Daily Market Update



(see all trades this option cycle)


Daily Market Update – January 7, 2014 (10 AM)

Yesterday was an interesting day in the market.

Trading volume was unusually light for the first Monday of the New Year and the early rally disappeared fairly quickly.

What was interesting was how much the thesis that the cold weather was going to impact on walk-in sales at retailers, including grocery stores, Starbucks and others, carried wright throughout the day.

With no other news, in this case, only opinion, that family of stocks felt their own deep freeze yesterday.

Whether the thesis is true or not, and it certainly does make sense, the impact won’t be reported until the next earnings season, which begins in April. The greatest likelihood is that very few are going to remember that thesis when April earnings rolls around and if true, those stocks are likely to suffer again.

Now, if only I would be able to remember that when the time comes.

In the meantime there’s plenty more to think about.

Yesterday evening Janet Yellen was confirmed as the next Chairman of the Federal Reserve.

This Friday is the first release of an Employment Situation Report for 2014 and for which Yellen can play a role in leading the newl
y configured and hawkish voting membership. Yellen herself doesn’t assume the Chairmanship until February 1, 2014.No doubt that a strong report would bring pressure to increase the size of the taper from its current $10 billion each month. Even though the hawks won’t represent a voting block of sufficient proportion to effect policy, the wording of the FOMC minutes are parsed each month and the market often reacts to sentiment as much as it does to reality.

So we’ll see what Friday brings. With so many positions set to expire on Friday I’m hoping for a non-event or a modest rise higher as it would be nice to get some more cash in hand for greater flexibility going forward.

While waiting there’s still not much reason to go counter to January history.

I’m currently at the lowest cash level in many months and still willing to go down a bit further, perhaps to 20%. That would mean considering an additional two or so new purchases for the week if the opportunities present themselves. But even if not adding many new positions there is still enough upside potential in covered and uncovered positions to take advantage of any modest rally, so I wouldn’t be adverse to that possibility.

It otherwise promises to be a non-event driven week and the low volume may very well continue as even traders get cold when arctic winds blow. The prospects of low volume sometimes introduces opportunism and artificially large moves as big traders in essence are able to manipulate the market, often using the option market as their vehicle.

Those sort of things always seem to correct themselves for the rest of us who may get caught in the vortex as it’s all happening and then just as suddenly see the reversals occurring after the big boys have made their money.

While waiting for a sign to spend more money staying warm sounds like a good strategyright now.









 Access prior Daily Market Updates by clicking here

 OTP Sector Distribution* as of January 6, 2014

 * Assumes equal number of shares in positions



















Posting of trades is not a recommendation to execute trades


Monday through Thursday? See “Daily Market Update” with first edition published by 12 Noon and Closing Update published by 4:30 PM

Friday? See Week in Review for summary statistics and performance

Sunday? See Weekend Update for potential stock choices for coming week

Any day? See Performance for open and closed positions

Subscribers may see  ROI statistics  on all new, existing and closed positions on a daily updated basis












See all Trade Alerts for this monthly option cycle



Daily Market Update



(see all trades this option cycle)


Daily Market Update – January 6, 2014 (Close)

Last night I went to bed hearing that the Nikkei had fallen 2% and was ready to awaken to the same kind of news regarding the S&P 500 futures.

So much for a January Rally.

Normally I turn on the TV and check Bloomberg for the overnight recap before doing anything else, but this morning, in anticipation of some rocky roads ahead, it was time to make the coffee first. I thought there might be a need for some comfort.

But that didn’t turn out to be the case. The US markets were preparing themselves for a sedate open in a week that will likely see the confirmation of Janet Yellen as the next Federal Reserve Chairman and end with the release of the Employment Situation Report.

While it remains hard to really embrace a bullish attitude I’d be inclined to be bullish if January simply slowly and methodically climbs higher, rather than some years past in which it had spectacular returns that just weren’t borne out throughout the year or that didn’t live up to the January promise of things to come.

Both 2012 and 2013 saw 5% gains in January, ending the years up about 13% and 30%, respectively.

Either of those would be good years when all said and done, but by and large 2012 was flat for the remainder of the year, just as was 2011.

While I continue to look at 2013 as an aberration, I’m not entirely certain that 2014 will be any different. Certainly there will be those prepared to say in hindsight that if earnings do improve and there is a faltering market, or one that isn’t very responsive to those brightened earnings, it was simply a case of the market having discounted an improving economy.

I’ve long given up on the idea that the market and those who spend their lives immersed in it are so smart as to be able to look so convincingly into the future and predicate their actions today on events 6 months from today.

