Week in Review – March 9 – 13, 2015

 

 

Option to Profit Week in
Review –  March 9 – 13,  2015
 
NEW POSITIONS/STO NEW STO ROLLOVERS CALLS ASSIGNED/PUTS EXPIRED CALLS EXPIRED/PUTS ASSIGNED CLOSED
2 / 2 1 2 2  /  0 4  / 1 0

    

Weekly Up to Date Performance

March 9 – 13,   2015

This was another bad week, further separating March from February and making it look like January, as there continues to be very little reason for the back and forth kind of motion that is leaving the market with a bias toward the downside.

New positions beat both the unadjusted and adjusted S&P 500 by 0.3% in a week that the market again had no real stories to react to and just like the previous week seemed to trade in a different vacuum each day.

However, despite the relative out-performance, this was was just like last, as those positions still were losers. The 2 new positions were 0.6% lower while both the adjusted and unadjusted indexes were 0.9% lower.

Existing positions, continued their second week under-performing the overall market as energy and metals continued last week’s weakness, abandoning their February gains.

Positions closed in 2015 continue to out-perform the market. They are an average of 5.0% higher, while the comparable time adjusted S&P 500 average performance has been 1.9% higher. That 3.2% difference represents a 169.9% performance differential.

 

This week was one that was predominated by interest rates, currency exchange rates and declining energy prices again.

What made some of the week’s action hard to understand and certainly hard to take was hearing such people as Blackrock’s Chief Global Investing Strategist blame the week’s sharp decline on the sudden realization that currency issues were going to impact corporate earnings.

It’s not clear who he was referring to as having just come to that sudden realization, but I can tell you that the people least likely to have come to that realization on a timely basis are not the people that move markets.

I can only assume that he was referring to portfolio managers.

You would have thought that they would have known better, especially since there are some fairly well understood cycles and “cause and effect” pairs that have demonstrated themselves as inviolate over time.

It doesn’t take too much of a genius to know that a country with a trade deficit and seeing the value of its currency climb significantly in relationship to its trading partners is likely going to see that deficit rise and is going to see corporate earnings dependent upon trade with those countries with weakening currencies decrease.

So why the sudden surprise by those who should know more and better than you and I?

This, like last week wasn’t one to be very pro-active, as there really wasn’t any justification for what was going on. Although some stock prices started looking more appealing, the uncertainty surrounding markets could have been making all of those bargains illusory.

Most week my internal metric is to see a total of 10 trades get performed. That includes some combination of new positions, new STO trades, rollovers and expirations. Most weeks that number is achieved, but not this week. Unlike previous weeks when it was a mistake to count those chickens before they were assigned, this week didn’t offer much chance of even getting them rolled over, as all of those orphaned positions were either in energy or metals.

It was a set back to see some positions expire without the chance to roll them over, although I was happy to see a couple of positions assigned and to at least create some additional opportunity to recycle the cash next week, or decide to just let it add to the pile.

As March begins to resemble January more and more, those days of rapid mini-corrections in the 3-5% range may be back. In January those happened every 2 weeks, although as soon as February started they were a thing of the past.

Based on the closing weakness on Friday, despite the losses being cut in half in the final 30 minutes,  I’m not ready to think that March will be anything other than a copy of January. But I do hope that just like January it is limited in time and scope and at least gives way to a nice April.

With a little bit of cash in hand and a fair number of posit
ions set to expire next week as the monthly option cycle comes to its end, normally I would think about the possibility of letting any new positions bypass the coming week and look at some expiration dates using extended options.

However, the market hit of the past 2 weeks isn’t leaving next week’s positions in likelihood of being assigned, At this point I would be very happy to be able to roll them over, but the damage of the past two weeks was fairly significant.

With the market now down about 3% from the February 2015 highs, there’s still plenty of room for more downside, unless March really takes on a January character and sticks to repeating 3% declines in fairly close succession.

For the most part much of next week will be focused on what the FOMC may or may not say. The good news is that an indication that interest rate hikes are really coming sooner or an indication that they’re coming later, just as Yellen suggested just 2 weeks ago, could both be a tonic for what the last two weeks have wrought.

