Daily Market Update – April 20, 2015 (Close)

 

 

 

Daily Market Update – April 20, 2015  (Close)

 

Last week ended on a really sour note, but luckily that didn’t get in the way of any assignments and rollovers that were being counted on as the week started.

This morning the futures looked as if they wanted to regain some of what was lost but without any real foundation for justifying that attempt at a recovery.

Since there wasn’t too much of a reason for the week ending loss either, it shouldn’t then be much of a surprise if reasons are thrown to the wind.

But who needs a foundation anyway, as the market not only indicated higher, but actually never looked back and recovered about 75% of Friday’s loss

This week has very little of substantive economic news and is even light on the non-consequential kind of news so there aren’t likely to be too many catalysts coming at us, although items like the Petroleum Status Report, New Homes Starts and Durable Goods may take on more importance than they often do with so little competition for attention.

There’s also some speculation about European Union news and a Greek exit from the EU perhaps coming to a head this week, but it’s still difficult to envision how that would happen or be allowed to happen.

But what the week does have is lots of earnings reports, as this week and next will mark the peak and crescendo of this earnings season.

So far, the market has been taking less than stellar news with great stride and not punishing any company that’s following the path of under-delivering on already lowered expectations.Other than that little detour taken last Friday, the mediocre earnings that had been coming through were part of the formula that continued to send stocks higher.

With more assignments occurring last Friday than during any other week of 2015, it’s nice to have some more cash available. That’s especially true when assignments don’t happen as those stocks have run away from their strikes. That Friday sell-off helped to rein in some of those prices and even put them back into range for re-purchase.

With the May 2015 option cycle getting its start today, there are already positions set for expiration in each of the weeks of this monthly cycle.

With some cash in hand I expect to be adding some new positions, but will probably focus on those with a weekly expiration.

However, following that Friday sell-off and this morning’s indication of some kind of a rally, I wasn’t expecting to rush in because there’s really not too much sense of where the needle would fall. I don’t think most people expected that the market would soar today and they usually don’t ask why when things are going well.

I would have liked to have seen some continuation of Friday’s sell-off or at least some effort to digest those losses before snapping back.

As the morning did get off to its start I would have been especially happy if there was more opportunity to sell calls on currently uncovered positions. Each of the last two weeks were good for that and that represents a way of generating income without having to put anything additional at risk.

Maybe tomorrow, perhaps, although it may be too much to ask to have a second day like today. Although with IBM reporting earnings after the closing bell today and already having had a huge day today, who knows, maybe they can be the IBM of old and be the market leader they way they used to do.

Otherwise, it’s back to market watching tomorrow.

As always the best of weeks has its combination of assignments, rollovers and newly covered positions and at least with the market getting off to a reasonable start for the week, so far there aren’t any hopes and dreams being dashed

 

 

 

 

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Daily Market Update – April 20, 2015

 

 

 

Daily Market Update – April 20, 2015  (9:00 AM)

 

Last week ended on a really sour note, but luckily that didn’t get in the way of any assignments and rollovers that were being counted on as the week started.

This morning the futures looks like it wants to regain some of what was lost but without any real foundation for justifying that attempt at a recovery.

Since there wasn’t too much of a reason for the week ending loss either, it shouldn’t then be much of a surprise if reasons are thrown to the wind.

This week has very little of substantive economic news and is even light on the non-consequential kind of news so there aren’t likely to be too many catalysts coming at us, although items like the Petroleum Status Report, New Homes Starts and Durable Goods may take on more importance than they often do with so little competition for attention.

There’s also some speculation about European Union news and a Greek exit from the EU perhaps coming to a head this week, but it’s still difficult to envision how that would happen or be allowed to happen.

But what the week does have is lots of earnings reports, as this week and next will mark the peak and crescendo of this earnings season.

So far, the market has been taking less than stellar news with great stride and not punishing any company that’s following the path of under-delivering on already lowered expectations.Other than that little detour taken last Friday, the mediocre earnings that had been coming through were part of the formula that continued to send stocks higher.

