Daily Market Update – August 11, 2014 (8:00 AM)

As summer is beginning to wind down there are fewer scheduled economic or potentially market moving events to get our attention. This is another of those very quiet weeks and, so far, at least, it doesn’t appear as if there’s going to be anything substantively new on the geo-political front to begin the week.

Following Friday’s surprisingly strong close there appears to be some additional strength left to get us started as nothing really occurred over the weekend to dampen whatever it was that stoked that sudden enthusiasm.

With some assignments last week and  some additional cash to put to work than I might have expected going into last Friday’s trading, there may be some bargains still to be had, despite Friday’s climb.

This is another week where I won’t be adverse to opening new positions but as good as Friday’s trading session was, am still not overly enthusiastic. However, as is often the case with these bouncing kind of markets, I am definitely more enthusiastic about the bottom line, as those weeks tend to be good in a relative sense and, when also good in an absolute sense, make you hope for more of the same.

Last week didn’t really have any unusually strong performers, yet somehow there was generally some broad strength among existing positions that allowed their aggregate to out-perform the market for the week.

However, to demonstrate just how topsy turvy the world of covered options can be the margin of that out-performance decreased from Thursday to Friday, as the caps imposed by strike levels make it difficult to keep up with 180 point gains.

Nonetheless, bioh relative and absolute constituencies could point to something good, but not readily explainable.

Still, with far too many positions sitting without cover, it continues to be my preference to change that situation, but that has been a difficult task, especially as the volatility continues to remain low, despite some of the recent climb that had everyone marveling.

That climb, however big in relative terms, was still tiny in absolute terms and didn’t do very much to noticeably drive up option premiums. Friday’s surge higher only helped to then knock those premiums down another peg after dashing some hopes for their climbs.

Seeing the morning’s indication of a moderately higher opening is encouraging, insofar as perhaps getting closer to finding some new cover for existing positions, but it doesn’t necessarily add to the desire to spend or recycle money in the cash reserve. Of particular interest this week, though, may be some of those positions that were hit very hard last week, such as Walgreen and Time Warner, that have begun to show some stability and did so even prior to the Friday gain that took most everything along for the ride.

My anticipation is to not be very active with new positions this week, although there are more th
at have initial appeal to begin the week than in a number of weeks past.

The issue at hand though is to decide which market of last week is where the prevailing wind will blow.

The markets of last Monday and Friday or the market of the days in-between?

Very different markets and I may have gotten sucked in by last Monday’s trading, particularly coming off of a week with enough assignments to fuel spending.

This week, especially for positions not really beaten down, or not offering a dividend, I may be a little more circumspect and a little less generous with the outflow of cash.

But for what that concern about outflow is worth, the situation is fluid.