25-billion worth of low-interest loans from Washington. If this plays out, don't be surprised to see the other two in line behind them.

Meanwhile, it appears that Bank of America has rushed in to pick up Merrill Lynch for around $44 billion, according to reports Sunday night. Evidently the deal has been worked out over the last 48 hours and both boards have approved the deal that prices Merrill for around $29 a share.

Oil continued to struggle on Friday, even in the face of Hurricane Ike bearing down on the Gulf of Mexico. It briefly dipped below a $100 a barrel during the session for the first time in five months, but gained $0.31 and settled at $101.18 a barrel on the New York Mercantile Exchange. Friday's minimal gain was quite remarkable considering the production shutdowns in the gulf. Oil producers will be surveying the damage this week, which should have an affect on the price. Analysts predicted ahead of the storm that at least 20-percent of the refining capacity could be shutdown for an extended period of time. However, Friday's small advance just shows that even production shutdowns have done very little to counteract the drop in demand, which will probably continue to bring down the price of crude.

There was actually good news on the inflation front when the Producer Price Index fell 0.9-percent in August. This number was much lower than the 0.5-percent drop that the Street was expecting. Meanwhile, Core PPI (excludes volatile food and energy) was in line with expectations at 0.2-percent. However, Core PPI remains up 3.6 over last year, which is above the Fed's comfort zone of 1.5 to 2.0 percent.

The falling energy prices gave a shot of confidence to consumers last month. Friday's Reuters/University of Michigan's index of consumer sentiment jumped to 73.1. This was up dramatically from 63 last month. The survey also showed that consumers' estimate of inflation for the next year fell to 3.6%, which was down from 5.2% estimate in May.

With retailers struggling this summer, it wasn't too surprising to us when the retail sales declined 0.3-percent in August. This was drastically lower than the 3-percent gain that analysts had predicted. The weakening numbers were due to a drop in electronics and appliance stores. Of course, we also saw the usual decline in housing-related categories.

Today's Economic Reports

The Dow Jones Industrial Average took another wild ride on Friday but finished the session only down 11 points at 11,421. The relatively small loss helped the index keep its strong week intact. It gained 1.8-percent over the last five sessions and brought its year-to-date loss down to 13.9-percent. The question this week will be how the index handles its 50-day moving average (red line). This should tell us whether we're going to see a continued recovery or just another leg down on the chart.

The S&P 500 was able to outperform the Dow on Friday with a 2-point gain on the session. Its closing price of 1,251 helped the index advance 0.2-percent on the week. Although the last three trading days of the week were encouraging, the index remains well below its 50-day moving average (red line) and down 14.8-percent on the year. However, our main question is whether last week's move was close enough for the index to have made a Double Bottom (reversal pattern) on the chart. If so, we could see a good rally. If not, we're going to take out last week's low and continue moving lower.

The Nasdaq Composite was able to post a 3-point gain on Friday and finish the week at 2,261. This helped the index scrape out a measly 0.2-percent gain on the week. Our question this week is whether the tech-heavy index will be able to reclaim its leadership role or if it will weigh down the other indices with its lagging performance. The Nasdaq remains weak with its yearly performance of a negative 14.7-percent in 2008.

After sitting so well for so many weeks, we ran into a buzz saw last week when two more of our September spreads got chewed up and spit out. We tried to sit tight in MNX and AAPL with our expectations that both were going to bounce, but there's only so long we could hold the line.

With the Market faltering and with both of those spreads seriously underwater, we were forced to take action. We closed them both out and then opened up new put spreads in October to get back some of the premium that we lost by closing them out early. The reason we opened up new spreads in the same index/stock is that we truly believe that both of them are extremely oversold at these levels. Especially after the extreme sell-off that both of these just encountered. Many times after this type of selling, there will be a quick recovery. We also like the inflated put prices that happen once the stock/index falls so fast. While we felt the best option was to close out the current spreads, we truly believe that by moving out to October and lowering our strike prices this significantly, we made the best decision possible at the time.

After taking care of the problem spreads last week, the remaining positions shouldn't cause us any issues this week. With that said, let's take a look at all of our positions in more detail.

CURRENT SEPTEMBER SPREADS

CLOSED SEPTEMBER SPREADS

AZO 120-115 SEPTEMBER BULL PUT SPREAD (15 contracts entered on 08/21/08)

$50.00 per contract profit potential (put spread)

AutoZone continued to perform perfectly for our put spread. It gained another $0.68 on Friday and finished the week at $138.50. This gives us nearly a 20-point cushion heading into the final week of the September options cycle. With the company's next earnings release coming out a week from Monday, we expect the price to remain strong this week. If AZO comes through with the type of results that we expect, it could be another excellent spread next cycle.