While I do understand the concept of “buy on the rumor and sell on the news,” that is a real time strategy, not one based on some finite portion of my life expectancy.

But the economy, by all measures, is improving. They key is that it isn’t getting red hot, as previous recoveries have seen such periods when all guns were firing, leading to spiking interest rates, which in turn lead to bonds being preferred over stocks.

Stocks are the only game in town and that doesn’t really show any sign of changing right now.

A slowly improving economy is like the somewhat perverted scientific experiment of placing a frog into a very slowly warming pot of water that eventually gets to a boil, except that the outcome is good.

A slowly climbing market, especially one that takes the time to smell the roses, is also one that is more likely to lead to a good outcome.

The past couple of months have actually been like that as the market has taken some time to rest, consolidate and move forward. While I and so many others talk about how healthy a 5 or 10% correction would be, perhaps the most healthy way of going forward is simply to pace oneself.

With many positions set to expire this and next week and not having replenished the cash reserve very much this week, pacing myself is likely the key to this week.

I’d like to see that slow climb continue and lead to lots of assignments, but with prices not having climbed so high as to make the decision regarding adding new positions so difficult.

Ultimately in a flat market or one that slowly climbs higher or lo slowly drops lower, there would be far less need to add new positions and far more opportunity to make rollover trades. Whatever brings in the income or whatever creates a downside cushion is fine, as long as the process goes on and on.

Although I expected each of
the last two weeks to be slow trading weeks, they turned out very differently. But this week I’m again expecting a slow trading week and would be surprised if it turned out otherwise.

I’d be content to just let the market show the way and follow its lead this week.







 Access prior Daily Market Updates by clicking here

 OTP Sector Distribution* as of January 6, 2014

 * Assumes equal number of shares in positions



















Posting of trades is not a recommendation to execute trades


Monday through Thursday? See “Daily Market Update” with first edition published by 12 Noon and Closing Update published by 4:30 PM

Friday? See Week in Review for summary statistics and performance

Sunday? See Weekend Update for potential stock choices for coming week

Any day? See Performance for open and closed positions

Subscribers may see  ROI statistics  on all new, existing and closed positions on a daily updated basis












See all Trade Alerts for this monthly option cycle



Weekend Update – January 5, 2014

There’s a lot to be said in support of those who practice a strategy of surrounding themselves with those that suffer by comparison of whatever attribute is under consideration.

Most of us intuitively know what needs to be done if we want to make ourselves or our actions look good when under scrutiny.

The mutual fund industry had done it for years. It’s all about what you compare yourself to, although looking good raises expectations for even more of the same and most of us also know how that often works out.

As observers it’s only natural that we make our assessments on the basis of comparison to whatever standard is available. Among our many human foibles is that we often tend to be superficial and are just as likely to forego deeper analyses when faced with pleasing circumstances. We also want to go with the perceived winners in the belief that they will always be winners. Certainly the investing experience doesn’t bear out that strategy. Yesterday’s winner isn’t necessarily tomorrow’s champion.

Fresh on the heels of a 31% gain in the S&P 500, 2014 is going to have a difficult time in comparison. While maybe hoping that 2015 is going to be an abysmal year in the meantime 2014 has to contend with the obvious stress of the obligatory comparisons.

For the individual investor 2013 has ended with so many stocks at or near their highs that it’s actually very difficult to find that lesser entity for comparison purposes. Everything just looks so good that nothing really looks good, especially going forward, which is the only direction that counts. Looking at chart after chart brings up strikingly similar patterns with very little able to stand out on the basis of its own beauty. Comparing onesupermodelto the next is likely to be an empty exercise for many reasons, but ultimately it becomes clear that there are no distinguishing factors to make anyone stand out.

Without comparisons our own minds get numb. We need differences to appreciate the reality of any situation. When so many stock charts begin to look so similar it becomes difficult to discern where to start when looking for new positions.

While another human tendency is the desire to go with winners this time of the year introduces a traditional concept that looks in the opposite direction for its rewards. This is the time of the year when theDogs of the Dow Theorygets so much attention. In a year that so many stocks are higher the comparison to those that have truly underperformed is really heightened.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum andPEEcategories this week (see details). With earnings season beginning once again this week attention must also be diverted into the consideration of those reports when adding new positions and when selecting the time frame for hedging options. For that reason I’m looking increasingly at option time frames that offer some buffer in time between expiration dates and earnings dates, perhaps making greater use of expanded options and forward month expirations, as well.

This week’s potential selections varied widely in performance compared to the S&P 500 during 2013. While noDogs of the Dowcandidates are offered, some were dogs in their own right regardless of what they were being compared to at the time. But as always, since I like to hedge my bets and play on both sides of prevailing sentiment, there may be room for both outperformers and underperformers as 2014 gets underway.

