Dashboard – May 4 – 8, 2015

 

 

 

 

 

SELECTIONS

MONDAY:   Other than Friday’s Employment Situation Report, there’s not much economic news this week and earnings are winding down. We’ll see whether last week’s indecision continues as the week looks to open moderately higher

TUESDAY:    .This will likely be a quiet day and there’s very little reason for the market to find anything to react toward, but soon someone is going to start talking about how relatively high interest rates are becoming and offering potential competition to stocks

WEDNESDAY: Today’s ADP and Petroleum Status Reports are about as exciting as it gets. After yesterday’s plunge, the expectation should be for a bounce higher on lighter volume, but the pre-open futures look to be reluctant, although there is a modest gain in the early making

THURSDAY:  The immediate aftermath is never very good when the Chairman of the Federal Reserve opines that stocks are too expensive. With the Employment Situation Report still to come tomorrow there is either time to recover or to pile on

FRIDAY: All eyes are on this morning’s Employment SItuation Report. It can end up turning what is still a fairly negative week into one palatable.

 

 

 


 



 

                                                                                                                                           

Today's TradesCash-o-Meter

 

 

 





 “SNEAK PEEK AT NEXT WEEK” APPEARS ON FRIDAYS

Sneak PeekPie Chart Distribution

 

 

 

 

 

 

 

Weekly Summary

  

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Weekend Update – May 3, 2015

For all the talk about how April was one of the best months of the year, that ship sailed on April 30th when the DJIA lost 192 points, to finish the month just 0.2% higher.

It will take complete Magellan-like circumnavigation to have that opportunity once again and who knows how much the world will have changed by then?

Higher Interest rates, a disintegrating EU, renewed political stalemate heading into a Presidential election, rising oil prices and expanding world conflict are just some of the destinations that may await, once having set sail.

Not quite the Western Caribbean venue I had signed up for.

With the market getting increasingly difficult to understand or predict, I’m not even certain that there will be an April in 2016, but I can’t figure out how to hedge against that possibility.

But then again, for all the talk about “Sell in May and go away,” the DJIA recovered all but 9 of those points to begin the new month. With only a single trading day in the month, if there are more gains ahead, that ship certainly hasn’t sailed yet, but getting on board may be a little more precarious when within just 0.4% of an all time closing high on the S&P 500.

The potential lesson is that for every ship that sails a new berth is created.

What really may have sailed is the coming of any consumer led expansion that was supposed to lead the economy into its next phase of growth. With the release of this month’s GDP figures, the disappointment continued as the expected dividend from lower energy prices hasn’t yet materialized, many months after optimistic projections.

How so many esteemed and knowledgeable experts could have been universally wrong, at least in the time frame, thus far, as fascinating. Government economists, private sector economists, CEOs of retail giants and talking heads near and far, all have gotten it wrong. The anticipated expansion of the economy that was going to lead to higher interest rates just hasn’t fulfilled the logical conclusions that were etched in stone.

Interestingly, just as it seems to be coming clear that there isn’t much reason for the FOMC to begin a rise in interest rates, the 10 Year Treasury Note’s interest rate climbed by 5%. It did so as the FOMC removed all reference from a ticking clock to determine when those hikes would begin, in favor of data alone.

I don’t know what those bond traders are thinking. Perhaps they are just getting well ahead of the curve, but as this earnings season has progressed there isn’t too much reason to see any near term impetus for anything other than risk. No one can see over the horizon, but if you’re sailing it helps to know what may be ahead.

What started out as an earnings season that was understanding of the currency related constraints facing companies and even gave a pass on pessimistic guidance, has turned into a brutally punishin
g market for companies that don’t have the free pass of currency.

All you have to do is look at the reactions to LinkedIn (NYSE:LNKD), Twitter (NYSE:TWTR) and Yelp (NYSE:YELP) this week, as they all reported earnings. Some of those would have gladly seen their stocks tumble by only 20% instead of the deep abyss that awaited.

Before anyone comes to the conclusion that the ship has sailed on those and similar names, I have 4 words for you: Green Mountain Coffee Roasters, now simply known as Keurig Green Mountain (NASDAQ:GMCR).

