Daily Market Update – April 30, 2014 (Close)

 

 

Daily Market Update – April 30, 2014 (Close)

A bad first quarter GDP and mediocre earnings were the news  items to open the morning that would  have its crescendo a few hours later when the FOMC announcement was to be made.

As it would turn out , that crescendo was pretty muted.

While the announcement itself wasn’t too likely to have much in the way of new news it was likely to be interpreted by traders through the lens of this morning’s GDP statistic, with those wondering whether a slowing GDP will be a reason for the Federal Reserve to slow down its tapering, battling with those who believed the GDP number simply reflected awful weather and nothing systemic.

Those are usually the battles that are best watched from the sidelines, but since today is a Wednesday that’s already the default position. There has been very little rational basis behind the reactions following these FOMC releases lately, so default isn’t a bad way to go, otherwise you can’t expect anything other than even odds.

Instead, the battle itself came to a complete draw as there was barely a peep from anyone, not even much in the way of the usual knee jerk reaction that has become so common and laughable.

With new weekly options appearing tomorrow, based on the experience of the past couple of weeks I may again look for opportunity to execute rollovers on Thursday, rather than waiting until Friday. Hopefully today will be a positive kind of day although the pre-open is looking very non-committal, as that’s usually the case in advance of the afternoon announcement.

In last week’s case rolling over positions on Thursday was really serendipitous, as it avoided the impact of the market plunge on Friday, that I never would have otherwise expected. No matter how you dissect things, it never hurts to have luck on your side.

With lots of positions set to expire this week and a fair number looking as if they are in a position to be assigned, I would love to see that be the case, but not only is the challenge of the FOMC ahead, but also Friday’s Employment Situation Report. I would very much like to see cash reserves increased after a few weeks of drawing down reserves, although this week was one of conservation.

Having cash makes it unnecessary to be defensive.

While the Employment Situation Report tends to be a positive trading day, last month served as an exception to that rule, as the day snatched defeat from victory, with a mid-day sell-off after a nice opening gain. That might alert people to the possibility that a defensive position may not be altogether ridiculous, given some of the challenged faced this week and the remaining potential for international chaos.

In the meantime there continues to be an unraveling of the more speculative corner of the market and any rational person would have to be wondering whether that’s just an early warning signal, as it has been just that in the past. With more earnings yet to go there could easily be
more of that kind of negative news coming to discourage people and create selling pressure.

Still, you can’t overlook the fact that the market is within striking distance of its all time highs.and as the day was winding to its close all eyes were on the DJIA which was just a few points away from that high point.

Again. The market just keeps doing that, despite all of the times that most everyone believed that it was finally ready to take a break.

Talk about mixed messages.

  

 

 

  

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Daily Market Update – April 30, 2014

 

 

Daily Market Update – April 30, 2014 (9:15 AM)

A bad first quarter GDP and mediocre earnings are the news to open the morning that will have its crescendo a few hours later when the FOMC announcement is made.

While the announcement itself isn’t too likely to have much in the way of new news it will probably be interpreted by traders through the lens of this morning’s GDP statistic, with those wondering whether a slowing GDP will be a reason for the Federal Reserve to slow down its tapering, battling with those who believe the GDP number simply reflected awful weather and nothing systemic.

Those are usually the battles that are best watched from the sidelines, but since today is a Wednesday that’s already the default position. There has been very little rational basis behind the reactions following these FOMC releases lately, so default isn’t a bad way to go, otherwise you can’t expect anything other than even odds.

With new weekly options appearing tomorrow, based on the experience of the past couple of weeks I may again look for opportunity to execute rollovers on Thursday, rather than waiting until Friday. Hopefully today will be a positive kind of day although the pre-open is looking very non-committal, as that’s usually the case in advance of the afternoon announcement.

In last week’s case rolling over positions on Thursday was really serendipitous, as it avoided the impact of the market plunge on Friday, that I never would have otherwise expected. No matter how you dissect things, it never hurts to have luck on your side.

With lots of positions set to expire this week and a fair number looking as if they are in a position to be assigned, I would love to see that be the case, but not only is the challenge of the FOMC ahead, but also Friday’s Employment Situation Report. I would very much like to see cash reserves increased after a few weeks of drawing down reserves, although this week was one of conservation.