While General Electric’s (GE) 33.5% gain for 2013 was laudable it essentially mirrored the S&P 500 for the year. An analyst downgrade on Friday had virtually no impact, although shares did fall nearly 2% the previous day to start the New Year. Increasingly shedding its dependence on financial divisions that helped to bring it to $6 just 5 years ago, GE may now be wondering if this wouldn’t be a good time to emphasize that division, as interest rates are beginning to rise. But even a stagnant GE in 2014 when considered in the context of its dividend and option premiums offers a good place to invest if the aim is to outperform the S&P 500.

Barclays (BCS) is one of those in the financial sector that had greatly lagged the S&P 500 in 2013. With significant international exposure it shouldn’t be too surprising that it might better reflect the lesser fortunes experienced by the European markets, among others. I already own shares and will consider adding more as it appears that there will be a move higher which I expect will be confirmed by improved earnings when reported during the February 2014 option cycle, which may also see a dividend payment.

Chesapeake Energy (CHK) has long been a favorite stock upon which to sell covered calls or enter ownership through the sale of puts. It outperformed the S&P 500 by nearly the amount that Barclays underperformed for the year, but after some recent weakness that reduced shares by 7% its chart has started looking less like the crowd. While certainly not in thelosercategory it’s potential looks better to me than those that haven’t taken the time for the share price to take a breather of late.

As long as in comparison mode, last January Family Dollar Store (FDO) dropped 12% upon earnings release, which followed a 9% drop the previous month. The option market isn’t expecting a repeat of that performance, perhaps because shares are already down 11% since its September high. Instead a 5.9% implied move is priced into option contracts. The sale of out of the money puts at a strike price at the lower end of the implied move could return 0.9% for the effort. That is just below my typical threshold for making such a trade, but if looking for a relativedog,” this may be the one ready for a rebound.

Joy Global (JOY) is one of those stocks that recently broke out of its reliable trading range. Once that happens I lose interest in reacquiring shares, having already owned it on eight occasions in 2013. What I don’t lose is interest in seeing shares return to that range. Following an earnings related share fall the price rebounded beyond where it started is descent. However, a recent downgrade has started nudging shares back toward the upper edge of the range that has proved to be a good entry point. While no one really has any good idea of what awaits the Chinese economy and by extension, Joy Global’s fortunes, it has proven to be a resilient stock and offers an option premium to go along with its frequent alternations in price direction.

It has been a long time since I had own any communications stocks until a recent TMobile holding. While both Verizon (VZ) and AT&T (T)were core holdings during the recovery stages in 2009, I haven’t found them very appealing for much of the recovery. However, both do go exdividend this week and the cellphone services sector is certainly livening up a bit. But beyond that, for the first time in a long time there were glimpses of these shares offering meaningful option premiums during their exdividend week that seemed to warrant their consideration once again. In fact, I didn’t wait until Monday and purchased shares of Verizon after weakness on Friday and may elect to accompany those shares with its rival’s shares, as well.

Darden Restaurants (DRI) was a selection just a few weeks ago but went unrequited as news broke regarding activist investor coercion regarding potential spinoff plans for its low growth Red Lobster chain. Shares go exdividend this week and earnings pressure is still two months away. Although a $55 strike would require challenging its 52 week high, this is a potential trade that I would consider using a forward month contract, such as the February 2014, in anticipation of some increasing pressure from the investment community and activists intent on reengineering.

Finally, a study in comparative contrasts are Walter Energy (WLT) and Icahn Enterprises (IEP). While Icahn Enterprises was nearly 145% higher for the year Walter Energy dropped nearly 54%.

While Carl Icahn may get more done on the basis of brute force investing and schoolyard tactics, Walter Energy now relies on the power of redemption and grace, and maybe just a little on business cycles.

A quick look at the comparative charts shows what a difference time can make, as Walter Energy greatly outperformed Icahn Enterprises prior to this year and how Icahn Enterprises had been simply a market performer until the past year.

Interestingly in the past month Walter Energy has risen about 15% while Icahn Enterprises has fallen a similar amount.

IEP Chart

This past year no one has received more attention for his investing and activism than Carl Icahn. This week yet another company Hertz (HTZ) acknowledged that it was in the Icahn crosshairs, as it adopted a poison pill provision to keep him at bay. Icahn Enterprises, a tangled web of holding companies and investment activities shows little sign of slowing down as long as the market remains healthy. With the ability to raise stock prices with a simple Tweet, Carl Icahn may be more in control of his destiny than the market was intended to allow.

