Category Archives: Daily Market Update

Daily Market Update – October 20, 2014 (Close)

There was a time when earnings reports like this morning’s delivered by IBM would have cast a pall on the market, especially coming before the opening bell on a Monday.

Luckily, it’s not your father’s IBM, anymore and it doesn’t have the same impact as it once did.

But still, we’re probably lucky these disappointing earnings weren’t unveiled last week, because they could easily have caused some harm, especially if in the earlier part of the week. At least by coming today we had the continuing good feelings left over from Friday, instead of coming on the heels of a few hundred points loss. 

You do have to wonder how the  company has seemed to lose its way and there certainly can be a new and better era ahead of it, but more importantly you have to wonder in this day and age how any company can ever maintain its predominance for very long.

With the DJIA being price weighted, IBM plays a big role in its calculation, although no quite as much at the moment. Still a lot, though, as it accounts for the entirety of the pre-open futures decline that at least temporarily puts a damper on Friday’s strong rally.

As a rule, each point of a DJIA component stock has a weighting of 7 times on the index, so when IBM was $15 lower, that was about 105 points. That fully explains the huge dichotomy between today’s closes on the DJIA and S&P 500 of about 0.8%.

Hopefully the week will see some kind of price stability in net terms, although I would love to see lots of intra-day movements. In an ideal market there’s minimal net movement but lots of activity. That inefficiency in net movement is great for premiums.

If you would have taken IBM out of today’s DJIA it would have closed the day with a gain of nearly 110 points.

Coming off last week and having finally gone a week without any new purchases, it may be easier to resist spending any money this week again. Certainly easier than the first time, as there’s still no reason to believe that any given day’s strength is the antidote to the past 4 weeks of declines.

I did the resisting today, but there really wasn’t anything that compelling today anyway, so the resisting was pretty easy.

As tempting as so many stock prices look right now there have been so many reasons to avoid those temptations, but like most everything in life, it takes a good degree of hindsight to have some certainty about  that conclusion. Without a doubt, at some point in the future, hindsight will also question why those purchases weren’t made sooner, forgetting all that transpired before.

Last week, other than a f
ew new sales of option contracts on existing positions, was so devoid of activity. I don’t really want to repeat it, but at least there was an overall out-performance in a market that is still trending downward.

Imagine where that market would be if those explosively higher moves hadn’t occurred?

While those higher moves may have sucked people back into the market chasing new positions, even if they represent false promises, at least they have tempered the decline. Without those 200 and 300 point like moves higher we would have been looking at a 10% correction level from the wrong side of 10%.

So this week is another in which I don’t anticipate much in the way of new position additions.

Unlike last week, which was also the monthly cycle ending with the smallest number of expiring positions that I can recall in years, this week already has double the number of last week. I would just love to see some assignments from among that group, but would really be content if at least the opportunity to execute rollovers and make those new call contract sales came to being.

While volatility took a little decline on Friday’s straight climb higher, there may still be reasons to consider some longer term option sales if the forward week premiums show some evidence of that volatility. The two solitary trades for the day both looked to the November 2014 cycle, although Campbell Soup only offered a monthly option, anyway, but I did consider the December cycle.

The diversification by time that was re-initiated a few weeks ago as those premiums started to climb has already had some benefit by being able to lock in some of those premiums and to not be entirely at risk on any single day.

Given the kind of price movements that we’ve seen in the past month, any single day could fall on just the wrong day as it comes to risk of a contract going unassigned, so it is nice not to have all of those contracts subject to the whims of an irrationally adverse price decline.

For the week there may also continue to be opportunity and reason to pursue DOH Trades and attempt to squeeze whatever income is possible out of beaten down stocks, especially if receiving what may be a temporary bump higher.

Any little bit helps.

Daily Market Update – October 20, 2014 (9:00 AM)

There was a time when earnings reports like this morning’s delivered by IBM would have cast a pall on the market, especially coming before the opening bell on a Monday.

Luckily, it’s not your father’s IBM, anymore.

You do have to wonder how the  company has seemed to lose its way and there certainly can be a new and better era ahead of it, but more importantly you have to wonder in this day and age how any company can ever maintain its predominance.

With the DJIA being price weighted, IBM plays a big role in its calculation, although no quite as much at the moment. Still a lot, though, as it accounts for the entirety of the pre-open futures decline that at least temporarily puts a damper on Friday’s strong rally.

Hopefully the week will see some kind of price stability in net terms, although I would love to see lots of intra-day movements. In an ideal market there’s minimal net movement but lots of activity. That inefficiency in net movement is great for premiums.

Coming off last week and having finally gone a week without any new purchases, it may be easier to resist spending any money this week again. Certainly easier than the first time, as there’s still no reason to believe that any given day’s strength is the antidote to the past 4 weeks of declines.

As tempting as so many stock prices look right now there have been so many reasons to avoid those temptations, but like most everything in life, it takes a good degree of hindsight to have some certainty about  that conclusion. Without a doubt, at some point in the future, hindsight will also question why those purchases weren’t made sooner, forgetting all that transpired before.

Last week, other than a few new sales of option contracts on existing positions, was so devoid of activity. I don’t really want to repeat it, but at least there was an overall out-performance in a market that is still trending downward.

Imagine where that market would be if those explosively higher moves hadn’t occurred?

While those higher moves may have sucked people back into the market chasing new positions, even if they represent false promises, at least they have tempered the decline. Without those 200 and 300 point like moves higher we would have been looking at a 10% correction level from the wrong side of 10%.

So this week is another in which I don’t anticipate much in the way of new position additions.

