Daily Market Update – August 31, 2015




Daily Market Update – August 31,  2015  (8:15 AM)


While it’s not too likely that this week, or any week, can really be anything like the one that we just concluded, with lots of global economic turmoil being fomented from within China continuing, you just never know.

This morning the week begins with news that CHina has announced that it will no longer be buying stocks in its open markets, helping to support those prices amidst a plunge that had taken t6he SHanghai market down by more than 30%.

As it is, even with a wide range of interventions all within a confined period of time, that market is still down 20% and it really is anyone’s guess as to what unbridled market forces can now accomplish, if intervention is ending.

This morning, our own futures are pointing to another triple digit decline, after last week’s very tumultuous week ended on a very sedate note.

For our part, the only real potential catalyst that we may have to move markets will come on Friday, as the Employment SItuation Report is released.

The timing of that release may be a little unfortunate as markets are closed on the following Monday.

Although the past few years haven’t seen the exercise of the old adage of to not stay long over a weekend of uncertainty, especially if it’s going to be a long holiday extended weekend, this time it could be different.

With lots of uncertainty over what the FOMC has in mind and whether it interprets data differently from the rest of us, any indication of a strong jobs market could again stoke those completely unnecessary fears of an interest rate hike.

I still can’t understand why that has been feared so much and for so long, especially since so many people are well versed in the market’s trading patterns. Such early rate hikes turn out to come at times when markets still have lots of energy to move higher.

Anyway, as was noted in this week’s Weekend Update, whatever may await us is open to lots of interpretation.

10% corrections mean nothing as far as predicting where the market will go next. They certainly don’t portend an upcoming bear market. Yet, on the other hand, the kind of really large moves higher that we’ve seen do portend a continuing weak market.

With a few positions set to expire this week, an unusually large number of ex-dividend positions and still relying on the equivalent of margin funds to make new purchases, I am not likely to be anxious to open any new positions.

Of course, I’ve said that before.

As has been the case for quite a while, I would be most happy with the chance to sell call options on uncovered positions,  and would love to see some assignments this week to repay myself the margin extended to me.

That, however, seems unlikely as the week begins, so instead, I’d be really happy just to see those expiring positions get rolled over.

Hopefully this week will see some liquidity increase in the options market, as it would be great to take advantage of growing premiums. But as last week showed, there was so much uncertainty that buyers and sellers of options just couldn’t commit themselves to the trades, as the bid – ask spreads were unusually large. For the most part, it was the absence of buyers for both calls and puts that was at fault last week.

Continued market volatility, though, would likely start bringing in more motivated buyers and that would be great, because I am definitely a motivated seller.

Hopefully, this week will also continue the recent trend of out-performing the market, but also do so in more than relative terms and also add to portfolio value.

That’s more meaningful than just being able to say “I won,”when you still ended up losing.


Dashboard – August 31 – September 4, 2015







MONDAY:   China announces it won’t be purchasing stock shares in its markets and we respond in the morning’s futures by bemoaning the loss of an overseas catalyst. The week may be ready to get off to a triple digit loss after very calmly ending the past tumultuous week

TUESDAY:   China and Japan tumble overnight and Europe is set to follow, as the US futures are pointing toward a 2% decline. This all comes after concluding the worst month in 3 years, so it may be time to strap on once again

WEDNESDAY: If you were looking for a bounce after yesterday’s 469 point DJIA loss, after a quiet trading day in China, you’ve got it. But it’s nowhere close to 469 points as we await the market’s open and continue to take 5 steps back for every 4 steps forward. until further notice

THURSDAY:  With China’s stock market closed for the next few days, we’re on our own. That could change very quickly when our markets re-open following the Labor Day holiday and a few days of artificial calm from China comes to an end. For now, though, our futures are higher on news of increased Jobless Claims, which says that bad news is good news as we await tomorrow’s Employment Situation Report

FRIDAY:. This morning’s Employment Situation Report will hopefully erase the early large loss in the futures, but for now it may be that good news is bad news








Today's TradesCash-o-Meter





Sneak PeekPie Chart Distribution








Weekly Summary


Weekend Update – August 30, 2015

Good luck to you if you have staked very much on being able to prove that you can make sense of what we’ve been seeing in the US stock market.

While it’s always impossible to predict what the coming week will bring, an even more meaningful tip of the hat would go to anyone that has a reasonable explanation of what awaits in the coming week, especially since past weeks haven’t necessarily been simple to understand, even in hindsight.

