Weekend Update – November 29, 2015

We used to believe that the reason people so consistently commented about how tired they were after a big Thanksgiving meal was related to the turkey itself.

Within that turkey it was said that an abundance of the basic amino acid,”tryptophan,” which is a precursor of “serotonin”  played a role in its unique ability to induce sleep.

More reasoned people believe that there is nothing special about turkey itself, in that it has no more tryptophan than any other meat and that simply eating without abandon may really explain the drowsiness so commonly experienced. Others also realize that tryptophan, when part of a melange of other amino acids, really doesn’t stand out of the crowd and exert its presence.

Then there’s the issue of serotonin itself, a naturally produced neurotransmitter, which is still not fully understood and can both energize and exhaust, in what is sometimes referred to as “the paradox of serotonin.”

From what is known about serotonin, if dietary tryptophan could exert some pharmacological influence by simply eating turkey, we would actually expect to find reports of people who got wired from their Thanksgiving meals instead of sedated.

Based upon my Thanksgiving guests this year, many of whom found the energy to go out shopping on Thursday and Friday nights, they were better proof of the notion that Black Fridays matter, rather than of the somnolent properties of turkey.

In the case of the relationship between the tryptophan in turkey and ensuing sleep, it may just be a question of taking disparate bits of information, each of which may have some validity and then stringing them together in the belief that their individual validity can be additive in nature.

Truth doesn’t always follow logic.

Another semi-myth is that when traders are off dozing or lounging in their recliners instead of trading, the likelihood of large market moves is enhanced in a volume depleted environment.

You definitely wouldn’t have known it by the market’s performance during this past week, as Friday’s trading session began the day with the S&P 500 exactly unchanged for the week and didn’t succeed in moving the needle as the week came to its end.

Other than the dueling stories of NATO ally Turkey and stuffing ally turkey, there wasn’t much this week to keep traders awake. The former could have sent the market reeling, but anticipation of the latter may have created a calming influence.

You couldn’t be blamed for buying into the tryptophan myth and wondering if everyone had started their turkey celebration days before the calendar warranted doing so.

Or maybe traders are just getting tired of the aimless back and forth that has us virtually unchanged on the DJIA for 2015 and up only 1.5% on the S&P 500 for the year.

Tryptophan or no tryptophan, treading water for a year can also tire you out.

The week started off with the news of China doubling its margin requirements and an agreement on a $160 Billion tax inversion motivated merger, yet the reaction to those news items was muted.

The same held for Friday’s 5.5% loss in Shanghai that barely raised an eyebrow once trading got underway in the United States, as drowsiness may have given way to hibernation.

Even the revised GDP, which indicated a stronger than expected growth rate, failed to really inflate or deflate. There was, however, a short lived initial reaction which was a repudiation of the recent seeming acceptance of an impending interest rate hike. For about an hour markets actually moved outside of their very tight range for the week until coming to its senses about the meaning of economic growth.

Next week there could be an awakening as the Employment Situation Report is released just days before the FOMC begins their December meeting which culminates with a Janet Yellen press conference.

Other than the blip in October’s Employment Situation Report, the predominance of data since seems to support the notion of an improving economy and perhaps one that the FOMC believes warrants the first interest rate hike in almost 10 years.

With traders again appearing to be ready to accept such an increase it’s not too likely that a strong showing will scare anyone away and may instead be cause for a renewed round of optimism.

On the other hand, a disappointing number could send most into a tizzy, as uncertainty is rarely the friend of traders and any action by the FOMC in the face of non-corroborating data wouldn’t do much to inspire confidence in anything or any institution.

For my part, I wouldn’t mind giving the tryptophan the benefit of the doubt and diving deeply into those turkey leftovers with express instructions to be woken up only once 2016 finally arrives.

Knowing that flat years, such as this one has been to date, are generally followed by reasonably robust years, overloading on the tryptophan now may be a good strategy to avoid more market indecision and avoid the wasteful use of energy that could be so much better spent in 2016.

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

A number of potential selections this week fall into the “repeat” category.

Unlike a bad case of post-Thanksgiving indigestion, the kind of repeating that occasionally takes place when selling covered calls, is actually an enjoyable condition and is more likely to result in a look of happiness instead of one of gastric distress.

This week I’m again thinking of buying Bank of
America (BAC), Best Buy (BBY), Morgan Stanley (MS) and Pfizer (PFE), all of which I’ve recently owned and lost to assignment.

Sometimes that has been the case on multiple occasions over the course of just a few weeks. Where the real happiness creeps in is when you can buy those shares back and do so at a lower price than at which they were assigned.

