Monthly Archives: June 2014

Daily Market Update – June 18, 2014 (Close)

With nothing noteworthy this morning it looks as if the market may be in a state of suspended animation until 2 PM when the FOMC statement is released.

In the few seconds afterward computers will scan the statement for any changes in wording or the frequency of certain words and may trigger buy or sell programs that can then, moments later, seem like they were the wrong initial decisions.

So sane people sit back and wait to see what’s left as things begin to settle.

And that is exactly the way the script was enacted, except that there wasn’t too much of a knee-jerk and that’s because there was really no material difference in the words or wording in the release.

At precisely 2 PM the market started moving higher and then took a little breather until about 10 minutes into the press conference, when the prepared statement was completed.

What was clear was that unless the FOMC moved the needle away from their $10 Billion in monthly tapering, perhaps adjusting in one direction or another by the loose $5 Billion so many were focused upon, there shouldn’t have been much reason to see any kind of marked reaction to the release.

Today’s post – 2 PM activity was nicely enhanced by the Chairman’s press conference, an activity started by Ben Bernanke, in his desire to make the thoughts behind the decisions to be more transparent.

Off hand, I can’t recall any slips of the tongue or inadvertent comments made by Bernanke during any of those press conferences that got the markets to over-react or misinterpret intent, but Janet Yellen may be remembered for a while for some misunderstandings during her first press conference.

But perhaps as with Ben Bernanke, who likely was part of some similar responses, that too will eventually be forgotten. But for now, the memory of that first Yellen press conference as Federal Reserve Chairman is still too fresh, so there is a continued expectation for some sort of slip and there are those who are standing ready to sell if they sense the slightest bit of negativity.

So far this has been a fairly dull week with extraordinarily little variance and range in trading. While that may change tomorrow and perhaps even on Friday, due to the quadruple witching, the bigger picture of low variation still seems to be intact, as there continues to be an absence of any catalyst to shake things up. Even with market movement coming out during today’s events, they’re not likely to have much lasting impact.

Even tomorrow may be an entirely different story.

For the past two years nothing has really had a substantive impact for more than a handful of trading sessions. While the early stages of conflict in Crimea got the market a little nervous for a few days, so far events in Iraq have done nothing to convince people to secure some profits and watch from the sidelines.

Even the revised GDP late last month did nothing to detract from the pervasive optimism that characterizes this market and the belief that there is very little risk for a reversal of fortune. With only expectations for economic growth going forward, even if only at a slow pace, there’s little reason to expect anything other than the current path.

So today is more of the same. Unless some screaming opportunity comes along, this being a Wednesday, the likelihood of adding a new position is small. This being an FOMC Wednesday makes it even smaller.

In the event that today’s events move the market strongly forward any chance to sell options on uncovered positions would be a well received gift. That market strength would also be a nice way to feel more secure about seeing sufficient assignments this Friday to be in a good position to start off the July 2014 option cycle with cash in hand.

With that in mind it now remains an exercise in sanity and patience for the next two days.

Daily Market Update – June 18, 2014 (9:00 AM)

With nothing noteworthy this morning it looks as if the market may be in a state of suspended animation until 2 PM when the FOMC statement is released.

In the few seconds afterward computers will scan the statement for any changes in wording or the frequency of certain words and may trigger buy or sell programs that can then, moments later, seem like they were the wrong initial decisions.

So sane people sit back and wait to see what’s left as things begin to settle.

Unless the FOMC moves the needle away from their $10 Billion in monthly tapering, perhaps adjusting in one direction or another by the loose $5 Billion so many were focused upon, there shouldn’t be much reason to see any kind of marked reaction to the release.

Today’s post – 2 PM activity will be potentially enhanced by the Chairman’s press conference, an activity started by Ben Bernanke, in his desire to make the thoughts behind the decisions to be more transparent.

Off hand, I can’t recall any slips of the tongue or inadvertent comments made by Bernanke during any of those press conferences that got the markets to over-react or misinterpret intent, but Janet Yellen may be remembered for a while for some misunderstandings during her first press conference.

But perhaps as with Ben Bernanke, who likely was part of some similar responses, that too will eventually be forgotten. But for now, the memory of that first Yellen press conference as Federal Reserve Chairman is still too fresh, so there is a continued expectation for some sort of slip and there are those who are standing ready to sell if they sense the slightest bit of negativity.

So far this has been a fairly dull week with extraordinarily little variance and range in trading. While that may change today and perhaps even on Friday, due to the quadruple witching, the bigger picture of low variation still seems to be intact, as there continues to be an absence of any catalyst to shake things up. Even if something comes out during today’s events, they’re not likely to have much lasting impact.

For the past two years nothing has really had a substantive impact for more than a handful of trading sessions. While the early stages of conflict in Crimea got the market a little nervous for a few days, so far events in Iraq have done nothing to convince people to secure some profits and watch from the sidelines.

Even the revised GDP late last month did nothing to detract from the pervasive optimism that characterizes this market and the belief that there is very little risk for a reversal of fortune. With only expectations for economic growth going forward, even if only at a slow pace, there’s little reason to expect anything other than the current path.

So today is more of the same. Unless some screaming opportunity comes along, this being a Wednesday, the likelihood of adding a new position is small
. This being an FOMC Wednesday makes it even smaller.

In the event that today’s events move the market strongly forward any chance to sell options on uncovered positions would be a well received gift. That market strength would also be a nice way to feel more secure about seeing sufficient assignments this Friday to be in a good position to start off the July 2014 option cycle with cash in hand.

With that in mind it now remains an exercise in sanity and patience for the next few hours and perhaps the next few days.