Sure, you can say that it’s all about the confusion over in China and the series of actions taken to try and control the natural laws of physics that describe the behavior of bubbles. You can simply say that confusion and lack of clear policy in the world’s second largest economy has spilled over to our shores at a time when there is little compelling reason for our own markets to make any kind of meaningful move.

That appears to be a reasonable explanation, in a case of the tail wagging the dog, but the correlation over the past week is imperfect and not much better over the past 2 weeks when some real gyrations began occurring in China.

The recovery last week was very impressive both in the US and in China, but in the span of less than 2 months, ever since China began restrictions on stock trading activity, we can point to three separate impressive recoveries in Shanghai. During that time the correlation between distant markets gets even weaker.

Good luck, then, guessing what comes next and whether the tail will still keep wagging the dog, now that the dog realizes that a better than expected GDP may be finally evidencing the long expected energy dividend to help boost consumer participation in economic growth.

Sure, anyone can say that a 10% correction has been long overdue and leave it at that, and be able to hold their head up high in any argument now that we’ve been there and done that.

There has definitely not been a shortage of people coming out of the woodwork claiming to have gone to high cash positions before this recent correction. If they did, that’s really admirable, but it’s hard to find many trumpeting that fact before the correction hit.

What would have given those willing to disengage from the market and go to cash following unsuccessful attempts to break below support levels a signal to do so? Those lower highs and higher lows over the past month may have been the indication, but even those who wholeheartedly believe in technical formations will tell you that acting on the basis of that particular phenomenon has a 50-50 chance of landing you on the right side.

And why did it finally happen now?

The time has been ripe for about 3 years. I’ve been continually wrong in that regard for that long and I certainly can’t hold my head up very high, even if I had gotten it right this time.

Which I didn’t. But being right once doesn’t necessarily atone for all of the previous wrong calls.

No sooner had the chorus of voices come together to say that the character and depth of the decline seen were increasingly arguing against a V-shaped recovery that the market now seems to be attempting that V-shaped recovery.

What tends to make the most sense is simply considering taking a point of view that’s in distinct contrast to what people clamoring for attention attempt to build their reputations upon and are equally prepared to disavow or conveniently forget.

Of course, if you want to add to the confusion, consider how even credible individuals see things very differently when also utilizing a different viewing angle of events.

Tom Lee, former chief US equity strategist for JP Morgan Chase (NYSE:JPM) and founder of Fundstrat Global, who is generally considered bullish, notes that history shows that the vast majority of 10% declines do not become bear markets.

Michael Batnick, who is the director of research at Ritholtz Wealth Management, looked at things not from the perspective of the declines, but rather from the perspective of the advances seen.

His observation is that the vast majority of those declines generally occurred in “not the healthiest markets.”

Not that such data has application to events being seen in China, but it may be worthwhile to make note of the fact that the tremendous upside moves having recently been seen in China have occurred in the context of that market still having dropped 20%.

Perhaps not having quite the same validity as laws of physics, it may make some sense to be wary of the kind of moves higher that bring big smiles to many. If China’s stock market can still wag the United States, even with less than perfect correlation, there’s reason to be circumspect not only of their continued attempts to defy natural market forces, but also of that market’s behavior.

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

While I’m among those happy to have seen the market put 2 consecutive impressive gains together, particularly after the failed attempt to bounce back from a 600+ point loss to begin the week, I don’t think that I’ll be less cautious heading into this week.

I did open 2 new positions last week near the market lows, and despite their performance am still ambivalent about those purchase decisions. For each, I sold longer term contracts than would be my typical choice, in an attempt to lock in some volatility induced premiums and to have sufficient time for price recovery in the event of a short term downturn.

With an unusually large number of personal holdings that are ex-dividend this week, I may be willing to forgo some of the reluctance to commit additional capital in an effort to capture more dividend, especially as option premiums are being enhanced by volatility.

Both Coach (NYSE:COH) and Mosaic (NYSE:MOS) are ex-dividend this week.

For me, both also represent long suffering existing positions that I’ve traded many times over the years, and have been accustomed to their proclivity toward sharp moves higher and lower.

However, what used to be relatively short time frames for those declines have been anything but that for some existing lots, even as having traded other lots at lower prices.

Since their previous ex-dividend dates both have under-performed the S&P 500, although the gap has narrowed in the past month, even as both are within reach of their yearly lows.

On a relative basis I believe that both will out-perform the S&P 500 in the event of the latter’s weakness, but may not be able to keep pace if the market continues to head higher. However, for these trades and unlike having used longer term contracts with trades last week, my eyes would be focused on a weekly option and would even be pleased if shares were assigned early in an effort to capture the dividend.