With the S&P 500 only about 2% below its all time high, I would welcome some weakness to start the week in hopes of being able to pick up any of those 4 stocks at lower prices. My anticipation is that Friday’s Employment Situation Report will set off some buying to end the week, so I’d especially like to get the opportunity to make trades early in the week.

Bank of America and Morgan Stanley, of course, stand to benefit from increasing interest rates, although I suppose that some can make the case that when the news of an interest rate increase finally arrives, it will signal a time to sell.

If you believe in the axiom of “buying on the rumor and selling on the news,” it’s hard to argue with that notion, but I believe that the financials have so well tracked interest rates, that they will continue doing so even as the rumor becomes stale news.

As an added bonus, Bank of America is ex-dividend this week, although it’s dividend is modest by any standard and isn’t the sort that I would chase after.

Both, however, may have some short upside potential and have option premiums that are somewhat higher than they have been through much of 2015.

While both are attractive possibilities in the coming week or weeks, if forced to consider only one of the two, I would forgo Bank of America’s added bonus and focus on Morgan Stanley, as it has recovered from its recent earnings related drop, but now may be getting ready to confront its even larger August decline.

Bank of America, on the other hand, is not too far from its 2015 high point, but still can be a good short term play, perhaps even being a recurrent one over the next few weeks.

Also ex-dividend this week are two retailers, Wal-Mart (WMT) and Coach (COH) and together with Best Buy (BBY) and Bed Bath and Beyond (BBBY) are my retail focus, as I expect this year to be like most others, as the holiday season begins and ends.

While Coach may have lost some of its cachet, it’s still no Wal-Mart in that regard.

Coach has struggled to return to its April 2015 levels, although it may finally be stabilizing and recent earnings have suggested that its uncharacteristically poor execution on strategy may be coming to an end.

With a very attractive dividend and an option premium that continues to reflect some uncertainty, I wouldn’t mind finding some company for a much more expensive lot of shares that I’ve been holding for quite some time. With the ex-dividend date this week, the stars may be aligned to do so now.

I bought some Wal-Mart shares a few weeks ago after a disastrous day in which it sustained its largest daily loss ever, following the shocking revelation that increasing employee wages was going to cost the company some money.

The only real surprise on that day was that apparently no one bothered doing the very simple math when Wal-Mart first announced that it was raising wages for US employees. They provided a fixed amount for that raise and the number of employees eligible for that increase was widely known, but basic mathematical operations were out of reach to analysts, leading to their subsequent shock some months later.

Wal-Mart shares will be getting ready to begin the week slightly higher than where I purchased my most recent shares. I don’t very often add additional lots at higher prices, but the continuing gap between the current price and where it had unexpectedly plunged from offers some continued opportunity.

As with Coach, in advance of an ex-dividend date may be a fortuitous time to open a position, particularly as the option premium and dividend are both attractive, as are the shares themselves.

Neither Best Buy nor Bed Bath and Beyond are ex-dividend this week, although Best Buy will be so the following week.

That may give reason to consider selling an extended option if purchasing Best Buy shares, but it could also give some reason to sell weekly options, but to consider rolling those over if assignment is likely.

In doing so, one strategy might be to select a rollover date perhaps two weeks away and still in the money. In that manner, there may still be reason for the holder of the option contract to exercise early in order to capture the dividend, but as the seller you would receive a relatively larger premium that could offset the loss of the dividend while at the same time freeing up the cash tied up in shares of Best Buy in order to be able to put it to use in some other income producing position.

Bed Bath and Beyond is a company that I frequently consider buying and would probably have done much more frequently, if only it had offered a dividend or consistently offered weekly options for sale and purchase.

It still doesn’t offer a dividend, but sitting near a 2 year low and never being in one of their stores without lots of company at the cash register, the shares really have their appeal during the holiday season.

Finally, even with an emphasis on financials and retail, Pfizer (PFE) continues to warrant a look.

Having purchased shares last week and having seen them assigned, there’s not too much reason to believe that their planned merger with Ireland based Allergan (AGN), is going to be resolved any time soon.

While we wait for that process to play itself out, there may be fits and starts. There will clearly be opposition to the merger, as attention will focus on many issues, but none as controversial as the tax avoidance that may be a primary motivator for the transaction.

If the news for Pfizer eventually turns out to be negative and an immovable roadblock is placed, I don’t think that very much of Pfizer’s current price
reflects the deal going to its anticipated completion.

With that in mind, the upside potential may be greater than the downside potential. As long as the option premiums are reflected any increased risk, this can be an especially lucrative trade the longer the process gets stretched out, particularly if Pfizer trades in a defined range and the position can be serially rolled over or purchased anew.