Having cash makes it unnecessary to be defensive.

While the Employment Situation Report tends to be a positive trading day, last month served as an exception to that rule, as the day snatched defeat from victory, with a mid-day sell-off after a nice opening gain. That might alert people to the possibility that a defensive position may not be altogether ridiculous, given some of the challenged faced this week and the remaining potential for international chaos.

In the meantime there continues to be an unraveling of the more speculative corner of the market and any rational person would have to be wondering whether that’s just an early warning signal, as it has been just that in the past. With more earnings yet to go there could easily be more of that kind of negative news coming to discourage people and create selling pressure.

Still, you can’t overlook the fact that the market is within striking distance of its all time highs.

Again. The market just keeps doing that, despite all of the times that most everyone
believes that it is finally ready to take a break.

Talk about mixed messages.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

  

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Daily Market Update – April 29, 2014 (Close)

 

 

Daily Market Update – April 29, 2014 (Close)

Investing should be easy this week.

After all it’s an Employment Situation Report Week that also happens to have a Tuesday in it.When the morning started I thought this week may be an interesting one.

While the recent string of Tuesdays looks as if it will be getting off on a positive note, the Employment Situation Report string was broken last month by a mid-day strong reversal, but the trend still remains, as for nearly the past 2 years both the week of the report and the actual day have been significantly more likely to end up on the positive side.

What more can you ask?

Well, you could have asked for a triple digit gain or at least something close.

While this morning was looking to continue some of the very impressive rebound from yesterday’s final hour I’m not fully ready to follow those odds of history repeating itself. On the other hand, when I see a company like Coach, which has been a prisoner of history and pattern, once again take a sharp dive when reporting earnings, I am prone to wanting to follow that pattern again. That pattern has been a fairly good formula to follow, although it has required some patience before jumping in, so even that trade isn’t too likely today.

Of course, those were my thought in the morning before being adequately caffeinated. Staring at the Coach 2 year chart made it difficult to resist waiting, although sometimes it’s just best to ignore those urges.

Yesterday’s rebound really was impressive, although it’s not the first such to have occurred over the past couple of weeks. Normally, those kind of rebounds carry with them a very bullish kind of message, but those messages have become obscured and haven’t really found themselves to be accurate predictors of the market’s direction.

That direction has been equally obscure of late and market health has really been called into question as the NASDAQ, and especially the greatest of the “Momentum” stocks have come under attack.

Just as those had been sure things during their climbs higher, most every sure thing sees its time come to an end. In the case of these kind of high fliers it gets a little unnerving when the word “bubble” starts being tossed around with such great frequency.

Generally, the more that climb onto the bandwagon the more sense it makes to just walk, the bubble thing is often very prescient, because it’s just not talk, but it’s also recognition of a pattern. That is the sudden reversal of fortunes in stock moves among the faddiest of stocks and the size of those movements.

As with many stocks that see reversals, such as Coach, there’s enough of a history to suggest that shares will recover in some short time frame, or at least trade in a stable fashion at a new lower level. It’s usually not correct to refer to such stocks as value traps, because their value tends to return or be re-established.

But in the case of these high fliers, there is no such individual history. Yet people believe that when they experience large drops it’s a chance to get in at a reasonable price.

History shows that many of these don’t recover and when taken in their totality, they may be a harbinger for things to come in the broader market.

As I mentioned yesterday, this will be an interesting week.

Yesterday was an appropriate start for that kind of a week and there’s more to come as earnings start coming our way.

Stay tuned and stay patient.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

  

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Daily Market Update – April 29, 2014

 

Daily Market Update – April 29, 2014 (9:30 AM)

Investing should be easy this week.

After all it’s an Employment Situation Report Week that also happens to have a Tuesday in it.When the morning started I thought this week may be an interesting one.

While the recent string of Tuesdays looks as if it will be getting off on a positive note, the Employment Situation Report string was broken last month by a mid-day strong reversal, but the trend still remains, as for nearly the past 2 years both the week of the report and the actual day have been significantly more likely to end up on the positive side.

What more can you ask?