Unlike last week, which was also the monthly cycle ending with the smallest number of expiring psotions that I can recall in years, this week already has double the number of last week. I would just love to see some assignments from among that group, but would really be content if at least the opportunity to execute rollovers and mak
e those new call contract sales came to being.

While volatility took a little decline on Friday’s straight climb higher, there may still be reasons to consider some longer term option sales if the forward week premiums show some evidence of that volatility.

The diversification by time that was re-initiated a few weeks ago as those premiums started to climb has already had some benefit by being able to lock in some of those premiums and to not be entirely at risk on any single day.

Given the kind of price movements that we’ve seen in the past month, any single day could fall on just the wrong day as it comes to risk of a contract going unassigned, so it is nice not to have all of those contracts subject to the whims of an irrationally adverse price decline.

For the week there may also continue to be opportunity and reason to pursue DOH Trades and attempt to squeeze whatever income is possible out of beaten down stocks, especially if receiving what may be a temporary bump higher.

Any little bit helps.

Daily Market Update – October 17, 2014 (8:00 AM)

The Weekend in Review will be posted by Saturday 10 AM and the Weekend Update will be posted by 8 AM on Monday. The usual schedule will resume next week, as this weekend we celebrate my oldest son’s wedding.

The following outcomes are possible during this week’s final trading day:

Assignments:   none

Rollovers:        none

Expirations:    CPB, CY, FAST, TMUS

The following positions were ex-dividend this week: none

The following position will be ex-dividend next week:

While no rollovers are expected this week, particularly as three of the positions are monthly contracts and are too expensive to buy back, hopefully there will be some continued opportunity to make some call sales on uncovered positions and continue to diversify the dates of expiration among holdings

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

Daily Market Update – October 16, 2014 (Close)

Yesterday morning began with these words:

“Despite yesterday’s decent closing action and despite somewhat positive results from Intel, the market is back to its recent ways and is headed sharply lower this morning.”

This morning you could say almost the exact same thing:

“Despite yesterday’s decent closing action and despite positive results from Goldman Sachs, the market is back to its recent ways and is headed sharply lower this morning.”

At some point that has to get discouraging, but the discouragement should be delayed until there is reason to believe that this correction will go beyond the 10% that was once a fairly common and not overly frightening phenomenon.

Once you get beyond that 10% level the natural concern becomes where the floor will be. Right now, if looking at a chart of the S&P 500 you would look for support levels, which exist at 1816, 1792 and 1742.

At that 1742 level we would be looking at a 13% decline, while the 1816 level is just about a 10% decline from the S&P 500 high point.

The 7% decline in the S&P 500 heading into this morning was just about near the mid-way point between what we’ve become accustomed to and what we used to be accustomed to. What’s strange is seeing interest rates, oil and gold all so low at the same time, as if there are no viable alternatives for people to invest their money.

Yesterday was a really wild ride and today my early thought was that today might be the same as the futures had already shown quite a bit of movement, but paled compared to the movement in the 10 Year Treasury Note yesterday, which actually sank below a 2% level before bouncing about 5% higher by the close of its trading.

As it would turn out there was quite a bit of movement today, but at least the bad part of the movement didn’t last very long. It turned out to be a day with lots of volatility but without real price erosion.

As the day was getting ready to begin it didn’t seem as if there would really be much to do for the morning and perhaps for the rest of the week. Fortunately, that changed and some DOH trades could finally be made.

Even with today’s reasonably steady performance it’s certainly becoming easier to ignore what at first have appeared to be bargains as they took on a different appearance with just a little bit of time passage. That has been a consistent theme for nearly 4 weeks. What looks appealing has consistently been a place where money goes to die.

With only 4 positions set to expire this Friday and at their current pricing, there’s not too much likelihood of rollovers, particularly since 3 of those are monthly contracts and are generally too expensive to buy back if denominated in $0.05 increments.

As the morning was getting ready to start there was even less likelihood of adding any new positions this week, but I continued to hold out hope of being able to sell call contracts on existing positions, despite having been thwarted a number of times earlier in the week as there had been very little call buying activity, as the options market hasn’t been a hotbed of speculation regarding prices moving higher and there has been a much wider than usual gap between bid and ask prices on positions that normally don’t have wide bids.

In those cases that’s a reflection of a seller who is looking at a realistic selling price and a buyer who feels that the realistic is unrealistic and there has been very little effort to bridge their positions.

As a seller I understand the reluctance to give in to the buyer right now particularly since you can easily have a large surge higher at a moment’s notice. Even if that surge is reversed the next trading day, it may be a day too late if your expiration date was the day of the surge.

While “DOH” trades may make sense in an environment of increasing volatility, it may not make sense when there may be reason to suspect that the volatility will move against you.

So while this morning it seemed as if it was right back to that usual pattern of sitting and watching and hoping for some opportunity to sell something on any sign of market strength or individual stock strength, it actually lived up to that hope.

It all started with Chesapeake Energy, as it announced the sale of some assets.

That is a good example, though of the surges that can take place, as I had tried to get a weekly DOH trade for Chesapeake earlier in the week at a $19.50 strike when shares were at their weekly high of $18.22 for an $0.11 premium.

As Chesapeake was trading in the pre-open at $19.55, up $1.78 it is testament to how quickly things can move and necessitate offsetting action under a ticking clock, as contracts expire tomorrow.

On the other hand, how much higher will Chesapeake go on the basis of an asset sale? There’s not too much reason to think that the sale would propel it too much more, so there may still be a quick opportunity there, but even then, too few, far too few of those opportunities this week.

But don’t get me wrong. I was grateful for each and every one.