Category Archives: Daily Market Update

Daily Market Update – August 1, 2014 (9:00 AM)

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

Today’s possible outcomes include the following, although it may be another tumultuous day with some surprises in store. As in some recent weeks I may elect to defer rollovers if the cost of doing so seems too high relative to the reward.

Assignments:  BMY, KSS

Rollovers:  EBAY, GPS

Expirations: BX, DOW,  EBAY, GM, IP, RIG, RIG

Trades, if any, will be attempted to be made prior to 3:30 PM EDT.Had I known yesterday that today would have had no redeeming qualities, I would have stayed in bed.

Daily Market Update – July 31, 2014 (Close)

Had I known yesterday that today would have had no redeeming qualities, I would have stayed in bed.

Any day that comes at the very end of the month and simply wipes out the entire gains for that month is a day best left unfaced.

Whenever I wake up to visions of red on the screen as this morning the first thought that comes to my mind is “what day is it?”

Looking at the prospects of a DJIA opening approximately 100 points lower based on the futures trading the thought occurs that such an open would be far more welcome on a Monday than on a Thursday.

Now that the day’s trading has come to its close, that simple 100 point drop would have been much appreciated, as opposed to how the day came to its end, as we had one of the worst trading days in about 4 months and which left no sector unscathed.

Being a Thursday and nearly the end of the trading week you can understand the simple thought process of wondering what day it is when things are looking bad. How much better is it to wake up on a Monday morning with freshly freed up cash from assignments and to be greeted by falling prices?

Contrast that with wanting to get rid of positions or roll them over and to be greeted by declining prices on a Thursday, or even worse, on a Friday, when there’s no chance of getting a bounce back later in the week..

I know which order I prefer and it’s strongly associated with the concept of “buy low, sell high” or in my case, “buy low, sell somewhere near low, but preferably a little higher and with a dividend, too, if that’s not asking too much.”

When they say “what a difference a day makes,” I doubt that they had stock markets on the mind, but the relative order of daily results can have such a significant impact on outcomes, sometimes for good and sometimes less so.

This morning’s poorly timed news event on everyone’s mind is primarily related to Argentina and how it has perceived its debt obligations and its various class of debt holders.. It’s one thing to be unable to pay back a nation’s debt, but it may be another thing when it’s the eighth time.

With Argentina in technical default of loans after a very protracted legal battle you can understand how the market may take that as a negative signal, although  there’s really no reason to believe that problem goes any further or deeper. The expectation shouldn’t be that it becomes the nidus for a larger and systemic market decline.

Beyond Argentina there are increasing concerns that growing sanctions against Russia will also have adverse impact on a number of corporations, particularly in the energy sector, but there is always the threat of trickle down and growing economic “tit for tat” that take out the innocent, as well. It might come as no surprise if suddenly McDonalds or Coca Cola were to find themselves in the cross hairs of some previously inert regulatory mechanism.

Adding to those bits of international news was some further futures weakening as jobless claims rose in the most recent period.

That’s consistent with the less than expected numbers seen in yesterday’s ADP report and may hold some clue as to what we might expect with tomorrow’s Employment Situation Report.

No one, other than a Republican in a congressional race, really wants to see anything that can be construed as a slowing down of the growth of employment. Most of us would prefer to see growth, especially to confirm the good GDP numbers that were released yesterday, to only transient applause.

So today held some challenges and tomorrow will be a wild card as the non-farm payroll numbers will have their influence one way or another.

That likely means that today, which turned out not to have very many rollover opportunities, will just have to become a distant memory in the hope that tomorrow brings the opportunities that would have been welcome today.

Today would have been an idea day to get those trades done, especially since you never know what tomorrow will bring..

I only wish I would have realized that expression had so much meaning yesterday.

Daily Market Update – July 31, 2014 (9:00 AM)

Whenever I wake up to visions of red on the screen as this morning the first thought that comes to my mind is “what day is it?”

Looking at the prospects of a DJIA opening approximately 100 points lower based on the futures trading the thought occurs that such an open would be far more welcome on a Monday than on a Thursday.

How much better is it to wake up on a Monday morning with freshly freed up cash from assignments and to be greeted by falling prices?

