Daily Market Update – February 24, 2014 (9:00 AM)
There doesn’t seem to be much lurking around the corner that may either serve to spook or excite the markets this week and maybe even less so today.
While I prefer a market that has little net movement, I like the kind of market that has lots of intermediate swings in both directions that help to create a large trading range. If I can’t have both, then I’d go for the former, because even with lower premiums the opportunity to repeatedly sell calls on the same positions that are essentially moving nowhere is a pretty stress free way to go about a profitable existence.
The sources of excitement this week appear to be limited. While there are still some earnings reports to come and some merger stories are heating up, it looks to be a quiet week unless something is injected into the system to shake things up.
I continue to have a short term optimistic view, solely related to past history when coming back from attempts at a correction. Given that each of those have seen an overshooting of the previous high there’s not too much reason to suspect that this will be otherwise. At the very least, even a flat market, comprised of lots of flat stocks, can be a great victory.
Although maybe the fact that there’s not too much reason to suspect otherwise is, itself, reason enough to suspect otherwise.
This contrarian thing can get carried away.
The market appears to be ready to open the week mildly on the upside, but for the past month or so the first hour hasn’t been very reliable in setting overall tone. While the first hour is often called “amateur hour,” I don’t think that’s really consistently the case, although lately it hasn‘t been the most opportune time to open new positions.
Once again, this week, I’d like to see some additional positions picking up their own cover and contributing to the income streams that most of us want to see and seeing either rollovers or assignments of the 10 positions set to expire this week.
For the first time in a few months I don’t have a distribution of expirations over the weeks intermediate between the current week and the end of the monthly cycle, as the lowered volatility has made that a less desirable strategy. As long as the market continues either treading water or going higher there’s no particular advantage, perhaps even a detriment to that kind of staggering, but I still may be looking for some opportunities to populate some intermediate weeks.
With cash back up to levels that I’m comfortable pursuing a buying spree and still having enough left over for a rainy day, I don’t mind spending the money this week and have a little less hesitancy than just a few weeks ago.
With cash at about 42% I’m not resistant to getting down to the 25% range, which would equate to about 7 new positions, if they are there to be had.
Still, as the market has again moved higher comes the challenge of locating what may be relative bargains and looking for downside protection at the same time. As with so many opportunities in the past that may simply mean looking to familiar names, either down on their luck or not having shared as much in the recent good fortune the market has exhibited.
With the consideration of more familiar names also comes the consideration of once again looking to rollover in the money positions, as opposed to allowing assignment. That was a strategy opportune during the latter part of 2012 and early 2013. In a rising market it continues to capitalize on strength and minimizes the need to discover an increasing number of new opportunities for the coming week. Additionally, as volatility is low, the cost to repurchase those in the money contracts is relatively lower than when volatility is high, as the added “premium” of being in the money quickly erodes when the clock is ticking away and expiration rapidly approaching.