Traditional Stocks:  Bed Bath and Beyond, Morgan Stanley, Pfizer

Momentum Stocks:  Best Buy

Double-Dip Dividend: Bank of America (12/2 $0.05), Coach (12/2 $0.34), Wal-Mart (12/2 $0.49)

Premiums Enhanced by Earnings:  none

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 – November 23 – 27, 2015

 

Option to Profit

Week in Review

 

NOVEMBER 23 – 27, 2015

 

NEW POSITIONS/STO NEW STO ROLLOVERS CALLS ASSIGNED/PUTS EXPIRED CALLS EXPIRED/PUTS ASSIGNED CLOSED EX-DIVIDEND
2  /   2 0 3 3   /   0 1   /  0 0 2

 

Weekly Up to Date Performance

November 23 – 27, 2015


< strong>This was a week that may as well not even happened.

After 3 trading days in which the market didn’t move the needle and then a little break for Thanksgiving, the week closed on Friday without ever getting that needle to budge even the slightest bit.

There were 2 new positions for the week and they beat both the adjusted and undadjusted S&P 500 by 1.6%

Those positions were up 1.6% while the S&P 500 was unchanged.

Despite some continuing weakness in energy and commodities, existing positions out-performed the S&P 500 by 0.3% after a couple of weeks of having lagged, as those particular sectors were weak.

For the year the 74 closed lots in 2015 continue to outperform the market. They are an average of 4.6% higher, while the comparable time adjusted S&P 500 average performance has been  1.1% higher. That difference represents a 327.1% performance differential. 

While this was yet another week in which there wasn’t too much in the way of real economic news, the market did get to test the resolve of traders.

That test came when the revised GDP was released and it showed even stronger growth. That likely means that the FOMC will be in a better position to justify an announcement of an interest rate hike in about 12 days from today.

Instead of a big sell off, which would have indicated an about face by traders who seem to have come to accept an upcoming increase and instead of a big rally, the market did nothing.

That was the story for the week, although if fine tuning the reaction, there was some initial disappointment and then that, too, got appropriately resolved.

Without the ups and downs that have characterized so many of the past weeks over the last 3 months, there wasn’t any real bouncing around, but it still turned out to be a decent week.

With 2 new positions opened, 3 rollovers, 2 ex-dividend positions and 3 assignments, there was a little for everyone.

I especially like those occasions when I can rollover the same position twice, as was the case this week.

Unfortunately, there was also a position that expired without assignment, nor rollover and that gets added to a much too long of a list of similar positions.

WIth a decent amount of cash getting added to reserves, I’m willing to use some or even all of it next week in the pursuit of generating some new income flow.

On the other hand, there are 2 positions set for expiration next week which could potentially be the source of some income, but more importantly, there are 6 positions going ex-dividend next week, include some that have multiple lots.

That means that there may be a little bit less of a need to look for income producing trades for the week.

Next week does have an Employment SItuation Report to end the week, but there’s not very much before then, other than lots of Federal Reserve Governors who are willing to share their opinions and will be doing so in the week prior to their next meeting.

The expectation has to be that the Employment Situation Report will deliver a solid number. With that comes the additional expectation that traders will take that number in a rational way and bid the market even higher.

It’s not too likely that there will be a disappointing number, but if there was
one, you could probably look for a marked sell-off, unless those FOMC Governors give strong reason to believe that the FOMC is now hell bent on getting that rate increase decussion made prior to 2016.

For me, the likelihood is that if the market doesn’t go down to open the week or at least not move much higher, it will be a very slow trading week for me. As we sit only about 2% below all time highs, the market is within easy striking distance of more new highs or a technical correction point.

Guessing where things go is  really like flipping coin, but despite knowing that none of the previous flips has any predictive value for an upcoming flip, I’d still rather know that the market has come off of a decline before putting any new money at risk.

 

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:  BBY, PFE

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:  HFC (12/24)

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

Calls Rolled Over, taking profits, into a future monthly cycle:  HFC (1/15/16)

Calls Rolled Up, taking net profits into same cyclenone

New STO:  none

Put contracts expired: none

Put contracts rolled over: STX

Long term call contracts sold:  none

Calls Assigned: BBY, KO, PFE

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 MAT (11/23 $0.38), KO (11/27 $0.33)

Ex-dividend Positions Next Week:  HAL (12/1 $0.18), MOS (12/1 $0.28), HFC (12/2 $0.33), COH (12/2 $0.34), BAC (12/2 $0.05), WMT (12/2 $0.49)

For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, ANF, AZN, BBY, CHK, CLF, COH, CY, FAST, FCX, GDX, GPS, HAL, JCP, JOY, KMI, KSS, LVS,  MCPIQ, MOS, NEM, 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.



