Daily Market Update – August 12, 2014 (Close)
While yesterday’s start to the week wasn’t exactly “Merger Monday” the news from Kinder Morgan did seem to offer some kind of lift to the market early in its trading.
That lift faded out as the day’s trading came to its close, but still the day represented a further gain, albeit small, from Friday’s really unexpected surge. The complete lack of any other kind of news, economic or international, coupled with a listless volume day, made it a listless day in itself.
There didn’t appear to be the same kind of mild stimulus this morning and there was little on the expected or unexpected news front to have much of an impact on today’s trading.
So I was surprised to have bought as much as I did, especially given the competing and tugging considerations that were around to start the day.
With the monthly cycle coming to its end this week and having 12 positions set to expire, I would have liked to give some greater consideration to using expanded weekly contracts for any new positions that may yet be opened this week, although I was expecting that it would be a slow week for new positions.
As I looked at some of the positions with contracts expiring this week I’m likely to continue some hesitancy in rollovers for some of them, as the cost of the rollover can sometimes just be too high relative to the reward. That’s particularly true for some of the positions that trade only monthly contracts or that have their premiums expressed in $0.05 increments, rather than in pennies, such as Fastenal and Holly Frontier, respectively.
A notable exception was the very late in the afternoon rollover of today’s purchase of DuPont, which goes ex-dividend tomorrow. Several times in the final hour I thought that the rollover wouldn’t be necessary to get that dividend, but the share price kept bouncing back and finally I couldn’t wait any longer, as I really don’t like sending out trading alerts in the final 30 minutes of trading.
But getting back to the hesitancy in making those rollover trades, philosophically, that goes against my desire to not take anything for granted and try to capitalize on the opportunity when it appears, because you never know if that opportunity will be there again when trading resumes on Monday morning.
Again, that’s a casualty of low volatility, where the forward week premium is relatively low as compared to the expiring premium, which is just another way of saying that the rollover trade may just be too expensive.
While I may have still been hopeful of being able to sell some new covers today, generating some income for the week increasingly looked as if it would require the need to be more proactive and to look for the new position opportunities rather than waiting for some price spikes and the chance to create cover.
As always, there are those kind of competing needs, signals and concerns. On the one hand there is the expectation of not making too many of those trades contrasted with the realization that it is precisely those trades that may be necessary to reach weekly financial objectives.
So while the concerns are there about spending down cash reserves if the market appears to be going nowhere soon, the only method for creating an income stream is to use the reserve. If the market subsequently moves in a positive way the income stream can then be supplemented with rollovers and possibly even new call sales, while the reserve itself may be rejuvenated with assignments.
And if not?
There’s always next week, or maybe even tomorrow.