Daily Market Update – June 17, 2014 (9:30 AM)

With the past few Tuesdays not having followed the pattern of moving higher that expectation has disappeared and the market looks as if it will begin trading on the mildly lower side, pretty much as it has done almost every day for the past few weeks.

With the FOMC statement to be released tomorrow it’s also not too likely that there will be much in the way of committed trading today or tomorrow in its advance. That that was the theory last month and the market also broke with its Tuesday advancing pattern, but surprisingly traded much strong on Wednesday in advance of the statement’s release..

Suddenly, however, there is some discussion about a possible surprise being contained in tomorrow’s FOMC statement and it all revolves around $5 billion.

Where that $5 billion comes in is that the taper was a process to reduce the $85 billion of monthly Federal Reserve purchases of Treasuries and other debt instruments that was to be done $10 billion at a time during each month until the entire $85 billion in purchases was concluded.

Apparently the people of the Federal Reserve are comfortable with managing an economy in the trillions but they may not have realized that 85 isn’t evenly divisible by 10, so that leaves a month where there may be a possibility of reducing Federal Reserve purchases by $15 billion instead of the $10 we had become accustomed to seeing.

That $5 billion may make some people nervous and may be the reason given if there is a sell off following tomorrow’s statement release if the amount of taper is increased to $5 billion.

None of that makes much sense.

No one is arguing the opposite occurring if the Fed decides to instead have only a $5 billion taper in a single month, perhaps to conclude the program or even split that last $5 billion price into the remaining 5 months expected for the taper to continue its run.

With a couple of new purchases yesterday I’m not certain of how many more there will be this week.

This may end up being a very quiet week for adding new positions and instead focuses on trying to position current positions for the next monthly cycle.

While the fate of those positions appears to be good in terms of a combination of assignments and rollovers I don’t particularly like having so many at risk at one time, subject to a singular event just two days before expiration.

I keep harping and bemoaning the low volatility, but one of the other detriments to low volatility is that it  cheapens the premiums disproportionately for forward weeks, making it difficult to justify selling longer term options in an attempt to diversify holdings by time.

While there are some open contracts for next week and even July, it would be better if there were more even distribution by expiration date. That would make it easier to ride out any sudden moves higher or lower and still collect a reasonable fee for having sold the option contracts. But for the past few months that hasn‘t been the case and weeks like this one creep up hoping to survive any potential surprises or knee-jerk reactions.

So today isn’t likely to be one in which I expect to do much trading, but would still welcome even a gratuitous Tuesday advance that might increase the chances of selling some calls on uncovered positions.

I’m not expecting much, but in most markets you’re most likely to be disappointed when you have expectations.

Daily Market Update – June 16, 2014 (Close)

After a few weeks of little happening, this week has lots to come. If there was a vacuum last week, it is in the process of cracking this week as external and internal events are in focus.

The first event was actually brewing over the weekend and despite the continued loss of stability in Iraq and the likelihood of greater conflict, disruption of oil supplies and whatever other things might be tangentially related, the market appears to have ignored those events as it got ready to start a new week.

After the first full day of trading there was absolutely no evidence that anyone really cared about what was going on in Iraq, even as oil prices reacted and escalation seemed likely.

In addition to that continued uncertainty we have the monthly FOMC statement due on Wednesday, Janet Yellen’s ensuing press conference and a quadruple witching on Friday.

With some big merger news to begin the week the market was still looking to begin with a mildly weak opening and other than for a brief moment when it was down about 50 points it never really wavered from the flat line for most of the day.

Not having replenished cash reserves this past week and having lots scheduled for expiration this Friday, the likelihood is that I won’t be looking to open too many new positions, but where possible would want to look at an expiration using an expanded weekly option.

With so many positions set to expire as the monthly cycle ends I’m especially wary of Wednesday’s FOMC event. That’s really the case as this week starts off with many of the expiring contracts appearing to have good likelihood of assignment.

A flat or mildly positive week this week would be ideal for being able to get a nice combination of assignments and rollovers, but that’s just not the way things work. While I never give up on hoping or trying to mentally will the market to move in a specific direction, I’m not certain it really helps.

As for about the past 6 months there’s not much reason to suspect that there would be anything substantively different in the wording of the FOMC statement, but you never know how the market will react for the remainder of that day and for the next day, as well.

Compound that with the press conference to follow and you have increased possibility of a significant reaction, especially if there are any misplaced comments or fuzzily communicated thoughts. So far, that has happened only once during Yellen’s tenure and she does tend to speak in a very deliberative manner, but it is a two way street. It’s not just what she says but it’s also in how the words are parsed and interpreted. Reality may be a bystander when it comes to the interpretations.

Because of that potential risk there may be some reason to look at rolling over some positions, if the opportunities pres
ent themselves, prior to the FOMC statement release.

That’s something that I consider doing before each such FOMC but rarely actually do, especially as the forward week’s premiums are usually insufficient to offset whatever still remains on the current week’s premiums and make the trade itself worthwhile.

That, too, is something that would change with an increase in volatility.

For yet another week I would be very happy to generate the week’s revenue from selling calls on currently uncovered positions, but last week was a disappointment in that regard, even while the rest of the week went nicely, despite the market’s weakness.

Hopefully the opportunity to do so will present itself but that would require a turnaround from the early morning futures and pre-open trading. AS it turned out at least two opportunities did appear, but they were small premiums as the market isn’t pricing in any kind of movement.

Otherwise the plan is to stick to relatively low risk new positions or those not too likely to be influenced by international conflict and keep some fingers crossed.

The purchase of additional shares in Las Vegas Sands was entirely for a chance to get its dividend and in the belie that iraq won’t have too much of an undue impact. The Lowes purchase was more in the line of perceived low risk, especually after a recent 5% decline from where shares were last assigned just a week ago.

We’ll see what tomorrow may bring.