 

 



This week’s details may be seen in the Weekly Performance spreadsheet * or in the PDF file, as well as as in the summary.below

(Note: Duplicate mention of positions reflects different priced lots):



New Positions Opened:   KO, UAL

Puts Closed in order to take profits:  none

Calls Rolled over, taking profits, into the next weekly cycle:  none

Calls Rolled over, taking profits, into extended weekly cycle:  BAC

Calls Rolled over, taking profits, into the monthly cycle: none

Calls Rolled Over, taking profits, into a future monthly cycle:  none

Calls Rolled Up, taking net profits into same cycleGME

New STO:  SBGI (4/15/15)

Put contracts expired: none

Put contracts rolled over: none

Long term call contracts sold:  none

Calls AssignedSNDK, UAL

Calls Expired:  CHK, GDX, HAL, KO

Puts Assigned:  none

Stock positions Closed to take profits:  none

Stock positions Closed to take losses: none

Calls Closed to Take Profits: none

Ex-dividend PositionsNEM (3/10 $0.02), KO (3/12 $0.22), GME (3/13 $0.36)

Ex-dividend Positions Next WeekLVS (3/19 $0.65)

 

 

For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, ANF, AZN, CHK, CLF, COH, FAST, FCX, GDX, HAL, HFC, .INTC, JCP, JOY, LVS, MAT, MCP, MOS,  NEM, RIG, SBGI, WFM, WLT (See “Weekly Performance” spreadsheet or PDF file)



* If you don’t have a program to read or modify spreadsheets, you can download the OpenOffice Suite at no cost.



Daily Market Update – March 13, 2015

 

  

 

Daily Market Update – March 13, 2015 (8:45 AM)

 

The Week in Review will be posted by 6 PM and the Weekend Update will be posted by Noon on Sunday.

The following trade outcomes are possible today:

 

AssignmentsSNDK, UAL

RolloversBAC

Expirations:   CHK, GDX, HAL, KO

 

The following were ex-dividend this week:  NEM (3/10 $0.02), KO (3/12 $0.33), GME (3/13 $0.36)

The following will be ex-dividend next week: LVS (3/19 $0.65)

 

Trades, if any, will be attempted to be made by 3:30 PM.

 

 

 

Note:   Just a word about the rollover trade in GameStop late yesterday afternoon.

Shares go ex-dividend tomorrow for $0.36 and the option contract had a week to run. Further, the company reports earnings during the first week of the April 2015 cycle.

With shares trading about $0.44 above the threshold price for early assignment, the fact that a week still remained and that there could be some speculative trading in the days before earnings on March 26th, there was a chance the the $39 strikes wouldn’t be assigned early.

However, I wanted to do something to at least be able to get part of that dividend, especially since the position was more than 3 months old and I felt like I “deserved” the dividend.

The way to do that was by rolling shares over from $39 to $39.50 and using the same expiration date. Doing so incurred an ND of $0.27 in exchange for an additional $0.50 in the strike, which yields a net $0.23.

That’s the case if the shares are assigned early tonight.

With shares closing at $39.79 the chances of the March 20 $39.50 strikes being assigned early is very small, but there still remains a fair chance that the $39 strikes will face early assignment.

If neither the $39 nor $39.50 options are exercised early you also get to keep the dividend.

However, if you were able to roll over to the $39.50, then, based on the trading of shares subsequently, you can make the decision to rollover again, but this time, maybe even back down to $39 in order to get some additional premium to offset the reduction in strike price, in order that there is a better chance of getting out of the position prior to earnings.

 

 

 

Daily Market Update – March 12, 2015 (Close)

 

  

 

Daily Market Update – March 12, 2015 (Close)

 

With another loss, albeit a small one yesterday, after having spent most of the session in the green, the market was about 3.7%.lower to start the day.

That’s the level of the declines seen in January 2015, when there were actually 3 such declines in succession during the course of that month. That period really stood out in contrast to the preceding 30 months or so that had been progressing in a very regular fashion, having declines every 2 months.

That was reason to take notice.

As the pilot episode of a basic cable show had one of its stars say “you don’t just break bad.”

But in looking back there really was a black and white difference between the market’s behavior from the end of 2014 to the beginning of 2015. It wasn’t just the difference between closing 2014 at a record high and then tradiung below those highs to start 2015, it was the quality of the trading. Not only increased volatility, since we hqad seen that a few times earlier in 2014, but the rapid stacatto behavior of the markets.

Not just the stock markets, but just about everything else surrounding it that can have direct and indirect impacts. While markets in such commodities as corn, lumber and cocoa may be interesting, they’re not the kind that have much impact on stock markets. On the other hand, government bonds, currencies, precious metals and oil markets do and they have been equally wild of late.