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum or “PEE” categories.

Coach (NYSE:COH) reported earnings last week and in 2015, up until that point, had quietly diverged from the S&P 500 in a positive way, if you had owned shares. As the luster of some of its competitors was beginning to fade and in the process of implementing a new global strategy, it appeared that Coach was ready to finally recover from a devastating earnings plunge a year ago.

It was at that time that everyone had firmly shifted their favor to competitor Michael Kors (NYSE:KORS) and had started writing Coach off, as another example of a company sailing off into oblivion as it grew out of touch with its consumers.

Who knew at that time that Kors itself would so quickly run out of steam? At least the COach ride had been a sustained one and was beginning to show some signs of renewed life.

I’ve owned shares of Coach many times over the years and have frequently purchased shares after earnings or sold puts before or after earnings, always in the expectation that any earnings plunge would be short lived. That used to be true, but not for that last decline and I am still suffering with a lot that I optimistically sold $50 August 2015 calls upon, the day before earnings were released.

Unlike many stocks that have suffered declines and that then prompts me to add more shares, I haven’t done so with Coach, but am ready to do so now as shares are back to where they started the year.

With a dividend payout that appears to be safe, an acceptable option premium and the prospects of shares re-testing its recently higher levels, this seems like an opportune time to again establish a position, although I might consider doing so through the sale of puts. If taking that route and faced with an assignment, I would attempt to rollover the puts until that time in early June 2015 when shares are expected to go ex-dividend, at which point I would prefer to be long shares.

As far as fashion and popularity go, Abercrombie and Fitch (NYSE:ANF) may have seen its ship sail and so far, any attempt to right the ship by changing leadership hasn’t played out, so clearly there’s more at play.

What has happened, though, is that shares are no longer on a downward only incline, threatening to fall off the edge. It’s already fallen off, on more than one occasion, but like Coach, this most recent recovery has been much slower than those in the past.

But it’s in that period of quiescence for a stock that has a history of volatility that a covered option strategy, especially short term oriented, may be best suited.

Just 2 weeks ago I created a covered call position on new shares and saw them assigned that same week. They were volatile within a very narrow range that week, just as they were last week. That volatility creates great option premiums, even when the net change in share price is small.

With earnings still 3 weeks away, as is the dividend, the Abercrombie and Fitch trade may also potentially be considered as a put sale, and as with Coach, might consider share ownership if faced with the prospect of assignment approaching that ex-dividend date.

T-Mobile (NYSE:TMUS), at least if you listen to its always opinionated CEO, John Legere, definitely has the wind blowing at its back. Some of that wind may be coming from Legere himself. There isn’t too much doubt that the bigger players in the cellphone industry are beginning to respond to some of T-Mobile’s innovations and will increasingly feel the squeeze on margins.

So far, though, that hasn’t been the case. as quarterly revenues for Verizon (NYSE:VZ) and AT&T (NYSE:T) are at or near all time highs, as are profits. T-Mobile, on the other hand, while seeing some growth in revenues on a much smaller denominator, isn’t consistently seeing profits.

The end game for T-Mobile can’t be predicated on an endless supply of wind, no matter how much John Legere talks or Tweets. The end game has to include being acquired by someone that has more wind in their pockets.

But in the meantime, there is still an appealing option premium and the chance of price appreciation while waiting for T-Mobile to find a place to dock.

Keurig Green Mountain was the topic of the second article I everpublished on Seeking Alpha 3 years ago this week. It seems only fitting to re-visit it as it gets to report earnings. Whenever it does, it causes me to remember the night that I appeared on Matt Miller’s one time show, Bloomberg Rewind, having earlier learned that Green Mountain shares plunged about 30% on earnings.

Given the heights at which the old Green Mountain Coffee Roasters once traded, you would have been justified in believing that on that November 2011 night, the ship had sailed on Green Mountain Coffee and it was going to be left in the heap of other momentum stocks that had run into potential accounting irregularities.

But Green Mountain had a second act and surpassed even those lofty highs, with a little help from a new CEO with great ties to a deep pocketed company that was in need of diversifying its own beverage portfolio.