With more assignments occurring last Friday than during any other week of 2015, it’s nice to have some more cash available. That’s especially true when assignments don’t happen as those stocks have run away from their strikes. That Friday sell-off helped to rein in some of those prices and even put them back into range for re-purchase.

With the May 2015 option cycle getting its start today, there are already positions set for expiration in each of the weeks of this monthly cycle.

With some cash in hand I expect to be adding some new positions, but will probably focus on those with a weekly expiration.

However, following that Friday sell-off and this morning’s indication of some kind of a rally, I’m not likely to rush in because there’s really not too much sense of where the needle will fall.

I would have liked to have seen some continuation of Friday’s sell-off or at least some effort to digest those losses before snapping back.

As the morning does get off to its start if the advance can hold, I would be especially happy if there’s more opportunity to sell calls on currently uncovered positions. Each of the last two weeks were good for that and that represents a way of generating income without having to put anything additional at risk.

As always the best of weeks has its combination of assignments, rollovers and newly covered positions and at least with the market getting off to a reasonable start for the week, so far there aren’t any hopes and dreams being dashed

 

 

 

 

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Dashboard – April 20 – 24, 2015

 

 

 

 

 

SELECTIONS

MONDAY:   Aftre a horrid way to end the last week, this one looks to regain some of what was lost, but just some. There’s not too much economic news this week, but lots and lots of earnings to come

TUESDAY:    Earnings begin pouring in with this week and next being the major stories. The stories themselves are all similar: beating on bottom line and missing on top lines and more buybacks.

WEDNESDAY: Some disappointment with earnings took us a little further away from reaching April’s potential, but the weakness was isloated to the DJIA. This morning the weakness continues, although only mildly and more evenly distributed

THURSDAY:  Many more big name earnings coming in this morning, with mixed results, although trending downward as top line revenues continue to be under pressure.

FRIDAY: Not much is scheduled for today as the week comes to an end, other than to deal with last night’s earnings from Microsoft, Google and Amazon which should be giving the market’s a boost, but is not being reflected in futures trading

 

 

 


 



 

                                                                                                                                           

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 – April 19, 2015

When I was a kid just about the funniest word any of us had ever heard was “fink.” Way back then that was pretty much the way Mad Magazine felt too, as it used that word with great regularity.

I was stunned the very first time I actually met someone whose last name was “Fink,” but that came only after some giggles. I think the only thing funnier was when I met Morris Lipschitz.

Sadly, I thought that was funny even though it was after college, as it reminded me of the prank phone calls we used to make as kids.

I think “fink” has since fallen out of common parlance. Back then hearing the word “Fink” word evoked the same reactions as today’s kids may experience when hearing a sentence such as “but I do do what you tell me to do.”

I don’t think that’s very funny after the first 20 or so times, but I’ve gained a certain level of maturity over the years.

I don’t know very much with any degree of certainty, but I do know that I’m never likely to meet Larry Fink, the CEO and Chairman of BlackRock (NYSE:BLK).

With more than $4 trillion under management people at least give the courtesy of listening when Larry Fink speaks, even if they may not agree with the message or the opinion. The only giggles that he may get are when people may feel the need to laugh when they’re not certain if he’s joking.

This week, he wasn’t joking, although there were certainly some, at whom his message was directed, that won’t take it seriously or to heart.

I never really thought about Larry Fink very much until this week whenhe said something that needed to be said.

While investors seem to love buybacks and dividend hikes Fink politely said that CEOs were being “too nice to shareholders.”

The most conventional interpretation is that buybacks and dividends may be coming at the expense of future growth, research and investment in the business. It also calls into question whether you really need a CEO and a board to do any long range strategic planning if companies are going to become something on the order of a REIT and just return earnings to shareholders in one form or another while effectively mortgaging the future.

Of course, that also calls into question the role
or responsibility of activists, who now take great pains to distinguish themselves from what used to be called corporate raiders back in the days when I thought the very mention of Lipschitz was hilarious.