While this morning is looking to continue some of the very impressive rebound from yesterday’s final hour I’m not fully ready to follow those odds of history repeating itself. On the other hand, when I see a company like Coach, which has been a prisoner of history and pattern, once again take a sharp dive when reporting earnings, I am prone to wanting to follow that pattern again. That pattern has been a fairly good formula to follow, although it has required some patience before jumping in, so even that trade isn‘t too likely today.

Yesterday’s rebound really was impressive, although it’s not the first such to have occurred over the past couple of weeks. Normally, those kind of rebounds carry with them a very bullish kind of message, but those messages have become obscured and haven’t really found themselves to be accurate predictors of the market’s direction.

That direction has been equally obscure of late and market health has really been called into question as the NASDAQ, and especially the greatest of the “Momentum” stocks have come under attack.

Just as those had been sure things during their climbs higher, most every sure thing sees its time come to an end. In the case of these kind of high fliers it gets a little unnerving when the word “bubble” starts being tossed around with such great frequency.

Generally, the more that climb onto the bandwagon the more sense it makes to just walk, the bubble thing is often very prescient, because it’s just not talk, but it’s also recognition of a pattern. That is the sudden reversal of fortunes in stock moves among the faddiest of stocks and the size of those movements.

As with many stocks that see reversals, such as Coach, there’s enough of a history to suggest that shares will recover in some short time frame, or at least trade in a stable fashion at a new lower level. It’s usually not correct to refer to such stocks as value traps, because their value tends to return or be re-established.

But in the case of these high fliers, there is no such individual history. Yet people believe that when they experience large drops it’s a chance to get in at a reasonable price.

History shows that many of these don’t recover and when taken in their totality, they may be a harbinger for things to come in the broader market.

As I mentioned yesterday, this will be an interesting week.

Yesterday was an appropriate start for that kind of a week and there’s more to come as earnings start coming our way.

Stay tuned and patient.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Week in Review – April 21 – 25, 2014

 

Option to Profit Week in Review
April 21 – 25, 2014
 
NEW POSITIONS/STO NEW STO ROLLOVERS CALLS ASSIGNED/PUTS EXPIRED CALLS EXPIRED/PUTS ASSIGNED CLOSED
4 / 5 2 5 3*  / 1 4   / 0 0

    

Weekly Up to Date Performance

April 21 – 25, 2014

New purchases for the week beat the time adjusted S&P 500  by 1.2% and also surpassed the unadjusted S&P 500 index by 0.8% during a week that ended badly on more geo-political concerns.

The market lost all of its moderate gains for the week on its final day of trading and finished with an adjusted loss for the we
ek of 0.4% and an unadjusted loss of 0.1%. On the other hand, new positions gained 0.7%.

As often happens when the overall market is week the existing positions beat the overall market after trailing last week and disrupting a string of weeks in which it had beaten the market. This week it beat the overall market by a relatively large 0.7%

For positions closed in 2014 the performance exceeded that of the S&P 500 by 1.6%. They were up 3.3% out-performing the market by 93.9%.

While it wasn’t a good way to end the week, it was finally one that made sense, given the renewed tension overseas.

What is still surprising is that past periods of heightened tension, that coincidentally perhaps came on Fridays, didn’t really erode the market, other than for one time. That time, however, saw most of the losses recouped in the final 30 minutes of trading, which was really unusual.

This time around it was just a dour day from the beginning as the selling was much worse than the pre-open market would have had you believe was in store.

As usual, the real value of a covered option strategy becomes clear when the market is struggling or flat or even mildly to moderately higher. That leaves only truly strong market performance that’s difficult to match. While that was the norm for 2013 it may be time to remember that isn’t the historical norm. Generally stocks go up and down, only occasionally doing so in a sustained manner.

In case you haven’t noticed, this isn’t 2013.

In the past 5 years we’ve seen two of those large sustained moves, one in each direction.

I know which direction I prefer, but I also know which direction wasn’t as bad as it should have been.

I have mixed feelings about this week, especially with Friday’s disappointment.

Although it didn’t snatch any positions from the jaws of assignment, I wasn’t able to get much in the way of new coverage on existing positions this week. While there was some reasonable rollover activity and generating some income for the forward week, I still would have preferred more assignments and having more cash on the sidelines. I also would have liked more in the way of ex-dividend plays, but the past few weeks have been a combination of slim pickings and poor timing in terms of price movements right before those ex-dividend dates.

