Daily Market Update – April 3, 2014 (Close)

This morning the only story was the press conference being given by the head of the European Central Bank, Mario Draghi. He is the counterpart of Janet Yellen and in the past when he has had something dovish to say his words had buoyed our markets.

A couple of years ago he was adamant about how the ECB would be an aggressive player and not allow the kind of fiscal crises within the EU that many of us thought might cascade through the EU as Greece and Spain and other stories were unfolding.

That was a day when our markets skyrocketed.

Not so today, at least not in the pre-open trading, which is as flat as markets can come, as the DJIA is knocking on the door to set its first new record of the year, having been left behind by the S&P 500.

And not so the rest of the day either, as we just traded in a narrow range all day with a slightly negative bias. The broader market was worse than the DJIA and the NASDAQ was absolutely abysmal today, way out of proportion to the rest of the market.

As with most Thursdays my thoughts were predominantly on how to extricate and escape positions so that the coming week is one that has new opportunity.

One position that won’t need extrication is Anadarko. After a series of DOH trades, it looks like it will be assigned tomorrow at $87, despite a purchase price of $89.42. Yet it will end up with an ROI of about 2.2%.

While I knew that Anadarko was going to appear in court tomorrow regarding its Tronox environmental damages case, the gap between the government and Anadarko was so great, nearly $24 billion, that it was hard to imagine that there would be word of an agreement, especially since there was more than money involved. There was also the idea of being able to run from responsibility through the bankruptcy courts, as GM may be in a position to do, as well.

I guess the government preferred not to test that in the courts.

With a huge surge in the mid-afternoon on the rumor now it’s time to see if there is a “sell on the news” kind of wave ready to hit. If so, there may be reason to roll that position over in an attempt to add to the gains. But even what any reasonable person may consider to be a huge fine after any agreement may simply be looked upon as an incredible savings, not to mention the costs involved in the ongoing litigation.Reportedly, the agreement is for a payment of $5 billion.

If the goal is some combination of generating cash and growing assets it’s important to keep rolling over existing positions and having assignment of others. Thursdays and especially Fridays are the days when those things are hoped to happen.

Unfortunately, due to the low volatility the expirations aren’t as staggered as I would have liked them to be. The premiums for forward weeks are often so low that there is some risk with tying down assets for those time frames.

Instead, this week, for example, feels more like a monthly cycle ending week, while the actual cycle ending week has only two positions currently set to expire.

Even though I’ve started each of the past few weeks looking to diversify more on the basis of time that hasn’t always been the case in practice as some of those low forward week premiums have done a good job of sending me elsewhere.

With tomorrow’s Employment Situation Report at hand, the unveiling of news is always a risk factor to keep in mind. That’s even though that particular report has found itself to have a strong association with an advancing market, but you just can’t take anything for granted.

Where possible, I’ll try to look for rollover opportunities today, although I tend not to do too many on Thursdays, with last week being an outlier kind of week.

The factor most involved is price, in that with forward week volatility being lower than current week volatility, it can be relatively expensive to close some option positions and therefore, relatively unrewarding to open new ones.

That balance usually changes as time value begins to run out the closer and closer we get to the closing bell on Friday.

With so many positions set to expire tomorrow it has the makings of a hectic day unless some of that load can be shifted to today.

All in all, these are good problems to have.

 

 

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