Category Archives: Week in Review

Weekly Up to Date Performance

February 24 – 28, 2014

New purchases matched the time adjusted S&P 500 this week but fell behind the unadjusted index by 0.3% during a week that set another new closing high just a few short weeks after hitting the bottom of a correction attempt.

The market showed an adjusted gain for the week of 0.9% and unadjusted gain of 1.3% for the week, while new positions gained  1.0%.

For positions positions closed in 2014, performance exceeded that of the S&P 500 by 1.3%. They were up 3.2% out-performing the market by 71.7%.

For a week that didn’t have much in the way of news it was one with some significant back and forth price shifts going on and one that seemed very tied to technical factors.

Sometimes even I become a believer in that sort of thing as it did seem to be more than a coincidence that the market was so responsive to the number 1850.

After those technical issues only in the final hour did current events sneak into the equation as worries about the situation in the Crimea temporarily took the market from a 120 point gain to a 20 point loss before closing higher to end the week. For the week there was really no impact from news nor data.

With the potentially critical news coming from Crimea and the market hovering at that 1850 level I was actually surprised that the selling didn’t continue as the old market axiom is to not go into a weekend of uncertainty holding long positions.

It has been a very, very long time since anyone has actually listened to that axiom. The pattern over the past five years is that nothing gets in the way of the market’s progress.

At least not for very long, so most have been unwilling to let go of their positions for fear of missing out.

The market being able to come back from the quick event driven sell-off can only be seen as another in a series of optimistic signs that point toward continued strength.

Otherwise, the biggest news of the week was the return of select retailers despite generally lackluster numbers that simply didn’t disappoint already lowered expectations.

In the absence of any really meaningful news the market simply kept its eye on the previous closing high on the S&P 500 and tested it a couple of times. The previous script for the past numerous attempts at a correction all read the same and Friday’s attempt at a strong close to end the week was perfectly in line with the past.

Despite coming off those highs the realization that the final hour’s fall was event driven should allow optimism to continue to reign, unless the event in Russia and Ukraine unfolds some more over the course of the weekend.

The week was another busy one with continued ability to rollover positions and find some new cover, as well.

The only regret of the week is having executed a DOH trade on Target, never imagining that it still had another 5% upside left in it after already having gone 5% higher after announcing its earnings.

Not
quite ready to take that loss at least there was an opportunity to try and wait shares out by rolling forward two weeks and perhaps seeing some price give back, thereby allowing a chance to participate in any further price strength in the future.

At least that’s the story that I’m going to go with.

With some assignments, although two fewer with the final hour drop in shares of General Electric and YUM Brands, there is enough replenishment of reserves to provide some security cushion when approaching next week and looking for new opportunities.

Other than the Target rollover, all of the other rollovers for this week were simply to the following week. Part of that was because the low volatility isn’t offering very many good premiums by going out in time.

While I would like to diversify the time expirations of the contracts some more, such as going to March 14, 2014, it’s hard to want to tie up the funds for more than a week when so little is achieved in return.

But as always, once the week begins anything goes.

     

This week’s details may be seen in the Weekly Performance spreadsheet * or in the PDF file, as well as as in the summary.below

(Note: Duplicate mention of positions reflects different priced lots):



New Positions Opened:  CHK, COH, HFC, SBUX, VZ

Puts Closed in order to take profits:  none

Calls Rolled over, taking profits, into the next weekly cycle:   AIG, APC, GE, LULU, MSFT, SBUX, YUM

Calls Rolled over, taking profits, into extended weekly cycle:  TGT

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

Calls Rolled Over, taking profits, into a future monthly cycle:  none

Calls Rolled Up, taking net profits into same cycle:  none

New STO:  FAST, INTC, LB, TGT

Put contracts sold and still open: none

Put contracts expired: none

Put contract rolled over: none

Long term call contracts sold:  none

Calls Assigned:  LOW, MA, MOS, VZ

Calls Expired: CSCO, INTC

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:  LO (2/26 $0.615), WY (2/26 $0.22)

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For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, C, CSCO, CLF, COP, DRI, FCX, INTC,  JCP,  MCP, MOS,  MRO, NEM, PBR, PM, RIG,  WFM, WLT (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.