With a healthy dividend likely during the February 2014 option cycle and an attractive option premium, Icahn Enterprises may be a good choice for someone with a little daring to spare, as the ascent has been steep.

Walter Energy, on the other hand, has been slowly working its way higher, although still having a long way to go to erase its past year’s loss. While there is certainly no guarantee that last year’s loser will be this year’s darling, Walter Energy certainly is the former. It has, however, for the daring, offered excellent option premiums even for deep in the money options, that do mitigate some of the risk inherent in ownership of shares.

Traditional Stocks: Barclays, General Electric

Momentum Stocks: Chesapeake Energy, Icahn Enterprises, Joy Global, Walter Energy

Double Dip Dividend: AT&T (exdiv 1/8), Darden (exdiv 1/8), Verizon (exdiv 1/8)

Premiums Enhanced by Earnings: Family Dollar Store

Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.


Daily Market Update


(see all trades this option cycle)


Daily Market Update – January 2, 2014 (Close)

2014 is going to be held to a high standard.

For lots of investors 2013 was one of the best years that they’ll ever see, although there have certainly been better ones.

What there really hasn’t been is such a strong and concerted move that has sent markets up about 150% in less than 5 years.

Can 2014 live up to that standard?

The period from 1995 to 1999, in terms of market performance, may be similar to the current time. Really good years were followed by really good years.

And then the bubble burst.

The comparison may end, though, without including the bursting part, because there really is not dot com craziness pervading the current market. Everything is moving higher and while the market doesn’t seem completely rationale, its mostly because it hasn’t taken a break and not because of frenzied bidding.

For people that trade Momentum stocks, such as Tesla, the idea is to trade and trade until the trade is no longer there. They don’t question the rationality of the price move, they just accept that it’s happening and want to be part of it. They also recognize that at some point the trade will disappear and will usually do so with little warning and in a big way.

At least most recognize that to be the case. The others shouldn’t be investing.

The market may have simply been acting like a Momentum stock for the past 14 months. How much longer it keeps going is anyone’s guess, but it’s hard to not be part of the action, especially if the uniqueness of the product is not what is sending prices higher.

I spent so much of 2013 waiting for a correction I don’t know what it feels like anymore to be an unrepentant bull., bull I am more bullish about 2014 than 2013, simply because of history, despite the fact that this run is getting really long in the tooth.

Interestingly, not that much has been made this year about the historical strength the market sees in January. In the past the years in which everyone seemed to be talking about the guarantee of profits in January the theory just fell apart.

The lack of talk is always a good sign, although the market is getting 2014 off to a lackluster start.

For the covered option buyer the least preferable of all markets is the one that we just finished. While I am more bullish for 2014 than 2013 part of that bullishness is wrapped up in the hope that the market will show more indecision this year and spend more time bobbing up and down.

Those movements create volatility and create many more opportunities to generate income from holdings, while requiring less reliance on discovering new buying opportunities.

With initial weakness to start the morning I plan on watching a bit before considering any more purchases for the week, despite now being more open to adding new positions on Thursdays and Fridays.

As the morning seemed to do nothing but confirm weakness there did appear to be some new opportunities, but caution isn’t a bad idea whenever there is a large move. It’s bad to ever get into a mindset that you’re either going to miss a rally or miss a bargain.

I don’t believe that the selling this morning is reflective of anything other than a little exhaustion and taking profits while deferring tax liability until 2015, so I do expect things to get back on track fairly soon. Anyone of that mindset, looking at a declining market is going to want to lock their profits in before any risk of a slide lower.

While the market never did recover, neither did the selling really grow and the volume was very light, so no real insights were in the making today.

Hopefully tomorrow, with expiration at hand, we’ll have a little bit of a snapback to either get some assignments or at least some rollovers.With plenty of positions already set to expire the next two weeks I may be looking for rollovers using expanded options or even the February monthly contract.

With money in hand and perhaps some relative bargains beginning to appear I’m anxious to get back to work, hoping to make fewer trades, collect more dividends and rollover more positions in 2014.

Oh yeah, and peace on earth, too.



Access prior Daily Market Updates by clicking here

OTP Sector Distribution* as of January 2, 2014

 * Assumes equal number of shares in positions



















Posting of trades is not a recommendation to execute trades


Monday through Thursday? See “Daily Market Update” with first edition published by 12 Noon and Closing Update published by 4:30 PM

Friday? See Week in Review for summary statistics and performance

Sunday? See Weekend Update for potential stock choices for coming week

Any day? See Performance for open and closed positions

Subscribers may see  ROI statistics  on all new, existing and closed positions on a daily updated basis












See all Trade Alerts for this monthly option cycle