Daily Market Update – August 25, 2014 (Close)

Looking back, last week was an odd one.

Looking ahead, this week may be equally so, but for different reasons.

I don’t really recall the last time that not a single new position was from the Weekend Update playlist, but last Monday’s strong weekly opening saw immediate jumps in the playlist components and made them less desirable.

That part was true for today, as well.

Couple that with last week being another week of just a few scant new position purchases and there was little opportunity to follow the script.

This week appeared to be ready to get off to a moderately positive start as there was no substantive geo-political news over the weekend, no blockbuster comments coming from Jackson Hole and little on the scheduled economic news front to act as a potential challenge.

That all sounded good, especially if your sights are set on a very short term horizon.

But the continued strength led to a different problem, especially in an already volume challenged environment. No one wanted to trade.

With a lot of assignments last week I had cash to take advantage of any opportunities that may have appeared, but there weren’t very many willing buyers of options and there was lots of price rigidity. But as the week got ready to open I found myself not particularly interested in too much risk, anyway, and wanted to be focused more on blue chips, with the possible exception of some earnings related trades, that as usual have elevated risk.

However, because there are so few rollover opportunities as we enter this week and also so few opportunities for assignment to help offset some of the funding necessary for next week, there was reason to try and establish some new weekly positions, as it is true that it takes money to make money.

But as with most of those weekly scripts there has to be room for re-writes that take a measure of what appears before you. At the week’s outset I would have loved the idea of accumulating more dividends and focusing on blue chips, but that could easily be subject to change.

Today, no one appeared very willing to move on price. As the volatility is so very low and the premiums are fairtly pathetic, increasingly every penny becomes more significant part of the return and is ahrder and harder to let go.

With relatively few positions already in place that are set to expire this Friday, I wasn’t thinking of spending too much time looking at expanded weekly contracts, whose premiums are severely challenged by the continuing low volatility environment. By the same token, with a number of positions already having contracts expiring at the cycle’s end, I also wasn’t too not anxious to add to those with four weeks still left
to go. However, some of the potential trades for this week, such as McDonalds, which is also ex-dividend, may be better as a monthly trade, to also attempt to capitalize on the possibility for capital appreciation as well.

That’s part of the theme of this week’s playlist, as the majority of the positions have under-performed the S&P 500 over the past two months and may have some capability of making up for those losses, at least in relative terms.

Since it really is a fool’s game to try and time markets or even individual stocks, some of those depressed positions may still need some time to acquit themselves and the monthly contracts may be better suited, despite the low premiums.

It’s always nice to have a plan, it’s just too bad that there is no shortage of factors to alter the plan and no shortage of conflicting considerations in its implementation.

 

P.S. On a bookkeeping note, if you have shares of Holly Frontier and had sold calls on that position, your contracts have been adjusted by $0.50 to reflect the special $0.50 dividend, that is made on a quarterly basis, yet is somehow still “special.” Because of that nature the strike levels are all adjusted to reflect the distribution of that additional dividend, as long as it’s more than $0.125/share..

Holly Frontier will also go ex-dividend on August 28th for its regular $0.32 quarterly dividend, so the threshold price target is $50.82, before any rational person would consider making an early exercise in order to capture the dividend. However, the use of the September 20 option means that a truly rational person would likely want to see a price somewhat greater than $50.82, due to the additional time value remaining in the option, that may make its trading more valuable than capturing a dividend.