It’s hard, though, to explain the behavior. Although the simple thing is to point fingers at the dislocation in the oil markets, the dislocation isn’t that clear.

What is surprising is to hear so many well regarded analysts talk about being caught off guard by the trickle down effects of events, as if the impacts of a stronger US Dollar had never been studied before. Almost any middle school aged child could tell you that in an economy that runs a trade deficit that deficit is likely to increase as our goods become more expensive and competing goods get less expensive and begin coming into the country in greater numbers.

So you might think that someone along the line would have already used some logic, the kind that had proven itself correct in the past, to surmise that lower prices for goods in Europe and fewer exports of goods to Europe, would have an adverse impact on the earnings of companies that have business in Europe.

But as with so many things in economics, that’s just part of a well defined cycle, that you would have thought would have taken no one by surprise, especially the people that control the great majority of the stock market’s trading volume.

Since most stocks of any consequence are majority owned by institutions the moves you see on a daily basis, including the ones that feel so irrational, are all institutionally inspired.

This morning’s mild gain in the pre-open futures didn’t bring too much in the way of comfort and as always was the kind that could end up being meaningless as the day began to trade for real. At that moment in the morning that I was looking at the early numbers, I recalled that in the past 2 weeks there was no justification in counting chickens before they were hatched. Despite that there was still the possibility of some assignments this week and maybe even a rollover or two.

What no one had counted on, and there’s absolutely no reason for the market’s behavior today, but it simply went up 250 points as easily as it went down 300 points earlier in the week.

So that means that the assignments and rollovers are still in contention, at least, but there’s still tomorrow to contend with. Those would be nice if they could end up happening that way, but there’s still a lot of dust that has to settle as 2015 has thus far had 3 months of trading with extremely different characters that turned on and off on a dime and without much connection to real news.

Next week we get what may be a very consequential FOMC Statement release and a Chairman’s press conference where we may possibly be able to put some of the irrational fears of a small interest rate increase behind us and finally move on.

 

Note:   Just a word about the rollover trade in GameStop late in the afternoon.

Shares go ex-dividend tomorrow for $0.36 and the option contract had a week to run. Further, the company reports earnings during the first week of the April 2015 cycle.

With shares trading about $0.44 above the threshold price for early assignment, the fact that a week still remained and that there could be some speculative trading in the days before earnings on March 26th, there was a chance the the $39 strikes wouldn’t be assigned early.

However, I wanted to do something to at least be able to get part of that dividend, especially since the position was more than 3 months old and I felt like I “deserved” the dividend.

The way to do that was by rolling shares over from $39 to $39.50 and using the same expiration date. Doing so incurred an ND of $0.27 in exchange for an additional $0.50 in the strike, which yields a net $0.23.

That’s the case if the shares are assigned early tonight.

With shares closing at $39.79 the chances of the March 20 $39.50 strikes being assigned early is very small, but there still remains a fair chance that the $39 strikes will face early assignment.

If neither the $39 nor $39.50 options are exercised early you also get to keep the dividend.

However, if you were able to roll over to the $39.50, then, based on the trading of shares subsequently, you can make the decision to rollover again, but this time, maybe even back down to $39 in order to get some additional premium to offset the reduction in strike price, in order that there is a better chance of getting out of the position prior to earnings.

 

 

 

Daily Market Update – March 12, 2015

 

  

 

Daily Market Update – March 12, 2015 (8:30 AM)

 

With another loss, albeit a small one yesterday, after having spent most of the session in the green, the market is now now about 3.7%.

That’s the level of the declines seen in January 2015, when there were actually 3 such declines in succession during the course of that month. That period really stood out in contrast to the preceding 30 months or so that had been progressing in a very regular fashion, having declines every 2 months.

That was reason to take notice.

As the pilot episode of a basic cable show had one of its stars say “you don’t just break bad.”

But in looking back there really was a black and white difference between the market’s behavior from the end of 2014 to the beginning of 2015. It wasn’t just the difference between closing 2014 at a record high and then tradiung below those highs to start 2015, it was the quality of the trading. Not only increased volatility, since we hqad seen that a few times earlier in 2014, but the rapid stacatto behavior of the markets.

Not just the stock markets, but just about everything else surrounding it that can have direct and indirect impacts. While markets in such commodities as corn, lumber and cocoa may be interesting, they’re not the kind that have much impact on stock markets. On the other hand, government bonds, currencies, precious metals and oil markets do and they have been equally wild of late.