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Daily Market Update – November 27, 2015

 

 

 

Daily Market Update – November 27,  2015  (7:30 AM)

 

The Week in Review will be posted by 76 PM tonight and the Weekend Update will be posted by Noon on Sunday.


The following trade outcomes are possible today:

Assignments:  BBY ($31), PFE

Rollovers:  STX (puts)

Expirations:  BBY ($37)


The following were ex-dividend this week:      MAT (11/23 $0.38), ANF (11/27 $0.20), KO (11/27 $0.33)

The following will be ex-dividend next week:   HAL (12/1 $0.18), MOS (12/1 $0.28), BAC (12/2 $0.05), COH (12/2 $0.34), HFC (12/2 $0.33),  WMT (12/2 $0.49)

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

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Daily Market Update – November 25, 2015 (Close)

 

 

 

Daily Market Update – November 25,  2015  (Close)

 

Yesterday’s comeback by the market was an impressive one and yet another in an increasingly long series that has been demonstrating that the pre-opening futures aren’t doing a very good job of telling us where the market will be headed.

One thing that used to be fairly predictable was when those futures showed a large move.

In such cases you could feel reasonably certain that the same large move would continue into the regular trading session and typically characterize that session for the entire day.

These days, maybe it’s because 100 points isn’t what it used to be, but the predictive value, even when those moves are on the large side, just seems lower and lower.

While yesterday ended the day virtually unchanged, it had to make up significant ground to achieve that accomplishment.

In hindsight, that may have represented another buying opportunity, but with this being a short trading week and really not wanting to use any extended option expirations this week due to the desire to have an opportunity to recycle assigned cash for next week, there wasn’t much drive to open any additional new positions.

The greatest expectation was that today and then Friday, would both be on the quiet side, but you can never tell what kind of artifacts might show up in the event of someone with deep pockets in the face of light volume.

Today, though, wasn’t going to be that day, as the market barely budged at any point of the day.

For my part, my pockets aren’t very deep right now and would simply prefer to see some assignments to end the week and the chance to use that cash to open up some new replacement positions.

I expected that today would be very much like yesterday, although I would have certainly welcomed any other opportunities to either sell new call positions or rollover any of those with extended week expirations and do so early, in order to capitalize on any price strength or upcoming dividends.

But not today.

It was just more of sitting back in the La-Z-Boy and wondering when I’ll be asked to help out in preparations for holiday guests.

I don’t think many are staying over on Friday, but hopefully they will understand if I’m otherwise occupied on Friday, as I would like to be able to capitalize on potential rollovers if those assignments aren’t likely to happen.

Otherwise, if you do read the afternoon version of this, then best wishes once again to all for a Happy and Healthy Thanksgiving and be safe in your travels, if those are in your plans.

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Daily Market Update – November 25, 2015

 

 

 

Daily Market Update – November 25,  2015  (7:30 AM)

 

Yesterday’s comeback by the market was an impressive one and yet another in an increasingly long series that has been demonstrating that the pre-opening futures aren’t doing a very good job of telling us where the market will be headed.

One thing that used to be fairly predictable was when those futures showed a large move.

In such cases you could feel reasonably certain that the same large move would continue into the regular trading session and typically characterize that session for the entire day.

These days, maybe it’s because 100 points isn’t what it used to be, but the predictive value, even when those moves are on the large side, just seems lower and lower.

While yesterday ended the day virtually unchanged, it had to make up significant ground to achieve that accomplishment.

In hindsight, that may have represented another buying opportunity, but with this being a short trading week and really not wanting to use any extended option expirations this week due to the desire to have an opportunity to recycle assigned cash for next week, there wasn’t much drive to open any additional new positions.

The greatest expectation is that today and then Friday, should both be on the quiet side, but you can never tell what kind of artifacts might show up in the event of someone with deep pockets in the face of light volume.

For my part, my pockets aren’t very deep right now and would simply prefer to see some assignments to end the week and the chance to use that cash to open up some new replacement positions.

I expect that today will be very much like yesterday, although I would certainly welcome any other opportunities to either sell new call positions or rollover any of those with extended week expirations and do so early, in order to capitalize on any price strength or upcoming dividends.

Otherwise, it will be more of sitting back in the La-Z-Boy and wondering when I’ll be asked to help out in preparations for holiday guests.

I don’t think many are staying over on Friday, but hopefully they will understand if I’m otherwise occupied on Friday, as I would like to be able to capitalize on potential rollovers if those assignments aren’t likely to happen.

Otherwise, if you don’t read the afternoon version of this, then best wishes to all for a Happy and Healthy Thanksgiving and be safe in your travels, if those are in your plans.

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