Daily Market Update – September 11, 2014 (Close)

This morning the futures market showed the kind of conviction that has been missing for a while.

Unfortunately it wasn’t the kind of conviction that I’d want to see, especially near the end of the week, when I want to see prices hovering around or near their strike prices.

The likely culprit this morning was the surprising increase in jobless claims which was consistent with the equally surprising drop in employment numbers that was reported last week and written off by many as being erroneous.

Not just an anomaly, but many were saying that those numbers were just wrong.

For some reason the market is putting some emphasis on today’s numbers. more so than they normally would be doing, perhaps validating the previous employment statistics, although if mistakes can happen once, why not again?

My hope, not surprisingly, was that the market would move onward from the initial shock of the disappointment, as perhaps someone will take it as an opportunity to again begin some buying.

As it would turn out, the shock didn’t last very long and there was at least some tentative, although not really widespread buying, but it did come in some of the right spots for me.

At this point we’ve become accustomed to the market recovering after drops of about 4 to 5%, but we were still quite a bit from even that level, as the morning began, even after the initial near triple digit drop. Even at the low point of the morning there was still more room to drop before even getting to that 5% level..

There’s wasn’t too much to be done while waiting for the market to find itself or to get on some kind of path. Although I had cash in reserve, it wasn’t as much as I might like in the event of any sustained weakness. However, as said on any number of occasions the developing benefit that may be seen is an increase in volatility and then a subsequent increase in those option premiums.

Still, I’d rather have the cash than the theory.

In an environment when prices are falling and premiums are rising those DOH trades become more plausible and can help to reduce the impact of any market decline and hopefully leave one, in relative terms, better off than they would otherwise have been when the damage is over.

Regardless, my preference would have been for some mild, but continuing market strength at this point in the week and fortunately, despite what would prove to be a loss for the day, it wasn’t very bad at all, especially since there was the opportunity to execute some rollover trades.

One of those, for Las Vegas Sands, was done specifically to have a chance at getting next week’s dividend. Despite shares having been above their strike price the rollover to two weeks away and at a strike level an additional $0.50 higher,
opened the possibility of either getting the dividend or being assigned a week early, but having received two week’s worth of premium, in addition to the $0.50 higher strike price.

In shares that really were hit unduly hard because of adverse news from Macao, I may even want to add more of those shares next week, because there may also be capital gains to be made in the trade, in addition to premiums and dividends.

But as the week winds down timing can mean a lot, as expirations are a factor. Any kind of precipitous decline in shares can be looked at as fortuitous or unfortunate, depending on that timing.

A strong drop on a Monday may be very welcome, while the same thing on a Friday to end the monthly cycle can be unfortunate, if leading to the loss of assignments or can be fortuitous if bringing prices that were well above their strike prices much closer to either allow rollovers or even potential re-purchases the following week.

So we’ll now see how tomorrow will go, after receiving a little bit of a reprieve today. With now fewer positions set to expire this week and not being in the more dire position that looked to be developing in the morning, it’s easier to look forward to that final day of trading.