Daily Market Update – February 22, 2016

 

 

 

Daily Market Update – February 22, 2016 (9:00 AM)

This week doesn’t have too much on the economic news front until we get to Friday and the GDP is released.

That report may be more important than usual as last week’s Consumer Price Index was suggesting upward price pressures which could justify an increase in interest rates.

While the CPI’s increase was mostly from health care costs and rents, if the GDP shows much in the way of a consumer led increase in demand, we could be set for the next small interest rate increase.

Based on the way the market has been behaving, that wouldn’t be a very good thing.

This morning, though, the market is behaving as it has for quite some time.

It’s just moving along with oil.

This morning those oil futures are sharply higher and so are stocks, as they dutifully follow without real regard as to the implication

With a little bit of cash generated from last week’s assignment, the very first for 2016 I would be interested in adding some new positions but not with an impending 200 point gain in the DJIA this morning.

With no ex-dividend positions this week and with no positions to be rolled over nor assigned, I would like to get something done, though, to generate some income.

In the meantime, I wouldn’t mind watching the market continue to go higher, but I would still prefer that it do so like it did last week and take some time to breathe and digest the gains.

Otherwise, I’m prepared for a quiet week, but would still welcome any opportunity to sell some calls on uncovered positions, even if that continues to mean looking at more distant expiration dates and trying to lock in some volatility enhanced premiums, dividends and maybe some capital gains on those shares, as well.


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Dashboard – February 22 – 26, 2016

 

 

 

 

 

SELECTIONS

MONDAY:  Oil gets set to start the week about 3.5% higher, so that can only mean one thing for our market and the futures are up sharply, as well

TUESDAY:  Another large move yesterday and it was another large move higher. Today may be a day of rest and consolidation while we try and figure out what has changed to make such a difference over the past week.

WEDNESDAY:  Oil led the market much lower yesterday and it looks like it will be trying to do the same again today.

THURSDAY:  Shanghai was down almost 7% overnight and oil futures are lower this morning. You might think that out stock futures would be reeling. But following yesterday’s reversals in oil and the market, this morning futures are surprisingly flat ahead of tomorrow’s GDP

FRIDAY:. Futures are up nicely again this morning, following oil’s lead, as we await the GDP release that could confirm lots of things regarding the direction and magnitude of economic growth

 

 

 

 



 

                                                                                                                                           

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 – February 21, 2016

 If you can remember as far back at the 1970s and even the early part of the 1980s, it still has to be hard to understand how we could possibly live in a world where we would want to see inflation.

It’s hard to think that what we thought was bad could actually sometimes be good medicine.

But when you start thinking about the “lost decades” in Japan, it becomes clear that there may be a downside to a very prolonged period of low interest rates.

Sometimes you just have to swallow a bitter pill.

And then, of course, we’re all trying to wrap our minds around the concept of negative interest rates. What a great deal when bank depositors not only get to fund bank profits by providing the capital that can be loaned out at a higher rate of interest than is being received on those deposits, but then also get to pay banks for allowing them to lend out their money.

For savers, that could mean even more bad medicine in order to make the economy more healthy, by theoretically creating more incentive for banks to increase their lending activity.

From a saver’s perspective one dose of bad medicine could have you faced with negative interest rates in the hope that it spurs the kind of economic growth that will lead to inflation, which always outpaces the interest rates received on savings.

That is one big bitter pill.

While the Federal Reserve has had a goal of raising interest rates to what would still be a very reasonable level, given historical standards, the stock market hasn’t been entirely receptive to that notion. The belief that ultra-low interest rates have helped to spur stock investing, particularly as an alternative to fixed income securities makes it hard to accept that higher interest rates might be good for the economy, especially if your personal economy is entirely wrapped up in the health of your stocks.

In reality, it’s a good economy that typically dictates a rise in interest rates and not the other way around.

That may be what has led to some consternation as the recent increase in interest rates hasn’t appeared to actually be tied to overt economic growth, despite the repeated claims that the FOMC’s decisions would be data driven.

Oil continued to play an important role in stock prices last week and was a good example of how actions can sometimes precede rational thought, as oil prices surged on the news of an OPEC agreement to reduce production. The fact that neither Iran nor Venezuela agreed to that reduction should have been a red flag arguing against the price increase, but eventually rational thought caught up with thought free reflexes.

While oil continued to play an important role in stock prices, there may have been more to account for the recovery that has now seen February almost completely wipe out it’s  2016 DJIA loss of  5.6%.

What may have also helped is the belief, some of which came from the FOMC minutes, that the strategy that many thought would call for small, but regular interest rate increases through 2016 may have become less likely.

The stock market looked at any reason for an increase in interest rates as being bad medicine. So it may not have been too surprising that the 795 point three day rise in the DJIA came to an abrupt stop with Fridays release of the Consumer Price Index (“CPI”) which may provide the FOMC with the data to justify another interest rate increase.