Weekly Up to Date Performance

February 17 – 21, 2014

New purchases beat the time adjusted S&P 500 this week by 1.8% and also surpassed the unadjusted index by 1.7% during a week that had no real news or no meaningful events.

The market showed an adjusted loss for the week of 0.1% and unadjusted loss of 0.2% for the week, while new positions gained  1.6%.

For positions positions closed in 2014, performance exceeded that of the S&P 500 by 1.3%. They were up 3.2% out-performing the market by 70.5%.

It was a busier trading week than I had expected and that’s usually a good thing. In all, there were 18 positions traded, which is something that we haven’t seen for some time.

While there was little to move markets this week, they did move, but the alternating currents left it going nowhere. As you probably know, those tend to be the best weeks. When the market goes nowhere you’re much more likely to get to your own destination.

While I have no complaints about 2013, I would much rather see lots of aimless wandering going about. This was certainly a week of aimless wandering.

While 5 new positions were opened this week, there was an opportunity to gain additional cover on some positions and rollover a number of others. In addition to creating  the income streams that may be a primary goal for some and a secondary goal for others, the net number of outstanding positions was decreased, which has been a goal of mine for the past two months.

Best of all there were assignments to help replenish cash reserves bringing them to a level where it’s possible to establish new positions in the coming week as the opportunities arise, as well as maintaining enough in reserve to capitalize on a rainy day.

As an added bonus there were lots of dividends this week and a quick review of my holdings shows that there’s about an additional 0.3% ROI in dividends receivable over the coming couple of weeks. Unfortunately, the coming week doesn’t appear to have quite as many dividend opportunities, but that day will come again.

With the opportunity to restock cash reserves and no real sense of urgency from any direction, regardless of an overall listless appearing economy, I continue to have some short term optimism as the new monthly option cycle begins on Monday.

As long as am whining about the lack of new dividend plays in the coming week, I’ll also add to that bemoaning the sudden return of volatility to its already low levels. A week or two taste of the good times had me wanting more, but the market has ordained otherwise.

That means the likelihood of less reliance on longer term contracts as there is very little reward for going out in time, except for dividend paying stocks or as part of a strategy to cushion a position against potential earnings related shocks.

As much as I do want to be staggered in terms of contract times the lower premiums make that difficult to do right now.

While next week may not have much in the way of dividends and while I am currently focusing on less volatile positions, for the more reckless out there there may be some good earnings related trades. Those tend to be in the higher volatility names and the earnings event can make them even more so, so it is definitely an acquired taste.

However, some of the best recurring opportunities can come with these kind of trades, such as when puts are assigned, as long as they are done so while the shares trade in the neighborhood of the strike price used.

But even without those more adventurous trades there does appear to be some opportunities in more sedate names for next week.

With cash in hand to start the week and no obstacles obviously in the way I’m looking forward to picking up some replacement positions. However, while I normally prefer a weak opening to the trading week in order to secure some cheaper purchases prices, I wouldn’t mind the market continuing with its rebound from the lows of two weeks ago, as I would like to continue having the opportunity to find new cover for some positions, even if it means resorting to “DOH Trades.”

Then again, unlike the white powder on the Benjamins you used to pay for that  fedora , no one will ask you whether you’re paying with money derived from those DOH Trades.

This week’s details may be seen in the Weekly Performance spreadsheet * or in the PDF file, as well as as in the summary.below

(Note: Duplicate mention of positions reflects different priced lots):

New Positions Opened:  GE, LB, LO, MOS, RIG

Puts Closed in order to take profits:  none

Calls Rolled over, taking profits, into the next weekly cycle:  APC, CSCO, LOW, MA, MSFT, YUM

Calls Rolled over, taking profits, into extended weekly cycle: 

CallsRolled over, taking profits, into the monthly cycle:

