Monthly Archives: March 2014

Daily Market Update – March 26, 2014 (9:15 AM)

Another day of no news and another day of an upward pointing market to get us started.

With little in store for the rest of the week there’s not too much reason to think that this pattern won’t continue, particularly since next week is another Employment Situation Report and that has had a long standing record of being the conclusion to positive market weeks.

It’s that kind of confidence and certainty that can get you into trouble.

This week has so far been a mildly positive one on all counts, but I would take “mildly positive” week after week, as opposed to some of the alternating and unpredictable big moves that can come our way.It certainly hasn’t been a very exciting week, but excitement can be over-rated. While I like to trade, all of that excitement is long in the past and forgotten once I look at the changing bottom line at the end of each day and especially at the end of each week.

The bottom line trumps everything. I can always use that bottom line to help get the excitement I crave in other ways.

At the mid-way point for the week I’m not actively looking for or expecting any new purchases, although as next week’s expiring options become available for more positions starting tomorrow and still having cash to spend, the story may shift a bit.

In the meantime any opportunities to find additional cover would be appreciated as I continue to want to create additional streams, even at the expense of greater maintenance need for positions, such as Cisco, which was the object of a “mini-DOH” trade, yesterday.

Fortunately, there’s still three more days for traders to come to their senses and try to understand why they drove up those shares by about 3.5% on a day when there was no news for a stock that tends to trade with very low volatility except in the absence of news, such as earnings.

As with the DOH trade of Target about a month ago which suddenly shot up beyond the strike and is now looking as if it is coming to an end after some rollovers, the extra maintenance may turn out to be worth an additional 1.5% or so, while waiting for its return to its original strike price.

Today, as has been the case for the past week or two, most of the attention will be focused on today’s IPO, this time of the maker of the fad game, Candy Crush. With most of its revenues based on a single game and a valuation in excess of $7 billion, it’s hard to keep a straight face as the market is set to embrace the debut.

That valuation is one thing, but the announcement of Facebook’s purchase of “Oculus” the maker of a virtual reality head piece for $2 billion, just a couple of months after a second round of funding valued it at about $250 million, is an attention getter.

For some reason, and I may not be justified in thinking this, I’m reminded of the movie line “Be
afraid. Be very afraid.”

Daily Market Update – March 25, 2014 (Close)

Following a pretty flat day to start the week the pre-opening futures were pointing toward another in a long series of steps that have taken this market higher.

And that’s just what it did. Despite faltering a bit during the session, somehow the market pulled it back together and finished with a surprising near triple point gain.

As with most things in life it may not make sense to try and understand what is behind reality or to try and dissect out the component pieces in order to better understand or predict the future. Sometimes it’s just better to go along with the flow of things and just take credit for what would have happened without you.

With a handful of purchases yesterday I would have liked to see some more happen today, especially since there was still a little bit of volatility built into premiums for next week that may make it worthwhile to try and populate the coming week with contracts. The volatility, however, didn’t last for long.

Looking into a sea of green in the 30 minutes before trading, however, it didn’t seem too likely that today would be a day of picking up bargains, at least at the open. I don’t like following strength and chasing after stocks, so seeing the green usually means sitting back and watching, with the knowledge that the ones that get away rarely get away for good. They almost always coming back.

If anything, I like making a purchase as weakness is developing or at least shares are lagging behind on a strong market day.

If you’ve ever gone to a high school reunion or elementary school reunion the phenomenon of “catch up” is clear, as so often the goofiest of kids becomes like everyone else at some point in their adult lives. By the same token, so often the most fit and able in childhood and in the teens  become the most paunchy and tired as adults.

With too much cash still sitting on the sidelines I’d like to add to this week’s positions, but would be happy to simply continue finding cover for under-performing and non-performing shares. My bank account doesn’t really distinguish between the income that comes as a result of having purchased new shares and sold calls or simply sold calls on existing shares.

Following up on some discussion yesterday and in this past week’s “Week in Review”  of seeking to generate some income from those laggards, the best time is when stocks are in an uptrend. There’s no better time to sell calls than into strength and there’s no better time to sell puts than into weakness.

Both of those scenarios are really enhanced when the volatility is, as well.

For those that didn’t see it, I wrote an article last night on margin accounts.

Before anyone gets too excited or rushes out to bury themselves in margin debt, don’t do that.

But if you already have a margin account or are considering getting one, the article contains some ideas of how such an account can be a benefit to a covered option trader, without the level of risk that it conveys upon typical individual investors.

Daily Market Update – March 25, 2014 (9:30 AM)

Following a pretty flat day to start the week the pre-opening futures were pointing toward another in a long series of steps that have taken this market higher.

As with most things in life it may not make sense to try and understand what is behind reality or to try and dissect out the component pieces in order to better understand or predict the future. Sometimes it’s just better to go along with the flow of things and just take credit for what would have happened without you.

With a handful of purchases yesterday I would like to see some more happen today, especially since there is still a little bit of volatility built into premiums for next week that may make it worthwhile to try and populate the coming week with contracts.