Contrast that with wanting to get rid of positions or roll them over and to be greeted by declining prices.

I know which order I prefer and it’s strongly associated with the concept of “buy low, sell high” or in my case, “buy low, sell somewhere near low, but preferably a little higher and with a dividend, too, if that’s not asking too much.”

When they say “what a difference a day makes,” I doubt that they had stock markets on the mind, but the relative order of daily results can have such a significant impact on outcomes, sometimes for good and sometimes less so.

This morning’s poorly timed news event on everyone’s mind is primarily related to Argentina and how it has perceived its debt obligations and its various class of debt holders.. It’s one thing to be unable to pay back a nation’s debt, but it may be another thing when it’s the eighth time.

With Argentina in technical default of loans after a very protracted legal battle you can understand how the market may take that as a negative signal, although  there’s really no reason to believe that problem goes any further or deeper. The expectation shouldn’t be that it becomes the nidus for a larger and systemic market decline.

Beyond Argentina there are increasing concerns that growing sanctions against Russia will also have adverse impact on a number of corporations, particularly in the energy sector, but there is always the threat of trickle down and growing economic “tit for tat” that take out the innocent, as well. It might come as no surprise if suddenly McDonalds or Coca Cola were to find themselves in the cross hairs of some previously inert regulatory mechanism.

Adding to those bits of international news was some further futures weakening as jobless claims rose in the most recent period.

That’s consistent with the less than expected numbers seen in yesterday’s ADP report and may hold some clue as to what we might expect with tomorrow’s Employment Situation Report.

No one, other than a Republican in a congressional race, really wants to see anything that can be construed as a slowing down of the growth of employment. Most of us would prefer to see growth, especially to confirm the good GDP numbers that were released yesterday, to only transient applause.

So today may hold some challenges and tomorrow will be a wild card as the non-farm payroll numbers will have their influence one way or another.

That likely means that today will be a day to look for whatever rollover opportunities may exist and attempt to secure those trades, if any, while they are still possibilities, as you never know what tomorrow will bring.

I only wish I would have realized that expression had so much meaning yesterday.

.

Daily Market Update – July 30, 2014 (Close)

When did the FOMC become such a yawner?

Actually, today was a disappointing one. Given the strong GDP number you might have expected a strong reaction, but just as when the market didn’t give a strong reaction to the significant downward revision last month, you really can’t expect to have it both ways.

The market did seem to react to some more news of sanctions against Russia and then generally moved higher after the FOMC release, despite an initial move lower.

The real story of the day was Twitter.

The reaction to Twitter’s earnings released yesterday afternoon was pretty implausible and makes you wonder who exactly runs in to purchase shares after hours when a buying frenzy is going on. You have to have lots and lots of confidence to commit to a stock when its shares jump about 30% in the blink of an eye, especially when they’ve shown that they can also do the same in the opposite direction.

I have enough trouble running in and doing so after a 1% climb, but there’s something unnerving about buying into something when there’s a big price gap, just as there’s something unnerving about being on the wrong side of a gap lower.

For me, the good news is that if the price holds until Friday I will finally be out of shares that started as a put sale at $47, then an assignment at $43.50 and a large number of rollovers of both puts and calls in an effort to stay ahead of assignment, including the sale of even more puts at lower prices to generate offsetting revenues. 

First the fear was that of assignment of puts and then the fear was that of assignment of calls when executing DOH trades.

Fear can be a good motivator, but it’s a lot easier to take than stress, because somewhere along the line I believed that somehow everything would work out, or at least not be as bad as things may appear.

What the process, now that it’s coming to an end demonstrates is that it is possible to make proverbial lemonade even when things aren’t looking very good. Unfortunately, there are plenty of lemons to deal with sometimes.

In the case of Twitter it was easier because the shares have some volatility. That’s the secret sauce that makes some things more likely.It is what enhances premiums, even when they’re deep in the money. It is what is
lacking in most other positions and that makes it difficult to maneuver in the event of an adverse price movement.

That adverse price movement can be higher, just as easily as it can be lower.

I mention that because of one subscriber who had sold August 16, 2014 calls on his Family Dollar Store holdings. With shares being now deep in the money after the buyout bid the likelihood of being able to roll those shares over into the future at a higher strike price in order to gain some benefit from the buyout isn’t very high as long as the volatility is low.

