Walgreen Co (NYSE: WAG - option chain) shares are rising today after the company withdrew its buyout bid for Long's Drug Stores (NYSE: LDG). This clears the way for CVS Caremark (NYSE: CVS) to complete its $2.7 billion buyout offer of LDG, which was a smaller offer than that of Walgreen.

It seems that investors approve of this action, since WAG is up a nice chunk today. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on WAG.

WAG opened this morning at $26.89. So far today the stock has hit a low of $26.44and a high of $27.27. As of 12:30, WAG is trading at $26.80, up 62 cents (2.3%). The chart for WAG looks bearish and S&P gives WAG a 3 STARS (out of 5) hold ranking.

For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $25 range.

Walgreen (NYSE: WAG), a drugstore chain which competes with CVS Caremark (NYSE: CVS) and Rite Aid (NYSE: RAD), dropped the ball in the fourth quarter, at least as far as analyst estimates are concerned. On a GAAP basis, Walgreen increased its earnings per share by a nickel, coming in at 45 cents.

That would be pretty cool if there were no adjustments to be made. Unfortunately, there is one. It relates to an adjustment for vacation-time accrual, which added almost $80 million to the bottom line. Take that away, and you get no earnings growth, as earnings per share would have been 40 cents, meaning non-GAAP number missed expectations by 5 cents.

I think Walgreen is a strong brand in its space. However, with the economic meltdown continuing its dire course, I would imagine that the chain is going to become affected by it, strong brand or not. Drug prescriptions certainly might be considered a defensive element in such an environment, but keep in mind that Walgreen doesn't just make its money on prescription sales. It sells a whole host of items in every location. And I'd have to imagine that the consumer is going to be scaling back. Yep, get ready for the good ole negative wealth effect.

Wall Street is swimming in red this morning, bracing for a huge stock selloff Monday following the weekend's happenings: Lehman files for bankruptcy, Merrill is sold and AIG is scrambling to raise cash. Global markets were down sharply in the wake of the news out of the U.S. Meanwhile, in the background of all this, oil prices fell below $97 a barrel on Monday as Hurricane Ike inflicted minimal damage to oil installations.Some economic data will be out today, but will likely take second stage to all the goings on.
Around 7:20 Dow futures were down 365 points, S&P 500 and Nasdaq futures down nearly 50 points.

Lehman Brothers (NYSE: LEH) filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan, a victim of the crisis it helped create. That's after Bank of America and Barclays (NYSE: BCS) decided not to purchase it without the aid of the Treasury. Shares of Lehman opened down 84% in Europe and are over 87% down in pre-market trading to $3.20.

Meanwhile, Merrill Lynch (NYSE: MER) sold itself to Bank of America (NYSE: BAC) in an all-stock transaction worth about $50 billion. The purchase price values the company at more than $29 a share, at least a 70% premium from Merrill's closing price on Friday of $17.05. While MER shares are up over 36% in pre-market trading, BAC's are down over 13%.

Then there is American International Group (NYSE: AIG), which said Sunday it is reviewing its operations and discussing possible options with outside parties to improve its business, some interpreted this as asking the Federal Reserve for a $40 billion loan. AIG stock is down over 42% in pre-market trading.

Other related news stories are mostly of attempts to calm the market:

• The Federal Reserve announced plans Sunday to loosen its lending restrictions to the banking industry.
• The ECB and BOE pumped cash into markets
• A consortium of 10 leading domestic and foreign banks, including Goldman Sachs, Citigroup, Barclays and Morgan Stanley, agreed to create a $70 billion fund to lend to troubled financial firms.

TheStreet.com's Jim Cramer says that as consumers try to stretch their dining dollar, Darden, Yum! and McDonald's will benefit.

We all know we are overstored in this country and over-restauranted. There are tons of players -- so many that the competition got too hard. Now they collapse. That Uno might miss a payment, that Bennigan's and Steak & Ale are going away, that Bakers Square and Village Inn have filed for bankruptcy: All say the industry is in big trouble.

But ask yourself, if you are Darden (NYSE: DRI) (Cramer's Take), do you think this is a good or bad development? If you are Yum! Brands (NYSE: YUM) (Cramer's Take), do you think that this, at last, is your time? How about McDonald's (NYSE: MCD) (Cramer's Take)? Room to go more upscale, perhaps?

We read all of these horrible articles every day about restaurants, and yet we see that the stocks of Yum! and Darden hang in great, particularly the first, which gave hideous guidance and yet is now higher than it was before it told people commodity costs were hurting it. McDonald's? How many stocks just hit their 52-week high?

