Daily Market Update – April 8, 2014 (Close)

First of all, sorry for sending the rollover of Verizon Trading Alert so late yesterday.

As shares traded much higher in the latter part of the afternoon there was just no logical trade to be made. That changed in the final 20 minutes as shares started coming down a little from their day’s highs and an opportunity came to get some more premium and likely retain the dividend, although there were complicating considerations.

If you ever wanted to see what a “flight to safety” was all about, all you had to do was pay attention to Verizon in yesterday’s trading.

When the market started to further deteriorate in the early afternoon, making it begin to appear as if the day would be a lost cause and maybe a forerunner to something worse, Verizon did an about face at 12:25 PM.

It was probably no coincidence that today was its ex-dividend date, but shares soared well past their “threshold” value, that would have made early assignment of the April 11, 2014 $47.50 calls unlikely.

I was ambivalent about the prospects of rolling over the contract in order to retain the healthy dividend, especially since there was no $47.50 strike the following week and the week after was earnings week.

A quick calculation showed that the difference was an ROI of about 1.5%, based on the extra premium and keeping the dividend.

Since earnings are April 24th and the contract expires on April 25th, there’s also a chance that I’ll be looking to roll that contract over early, as well to mitigate earnings related risk.

However, what was especially interesting was that AT&T, which also went ex-dividend today, didn’t follow the same path. For a brief time in the mid-afternoon, it also started going higher as the market faltered, but then went back on a selling path.

The diverging behaviors yesterday probably sends some kind of message, but those messages typically have shorter and shorter half lives these days. Lately, even the fears of market corrections have very short half lives and deservedly so, because reality has borne out the fact they they are shallow and short lived of late.

Yesterday was not a very good day, but again, it was a day without much evidence of real panic, although the movement into Verizon may have been representative of an undercurrent of fear.

While the movement into safety wasn’t too much of a surprise, the real surprise was that there were some people that didn’t make the rollover trade on Verizon and somehow weren’t assigned.

The greatest likelihood is that was related to the fact that option contract holders
have until 5:30 PM to decide whether to exercise or not. For those that look at such ness after he market closed yesterday and it’s possible that convinced some contract holders that there was enough of a risk with shares opening even lower this morning that they were happy to just take their chances on the contracts, rather than taking the liability of a potential loss on shares.

So while some people were making those kinds of decisions after the closing bell, during trading hours on the other hand, it did appear as if there were some relative bargains to be had. While there is so much focus on the fall of Momentum stocks, it is hard to understand, on a fundamental basis, why so many other stocks would get taken along for the ride.

Ultimately, if there is a ride to be had, the sad truth is that almost everything gets taken along, but while so many are trying so hard to draw parallels to other bubbles, it just doesn’t seem that way.

While there may be risk ahead and while it may be a good idea to keep some cash on the side, it just doesn’t feel like the 15-20% kind of correction that some are calling for.

With 6 new purchases yesterday, I didn’t know how much more willing I would be this week to add to those positions and sink deeper into cash reserves, although some market stability, as we often see on Tuesdays, did prompt some more activity and also got a couple of new call contracts written on existing positions and on top of that, getting a chance to roll out to some future weeks.

Small victories.

For now, I would be content to let yesterday’s and today’s new positions be the only ones added this week and would be more than happy to see them go by the end of the week and hopefully help to continue that cycle of life that is the cash reserve, which makes all things possible.

Tomorrow brings another in an endless series of FOMC minute releases and so we can all sit and watch and see whether the market just takes an arbitrary direction yet again if nothing new is added into the economic mix.