May62014

Daily Market Update – May 6, 2014 (Close)

Daily Market Update

 

 

Daily Market Update – May 6, 2014 (Close)

Yesterday saw an impressive turnaround following a nearly 130 point drop. But it doesn’t look as if today will have much in the way of follow-through. As it was, there wasn’t much reason for the fall, other than to play “follow the leader,” having taken Europe’s cue. Likewise, there wasn’t too much reason to turn things back around, either, other than the closure of the European markets.

Given the pattern of recent Tuedays, you would have to excuse anyone who thought that today would be a day to buy stocks or at least watch the existing ones go higher and higher.

Not so.

The biggest story of the week is likely to be today’s lock-up expiration of Twitter and some kind of celebration of the fourth anniversary of what is known as the “Flash Crash.”

It didn’t take much of  crystal ball to have that figured out, but it did take one to see just how big Twitter’s drop would be. It was well beyond what anyone imagined, especially since none of the big insiders said they were going to be sellers of shares, but more on that later.

While Twitter shares are pointing sharply lower in the pre-trading market, if there’s any remote resemblance to the case of Facebook, as it faced its first big lock-up expiration, it would mark a trading low and an opportunity to start accumulating shares. Facebook fell about 10% on that lock-up expiration day, but Twitter ended up falling almost 18%.

That’s tough to make back except by a little at a time.

That kind of drop made it even more difficult to rollover $43.50 puts that were done for my personal trading, but I thought it might open open open forward opportunities. By the time the day was done I had sold two new Facebook put lots for my personal trading and by the end of the day had to roll them over to the following week,as the selling just kept going on and on.

While shares were weak to begin with, they really accelerated after RBS analyst, Mark Mahaney, suggested that there was selling by insiders who said they wouldn’t sell. He wasn’t questioned about that comment and he offered nothing else.

This is the same Mark Mahaney who was fired by Citigroup for provoding non-public information when he shouldn’t and with whom a settlement was reached with the COmmonwealth of Massachusetts regarding such activities related to Facebook and Google.

And now we have Twitter.

Beyond Twitter, it’s still amazing that no one can explain what happened that day in May when I was headed to the garden store with my wife driving. Even if being able to use more than 140 spaces to do so, still no one can explain. While listening in disbelief to the radio I wanted to grab the steering wheel from her and car jack my own car so I could get back home.

But instead, she got peonies, while I got hosed.

That was a day that created lots of trust in the system. The fact that they can’t explain what had happened and initially tried blaming it on a “fat finger,” shouldn’t leave too many people with an abiding sense of security.

Yet, we go on, because it’s still the best place to be, even with lots of hiccoughs and lots of irrational behaviors. Imagine that if the “smart money” acts the way it does, just how bizarre must be the behavior of you and I.

After a fairly busy day yesterday, I’m not expecting many more new purchases for the week, although looking at some pre-market drops in specific stocks, like AIG and Holly Frontier,  both earnings related, I get interested in saying hello to some old friends.

But lately some of these earnings related drops have been lasting a little longer than usual and aren’t the same kind of slam-dunk purchases as they may have been a year ago. In a market that went only higher even disappointments were quickly forgiven.  That’s just not as certain in 2014.

So while the money is there, I may be a little more discerning and maybe wait for even more selling.

With enough new positions to probably keep me satisfied for the week attention then gets diverted to what has been increasingly important. That is to make existing revenue streams continue through rollover and more importantly get new coverage on existing positions.

The weakness yesterday, even with the turnaround, didn’t do very much to help achieve that latter goal and this morning’s preliminary weakness isn’t doing much, either.

Hopefully the market will just do what it has been so good at doing in the past and just move higher, with or without a catalysts. Unfortunately, there really don’t appear to be any catalysts on the horizon that might send shares higher, but there are enough things on the near term horizon that could introduce some nervousness into the equation.

Today did nothing to help.

While I always have at least one antennae up to  figure out what curve balls may lie ahead the preponderance of uncertainty isn’t really overwhelming. Especially since it all seems so obvious and is on everyone’s radar.

Those just seem to be good times to do more than dip a toe in.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

  

May62014

Daily Market Update – May 6, 2014

Daily Market Update

 

 

Daily Market Update – May 6, 2014 (9:30 AM)

Yesterday saw an impressive turnaround following a nearly 130 point drop. But it doesn’t look as if today will have much in the way of follow-through. As it was, there wasn’t much reason for the fall, other than to play “follow the leader,” having taken Europe’s cue. Likewise, there wasn’t too much reason to turn things back around, either, other than the closure of the European markets.