Calls Rolled Over, taking profits, into a future monthly cycle:  ANF, LB, RIG

Calls Rolled Up, taking net profits into same cycle:  none

New STO:  AIG, CHK, HFC, LULU

Put contracts sold and still open: none

Put contracts expired: none

Put contract rolled over: none

Long term call contracts sold:  none

Calls Assigned:  CHK, CPB, FAST, GPS, GPS, MSFT, VZ

Calls Expired: CLF, FAST, FCX, INTC, WY

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:  CLF (2/19 $0.15), GE (2/20 $0.22), LB (2/19 $0.34), MSFT (2/18 $0.28), RIG (2/19 $0.56), WLT (2/18 $0.01)

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For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, C, CLF, COP,DRI, FCX ,INTC, LB, JCP, MCP, MOS,  MRO, NEM, PBR, PM, RIG, TGT, WFM, WLT (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.

Weekly Up to Date Performance

February 10 – 14, 2014

New purchases trailed the time adjusted S&P 500 this week by 0.5%, but lagged the unadjusted index by 1.1% during a week that saw a complete reversal of what had been considered to be the beginning to a correction.

The market showed an adjusted gain for the week of 1.6% and unadjusted gain of 2.3% for the week, while new positions gained  only 1.2% as premiums were reduced, reflec
ting the steep drop in volatility from just the prior week.

For the 35 positions closed in 2014, performance exceeded that of the S&P 500 by 1.5%. They were up 3.2% out-performing the market by 88.3%. Those results remain unusually high and will be reduced if market performance continues higher.

 While  it was another quiet week on the personal trading front I can learn not to mind that if the general trend is higher and the bottom line reflects that trend.

While new positions couldn’t keep up with a surging market that has almost completely erased the “correction” in just 7 trading sessions, it was a good week overall in total performance and the kind of trades that were made in order to put the portfolio into a better position for subsequent challenges.

For the first time in what has felt to be too long there was an opportunity to resupply the cash reserves thanks to 6 assignments. Coupled with some rollovers and new cover the week was an antidote to the cold weather and snow that’s befallen many.

Another nice aspect of this week that appears to be on track for next week as well is a decent number of ex-dividend positions and the downstream cash they will generate. Of course, I tend to focus on the one that got away, so I mourn the loss of Walgreen, still wondering what it did besides passively embrace cigarette sales, to warrant  its one week straight line climb higher. For the few that didn’t have their shares, or at least all of their shares assigned, you can’t possibly begin to understand.

Despite the fact that those shares fell about 2.5% today, I didn’t get too much satisfaction other than in knowing it may be drawing closer to a point that I would be willing to buy shares again.

Next week is a holiday shortened week and once again there isn’t really any reason to have a strong opinion in either direction. Unfortunately, volatility took a sharp decline in the past week, so there is little reason to look at longer term options, other than as a strategy to straddle expiration dates. The premiums just aren’t there, having disappeared almost overnight as the market just turned on a dime and demonstrated its resilience and resistance to correction.

With some more cash available to begin the week and the willingness to spend some of it, the only limiting factor is finding the cues to suggest that the market is a willing participant.and will, at the very least trade in a narrow range.

As with any week that the market rises very strongly, and 2.3% is pretty strong, it’s always a challenge to know where to begin the next week as relative bargains start to dry up. If the market can guarantee that it will keep going higher that’s not a terrible kind of problem to have.

Although there is no such guarantee, it’s still not a terrible problem to have. There is always something that has appeal, whether by virtue of recent under-performance, an upcoming dividend or fair option premiums.



While I’m still ambivalent about where assigned money will get recycled I am looking forward to next week, although premiums will be low due to a trade shortened week and the return to low volatility.

Additionally, as with many monthly cycles, as they come to an end there are many positions set to expire. Hopefully the coming week will continue with some additional strength in order to allow another week of assignments, rollovers and new covered positions for laggards.