CVS Caremark (NYSE: CVS) announced the acquisition Longs Drug Stores (NYSE: LDG) for $71.50 per share in cash. LDG closed at $54.04.

Pershing Square filed a 13D on August 5 indicating an ownership of 8.8% of LDG. LDG was expected to report Q2 EPS in mid-August.

LDG option volume was heavy over the last seven trading days. LDG August 55 straddle closed at $2.55, September 55 straddle was at $7.30. LDG September option implied volatility of 51 is above its 26-week average of 43 according to Track Data, suggesting larger price movement.

CVS closed at $38.05. Jefferies says: "We believe CVS/Caremark's unique competitive position; substantial revenue/EPS upside opportunity, and still modest valuation should lead to significant equity appreciation."

CVS September option implied volatility of 28 is near its 26-week average according to Track Data, suggesting non-directional price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

U.S. stock futures were mixed Wednesday ahead of retail sales, import price data and oil inventories reports. Analysts expect retail sales, to be reported at 8:30 a.m., rose 0.5% in July. Futures may find direction after the report. Meanwhile, oil futures rose ahead of the inventory report due out at 10:35 a.m., the dollar fell against some currencies and gold futures rose.
[Update: Following a decline in retail sales in July, futures turned lower.]

Deere & Co. (NYSE: DE) has just reported quarterly results and shares sank 6.1% in premarket trade. The world's largest maker of farm machinery, said earnings in the latest quarter rose 7% and revenue increased 17% as soaring crop prices boosted global demand for its agricultural equipment. The company, however, missed on earnings and gave forecast that was lower than estimations.

Liz Claiborne (NYSE: LIZ) reported a net loss this quarter but beat estimates on an adjusted basis. It also issued a downside guidance.

Earnings are still due from Macy's (NYSE: M), among others.

Nvidia (NASDAQ: NVDA) shares rose 7.3% in premarket trading despite reporting a $121 million loss Tuesday. Investors liked that Nvidia announced a stock buyback of $1 billion and predicted margin improvement.

Applied Materials (NASDAQ: AMAT) also rose, up 1.2% in premarket trading after the largest maker of semiconductor-production machinery forecast better-than-estimated orders and CEO Mike Splinter said conditions will improve. Its fiscal third-quarter profit plunged 65%, but sales results beat estimates.

MOST NOTEWORTHY: Total Systems, Capital Products Partners and Ashford Hospitality were today's noteworthy initiations:

• Stephens initiated Total Systems (NYSE: TSS) with an Overweight rating and $28 target. The firm thinks investor concerns about the negative impact of economic weakness are overdone.
  
• JP Morgan believes Capital Products' (NASDAQ: CPLP) fixed-rate contract coverage and fixed operating costs should provide stable cash distributions to unit holders. The firm assumed coverage with an Overweight rating.
  
• Ashford Hospitality (NYSE: AHT) was initiated at UBS with a Buy rating and $7 target.

OTHER INITIATIONS:

• Bank of Kentucky (OTC: BKYF) was initiated with an Outperform rating and $29 target at Baird.
  
• Morgan Stanley initiated Longs Drug Stores (NYSE: LDG) with an Equal Weight rating.

There is a Walnut Creek, California drug store chain that says it operates on the basis of "treating others as we, ourselves, would like to be treated." From its exacting governance policies to its network of wellness centers and health screening programs, it appears the outfit means business.

Longs Drug Stores Corp.(NYSE:LDG) provides retail drug and pharmacy benefit services. The Retail Drug Stores unit offers prescription drugs and general merchandise. It also operates a mail order pharmacy business and provides various health screening services. The Pharmacy Benefit Services division offers benefit management to third party health plans and prescription drug plans to Medicare participants in 35 states. The firm operates just over 500 drug stores in California, Hawaii, Nevada, Washington, Colorado and Oregon. Its prescription benefit plans cover approximately 5.9 million clients.

Longs pleased investors late last month, when it reported Q4 EPS of 81 cents and revenues of $1.34 billion. Analysts had been looking for 74 cents and $1.34 billion. Management also guided Q1 EPS to 47-52 cents (46 cent consensus), FY08 EPS to $2.40-$2.50 ($2.21 consensus) and FY08 revenues to $5.35-$5.45 billion ($5.41B consensus). The stock popped into a bullish "pennant" consolidation pattern on the news. Stocks frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the shares with one "strong buy," five "holds" and three "sells." Analysts see a 19% average annual growth rate, through the next five years. The stock's Price to Sales ratio (0.38), Price to Book ratio (2.34) and Price to Cash Flow ratio (11.79) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 78% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $38.76 and $52.98. A stop-loss of $44.50 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.