Bad medicine, for sure to stock investors.

But the news contained within the CPI may be an extra dose of bad medicine, as the increase in the CPI came predominantly from increases in rents and healthcare costs.

How exactly do either of those reflect an economy chugging forward?

That may be on the mind of markets as the coming week awaits, but it may be the kind of second thought that can get the market back on track to continue moving higher, similar to the second thoughts that restored some rational action in oil markets last week.

You might believe that a rational FOMC wouldn’t increase interest rates based upon rents and healthcare costs if there is scant other data suggesting a heating up of the economy, particularly the consumer driven portion of the economy.

While rents may have some consumer driven portion, it’s hard to say the same about healthcare costs.

Ultimately, the rational thing to do is to take your medicine, but only if you’re sick and it’s the right medicine.

If the economy is sick, the right medicine doesn’t seem to be an increase in interest rates. But if the economy isn’t sick, maybe we just need to start thinking of increasing interest rates as the vitamins necessary to help our system operate more optimally.

Hold your nose or follow the song’s suggestion and take a spoonful of sugar, but sooner or later that medicine has to be taken and swallowed.

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

It’s not so easy to understand why General Motors (GM) is languishing so much these days.

As bad as the S&P 500 has been over the past 3 months, General Motors has been in bear territory, despite continuing good sales news.

What has been especially impressive about General Motors over the past few years is how under its new leadership its hasn’t succumbed or caved in as legal issues and potentially very damaging safety related stories were coming in a steady stream.

I already own some shares of General Motors, but as its ex-dividend date is approaching in the next few weeks, I’m considering adding shares, but rather than selling weekly options, would be more inclined to sell the monthly March 2016 option in an effort to pocket a more substantial premium, the generous dividend and perhaps some capital gains in those shares.

I wrote about Best Buy (BBY) last week and a potential strategy to employ as both earnings and its ex-dividend date were upcoming.

This week is the earnings event, but the ex-dividend date has yet to be announced.

The strategy, however, remains the same and still appears to have an opportunity to be employed.

With an implied move of 8% next week, there may be an opportunity to achieve a weekly 1% ROI by selling put options at a strike 10% below Friday’s closing price.

The risk is that Best Buy has had earnings related moves in the past that have surprised the seers
in the options market. However, if faced with assignment, with one eye fixed on any upcoming announcement of its ex-dividend date, one can either seek to rollover those puts or take ownership of shares in order to secure its dividend and subsequently some call options, as well.

Alternatively, if a little risk adverse, one can also consider the sale of puts after earnings, in the event that shares slide.

Also mentioned last week and seemingly still an opportunity is Sinclair Broadcasting (SBGI). It, too, announces earnings this week and has yet to announce its upcoming ex-dividend date.

Its share price was buoyed last week as the broader market went higher, but then finished the week up only slightly for the week.

Since the company only has monthly option contracts available, I would look at any share purchase in terms of a longer term approach, in the event that shares do go lower after earnings are announced.

Sinclair Broadcasting’s recent history is that of its shares not staying lower for very long, so the use of a longer term contract at a strike envisioning some capital appreciation of shares could give a very satisfactory return, with relatively little angst. As a reminder, Sinclair Broadcasting isn’t terribly sensitive to oil prices or currency fluctuations and can only benefit from a continued low interest rate environment.

It’s hard now to keep track of just how long the Herbalife (HLF) saga has been going on. My last lot of shares was assigned 6 months ago at $58 and I felt relieved to have gotten out of the position, thinking that some legal or regulatory decision was bound to be coming shortly.

And now here we are and the story continues, except that you don’t hear or read quite as much about it these days. Even the most prolific of Herbalife-centric writers on Seeking Alpha have withdrawn, particularly those who have long held long belief in the demise of the company.

For those having paid attention, rumors of the demise of the company had been greatly exaggerated over the past few years.

While that demise, or at least crippling blow to its business model may still yet come to be a reality, Herbalife reports earnings this week and I am once again considering the sale of put options.

With an implied move of 14.3%, based upon Friday’s closing the price, the options market believes that the lower floor on the stock’s price will be about $41.75.

A 1.4% ROI on the sale of a weekly option may possibly be obtained at a strike price that is 20.4% below Friday’s close.

For me, that seems to be a pretty fair risk – reward proposition, but the risk can’t be ignored.

Since Herbalife no longer offers a dividend, if faced with the possibility of share ownership, I would try to rollover the puts as long as possible to avoid taking possession of shares.

While doing so, I would both hold my breath and cross my fingers.

Finally, as far as stocks go, Corning (GLW) has had a good year, at least in relative terms. It’s actually about 1.5% higher, which leaves both the DJIA and S&P 500 behind in the dust.