The biggest story of the week is likely to be today’s lock-up expiration of Twitter and some kind of celebration of the fourth anniversary of what is known as the “Flash Crash.”

While Twitter shares are pointing sharply lower in the pre-trading market, if there’s any remote resemblance to the case of Facebook, as it faced its first big lock-up expiration, it will mark a trading low and an opportunity to start accumulating shares.

That may or may not help me to rollover some existing puts that were done for my personal trading, but it may open open forward opportunities.

Beyond Twitter, it’s still amazing that no one can explain what happened that day in May when I was headed to the garden store with my wife driving. Even if being able to use more than 140 spaces to do so, still no one can explain. While listening in disbelief to the radio I wanted to grab the steering wheel from her and car jack my own car so I could get back home.

But instead, she got peonies, while I got hosed.

That was a day that created lots of trust in the system. The fact that they can’t explain what had happened and initially tried blaming it on a “fat finger,” shouldn’t leave too many people with an abiding sense of security.

Yet, we go on, because it’s still the best place to be, even with lots of hiccoughs and lots of irrational behaviors. Imagine that if the “smart money” acts the way it does, just how bizarre must be the behavior of you and I.

After a fairly busy day yesterday, I’m not expecting many more new purchases for the week, although looking at some pre-market drops in specific stocks, like AIG and Holly Frontier,  both earnings related, I get interested in saying hello to some old friends.

But lately some of these earnings related drops have been lasting a little longer than usual and aren’t the same kind of slam-dunk purchases as they may have been a year ago. In a market that went only higher even disappointments were quickly forgiven.  That’s just not as certain in 2014.

So while the money is there, I may be a little more discerning and maybe wait for even more selling.

With enough new positions to probably keep me satisfied for the week attention then gets diverted to what has been increasingly important. That is to make existing revenue stream
s continue through rollover and more importantly get new coverage on existing positions.

The weakness yesterday, even with the turnaround, didn’t do very much to help achieve that latter goal and this morning’s preliminary weakness isn’t doing much, either.

Hopefully the market will just do what it has been so good at doing in the past and just move higher, with or without a catalysts. Unfortunately, there really don’t appear to be any catalysts on the horizon that might send shares higher, but there are enough things on the near term horizon that could introduce some nervousness into the equation.

While I always have at least one antennae up to  figure out what curve balls may lie ahead the preponderance of uncertainty isn’t really overwhelming. Especially since it all seems so obvious and is on everyone’s radar.

Those just seem to be good times to do more than dip a toe in.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

  

May52014

Daily Market Update – May 5, 2014 (Close)

Daily Market Update

 

 

Daily Market Update – May 5, 2014 (Close)

I like getting the week off to a start with cash in reserve, especially when the market looks as if it may be opening up on the weak side.

What I don’t like is one of those subtle areas of discrimination that don’t allow for a level playing field.

I’m not referring to this LA Clipper and Donald Sterling story, but instead to the discrimination that allows an option contract holder the opportunity until after the market closes to elect not to participate in automatic assignment.

In this case it was JP Morgan, which closed at $55.58 and was destined for assignment at $55.50. At least that’s what any normal person would have expected to be the case.

That is until it announced some adverse news regarding forward revenues and risk in Russia.

While normally shares closing a penny or more above the strike price are automatically assigned, that’s really not accurate. Contract holders have the right to tell their brokerages not to assign shares on their behalf. The automatic assignment is referred to as “exercise by exception.” They can request an exception to that exception.

Sometimes they make that decision because they just don’t have the money to pay for the shares. Other times they just think that there’s something better they can do with their money and leverage it, to boot.

The cynic in me believes that some knew of what kind of news was to come.

When JP Morgan shares then dropped after hours to about $55 at first I felt relieved, but then I realized it’s not a fair world.

What’s galling is that brokerages have a different time cut-off for option contract holders to make that automatic assignment decision. The cut-off is after the closing bell, so that they can react to news that you can’t.

This was the second time that’s happened to me.

Once it resulted in shares being assigned that I expected to still be with me on Monday and this time it resulted in shares going unassigned.

The first time resulted in missing out on nice after hour gains and this time taking on the losses that I expected someone else would carry as a burden.

At some point I’ll get over it, especially if I can put the cash from those that were rightfully assigned to good use.

With cash up to 35%, which is down a couple of percentage points after finding JP Morgan still in my account, I’m willing to get down to about 20% this week.

Again, with a fair number of positions set to expire this week, I may instead look at next week, which happens to be the end of the May 2014 cycle for my new expirations.

