Monthly Archives: February 2015

Daily Market Update – February 19, 2015 (8:30 AM)

Yesterday’s FOMC Statement said essentially what I had written about yesterday and it confused stock traders and gave bond traders a reason to sell.

The 2 points that the FOMC raised were that low interest rates could have adverse effects and raising those rates too fast could also have adverse effects.

The net result of the comments was for many to believe that the once inveterate dovish FOMC was now leaning dovish after a brief dalliance with some more hawkish tones.

The release of their monthly statement did nothing to kindle optimism among stock traders, but for the moment, at least, caused bond traders to sell. While bond yields did go down about 4%, those yields are still well above where they were even 2 weeks ago.

With the FOMC Statement release now out of the way, there’s very little scheduled between now and the end of the February 2015 cycle.

Not that that means smooth sailing from here until Friday’s close, but even with events devolving in Europe, there doesn’t seem to be the kind of nervousness that would create a systemic retreat.

I nver feel comfortable counting those chickens before they’re hatched, as I’ve seen too many times when it doesn’t even take 2 full days to erase what should have been lots of rollovers and assignments.

Until tomorrow’s close I’m hoping that the market does still find time for some more increases.

Although most positions set to expire this week are within rollover or assignment range and I wouldn’t necessarily stand to benefit from the market going higher for the rest of the week, it could still offer some opportunity to sell more calls in an attempt to create some more income and enhance the week’s return.

While stocks haven’t moved very much this week, if you look around you’ll see that other asset classes, like bonds, precious metals and especially oil have been bouncing around wildly.

If you’ve owned the Gold Miners ETF or sold the puts you may be like me and wondering why all stocks couldn’t do that kind of frequent back and forth movement. Sometimes it is amazing at how those movements can give the opportunity to generate lots of accumulating premiums even when the net result of all of that movement is really minor.

It has been a while since stocks, other than some individual stocks, have done that sort of thing on a regular basis. Seeing what GDX has been doing
recently just adds to the reasons I’d love seeing a return of volatility to more than just individual stocks, but to the market as a whole.

As today unfolds, with the pre-open futures pointing just mildly lower, I don’t anticipate too much activity. For now, any rollovers that may be possible are still a little too expensive to buy back, relative to their forward week premiums.

With a few positions possibly in line to be assigned and with cash reserves moving higher, any rollovers would likely look at either next week’s or the following week’s expiration dates, as new purchases next week may do the same. With a small number of positions set to expire next week and currently in decent position either for assignment or rollover, that gives some leeway to consider the following week for contracts in an effort to keep March diversified throughout the month.

Those are the plans, anyway. We’ll see how all of that actually works out as plans and reality don’t always have great correlation.

Daily Market Update – February 18, 2015 (Close)

Yesterday was a rare quiet day for 2015, which has, so far, been far more broad in its daily trading ranges, but as that volatility had increased it has slowly started to retreat.

That’s usually what happens when the market goes higher and when the trading ranges are smaller from day to day and during the day.

Today, while no one was really expecting it to happen, the volatility could have gotten a push as the FOMC Statement was to be released this afternoon. Lately there’s been a lot of focus on the new wording that the FOMC has been using to semi-quantitatively give an idea of when interest rate increases could be expected.

Today, there turned out to be mixed signals about the need for higher rates but the potential danger of rates going higher, too fast and so the market did nothing in its response.

That was actually a pretty mature way to act.

Given the nearly 30% increase in the interest rate of the 10 Year Treasury Note over the past few weeks, albeit from incredibly low levels, the bond market may be suggesting that the increase will be coming sooner than many now believe, as the futurists of the world are split into two camps on the issue.

There are those that believe that interest rates will be raised by the FOMC sometime in the middle of the year and others are saying that we won’t see any rise until 2016.

Following what may have sounded like a net dovish statement from the FOMC rates actually tumbled, down nearly 4% for the day.

The first clue over who will be right may come this week and re-inforced next week as major national retailers start to report their quarterly earnings. If the general axiom that the bond traders are the smartest guys in the room is correct, then their recent action on the 10 Year Note would suggest that those rates are going higher sooner, rather than later.

Today, they just blinked a little.

For those old enough to remember, increasing interest rates can be pretty frightening, but you have to go back about 30 years for that memory. We’ve never known the kind of situation that Japan and now Europe have undergone where low interest rates have lost their ability to stimulate the economy and higher interest rates appear to be the tonic for the economy.

While there’s definitely a negative aspect to increasing rates, including competition for investor’s money away from stocks, like most everything else, there’s good things in moderation.