Shares are ex-dividend this week and I’m reminded that I haven’t owned those shares in more than 5 years, even as it used to be one of my favorites.

With its recently reported earnings exceeding expectations and with the company reportedly on track with its strategic vision, despite declining LCD glass prices, it is offering an attractive enough premium to even gladly accept early assignment in a call buyer’s attempt to capture the dividend.

With the ex-dividend date on Tuesday, an early assignment would mean that the entire premium would reflect only a single day of share ownership and the opportunity to deploy the ensuing funds from the assignment into another position.

However, even if not assigned early, the premiums for the weekly options may make this a good position to consider rolling over on a serial basis if that opportunity presents itself.

Those kind of recurring income streams can offset a lot of bitterness.

Traditional Stocks:  General Motors

Momentum Stocks: none

Double-Dip Dividend:   Corning (2/23 $0.135)

Premiums Enhanced by Earnings:   BBY (2/25 AM), Herbalife (2/26 PM, Sinclair Broadcasting (2/24 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 stream for the week, with reduction of trading risk.

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Week in Review – February 15 – 19, 2016

 

Option to Profit

Week in Review

 

FEBRUARY 15 – 19, 2016

 

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

 

Weekly Up to Date Performance

February 15 – 19,  2016


Alright, last week and the week before and the week before that, it was all about oil.

How about this week? Well, it was the same as last week. Oil, oil, oil and maybe a little bit of interest rates, interest rates, interest rates and negative interest rates, too.

Unbelievably, there was actually the first assignment of the year following one of those rare 2016 newly opened positions.

For all of the excitement this week and the two very strong days to start the week, there were no new purchases.

During the week the S&P 500 was 2.8% higher and that was good enough.

The single new assignment matched the performance of the S&P 500 during its holding period, so there was no particular advantage to having had made the trade, but it felt good to finally get one done.

This turned out to be a good week, but no so much for the performance relative to the S&P 500 but rather due to the ability to get some rollovers done and to actually live long enough to have seen an assignment.

Otherwise, it was a lonely week of just sitting and watching.

Much of that was done in the hopes that Thursday and Friday would end up being the same as Tuesday and Wednesday and maybe propel the market even higher.

But deep down I really wanted to see some stability come in after those two really large gains to start the week.

We’ve seen far too many really big moves in both directions and while that’s good for the volatility induced premiums that can be had, it creates a real sense of concern for the bottom falling out. The large moves higher are like an open invitation to take profits and what is really needed now is an open invitation to invest in the future and not relish in the past.

I think that ending the week on a flat note is probably a much more healthy thing than if we had gone higher and higher.

That would only make me think of how much another fall would hurt.

For next week, with a little bit of cash coming from that single assignment, I might be more inclined to want to add some new positions, but especially if the market opens with some weakness to start the week.

I probably wouldn’t be enthused with a strong decline, but wouldn’t mind a mild move lower or just a mild move higher.

I felt happy being able to get a couple of rollovers this week, even if having to go longer term on the expirations, though.

It was nice to finally generate some additional income, particularly as this week had only a single ex-dividend position and next week has none.

I don’t expect that next week will be a busy one from a personal trading perspective, but I could envision being willing again to dig into some personal funds and effectively lend money to myself to bolster the acsh position in an effort to create some income from what may be under-priced stocks.

For the most part, that had worked well in the latter half of 2015, but I really haven’t felt very assured about doing the same in 2016.

Maybe with a little stability and a little digestion of the recent gains I could find some reason to dip another toe or two to test the waters.

 

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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:  none

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:  none

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

Calls Rolled Over, taking profits, into a future monthly cycle:  HPE, UAL

Calls Rolled Up, taking net profits into same cyclenone

New STO:  none

Put contracts expired: none

Put contracts rolled over: none

Long term call contracts sold:  none

Calls Assigned: eBay

Calls Expired:  Ford

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   AZN (2/17 $0.30)

Ex-dividend Positions Next Week: none

For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, ANF, AZN, BBBY, BBY, CHK, CLF, COH, CSCO,  CY, DOW, FAST, FCX, GDX, GM, GPS, HAL, HFC, HPQ, INTC, IP, JCP, JOY, KMI, KSS, LVS, MCPIQ, MOS, NEM, RIG, WFM, WLTGQ, WY (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 – February 19, 2016

 

 

 

Daily Market Update – February 19, 2016 (7:30 AM)

The Week in Review will be posted by 10 PM and the Weekend Update will be posted by Noon on Sunday.

The following trade outcomes are possible today:

Assignments:  EBAY

Rollovers: HPE

Expirations: F, UAL

The following were ex-dividend this week: AZN (2/17 $0.30)

The following are ex-dividend next week:  none

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



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