At least it was fortuitous, maybe serendipitous, that most of the week’s rollovers were able to get done on Thursday, especially since Friday is the much more common time to do so. For those following along on my personal trades the same goes for rolling over some of those puts.

What a difference a day makes. Who knew?

< span style="font-family: arial, helvetica, sans-serif; font-size: medium;">All in all positions faired reasonably well, but it’s really clear that companies are taking it on the chin when earnings aren’t meeting expectations, or even worse, when offering diminished guidance. That speaks to a very wary market and it’s not as if money from one sector is rolling into another one.

My sense is that money that’s fleeing is partially going into traditional safety areas, but also going off to the side. While I don’t generally want to be with the crowd, I have no argument with setting some money aside. I just wish that this week would have allowed me to join them in a more meaningful way.

The optimist sees that sideline cash as money ready to drive the market higher. The pessimist sees everything as a negative, so I won’t even venture a guess as to what degree they read this weakness and wariness.

Next week is already populated with a number of expiring positions so I will likely be looking for opportunities to sell contracts for the following week, as was done this week for all other than the Facebook puts.

What I don’t know is how willing I’ll be to add too many new positions as cash is available, but definitely beginning to run low and beginning to test my comfort level.

Hopefully it will be a quiet weekend and cooler heads prevail in Russia and Ulkraine, but no one can feel very secure when having to rely on the behavior of others.

That’s what I continually told myself when I would leave my kids home alone , telling them not to touch the fireworks and hypodermic syringes I would routinely leave scattered on the kitchen table.

I wonder if they listened?



 

     

This week’s details may be seen in the Weekly Performance spreadsheet * or in the PDF file, as well as as in the summary.below

(Note: Duplicate mention of positions reflects different priced lots):



New Positions Opened:  BX, FB (puts), JPM, KSS, TXN, UNH

Puts Closed in order to take profits:  none

Calls Rolled over, taking profits, into the next weekly cycle:  BBY, GPS, LOW, MOS

Calls Rolled over, taking profits, into extended weekly cycle:  EBAY (5/9)

Calls Rolled over, taking profits, into the monthly cycle:  none

Calls Rolled Over, taking profits, into a future monthly cycle: none

Calls Rolled Up, taking net profits into same cyclenone

New STO:  BMY, RIG

Put contracts sold and still open: none

Put contracts expired: FB

Put contract rolled over: none

Long term call contracts sold:  none

Calls Assigned:   BMY*, CSCO, HFC (* will query subscribers on Monday to see if BMY assigned, having closed at $50.51)

Calls Expired:   C, LULU, MA, VZ

Puts Assigned:  none

Stock positions Closed to take profits:  none

Stock positions Closed to take losses: none

Calls Closed to Take Profits: none

Ex-dividend Positions:  LOW (4/21 $0.18), BX (4/24 $0.35)

Ex-dividend Positions Next Week:  none

 

 

For the coming week the existing positions have lots t
hat still require the sale of contracts:   AGQ, C, CLF, DRI, FCX, FDO, GM, IP, JCP, LULU, MA, MCP, MOS,  NEM, PBR, PM, RIG, TGT, VZ, WFM, WLT, WY (See “Weekly Performance” spreadsheet or PDF file)



* If you don’t have a program to read or modify spreadsheets, you can download the OpenOffice Suite at no cost.



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Daily Market Update – April 28, 2014 (Close)

 

Daily Market Update – April 28, 2014 (Close)

When the morning started I thought this week may be an interesting one.

Well, if today is an indication, I’ve had enough interesting stiff to last me for the week.

The movements today wewn’t the kind that we see very often. Where the market got back its confidence in the final hour is really a mystery.

For starters, nothing happened over the weekend on the international scene, as was the fear on Friday and may have accounted for the weakness to end last week. Even those used to having seen these kind of brinksmanship games may have thought that something, perhaps unintentional, was going to result in an adverse event and subsequent fall-out in the markets.

So without that overhang it’s getting off to a push higher with word of increased merger and buy out activity and a sense of relief. The relief, could still, however, be short-lived..

