Yesterday, struggling jewelry retailer Zale Corp. (NYSE: ZLC) announced the closure of 115 stores in a drastic cost-reduction plan. The company also announced that revenue dropped nearly 18% in the second quarter.

The stores designated for closure will lock their doors for good when their leases mature. The closing stores are poor sales performers. In addition, ZLC announced that it will cut its capital spending by 65%, along with 245 jobs already cut this month. Furthermore, the jeweler plans to reduce its debt by roughly $40 million from the end of the second quarter through July (which is the end of ZLC's fiscal year). ZLC noted that the addition of Canadian and Puerto Rican assets give the company flexibility and sufficient liquidity.

If you made a bet on the specialty retailers leading up to the first $600 taxpayer rebate stimulus package, you got hammered.

Talk about a government plan backfiring big time.

That $300 billion in checks that fell out of the sky from government helicopters back in the March to May timeframe didn't find its way to the malls at all.

Instead, people paid down credit card debt, and tuition, medical and other bills, leaving little for spending on non-essentials.

The result was a litany of store closings nationwide, with several old-line, brand-name retailers going out of business.

It's game over for names like Circuit City (OTC: CCTYQ), Cache (NASDAQ: CACH), Talbots (NYSE: TLB), J. Jill, Wickes Furniture, Levitz, Bombay, Linens 'n Things, Movie Gallery, Wilson Leather, KB Toys and The Sharper Image.

Traders that leveraged into darling names, like hedge fund idol Eddie Lampert's Sears Holdings Corp. (NASDAQ: SHLD), got smoked. Shares of SHLD were trading at $105 when the checks when out. Today the stock is around $40.

Even Costco (NASDAQ: COST) -- the obvious slam dunk, aside from Wal-Mart (NYSE: WMT) -- got slammed, falling from $75 to $45 following the so-called stimulus package.

Zale Corporation (NYSE: ZLC) September implied volatility Elevated at 38. ZLC, an operator of 2,300 retail jewelry stores, closed Monday at $22.02. Goldman Sachs says, "We are downgrading ZLC to Sell from Neutral as growing macro headwinds, management upheaval, and poor strategic positioning will likely further pressure earnings." Signet Group (NYSE: SIG), a specialty jewelry retailer, terminated merger talks with ZLC in June 2006. ZLC overall option implied volatility of 38 is above its 26-week average of 30 according to Track Data, indicating larger price risks.

YUM! Brands (NYSE: YUM) implied volatility Elevated into Analyst meeting. YUM closed Monday at $32.72. YUM will host investor meetings in Beijing on September 6-7. Smith Barney has a Buy rating and $38 price target on YUM. SBSH says "YUM's China business is material to the overall business TODAY, representing about 20% of company-wide revenue and 23% of profits." YUM overall option implied volatility of 31 is above its 26-week average of 24 according to Track Data, suggesting larger risk.

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