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This week’s details may be seen in the Weekly Performance spreadsheet * or in the PDF file, as well as as in the summary.below

(Note: Duplicate mention of positions reflects different priced lots):



New Positions Opened:  COH, IP, MA, MSFT, VZ

Puts Closed in order to take profits:  none

Calls Rolled over, taking profits, into the next weekly cycle: APC

Calls Rolled over, taking profits, into extended weekly cycle: 

Calls Rolled over, taking profits, into the monthly cycle: ANF

Calls Rolled Over, taking profits, into a future monthly cycle:  none

Calls Rolled Up, taking net profits into same cycle:  none

New STO:  APC, CLF, INTC, LOW

Put contracts sold and still open: none

Put contracts expired: none

Put contract rolled over: none

Long term call contracts sold:  none

Calls Assigned:  COH, HAL, IP, MOS, TXN, WAG

Calls Expired: AIG, APC, COP, WFM

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:  INTC (2/5 $0.225), MET (2/5 $0.28)

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For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, AIG,APC, C, CHK, CLF, COP,DRI, FCX, HFC,INTC, LB, JCP, LOW, LULU, MCP, MOS,  MRO, NEM, PBR, PM, RIG, TGT, TXN, WFM, WLT (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.



What a Surprise.

Barely a week ago as the earnings season was about to begin it seemed perplexing that there was talk of seeing a 6% increase in comparable earnings. Based on retail earnings and performance from my personal barometers, Grainger (GWW) and Fastenal (FAST), there didn’t seem to be much adding to the integrity of the foundation.

As with the two previous earnings seasons the financials leading off the reporting season had reasons to be proud but there was little glory to be trickled down. It probably takes more than a growing Netflix (NFLX) subscription base to create optimism among traders, although there were some who were eager to use that news as being a sign of an improving economy, apparently believing that the first thing a newly employed individual does is to activate a Netflix subscription.

However, even with some favorable earnings reports to end the week the constellation of news coming from the rest of the world, including Chinese production disappointments, Turkey’s monetary woes and Argentinean debt had to come as a surprise as the DJIA fell over 300 points, never even making a feeble attempt to stem the flow of losses.

What we discovered about ourselves is that we much prefer the false security offered by believing that Chinese economic reports are accurate than their actual accuracy. Report after report that has final results perfectly aligned with projections should have been an early clue that perhaps the books are occasionally cooked. But as long as they supported a thesis of a growing worldwide economy there was reason to be optimistic.

That changed this week, and somehow we were surprised. What will be the ultimate question as the coming week begins is whether those new prices represent values or value traps.

Just a few days ago there was every reason to believe that the current market was beginning to settle into an historical mode, when earnings actually mattered and were what moved markets. With questions regarding tapering largely thought to have been resolved and with the worldwide economy, currencies and debt markets being reasonably calm, it seemed as if fundamentals would be back in vogue.

Surprise.

Never get too comfortable or believe what you are seeing. Increasingly, it feels as if everything that you believe to be the case should be considered as being on par with Chinese economic reports.

This week offers challenges that weren’t present last week. For the second consecutive week I had fewer positions assigned than I had anticipated and have less in cash reserves to take advantage of lowered prices than I would have liked.

However, I’m not anxious to go on a buying spree quite yet and will likely wait for some sign of stabilization in the overall market, rather than attempting to thread a needle with trades in the mistaken belief that outliers can be found in what may be a developing vortex.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum and “PEE” categories this week (see details).

Among companies beating analyst’s expectations and not having done so through the optics of share buybacks were Baxter International (BAX) and Bristol Myers Squibb (BMY). Both were included in Friday’s down draft and both appear to have been impacted out of proportion to their historical volatility. While that doesn’t preclude further journeys lower it does give me some basis for believing that new positions may be better suited to outperform the S&P 500 going forward. Both offer expanded options, thereby creating greater opportunities to diversify risk on the basis of time.

A frequent candidate for share ownership is Coach. It fell, as so often has happened over the past 18 months after its earnings report last week. That shouldn’t have been too great of a surprise. What is a surprise, however, is that despite universal condemnation, it has been incredibly resilient. I sold puts last week after earnings that subsequently expired and now believe that shares, if not bridled by a lower moving market, are going to stay at this level or move higher. As a covered option position either of those are perfectly acceptable outcomes and Coach has proven itself to be more than an acceptable covered option holding ever since it has fallen out of favor.