Then later in the week are the FOMC announcement and the Employment Situation Report. The last time around both of those saw surprising strong turnaround sell-offs following initially positive responses. In both cases neither the initial responses nor the reversals were very rational because neither really introduced any new news.

Also this morning, just before the opening bell came word that some further sanctions will be levied against Russia, but like the previous ones, they are directed toward individuals, so it remains to be seen how the market looks at them. Basically, the more biting the sanctions the more bearish the market reaction.

This is another week that I would be content to let prices move higher even if that was without much in the way of new purchases for the week. I would like to see the higher prices open up opportunities to just sell more calls on existing positions.

As with some previous weeks, with enough positions set to expire this Friday, where possible I’d like to begin populating next week or even the monthly expiration with expiring contracts, rather than adding to the already lengthy list this week.

With a handful of assignments my cash reserves are higher but they are so after coming off from a recent low point. I would very much like to see that level get even higher so I’m not likely to chase after new positions and may return to the low level of buying activity from two and three weeks ago.

As long as there are opportunities to generate income from existing positions that’s acceptable, but only for so long.

With the market pointing toward a higher open this morning I will sit and see if it has any legs before getting overly excited. With news of some additional sanctions against Russia will certainly come some response which may have its own impact, so I plan to tread softly this morning.

After a few weeks of really nothing going on it’s actually nice to see some many different factors entering into the equation, although I may end up regretting that feeling, as sometimes boredom is better than unnecessary excitement.

While anything can bring opportunity too much of the unknown isn’t something that really benefits anyone.

Hopefully some clarity and some rational thought returns to the market and lets it simply concentrate on earnings and fundamentals, although hoping for that may itself be fairly irrational, given past history.

Today’s market did nothing to add to the clarity but at least you have to have a little more confidence heading into tomorrow after the really nice reversal of the reversal.

Then again, there’s always tomorrow to throw a wrench into well thought out plans, but it is a Tueday and we all know what that means.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Daily Market Update – April 28, 2014

 

 

Daily Market Update – April 28, 2014 (9:45 AM)

This week may be an interesting one.

For starters, nothing happened over the weekend on the international scene, as was the fear on Friday and may have accounted for the weakness to end last week. Even those used to having seen these kind of brinksmanship games may have thought that something, perhaps unintentional, was going to result in an adverse event and subsequent fall-out in the markets.

So without that overhang it’s getting off to a push higher with word of increased merger and buy out activity and a sense of relief. The relief, could still, however, be short-lived..

Then later in the week are the FOMC announcement and the Employment Situation Report. The last time around both of those saw surprising strong turnaround sell-offs following initially positive responses. In both cases neither the initial responses nor the reversals were very rational because neither really introduced any new news.

Also this morning, just before the opening bell came word that some further sanctions will be levied against Russia, but like the previous ones, they are directed toward individuals, so it remains to be seen how the market looks at them. Basically, the more biting the sanctions the more bearish the market reaction.

This is another week that I would be content to let prices move higher even if that was without much in the way of new purchases for the week. I would like to see the higher prices open up opportunities to just sell more calls on existing positions.

As with some previous weeks, with enough positions set to expire this Friday, where possible I’d like to begin populating next week or even the monthly expiration with expiring contracts, rather than adding to the already lengthy list this week.

With a handful of assignments my cash reserves are higher but they are so after coming off from a recent low point. I would very much like to see that level get even higher so I’m not likely to chase after new positions and may return to the low level of buying activity from two and three weeks ago.

As long as there are opportunities to generate income from existing positions that’s acceptable, but only for so long.

With the market pointing toward a higher open this morning I will sit and see if it has any legs before getting overly excited. With news of some additional sanctions against Russia will certainly come some response which may have its own impact, so I plan to tread softly this morning.

After a few weeks of really nothing going on it’s actually nice to see some many different factors entering into the equation, although I may end up regretting that feeling, as sometimes boredom is better than unnecessary excitement.

While anything can bring opportunity too much of the unknown isn’t something that really benefits anyone.