It’s hard, though, to explain the behavior. Although the simple thing is to point fingers at the dislocation in the oil markets, the dislocation isn’t that clear.

What is surprising is to hear so many well regarded analysts talk about being caught off guard by the trickle down effects of events, as if the impacts of a stronger US Dollar had never been studied before. Almost any middle school aged child could tell you that in an economy that runs a trade deficit that deficit is likely to increase as our goods become more expensive and competing goods get less expensive and begin coming into the country in greater numbers.

So you might think that someone along the line would have already used some logic, the kind that had proven itself correct in the past, to surmise that lower prices for goods in Europe and fewer exports of goods to Europe, would have an adverse impact on the earnings of companies that have business in Europe.

But as with so many things in economics, that’s just part of a well defined cycle, that you would have thought would have taken no one by surprise, especially the people that control the great majority of the stock market’s trading volume.

Since most stocks of any consequence are majority owned by institutions the moves you see on a daily basis, including the ones that feel so irrational, are all institution
ally inspired.

This morning’s mild gain in the pre-open futures doesn’t bring too much in the way of comfort and could end up being meaningless as the day begins to trade for real. At the moment, recalling that in the past 2 weeks there was no justification in counting chickens before they were hatched, there is still the possibility of some assignments this week and maybe even a rollover or two.

Those would be nice if they could end up happening that way, but there’s still a lot of dust that has to settle as 2015 has thus far had 3 months of trading with extremely different characters that turned on and off on a dime and without much connection to real news.

Next week we get what may be a very consequential FOMC Statement release and a Chairman’s press conference where we may possibly be able to put some of the irrational fears of a small interest rate increase behind us and finally move on.

 

 

 

Daily Market Update – March 11, 2015 (Close)

 

  

 

Daily Market Update – March 11, 2015 (Close)

 

After yesterday’s 300 point loss, following a nearly similar loss last Friday which was only half recovered to open the week, this morning’s small gains in the pre-open futures trading were no where close to recovering what’s been lost.

It still astonishes me that people can keep a straight face and talk about how it’s the realization that currency exchange rates are now serious challenges to corporate earnings, that was responsible for yesterday’s decline.’

The S&P 500 was now about 3.5% below its high from less than 2 weeks ago, as the morning was set to begin. However, the rise to that high occurred over a 4 week period. For the 6 weeks preceding that rise the market had been toying with 3-5% drops every 2 weeks. For the 2 1’2 years before that it was more like every 2 months that some sort of sell-off got our attention.

I’m not of the belief that there’s reason to believe that this time we’ll finally see the 10% kind of decline that everyone agrees is long overdue. While you can’t deny that it’s long overdue, it’s hard to point at any surprises that would be responsible for taking us there. However, based on yesterday’s market, apparently surprises aren’t a necessary component in the mix.

While so many, including myself wouldn’t have been surprised by a “dead cat bounce” today, it’s probably better that one didn’t occur. You saw what happened on Monday when we got one in response to Friday’s decline.

I’d rather see digestion of large moves, whether gains or losses. Today turned out to be a day for digesting.

While all of this is going on with stocks the volatility in other markets is also striking. Precious metals, interest rates, currencies and oil continue to move in big ways and all of those have direct and indirect influences on US equity markets, as well.

Is all of what’s going on, including the initiation of European Quantitative Easing now constituting a “Perfect Storm” that conspires against stocks?

I don’t think so, but it is making things unnecessarily challenging right now.

With a couple of new purchases for the week and little indication of anything positive to come for the rest of the week, my guess is that I won’t be adding any new positions and instead will be focusing on trying to get rollovers or maybe get lucky and get an assignment, or two to end out the week.

It’s always tempting, however, to want to buy something after the kind of price drops that we’ve seen in the past few days. The problem is that as we begin to approach the next earnings season, which begins in just 4 weeks, we may start getting earnings warnings from companies before their official reports, that reflect the currency exchange rates of late.

It’s hard to want to get in front of that kind of news. At the very least you would want to see some kind of evidence that there’s some stability ahead sooner rather than later.

With only a paltry advance in the pre-open futures, that wasn’t not the kind of advance that I’d be looking for to signal some kind of stability, although when it was all other it did turn out that way, even though the direction at the end of the day was reverse that of the futures, but at least the magnitude was predictive.

At this point, you have to believe that there may be another 1.5-2% left in the current decline, so I might rather be content to be wrong about that while I’m on the sidelines watching existing positions recover.