While retail has been an abysmal place to park money, it’s hard to not finally consider shares of Kohls (KSS). In the past I would typically only consider shares in advance of the dividend and was reluctant to do so otherwise, because Kohls only offered monthly options. However, it has now joined the growing number of expanded option stocks and has many more strike levels available than before, thereby offering greater flexibility in designing exit strategies. It’s shares have fallen over 12% in the past two weeks, reportedly due to concerns over weather related sales decreases.

Fastenal , which I often look toward as a measure of how well economic growth is trickling down to smaller value added components reported earnings recently. Since they had previously guided lower the results shouldn’t have been too surprising, yet they were. It didn’t take long for shares to recover from earnings. However, with Grainger reporting its own disappointments Fastenal felt the fury. With its ex-dividend date this coming week I see it as an opportunity to add shares at what has been a safe level. Despite a somewhat higher beta, it, too appears to have been disproportionately victim of the market decline and that may offer some relative immunity in coming days.

MetLife (MET) is one of those companies, as with most financials, that should benefit from a rising interest rate environment. Like others in the sector it fell mightily on Friday and is getting to a point of again being interesting. Like many other stocks this very recent fall brings them closer to appealing prices. In this case I would prefer getting even closer to the $48 level. However, I am considering a longer term option contract, such as the March 22, 2014, which would encompass both an ex-dividend date and earnings, which take place between now and February 12, 2014 and provide some time for share recovery in the event of an adverse reaction to the report.

International Paper (IP) is similar to MetLife insofar as its share price has come down to a more realistic level and that it will be going ex-dividend and reporting earnings during the February 2014 option cycle. Recently, shares appear to have been trading in a 4 month cycle from low to low and we are approaching that 4 month period again, just as shares are also heading toward its lows. As with many stocks this coming week there is heightened concern that they will break below support levels and International Paper is among that group. It’s attractive dividend, and again, similar to MetLife, the use of a longer term option may provide a nice combination of dividends, option income and price protection during a period that the market may be at risk to under-perform.

Texas Instruments (TXN) reported earnings earlier last week that were in-line with estimates. That alone was reason to reward shares, as the bar may be set increasingly lower. It didn’t fare terribly during the market meltdown and that may be its theme during any upcoming market weakness. Shares go ex-dividend this week and still offer a option premium that warrants attention in light of its low beta.

The coming week is a busy one for earnings. A more detailed look at this week’s earnings considerations provides some of the criteria used in filtering companies from one another. Of a number prospects that I screened for this week the two that stand out as opportunities by virtue of meeting my criteria (give link) are Facebook (FB) and Seagate Technology (STX).

Seagate Technology, rather than becoming a dinosaur, has had been envisioned in the post-PC world has been thriving, as has its share price. Its trajectory higher is alone cause for concern, whether at earnings, during a market decline or at any other time. The options market is implying a 6.5% price movement, which would envision a lower price strike of $55. Meanwhile, a 1% ROI can be potentially obtained at the $54.5 level. That’s not a terribly wide margin of safety, so any potential seller of puts should be prepared for the possibility of assignment.

Finally, as Facebook prepares to report earnings, its scant history of doing so has been a story of monetization of the mobile interface and in general the story has been continued surprise of how well they have been able to develop that revenue source. The options market appears to be expect significant price movement upon earnings, as the implied volatility is 11%, taking shares as low as $48.50. However, a 1% ROI can potentially be obtained at a strike level as low as $47 for those with some adventure in their character. Facebook’s more rationale price trajectory and occasional pauses may however make it a less adventurous earnings related trade than compared to Seagate Technology

Traditional Stocks: Baxter International, Bristol Myers Squibb, International Paper, Kohls, MetLife

Momentum Stocks: Coach

Double Dip Dividend: Fastenal (ex-div 1/29), Texas Instruments (ex-div 1/29)

Premiums Enhanced by Earnings: Facebook (1/29 PM), Seagate Technology (1/27 PM)

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.