When the original stake by Icahn was announced we were able to rollover shares to a higher strike and participate in the share’s appreciation due to  having selected an option expiration that coincided with earnings. That alone caused the enhanced volatility that allowed a trade to be made, and to live to see another day.

In the current case the next earnings date is in October. While that may give some opportunity, there is another difference between the Family Dollar of old and the Family Dollar of today.

Back then there was still an unlimited potential for the share price to climb, as Icahn had just entered the picture. Now, there is a defined offer that prices shares at about $74.50. While that can change if some other player comes in, the volatility won’t appear again unless that  happens. That immediately limits potential trade opportunities.

But, like today’s FOMC statement release, you just never know if a surprise is just around the corner. You really can’t take anything for granted.

As long as a company still has some breath in it there’s always the chance, in fact, the probability that it will show some recovery. The key is whether that recovery is enough to start instituting some measures, such as DOH trades, to start resurrecting the position’s ability to support itself and justify its existence in a portfolio.

That requires a lot of patience sometimes, but that patience, as it grows, also comes with a remarkable reduction in stress.

Of course, nothing reduces that stress more than profits.

Daily Market Update – July 30, 2014 (8:30 AM)

The reaction to Twitter’s earnings released yesterday afternoon was pretty implausible and makes you wonder who exactly runs in to purchase shares after hours when a buying frenzy is going on. You have to have lots and lots of confidence to commit to a stock when its shares jump about 30% in the blink of an eye, especially when they’ve shown that they can also do the same in the opposite direction.

I have enough trouble running in and doing so after a 1% climb, but there’s something unnerving about buying into something when there’s a big price gap, just as there’s something unnerving about being on the wrong side of a gap lower.

For me, the good news is that if the price holds until Friday I will finally be out of shares that started as a put sale at $47, then an assignment at $43.50 and a large number of rollovers of both puts and calls in an effort to stay ahead of assignment, including the sale of even more puts at lower prices to generate offsetting revenues. 

First the fear was that of assignment of puts and then the fear was that of assignment of calls when executing DOH trades.

Fear can be a good motivator, but it’s a lot easier to take than stress, because somewhere along the line I believed that somehow everything would work out, or at least not be as bad as things may appear.

What the process, now that it’s coming to an end demonstrates is that it is possible to make proverbial lemonade even when things aren’t looking very good. Unfortunately, there are plenty of lemons to deal with sometimes.

In the case of Twitter it was easier because the shares have some volatility. That’s the secret sauce that makes some things more likely.It is what enhances premiums, even when they’re deep in the money. It is what is lacking in most other positions and that makes it difficult to maneuver in the event of an adverse price movement.

That adverse price movement can be higher, just as easily as it can be lower.

I mention that because of one subscriber who had sold August 16, 2014 calls on his Family Dollar Store holdings. With shares being now deep in the money after the buyout bid the likelihood of being able to roll those shares over into the future at a higher strike price in order to gain some benefit from the buyout isn’t very high as long as the volatility is low.

When the original stake by Icahn was announced we were able to rollover shares to a higher strike and participate in the share’s appreciation due to  having selected an option expiration that coincided with earnings. Tha
t alone caused the enhanced volatility that allowed a trade to be made, and to live to see another day.

In the current case the next earnings date is in October. While that may give some opportunity, there is another difference between the Family Dollar of old and the Family Dollar of today.

Back then there was still an unlimited potential for the share price to climb, as Icahn had just entered the picture. Now, there is a defined offer that prices shares at about $74.50. While that can change if some other player comes in, the volatility won’t appear again unless that  happens. That immediately limits potential trade opportunities.

But, like today’s FOMC statement release, you just never know if a surprise is just around the corner. You really can’t take anything for granted.

As long as a company still has some breath in it there’s always the chance, in fact, the probability that it will show some recovery. The key is whether that recovery is enough to start instituting some measures, such as DOH trades, to start resurrecting the position’s ability to support itself and justify its existence in a portfolio.

That requires a lot of patience sometimes, but that patience, as it grows, also comes with a remarkable reduction in stress.

Of course, nothing reduces that stress more than profits.