In the meantime,as the market has opened with a triple digit loss, it’s not necessarily a time to just immediately jump in, even with the cash in hand. Barely a couple of hours later, though, and with no reason to have expected as such, that entire loss was reversed.

I had plan on sitting and watching a bit, listening for news and looking for any signs of stability. The news never came, but the stability did as this was one of the busiest trading Mondays I’ve had for a while It almost seemed like the old days.

Still, I was bothered by JP Morgan and for a while I believed that it might end up becoming the first trade of the day but its premium didn’t really reflect much in the way of risk that usually comes with any kind of large, especially unexpected movement in price. 

Making that purchase would have made me happy if the shares were replacement for the assigned ones, but I suppose I could get some satisfaction by simply booking a profit on the new shares and getting an opportunity to sell options on the old and unwanted ones. But that happiness, too, was taken away from me.

It’s beginning to sound like something out of a soap opera.

 

 

 

 

 

 

 

 

 

 

 

  

 

 

  

May52014

Daily Market Update – May 5, 2014

Daily Market Update

 

 

Daily Market Update – May 5, 2014 (9:45 AM)

I like getting the week off to a start with cash in reserve, especially when the market looks as if it may be opening up on the weak side.

What I don’t like is one of those subtle areas of discrimination that don’t allow for a level playing field.

I’m not referring to this LA Clipper and Donald Sterling story, but instead to the discrimination that allows an option contract holder the opportunity until after the market closes to elect not to participate in automatic assignment.

In this case it was JP Morgan, which closed at $55.58 and was destined for assignment at $55.50. t least that’s what any normal person would have expected to be the case.

That is until it announced some adverse news regarding forward revenues and risk in Russia.

While normally shares closing a penny or more above the strike price are automatically assigned, that’s really not accurate. Contract holders have the right to tell their brokerages not to assign shares on their behalf. The automatic assignment is referred to as “exercise by exception.” They can request an exception to that exception.

Sometimes they make that decsion because they just don’t have the money to pay for the shares. Other times they just think that there’s something better they can do with their money and leverage it, to boot.

When JP Morgan shares then dropped after hours to about $55 at first I felt relieved, but then I realized it’s not a fair world.

What’s galling is that brokerages have a different time cut-off for option contract holders to make that automatic assignment decision. The cut-off is after the closing bell, so that they can react to news that you can’t.

This was the second time that’s happened to me.

Once it resulted in shares being assigned that I expected to still be with me on Monday and this time it resulted in shares going unassigned.

The first time resulted in missing out on nice after hour gains and this time taking on the losses that I expected someone else would carry as a burden.

At some point I’ll get over it, especially if I can put the cash from those that were rightfully assigned to good use.

With cash up to 35%, which is down a couple of percentage points after finding JP Morgan still in my account, I’m willing to get down to about 20% this week.

Aga
in, with a fair number of positions set to expire this week, I may instead look at next week, which happens to be the end of the May 2014 cycle for my new expirations.

In the meantime,as the market has opened with a triple digit loss, it’s not necessarily a time to just immediately jump in, even with the cash in hand,

I plan on sitting and watching a bit, listening for news and looking for any signs of stability.

What bothers me, watching JP Morgan this morning, is that it may be the likely first trade of the week.

That would have made me happy if the shares were replacement for the assigned ones, but I suppose I could get some satisfaction by simply booking a profit on the new shares and getting an opportunity to sell options on the old and unwanted ones.

It’s beginning to sound like something out of a soap opera.

 

 

 

 

 

 

 

 

 

 

 

  

 

 

  

May22014

Twitter Fatigue

Daily Market Update

I’ve grown tired of Twitter (TWTR).

That may be a purely defensive position as I’ve noticed that my limited number of Twitter followers may, in fact, be more tired of me and I just wanted to be ahead of that curve. It’s probably no coincidence that my follower numbers increase the less I tweet and those tweets have now come to a crawl and not because I feel a need to be original nor have run out of anything to say.

After a couple of years of trying to “promote” myself, a sense of disinterest has set in and people like me may be the problem that Twitter is facing regarding its growth prospects. Not only does Twitter have to convince new people to join, understand the interface and actually use it, but they also have to convince existng users to stay and actively participate. Using Twitter as I now predominantly do as a “news feed” as Herb Greenberg suggests may have utility for the user but adds little to their bottom line. 