In this case, increased interest rates is a sign of things getting better, but based on the kind of recovery that this has been, having come from incredible depths from its nadir 6 years ago, there’s not too much reason to fear the kind of over-heating that was seen in the 1970s. Back then, the only beneficiaries of increasing rates were banks and energy companies, who produced the oil that contributed to much of the rise in prices and subsequently, interest rates.

So even if the FOMC had said anything that would have taken the market by surprise, that reaction probably would have been very short lived. As it was the market started the morning off by continuing yesterday’s cautious trading until getting some word that all was clear.

With a shortened trading week and a few new positions already purchased, there wasn’t too much likelihood of adding any new positions today and the same probably holds for the rest of the week.

At this point I’m simply hoping that the week will end somewhere close to where we are as we begin this morning, giving a better cash position to begin the March 2015 option cycle.

That’s not too much too ask for.

Daily Market Update – February 18, 2015 (9:00 AM)

Yesterday was a rare quiet day for 2015, which has, so far, been far more broad in its daily trading ranges, but as that volatility had increased it has slowly started to retreat.

That’s usually what happens when the market goes higher and when the trading ranges are smaller from day to day and during the day.

Today, while no one is really expecting it to happen, the volatility could get a push as the FOMC Statement is released this afternoon. Lately there’s been a lot of focus on the new wording that the FOMC has been using to semi-quantitatively give an idea of when interest rate increases could be expected.

Given the nearly 30% increase in the interest rate of the 10 Year Treasury Note over the past few weeks, albeit from incredibly low levels, the bond market may be suggesting that the increase will be coming sooner than many now believe, as the futurists of the world are split into two camps on the issue.

There are those that believe that interest rates will be raised by the FOMC sometime in the middle of the year and others are saying that we won’t see any rise until 2016.

The first clue over who will be right may come this week and re-inforced next week as major national retailers start to report their quarterly earnings. If the general axiom that the bond traders are the smartest guys in the room is correct, then their recent action on the 10 Year Note would suggest that those rates are going higher sooner, rather than later.

For those old enough to remember, increasing interest rates can be pretty frightening, but you have to go back about 30 years for that memory. We’ve never known the kind of situation that Japan and now Europe have undergone where low interest rates have lost their ability to stimulate the economy and higher interest rates appear to be the tonic for the economy.

While there’s definitely a negative aspect to increasing rates, including competition for investor’s money away from stocks, like most everything else, there’s good things in moderation.

In this case, increased interest rates is a sign of things getting better, but based on the kind of recovery that this has been, having come from incredible depths from its nadir 6 years ago, there’s not too much reason to fear the kind of over-heating that was seen in the 1970s. Back then, the only beneficiaries of increasing rates were banks and energy companies, who produced the oil that contributed to much of the rise in prices and subsequently, interest rates.

So if the FOMC says anything that takes the market by surprise, whatever reaction there will be will probably be short lived, but this morning the market is continuing yesterday’s cautious trading until getting some word that all is clear.

With a shortened trading week and a few new positions already purchased, there’s n
ot too much likelihood of adding any new positions today.

At this point I’m simply hoping that the week will end somewhere close to where we are as we begin this morning, giving a better cash position to begin the March 2015 option cycle.

That’s not too much too ask for.

Daily Market Update – February 17, 2015 (Close)

Another day and another day of snow on the east coast.

This week there’s very little going on in economic news other than tomorrow’s FOMC Statement release, so snow may be the top issue for the next few days.

Coming off of last week’s nice gains and adding to what has been a nice February, so far, I wouldn’t mind if this was a quiet week for the markets. The latest pattern of recovery from the last of several drops lower has been very different from the previous recoveries.

Instead of jumping straight back from those drops, usually about 5% lower, this time around the market has been taking two steps forward and then either a small step back or simply digesting the move higher.

Considering that in the past two months these market drops have been coming on a much more frequent basis, there was reason to start getting concerned. When they had been coming on a regular basis, just about every 2 months for nearly the past 3 years, it does get your attention when you get about 4 of those drops in the period of time that you normally would have seen just one. 

The manner in which Friday’s record close was set was a much better way to do so than those straight lines to the top. This week would be a perfect one to digest those gains for the month and take a rest to move even higher.

When looking at the pre-open futures it looked as if it would be a totally non-committal kind of opening and it stayed that way all day long with trading ending up in a pretty narrow range.

Last month was the first time in several months that the market didn’t go substantially higher on the day before an FOMC Statement release, which was a return to the more logical way of trading in advance of the release. Today was another month that returned to a more rational pattern of not getting too far ahead of the curve before some potentially substantive policy change may be made known.

As it is interest rates of the 10 Year Treasury shot up by 6% and is getting itself ahead of the FOMC.