< p>Hopefully some clarity and some rational thought returns to the market and lets it simply concentrate on earnings and fundamentals, although hoping for that may itself be fairly irrational, given past history.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

  

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Dashboard – April 28 – May 2, 2014

 

 

 

 

 

MONDAY:   The week lloks to start off with a push from talk of deals and mergers and hopefully will have some momentum going into mid-week’s FOMC announcement

TUESDAY:     It’s Tuesday, so that means that the market is likely headed higher. Coming during an Employment Situation Reprt week what more guarantee can you need?

WEDNESDAY:  Bad GDP, mediocre earnings may yet be discussed at today’s final day of FOMC meeting, but likely no impact and announcement not likely to express much change in policy. The reaction? Who knows?

THURSDAY:    Another fan fareless closing record and now only the Employment Situation Report left to go to close the week with hopefully continued strength

FRIDAY:  Employment Situation Report, finally. But moe importantly, whay side of the ned did traders get out of today as probale expected numbers are delivered?

 

 



                                                                                                                                           

Today's Trades

 

 

 





 “SNEAK PEEK AT NEXT WEEK” APPEARS ON FRIDAYS

Sneak PeekPie Chart Distribution

 

 

 

 

 

 

 

Weekly Summary 

  

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Weekend Update – April 27, 2014

“The Bear” is waking up.

Whether you interpret that to mean that Russia is seeking to return to some of its faded and faux glory left behind as its empire crumbled, or that the stock market is preparing for a sustained downward journey, neither one likes to feel threatened.

As we prepare for the coming week the two bears may be very much related, at least if you believe in such things as “cause and effect.”

It now seems like almost an eternity when the first murmurings of something perhaps going on in Crimea evoked a reaction from the markets.

On that Friday, 2 months ago, when news first broke, the DJIA went from a gain of 120 points to a loss of 20 in the final hour of trading, but somehow managed to recapture half of that drop to cap off a strong week.

Whatever happened to not going home long on the brink of a weekend of uncertainty?

Since that time the increased tensions always seemed to come along on Fridays and this past was no different, except that on this particular Friday it seems that many finally went home with lighter portfolios in hopes of not having lighter account balances on Monday morning.

As often is the case these kind of back and forth weeks can be very kind to option sellers who can thrive when wandering aimlessly. However, while we await to see what if any unwanted surprises may come this weekend, the coming week packs its own potential challenges as there will be an FOMC announcement on Wednesday and the Employment Situation Report is released on Friday. Although neither should be holding much in the way of surprise, it is often very surprising to see how the market reacts to what is often the lack of news even when that is the expectation.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum or “PEE” categories.

With the prospects of some kind of uncomfortable beginning to the coming week there may be reason to stay away from those companies or sectors that might have enhanced risk related to any kind of escalating “tit for tat” that may occur if events in and around Ukraine and Russia deteriorate.

Bed Bath and Beyond (BBBY), which as far as I know has little exposure east of Bangor and west of Los Angeles, is one of those companies that suffered the wrath of a disappointed market. Like many that stumble, but whose underlying business, execution or strategies aren’t inherently flawed, there comes a point that price stability and even growth returns. While it has only been 2 weeks since earnings, Bed Bath and Beyond has withstood any further stresses from a wounded market and has thus far settled into some stability. While some may question the legitimacy of using this past winter’s weather as an excuse for slumping sales, I’m not willing to paint with a broad brush. In fact, I would believe that retailers like Bed Bath and Beyond, typically not located in indoor malls would be more subject to weather related issues than mall based, one stop shopping centers.

Having been to a number of other countries and having seen the high regard in which coffee is held, it’s not very likely that Keuring Green Mountain (GMCR) would feel any serious loss if exports to Russia were blocked as part of sanctions. At the current high levels, I’m surprised to be considering shares again, but I have had a long and happy history with this very volatile stock that has taken on significantly greater credibility with its new CEO.

Because of its volatility its option premiums are always attractive, but risk will be further enhanced as earnings are scheduled to be reported the following week. Shares are approaching that level they stood before its explosive rise after the most recent earnings report.

Aetna (AET) for a brief moment looked to be one of those reporting earnings that was going to capitalize on good news. Following a nice advance on the day of earnings it started on this past fateful Friday with another 1.5% advance on top of a nearly 6% advance the day before. Within 10 minutes and well before the market started its own decline, that early gain was completely gone.