Like others, I may find the occasional advance reporting of an errant helicopter encircling what every local knew to be an Al-Qaeda compound, but I didn’t try to engage that tweeter and really don’t recall much in the way of anyone trying to capitalize on all of those re-tweets or “favorites.” Also, as with reports of the floor of the New York Stock Exchange being under three feet of water, sometimes that breaking news just has a way of getting broken. While Twitter can be lauded for getting breaking news out before the professionals can get mobilized it can also be criticized for its lack of oversight of those who might be prone to be reckless.

Like so many who use Twitter, I do so through some interface other than the web site. Unless my experiences are some kind of aberration, I just don’t see those revenue producing “promoted” Tweets that are there to pay the bills, yet I and millions of others get to promote themselves ad infinitum. For those that follow huge numbers of others, even having those promoted tweets appear can see them easily getting lost in the volume of their stream.

To its credit, Twitter has opened up some really nice opportunities to engage and even meet some people that I would have never encountered otherwise. It is a perfectly egalitarian society that can offer a real sense of ego inflation not only on the basis of follower numbers but by reciprocal engagement by celebrities of various stature. That kind of periodic engagement can be the Pavlovian reward that may keep people interested and actively using the product in hopes of those occasional rewards.

While tiring of the actual product, what I’m not  tired of is the investing opportunity that its beleaguered shares have offered and, I believe, will continue to offer. For those who recall Facebook (FB) at a similar stage of its public life as it readied itself for an expected onslaught of selling prior to a major stock lock-up expiration, the opportunity to take a contrary position to the crowd is compelling. In the case of the initial Facebook lock-up expiration, sometimes the crowd is vociferous, emotional and clings to the certainty of their opinion on their way to being very wrong.

I’ve found some delight in selling puts on shares well prior to Tuesday’s earnings, occasionally seeing them expire and occasionally having to roll them over to a forward contract date, because the last thing I want to do is to own shares, although I do want to continue collecting premiums. I know that the conventional wisdom is that you shouldn’t sell puts on a stock that you wouldn’t be comfortable owning, but I have a hard time justifying ownership, especially as my serial sale of puts has been during a period that has seen the out of the money strike levels utilized fall in a straight line from $56 to $33 and, if the crowd is correct, will drop even lower next week, as May 6th, the lock-up expiration date approaches.

Over the past 16 weeks I have sold puts on shares of Twitter on 10 occasions, even as share value sunk lower and lower. These days it seems that I make some sort of Twitter trade more often than some sort of tweet, which pleases both my followers and banker. In general I start by looking for a situation in which there exists a strike level below the lower range defined by the Implied Volatility that wll return my ROI objective, which is 1% to start off the process using a weekly option. It’s not a very high ROI, but like so many things, you try to make it up in volume. 

The cumulative results of those trades has been an ROI of 11.6% with a remaining potential liability, of $2.xx based on Thursday’s closing price. That compares to a return of 2.5% for the S&P 500 for the observation period beginning in January 2014. If the entire liability is realized, for example if the remaining open position was closed the ROI would be reduced to 7.9%

On a side note, while I don’t like to use margin other than to prevent free riding violations, selling puts in a margin account that is otherwise fully invested, is a great way to extend the reach of your assets without incurring margin interest costs. Those only accrue if you are actually assigned shares and not if you simply sell puts, which only reduces the amount available to you for use, but doesn’t represent actual borrowing. I look at it as “Portfolio Helper,” but without the calories.

With shares of Twitter having fallen to post-IPO lows following its recent earnings report and with some additional nervousness related to the increased share float next week, I believe that there is continued opportunity to capitalize on the pessimism, through the continued sale of out of the money put options. With an implied volatility of 7.6% based upon premiums for the May 9, 2014 contract, one can still derive an ROI of 1% for the week if shares close above $35.50, which would represent a 9.2% drop in price, considerably in excess of what the option market is anticipating.

If the loss is greater, then the process of attempting to roll the contract over to a new date and perhaps even a lower strike level is begun and continued until it’s eventual expration which typically occurs when the price descent has come to its end. Unless shares are destined for some kind of death spiral at some point what has already been a sustained drop lower will come to its end, as will the series of trades.

While the argument may be made that the gains could have been greater by simply shorti
ng Twitter shares, doing so requires a downward move, whereas selling puts may profit regardless of the direction of the price move. What matters is size and not vector. Additionally, other than commission expense, there is no associated interest expense as would be incurred in carrying a short position in shares that can become a burden with a longer time position.

Not a strategy for everybody and certainly one that has its own risk, but the initial use of well out of the money strike levels to achieve a defined ROI goal that’s not too greedy can be a reasonable way to generate returns that you might be proud to tweet about if only there was someone to acknowledge its receipt.