Always an exciting earnings related trade, the options market is implying a 10.2% price move upon earnings. In a week that saw 20% moves in Yelp, LinkedIn and Twitter, 10% seems like child’s play.

My threshold objective of receiving a 1% ROI on the sale of a put option on a stock that is about to report earnings appears to be achievable even if shares fall by as much as 12.1%.

It will likely be a long time before anyone believes that the ship has sailed on Intel (NASDAQ:INTC), but there was no shortage of comments about how the wind had been taken out of Intel’s sales as it missed the mobile explosion.

As far as Intel’s performance goes, it looks as if that ship sailed at the end of 2014, but with recent rumors of a hook-up with Altera (NASDAQ:ALTR) and the upcoming expiration of a standstill agreement, Intel is again picking up some momentum, as the market initially seemed pleased at the prospects of the union, which now may go the hostile route.

In the meantime, with that agreement expiring in 4 weeks, Intel is ex-dividend this week. The anticipation of events to come may explain why the premium on the weekly options are relatively high during a week that shares go ex-dividend.

Finally, perhaps one of the best examples of a company whose ship had sailed and was left to sink as a withered company was Apple (NASDAQ:AAPL).

Funny how a single product can turn it all around.

it was an odd week for Apple , though. Despite a nearly $4 gain to close the week, it finished the week virtually unchanged from where it started, even though it reported earnings after Monday’s close.

While it’s always possible to put a negative spin on the various components of the Apple sales story, and that’s done quarter after quarter, they continue to amaze, as they beat analyst’s consensus for the 10th consecutive quarter. While others may moan about currency exchange, Apple is just too occupied with execution.

Still, despite beating expectations yet again, after a quick opening pop on Tuesday morning shares finished the week $4 below that peak level when the week came to its end.

None of that is odd, though, unless you’ve grown accustomed to Apple moving higher after earnings are released. What was really odd was that the news about Apple as the week progressed was mostly negative as it focused on its latest product, the Apple Watch.

Reports of a tepid reception to the product; jokes like “how do you recognize the nerd in the crowd;” reports of tattoos interfering with the full functioning of the product; criticizing the sales strategy; and complaints about how complicated the Apple Watch was to use, all seemed so un-Apple-like.

Shares are ex-dividend this week and in the very short history of Apple having paid a dividend, the shares are very likely to move higher during the immediate period following the dividend distribution.

With the announcement this past week of an additional $50 billion being allocated to stock buybacks over the next 23 months, the ship may not sail on Apple shares for quite some time.

Traditional Stocks: Coach

Momentum Stocks: Abercrombie and Fitch, T-Mobile

Double Dip Dividend: Intel (5/5), Apple (5/7)

Premiums Enhanced by Earnings: Keurig Green Mountain (5/6 PM)

Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.

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Week in Review – April 27 – May 1, 2015

 

Option to Profit

Week in Review

April 27 –  May 1,  2015

 

NEW POSITIONS/STO NEW STO ROLLOVERS CALLS ASSIGNED/PUTS EXPIRED CALLS EXPIRED/PUTS ASSIGNED CLOSED
3 / 4 1 7 0  /  0 0 / 0 0

    

Weekly Up to Date Performance

April 27 – May 1,  2015

This was yet another nice week, although like most weeks, there’s always something that could have been better.

Unlike last week  when new positions were so impacted by a single bad acting position, this week a single well acting position was impactful.

With Lexmark’s rise new positions opened for the week beat the adjusted S&P 500 by 1.9% and the unadjusted S&P 500 by an even larger 2.0%

New positions gained 1.6% for the week. The unadjusted S&P 500, despite Friday’s nice gain, was 0.4% lower, while the adjusted S&P 500 was 0.3% lower.

As is often the case when the broad market is weaker, the existing positions tend to out-perform, especially if there is ability to sell new calls or rollover existing positions.

Existing positions were 1.5% higher for the week, having beat the S&P 500 by 1.1%. However, as in some previous weeks, some
of that performance advantage was due to the performance of the energy sector, just as that sector had been a drag at other times over the past few months.