That’s one of the advantages of having higher volatility. Even early assignment can be as or more profitable than in a low volatility environment and being able to capture both the premium and dividend, when the days of the position being open are considered.

Despite having spent some quality time with Meg Whitman’s husband a few months ago, I had the good sense not to ask him anything a few days before Hewlett Packard (NYSE:HPQ) was scheduled to report earnings.

That would have been wrong and no one with an Ivy League legacy, that I’ve ever heard about, has ever crossed that line between right and wrong.

While most everyone is now focusing on the upcoming split of Hewlett Packard, my focus is dividend centric. As with Coach and Mosaic, the option premium is reflecting greater volatility and is made increasingly attractive, even during an ex-divided event.

However, since Hewlett Packard’s ex-dividend date is on Friday, there is less advantage in the event of an early assignment. That, though, points out another advantage of a higher volatility environment.

That advantage is that it is often better to rollover in the money positions, with or without a dividend in mind, than it is to accept assignment and to seek a new investment opportunity.

In this case, if faced with likely early assignment, I would probably consider rolling over to the next week and at least if still assigned early, then would be able to pocket that additional week’s option premium, which could become the equivalent of having received the dividend.

For those who are exceptionally daring, Joy Global (NYSE:JOY) is also ex-dividend this week and it is another of my long suffering positions.

These days, anything stocks associated with China have additional risk. For years Joy Global was one of a very small number of stocks that I considered owning that had large exposure to the Chinese economy. I gave considerably more credibility to Joy Global’s forecasting of its business in China than to official government reports of economic growth.

The daring part of a position in Joy Global has more to do with just having significant interests in China, but also because it reports earnings the day after going ex-dividend. I generally do stay away from those situations and much prefer to have earnings be release first and then have the stock go ex-dividend the following day.

In this case, one can consider the purchase of shares and the sale of a deep in the money weekly call option in the hopes that someone might consider trying to capture the dividend and then perhaps selling their shares before exposure to earnings risk.

In such an event, the potential ROI can be 1.1% if selling a weekly $22 call option, based upon Friday’s $24.01 close.

However, if not assigned early, the ROI becomes 1.8% and allows for an 8% price cushion in the event of the share’s decline, which is in line with the option market’s expectations.

For those willing to cede the dividend, there is also the possibility of considering a put sale in advance of earnings.

The option market is implying only an 8.1% move next week. However, it may be possible to achieve a 1% return for the sale of a weekly put that is at a strike price 12.5% below Friday’s closing price.

Going from daring to less so, I purchased shares of $24.06 shares General Electric (NYSE:GE) last week and sold longer dated $25 calls in an effort to combine premium, capital gains on shares and an upcoming ex-dividend date.

Despite the shares having climbed during the course of the week and now beyond that strike level, I may be considering adding even more shares, again trying to take advantage of that combination, especially the higher than usual option premium that’s available.

General Electric hasn’t yet announced that ex-dividend date, but it’s reasonable to expect it sometime near September 18th. While my current short call position is for October 2, 2015, for this additional proposed lot, I may consider the sale of a September 18 slightly out of the money option contracts.

In the event that once the ex-dividend date is announced and those shares are in jeopardy of being assigned early, I might consider rolling over the position if volatility allows that to be a logical alternative to assignment.

Finally, as long as Meg Whitman is on my mind, I’m not certain how much longer I can go without owning shares of eBay (NASDAQ:EBAY). While it has traded in a very consistent range and very much paralleling the performance of the S&P 500 over the past month, it is offering an extremely attractive option premium in addition to some opportunity for capital gains on shares.

The real test, of course, begins as it releases its next earnings report which will no longer include PayPal’s (NASDAQ:PYPL) contributions to its bottom line. That is still 6 weeks away and I would consider the purchase of shares and the sale of intermediate term option contracts in order to take advantage of that higher market volatility induced premium.

At least that much makes sense to me.

Traditional Stock: eBay, General Electric

Momentum Stock: none

Double-Dip Dividend: Coach (9/3 $0.34), Hewlett Packard (9/4 $0.18), Joy Global (9/2 $0.20), Mosaic (9/1 $0.28)

Premiums Enhanced by Earnings: Joy Global (9/3 AM)

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 stre
am for the week, with reduction of trading risk.