As pro-Russian militias may say if they believed that any expatriate nationals might be threatened in France, “C’est la vie.” While that is certainly the case, such unexpected moves re-offer opportunity as the health care insurers are in a position to bounce back from some recent weakness. With earnings now out of the way and little bad news yet to be reported regarding the Affordable Healthcare Act transition, Aetna can get back to what health insurance companies have always been good at doing, besides lobbying. Although it’s dividend is on the low side, Aetna is a company that I could envision as a long term core holding.

Dow Chemical (DOW) also reported earnings this past week and beat projections the old fashioned way. They cut costs in the face of falling revenues. While that says nothing good about an economy that is supposed to be growing, Dow Chemical’s value may be enhanced as it has activists eyeing it for possible break-up. On the other end, defending the status quo is a hardened CEO who is likely to let little fall through the cracks as he pursues his own vision. While shares are trading near their highs the activist presence is potentially helpful in keeping shares trading within a range which entices me to consider shares now, after a small drop, rather than waiting for a larger one on order to re-open a position. With its option premiums, generous dividend and opportunity for share appreciation, Dow Chemical is one stock that I would also consider for longer term holding.

I’m on the fence over Cypress Semiconductor (CY). I currently own shares and always like the idea of having some just as it trades near it strike price. It has a good recent habit of calling $10 its home and works hard to get back to that level, whether well above or well below. However, befitting its high beta it fell about 5% on Friday and has placed itself quite a distance from its nearest strike. While I generally like paying less for shares, in the case of Cypress I may be more enticed by some price migration higher in order to secure a better premium and putting shares closer to a strike that may make it easier to roll over option contracts to June 2014, if necessary. Holding shares until June may offer me enough time after all of these years to learn what Cypress Semiconductor actually does, although I’m familiar with its increasingly vocal CEO.

This is another week replete with earnings. For those paying attention last week a number of companies were brutalized last week when delivering earnings or guidance, as the market was not very forgiving.

Among those reporting earnings this week are Herbalife (HLF), Twitter (TWTR) and Yelp (YELP).

There’s not much you can say about Herbalife, other than it may be the decade’s most unpredictable stock. Not so much in terms of revenues, but rather in terms of “is it felonious or isn’t it felonious?” With legal and regulatory issues looming ahead the next bit of truly bad news may come at any moment, so it may be a good thing that earnings are reported on Monday. At least that news will be out of the way. Unlike many other volatile names, Herbalife actually move marginally higher to end the week, rather than plunging along with the rest. My preference, if trading on the basis of earnings, would be to sell puts, particularly if there is a substantive price drop preceding earnings.

Twitter lost much of the steam it had picked up in the early part of the week and finished at its lows. I already have puts on shares having sold them about a month ago and rolled them forward a few times in the hopes of having the position expire before earnings.

However, with its marked weakness in the latter part of the week I’m interested in the possibility of selling even more puts in advance of earnings on Tuesday. However, if there is price strength on Monday, I would be more inclined to wait for earnings and would then consider the sale of puts if shares drop after earnings are released.

Yelp is among those also having suffered a large drop as the week’s trading came to its close. as with Twitter, the option market is implying a large earnings related move in price, with an implied volatility of nearly 15%. However, a drop of less than 21% may still be able to deliver a 1.1% return.

For those that just can’t get enough of earnings related trades when bad news can be the best news of all, a more expanded list of potential trades can be seen.

Finally, Intel (INTC) and Microsoft (MSFT) are part of what now everyone is affectionately referring to as “old tech.” A few months ago the same people were somewhat more derisive, but now “old tech” is everyone’s darling. Intel’s ex-dividend date is May 5, 2014, meaning that shares would need to be owned this week if hoping to capture the dividend. Microsoft goes ex-dividend during the final week of the May 2014 cycle.

Both stocks have been frequent holdings of mine, but both have recently been assigned. Although they are both trading near the top of their price ranges, the basic appeal still holds, which includes generous dividends and satisfactory premiums. Additionally, bit also have in common a new kind of leadership. Intel is much more focused on operational issues, befitting the strength of its new CEO, while Microsoft may finally simply be ready to “get it” and leverage its great assets, recognizing that there may be some real gems beyond Windows.