With lots of positions expiring this week I hope that the FOMC Statement, whatever nuanced phrases it may contain that do or don’t signal a change in policy, does nothing to move the markets in any substantial way.

Since there are so many positions expiring this week and that currently are in a position to be assigned and there was some replenishment in cash from last week’s assignments, the likelihood is that if there are any new purchases for this trade shortened week I would want to look at expirations that are somewhere in the March 2015 cycle.

The problem with going out too far in those contracts is that while the market moves higher the general trend will be that those premiums will be getting relatively smaller. In the face of an advanci
ng market you really don’t want to commit your positions too far in advance and possibly miss more of the upside, especially at such low premiums.

With already a number of positions set to expire on the final week of the March 2015 option cycle, any new contracts would try to look at expiration dates in between, although some of this week’s potential stock picks have only monthly options available, so those go a little counter to strategies to diversify positions by expiration and optimize premiums.

For this morning my expectation was that I’ll be sitting tightly on the cash pile waiting to see if any thing of interest looks like it’s going on further sale or at least firming up and maybe poised for a small comeback.

That didn’t last long as there seemed to be enough reason to loosen up those purse strings, including for a position expiring this week, among others.

With a number of the week’s expiring positions in or near the money, there is a little bit of a cushion in the event that the market reacts poorly after the FOMC Statement, so there’s not too much need to think about doing rollovers early in the week, although even when there is reason to think about doing so there most often isn’t a worthwhile trade to be made.

The exception to that, however, was the GDX, once again, as gold took a big hit this morning and took the Gold Miners ETF along with it. That particular holding has been a joy as the premiums keep piling up on the position. Too bad others can’t do that on a regular basis.

Hopefully, then, this week will have little drama and little of that market heat for anything other than offering some more chance to sell calls on uncovered positions and melt some snow.

All in all, however, today was a good way to get a short week off the ground.

Daily Market Update – February 17, 2015 (9:00 AM)

Another day and another day of snow on the east coast.

This week there’s very little going on in economic news other than tomorrow’s FOMC Statement release, so snow may be the top issue for the next few days.

Coming off of last week’s nice gains and adding to what has been a nice February, so far, I wouldn’t mind if this was a quiet week for the markets. The latest pattern of recovery from the last of several drops lower has been very different from the previous recoveries.

Instead of jumping straight back from those drops, usually about 5% lower, this time around the market has been taking two steps forward and then either a small step back or simply digesting the move higher.

Considering that in the past two months these market drops have been coming on a much more frequent basis, there was reason to start getting concerned. When they had been coming on a regular basis, just about every 2 months for nearly the past 3 years, it does get your attention when you get about 4 of those drops in the period of time that you normally would have seen just one. 

The manner in which Friday’s record close was set was a much better way to do so than those straight lines to the top. This week would be a perfect one to digest those gains for the month and take a rest to move even higher.

So far, looking at the pre-open futures it looks as if it will be a totally non-committal kind of opening.

Last month was the first time in several months that the market didn’t go substantially higher on the day before an FOMC Statement release, which was a return to the more logical way of trading in advance of the release. Today may be another month that returns to a more rational pattern of not getting too far ahead of the curve before some potentially substantive policy change may be made known.

With lots of positions expiring this week I hope that the FOMC Statement, whatever nuanced phrases it may contain that do or don’t signal a change in policy, does nothing to move the markets in any substantial way.

Since there are so many positions expiring this week and that currently are in a position to be assigned and there was some replenishment in cash from last week’s assignments, the likelihood is that if there are any new purchases for this trade shortened week I would want to look at expirations that are somewhere in the March 2015 cycle.

The problem with goiung out too far in those contracts is that while the market moves higher the general trend will be that those premiums will be getting relatively smaller. In the face of an advancing market you really don’t want to commit your positions too far in advance and possibly miss more of the upsi
de, especially at such low premiums.

With already a number of positions set to expire on the final week of the March 2015 option cycle, any new contracts would try to look at expiration dates in between, although some of this week’s potential stock picks have only monthly options available, so those go a little counter to strategies to diversify positions by expiration and optimize premiums.

FOr this morning my expectation is that I’ll be sitting tightly on the cash pile waiting to see if any thing of interest looks like it’s going on further sale or at least firming up and maybe poised for a small comeback.

With a number of the week’s expiring positions in or near the money, there is a little bit of a cushion in the event that the market reacts poorly after the FOMC Statement, so there’s not too much need to think about doing rollovers early in the week, although even when there is reason to think about doing so there most often isn’t a worthwhile trade to be made.

Hopefully, then, this week will have little drama and little of that market heat for anything other than offering some more chance to sell calls on uncovered positions and melt some snow.

.