Week in Review – August 24 – 28, 2015


Option to Profit

Week in Review


August 24 – 28, 2015


2  /  2 1 2 0  /  0 0  /  0 0 3


Weekly Up to Date Performance

August 24 – 28, 2015

Well, that was some week and it came to a fairly sedate end, despite being anything but sedate, in-between.

Coming just a week after the worst week in 4 years, it was well welcome.

There were 2 new positions opened again this week, digging further into personal funds, effectively functioning as margin. Those new positions out-performed both the adjusted and the unadjusted S&P 500 by 5.2%. While the past few weeks new and existing positions have been out-performing, the difference is that this week the out-performance was more than simply ion relative terms, as positions gained for the week.

New positions were 6.1% higher, while the S&P 500 was able to gain 0.9% during that time period after turning things around very decisively Wednesday and Thursday. The unusually high performance was in part helped by using longer term options and by some premium enhancements due to increased volatility.

Just as some previous weeks were marked by weak performances in energy and materials, this week those sectors helped to not only out-perform, but to increase portfolio value for a change.

With no assignments once again,  the 46 closed lots in 2015 continue to outperform the market. They are an average of 5.0% higher, while the comparable time adjusted S&P 500 average performance has been 1.3% higher. That difference represents a 283.3% performance differential.

Last week was easy to describe, as it was simply terrible.

This week began looking as if would be a repeat of that, but only worse, as an attempt to rally from the 600 point loss fizzled out.

Despite looking like a similar rally would do the same death dive the next day, something was able to inject some real confidence and strong buying, across all sectors, but especially in energy.

So this week was not so easy to describe, but it turned out to be a very good one from a number of perspectives.

It always helps to focus first on the bottom line and existing positions out-performed the broad market by an unusually large 0.8%, having advanced by 1.7% for the week. That was predominantly due to a late in the week spike in energy and materials, but that advantage over the broad market existed throughout the entire week.

It was also helped out by 2 rollovers, a new option sale on an uncovered position and 3 ex-dividend positions.

While I don’t know what next week’s activity may look like, there are already a number of positions set to expire, as opposed to this week that I elected to bypass with expiring positions.

Additionally next week has an unusually large number of ex-dividend positions to serve as income streams in the event that there are no new purchases and no rollovers.

Obviously, I’d like to be able to generate additional income from whatever is already on the books.

For those that watch volatility, you’ll notice that the past 2 days looked as if they broke the general trend of volatility only going higher when markets decline. In reality, however, that well over-simplified. Volatility, although it’s often said reflects uncertainty or the “fear factor,” is really nothing more than a statistical measure of change. So you can have volatility increases even if markets go higher, so long as that path higher is very jagged.

And it has definitely been that.

The good news is that the jagged path also leads to higher premiums and in the best of all worlds the net movement in the stock market is either flat or higher.

That hasn’t been the case since the latter half of 2011, but is now looking like that, if it can last.

I for one, really hope that it lasts.


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

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

New Positions Opened:   GE, SBGI

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:  ANF (9/25)

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

Calls Rolled Over, taking profits, into a future monthly cycle:  BBY (10/16)

Calls Rolled Up, taking net profits into same cyclenone


Put contracts expired: none

Put contracts rolled over: none

Long term call contracts sold:  none

Calls Assigned: none

Calls Expired:  COH, FAST, INTC, LVS

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 MAT (8/24 $0.38), ANF (8/28 $0.20), SBGI (8/28$0.16)

Ex-dividend Positions Next Week:   HAL (8/31 $0.18), HFC (8/31 $0.33), COH (9/3 $0.34), BAC (9/2 $0.05), MOS (9/1 $0.28), JOY (9/2 $0.20), KSS (9/4 $0.45)

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, GM, GPS, HAL, INTC, JCP, JOY, KMI, KSS, LVS,  MCPIQ, MOS, RIG, WFM, WLTGQ (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 – August 28, 2015




Daily Market Update – August 28,  2015  (7:30 AM)


The Week in Review will be posted by 12 Noon on Saturday and the Weekend Update will be posted by Noon on SUnday.

The following trade outcomes are possible today:

Assignments:   none

Rollovers:    none

Expirations:   none

The following were ex-dividend this week: MAT (8/24 $0.38), ANF (8/28 $0.20), SBGI (8/28 $0.16)

The following will be ex-dividend next week:   HAL (8/31 $0.18), HFC (8/31 $0.33), COH (9/3 $0.34), BAC (9/2 $0.05), MOS (9/1 $0.28), JOY (9/2 $0.20), KSS (9/4 $0.45)

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