RUT 650-640 SEPTEMBER BULL PUT SPREAD (10 contracts entered on 08/21/08)

$60.00 per contract profit potential (put spread)

The small-cap index was able to post a $1.26 gain on Friday and finish the week up 0.2-percent. However, its closing price of $720.26 leaves the index down 6.0-percent on the year. But with only four full trading sessions left in this spread, we shouldn't have anything to worry about. We have a 70-point cushion and plenty of very good support levels on the chart. Too bad they all couldn't have been this good.

GOOG 460-470 SEPTEMBER BEAR CALL SPREAD (5 contracts entered on 09/09/08)

GOOG 370-360 SEPTEMBER BULL PUT SPREAD (5 contracts entered on 09/10/08)

$70.00 per contract profit potential (call spread)

$55.00 per contract profit potential (put spread)

Google finally got things moving towards the end of last week. After multiple weeks of drifting lower, the stock got a strong move to the upside on Thursday and then added another $3.91 on Friday. This put the stock at $437.66 at the end of the week. With one week left in this spread, we are sitting with a decent 22-point cushion on the call side and over 65 points on the put side. At this point, we are more concerned about the call side, but believe that we should be fine with only five trading days left in this one.

CLOSED SEPTEMBER SPREADS

GOOG 440-430 SEPTEMBER BULL PUT SPREAD (10 contracts closed on 09/09/08)

$625.00 per contract loss (put spread)

AAPL SEPTEMBER BULL PUT SPREAD (15 contracts closed on 09/11/08)

$390.00 per contract loss (put spread)

MNX 180-175 SEPTEMBER BULL PUT SPREAD (15 contracts closed on 09/11/08)

$329.00 per contract loss (put spread)

CURRENT OCTOBER SPREADS

MNX 160-155 BULL PUT SPREAD (15 contracts entered on 09/12/08)

$50.00 per contract profit potential (put spread)

After we moved out of our September put spread, the index decided to finally rebound on Thursday. However, it wasn't able to keep that momentum going on Friday when it lost $0.66 and closed out the week at $176.71. With our new strike prices sitting far out of the money, we aren't going to get too concerned about small moves in the index. We currently have over 16 points between the index and our "short" strike price.

AAPL 125-120 OCTOBER BULL PUT SPREAD (15 contracts entered on 09/11/08)

$60.00 per contract profit potential (put spread)

Just like the MNX, Apple decided to gain some strength after we moved out of our September position. However, that momentum faded on Friday when it shed $3.71 and closed at $148.94. With the stock sitting near its low in July, there should be plenty of support in this area. We now have plenty of time and nearly a 25-point cushion in this spread.

As always, Trade Happy and Trade Smart

Today's wild ride took its toll on a two of our spreads (Apple & MNX). We closed out both of them and then attempted to enter two new put spreads at lower strike prices. Although we were able to get filled in the October put spread for Apple, we weren't able to get into the MNX spread. For tomorrow, we are going to raise the strike prices and send it back to the brokers as a day order and limit order. Keep in mind that this is only for those members that were not filled in today's trading.

Please Note: This is only for those members not filled on Thursday and will be day orders and limit orders.

MNX TRADE ALERT

MINI-NASDAQ 100 INDEX (MNX)

OPENING 160-155 OCTOBER BULL PUT SPREAD (15 contracts)

Sell 15 October Puts at 160 strike price

Buy 15 October Puts at 155 strike price

Total Credit 0.50 per contract

Potential Profit $750.00

The MNX has continued to show weakness this morning. Due to this, we are going to close out the September Bull Put spread. Then we are going to open up a new October Put Spread at lower strike prices.

Please Note: The closing out of the current bull put spread only applies to those members in this position. The new October spread  will be a market order while the new spreads will be day orders and limit orders.

MNX TRADE ALERT

MINI-NASDAQ 100 INDEX (MNX)

CLOSING 180-175 SEPTEMBER BULL PUT SPREAD (15 contracts)

Buy 15 September Puts at 180 strike price (puts we previously sold)

Sell 15 September Puts at 175 strike price (puts we previously bought)

We suggest using a Market Order to get filled quickly

MINI-NASDAQ 100 INDEX (MNX)

OPENING 155-150 OCTOBER BULL PUT SPREAD (15 contracts)

Sell 15 October Puts at 155 strike price

Buy 15 October Puts at 150 strike price

Total Credit 0.50 per contract

Potential Profit $750.00