Traditional Stocks: Momentum Stocks: Aetna, Bed Bath and Beyond, Dow Chemical, Microsoft

Momentum: Cypress Semiconductor, Keurig Green Mountain

Double Dip Dividend: Intel (ex-div 5/5)

Premiums Enhanced by Earnings: Herbalife (4/8 PM), Twitter (4/27 PM), Yelp (4/30 PM)

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.

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Copyright 2014 TheAcsMan

It's Raining Earnings, Hallelujah

Increasingly for that more speculative portion of my portfolio I look at earnings season as being a great time to generate quick, albeit sometimes nerve wracking, income from those stocks that can be unpredictable in their typical daily trading and even more so when earnings and guidance are at hand.

For those that haven’t tried this approach before, the basic concepts and considerations are related to:

The concepts are covered in previous articles, but in capsulized form the goal is to find a stock that can deliver a desired ROI when selling a weekly put option at a strike level that is lower than the bottom of the range defined by the option market’s implied volatility for that stock.

That is the single objective metric. The remainder of the decision process is based upon share behavior. My preference is to sell puts into share weakness in advance of earning or to sell puts after earnings and subsequent weakness. A number of the positions covered in this article suffered large losses in Friday’s (April 25, 2014) sell off.

While I highlight specific stocks I lose interest when I see shares running higher prior to earnings, as it drives up the strike level that I would have to use to achieve my desired 1% ROI for the week and may also shift premium enhancement on the call side of the equation, rather than to the put side, which also contributes to a lower ROI.

While the traditional mantra for put sellers is that you must be willing to own shares, I do not want to take ownership unless an ex-dividend date is approaching. For that reason it is important to have liquidity in the options market in order to be able to concurrently close the position and open a new one for a forward week. Ideally, that would be done at a lower strike price, although the primary goals are to delay or prevent assignment and to collect additional net premiums.

Among the stocks for consideration this week are those that can be readily recognized for their inherent risk, which may also influence price behavior irrespective of earnings or guidance. Those companies high beta, or volatility, will provide higher premiums along with greater risk. Examining the past history of a stock’s movement after previous earnings releases may be helpful in evaluating the risk-reward proposition.

This week I’m considering the sale of puts of shares of Coach (COH), Herbalife (HLF), LinkedIn (LNKD), MasterCard (MA), MetLife (MET), Phillips 66 (PSX), Seagate Technology (STX), Twitter (TWTR), Western Digital (WDC) and YELP (YELP).

While I generally do not discuss relative merits of the stocks being considered for earnings related trades, preferring to remain agnostic to those issues and simply following the considerations outlined above, Twitter bears some additional comment.

I an currently short Twitter puts, having been rolling them over weekly since their initial sale of March 24, 2014. While Twitter reports earnings this coming week, it also faces another potentially adverse event as the significant lock-up period comes to e end the following week. Although some important Twitter shareholders have indicated that they would not be selling shares at that time, there is the potential for the supply – demand equilibrium to be disrupted on underlying shares and exert downward pressure.

And of course, there’s always Herbalife and its own unique drama that can explode further on any given day. Inexplicably, while most traded lower to end this week, Herbalife didn’t follow.

Finally, while I don’t generally like the use of margin, it is often perfectly suited for this kind of trading activity. I tend to use these trades in a fully invested account that has margin privileges. Selling cash secured puts decreases the amount of margin that is available to you, however, it does not draw on margin funds and, therefore, does not incur interest expenses. Those expenses will only be incurred if the shares are assigned to you and are subsequently purchase through the use of credit.

As always, if considering the sale of put options, there is always the possibility of early assignment, especially if shares fall far below
the strike price selected and, as a result, the seller should be prepared to either own shares or pre-emptively rollover the put option to a forward date. The decision to do so may be helped by closely looking at prevailing option premiums to understand whether the holder of the put option may be better served by simply trading the option and achieving leveraged returns, as opposed to having to deliver shares for purchase, which diminishes return. For that reason, it is also important to have sufficient liquidity in the option market.

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Copyright 2014 TheAcsMan