There were no assignments this week so the closed position statistics remained unchanged. The 34 lots closed in 2015 continue to out-perform the market. They are an average of 5.5% higher, while the comparable time adjusted S&P 500 average performance has been 1.6% higher. That 3.9% difference represents a 253.9% performance differential. While I hope to see more positions closed, I would expect that differential to fall considerably.

This was another satisfying week, although it could have been made much better if there had been some assignments.

While I like to re-cap what was good, from week to week, I almost always think about what could have been better.

In this case, not having any posiitons get assigned means that there will be less likelihood of being very active in opening new positions next week and, therefore requiring greater need to be able to rollover exisiting posiitons or to be able to sell new call options on exisiting uncovered positions.

The market’s weakness beginning mid-week took positions that had the potential to be assigned fall away from their strikes.

Fortunately, the bounce on Friday created some opportunity for rollovers that didn’t look very likely as Thursday came to its close.

No matter whether things are looking bleak or looking great, it’s never a good idea to give up hope, nor to get too smug. It’s really amazing how tone, sentiment and outlook can all change so quickly, even when there’s nothing readily identifiable to blame or thank.

It was a week with lots of news and lots of moves, but not necessarily moves that were related to the news.

You would be hard pressed to explain Thursday’s nearly 200 point loss as you would trying to make much sense of Friday’s attempt to erase the previous day’s decline.

I gave up trying a long time ago.

Despite not having any assignments for the week, it turned out to be a good one for advancing net asset value, not only relative to the S&P 500, but also in absolute terms. For me, more importantly, it was a good week to generate income. It was nice to catch some good luck and be able to make all of those rollovers and even sneak in the sale of calls on some much under-loved shares of Coach.

Best of all, it was another week of not adding to the list of non-performing positions. I only wish that volatility was higher so that some of those could become “DOH Trades,” but for now, so many sit and develop cobwebs awaiting their turns.

Next week, however, the handcuffs are on a little bit as there’s no new cash being recycled to replenish the pile after establishing 4 new positions this week.

Additionally, while there are a handful of positions already set to expire next week, at the moment I’m not counting on too many of them being able to add to the cash pile either.

Of course, that bleak outlook could just as easily change as this week’s bleak outlook changed.

But, staying bleak for just a second more, that means, that if there are any new purchases next week, and I will likely tend to be tight-fisted, those new purchases will have to look at weekly options. That has to be done in order to have a better fighting chance of getting some assignments for next week.

While April didn’t turn out for market’s as history had portended, the first day of May was definitely not one to consider going away. Hopefully, that reality counter to history or wizened adages will continue for a while.


 

 

 



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:   AGM, KMI, LXK, TWTR (puts)

Puts Closed in order to take profits:  none

Calls Rolled over, taking profits, into the next weekly cycle: GDX, TWTR (puts)

Calls Rolled over, taking profits, into extended weekly cycle:  KMI (5/22), UAL (5/22)

Calls Rolled over, taking profits, into the monthly cycle: GPS

Calls Rolled Over, taking profits, into a future monthly cycle:  GM (6/2015), KO (6/2015)

Calls Rolled Up, taking net profits into same cyclenone

New STO:  COH (8/19)

Put contracts expired: none

Put contracts rolled over: none

Long term call contracts sold:  none

Calls Assignednone

Calls Expired:  none

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 Positions: KMI (4/28 $0.48)

Ex-dividend Positions Next Week: INTC (5/5 $0.24)

 

 

For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, ANF, BAC, CHK, CLF,  FAST, FCX, HAL, HFC, .INTC, JCP, JOY, LVSMCP, MOS,  NEM, RIG, 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.



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Daily Market Update – May 1, 2015

 

 

Daily Market Update – May 1, 2015  (8:30 AM)

 

The Week in Review will be posted by 6:00 PM and the Weekend Update will be posted by Noon on Sunday.

The following trade outcome are possible today:

Assignments:  none

RolloversTWTR (puts)

Expirations:   GM, GPS, KMI, KO

 

The following were ex-dividend this week: Kinder Morgan (4/28 $0.48)

The following will be ex-dividend next week: Intel (5/5 $0.24)

 

Trades, if any, will be attempted to be made before 3:30 PM EDT

 

 

 

 

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