Looking into a sea of green in the 30 minutes before trading, however, that doesn’t seem too likely, at least at the open, as I don’t like following strength and chasing after stocks. They rarely get away for good, almost always coming back.

If anything, I like making a purchase as weakness is developing or at least shares are lagging behind on a strong market day.

If you’ve ever gone to a high school reunion or elementary school reunion the phenomenon of “catch up” is clear, as so often the goofiest of kids becomes like everyone else at some point in their adult lives. By the same token, so often the most fit and able in childhood and in the teens  become the most paunchy and tired as adults.

With too much cash still sitting on the sidelines I’d like to add to this week’s positions, but would be happy to simply continue finding cover for under-performing and non-performing shares. My bank account doesn’t really distinguish between the income that comes as a result of having purchased new shares and sold calls or simply sold calls on existing shares.

Following up on some discussion yesterday and in this past week’s “Week in Review”  of seeking to generate some income from those laggards, the best time is when stocks are in an uptrend. There’s no better time to sell calls than into strength and there’s no better time to sell puts than into weakness.

Both of those scenarios are really enhanced when the volatility is, as well.

For those that didn’t see it, I wrote an article last night on margin accounts.

Before anyone gets too excited or rushes out to bury themselves in margin debt, don’t do that.

But if you already have a margin account or are considering getting one, the article contains some ideas of how such an account can be a benefit to a covered option trader, without the level of risk that it conveys upon typical individual investors.

&nb
sp;

Daily Market Update – March 24, 2014 (Close)

It’s another week that seems to be getting ready to start off with a calm opening, although the past three weeks have been anything but calm when it comes to cumulative activity. After the previous few weeks have been done, all after the initial news of trouble in Crimea, markets have ended strongly lower and strongly higher, despite what appeared to be calm beginnings.

My preference, if there’s going to be some tumult, tends to be a down Monday to start the week, especially after lots of assignments.

All in all, despite a little bit of indecision it did turn out to be a pretty calm day without the slightest shred of  real news coming from any source.

With all of that cash now sitting and waiting to be re-deployed the challenge, as always, is not giving into the temptation to do so all at once. There’s nothing worse than catching the top of a single stock, much less the top of a basket of stocks or an entire market, especially when it can be avoided with just a little bit of self-discipline.

A cash reserve of almost 50% creates lots of opportunity, but not all opportunity is good. It’s been a long time since I’ve gone on a spending spree after a week of lots of assignments and I don’t think I’ll be going on one this week either, but I am willing to get down to a 30% cash level. That would be about 10 new positions, although lately the number has been far less. Today’s four new positions was a start, at least and did create some additional cash flow without too much added risk.

As mentioned at last week’s close I will be increasingly looking at the opportunity to  squeeze premiums out of as many positions as possible that are currently uncovered, through the use of strike levels below cost basis. That means a need for greater maintenance of positions, including the possibility of rollovers at a net debit, as may be appropriate to help work a position back toward an acceptable ROI. Doing so is simply a modification of the DOH strategy. Maybe I’ll call it a “mini-DOH.”

As with the DOH strategy it helps to have volatility showing some increasing level in order to make the premium more closely offset the risk of assignment or rollover at a net debit, so not all positions may be created equally in being candidates, although that could change from week to week. As today wore on volatility decreased, so as it turned out the early in the session trades utilizing the April 4, 2014 expiration were better suited than they would have been at the end of the day.

This week I’m not terribly interested in risk other than possibly taking advantage of any position that takes a sudden hit to price that may appear to be overdone or some potential earnings related trades. Otherwise, I think this may be a week to go with reasonably boring stocks, although even those are often at or near their price peaks.

The market’s pre-open trading seemed to indicate that little of market moving potential outside of the markets themselves are knocking on the door. For know, Crimea is quiet, there’s no additional disappointing news coming from China and the coming week has little in the way of important economic reports.

With earnings season near its end and the
new one still a few weeks away it’s almost like being in limbo, but we all know that won’t last. Despite the appearances of quiet and calm the market frequently finds its own reasons for dysfunction and over-reaction.

While I do like to complain about that, it’s that very lack of predictability which creates the volatility that I don’t complain about when it’s developing.

With already eleven positions set to expire this week and having added another two, there is almost nothing thereafter, I would like to populate some of those out weeks with contracts, if only the volatility would make those premiums a little more inviting as the week goes on.

Based on the past year the periodicity between the “mini-VIX” peaks that I pointed out last week to the “maxi peaks” has been about 6 weeks and we just passed a “mini-peak.” If that stays true to form then better premiums may be on the way, but as often is the case, that comes at the expense of better stock prices.

That may re-inforce some caution when looking to spend all of that cash that’s now on the sidelines, although there still may be some time to party between peaks.

It’s those kinds of discussions and analyses that makes me glad I don’t spend more time looking at charts. I couldn’t imagine always talking and thinking like that.