They may be more genteel in their ways and they may stick around longer, but so do buzzards as long as there’s still something left on the carcass.

What Fink didn’t directly say was that CEOs and their Board of Directors were being far too nice to themselves at the expense of the future health of their company. Their paydays, both direct and indirect, benefit far more from short term strategies than do shareholders, especially those who are truly investors and not traders.

Jack Welch, former Chairman and CEO of General Electric (NYSE:GE) which has certainly been in the news lately for its own buybacks, may, in hindsight begin to seem like an Emperor without much of a wardrobe. The haze from hot air may have obscured the view, but to his never ending credit, Welch has long criticized incompetent board directors and the roles they may play in the diminution of once great American companies.

Sooner or later the cash needed for buybacks is going to start to dry up, especially when the predominant buying of shares may be at price far removed from bargain share prices.

What then?

It’s difficult to argue that fundamentals have been altered through intervention in the form of buybacks, but that fuel may have peaked with the recent General Electric announcement. It’s hard to imagine, but we may soon get to that point that quarter to quarter comparisons will actually have to depend on real earnings and not simply benefiting from having fewer and fewer shares in the float from one quarter to the next.

The prevailing question, at least in my mind, is where will the next real catalyst come from to drive markets higher. As currency exchange issues have been making themselves tangible as earnings are forthcoming, the impact has, thus far been minimal as we’ve been expecting the drag on earnings.

Prior to Friday’s sell off, the limited earnings reports received where currency was a detrimental factor in earnings and forward guidance was greeted positively, as the news wasn’t as bad as expected.

Fortunately, the market reacted to the expected bad news in a more mature manner than I’ve been known to react to names.

But going higher on less disappointing than expected results is not a good strategy to keep banking on. There has to be something more tangible than things not being as bad as we thought, especially as energy prices may be stabilizing and interest rates moving higher.

Larry Fink has the perfect solution, although it’s a little old fashioned.

Invest in yourself.

That’s sound advice for individuals, just as it is for businesses that care about growth and prosperity.

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

American Express (NYSE:AXP) has not had a very good ride since Costco (NASDAQ:COST) announced that it was terminating its co-branding agreement with them, that allowed it to be the exclusive card accepted at its shopping warehouses. While that may not have been a huge surprise, what was a surprise was just how important of a player Costco may have been in American Express revenues. As a result, those shares have fallen more than 10% in the 2 months since the announcement of the split, which will occur in the first quarter of 2016.

American Express reported earnings this past week and dropped heavily on Friday, having done so before the overall market turned very sour. But buried in the bad news of decreased revenue, that supposedly stemmed from decreased gas sales, was the fact that they don’t anticipate further revenue declines this year.

Based on my perception of recent degradation in customer service, I think that they may have already become cost cutting through workforce reductions prior to the end of their agreement with Costco. SO while revenue may not be growing any time in 2015, the bottom line may end up better than expected.

While there may not be much in the way of growth prospects this year a rising interest rate environment will still help American Express and it is now offering a better option premium than it has in quite some time as uncertainty has taken hold.

Microsoft (NASDAQ:MSFT) and eBay (NASDAQ:EBAY) both report earnings this week and both will likely report the adverse impact of a stronger US dollar and provide guarded guidance, but if the past week is any guide the market will be understanding.

Despite the bump received from their new CEO and the bump received from having an activist pushing eBay’s Board’s buttons, Microsoft and eBay respectively have trailed the S&P 500 over the past year.

Microsoft still hasn’t recovered from its last earnings decline, although eBay has, but in the past month has been making its way back toward those near term lows as it may be getting closer to spinning off its profitable PayPal unit having just completed a 5 year non-compete contract with PayPal.

As eBay approaches that lower price level it has returned within the range that I’m comfortable buying shares. While I u
sually consider the sale of puts as the primary way to engage with a stock getting ready to report earnings, I wouldn’t mind owning shares and the enhanced premium offsets some of the added risk of entering a position at this point.

As with eBay, I prefer considering an earnings related trade when shares have already had some downside pressure on shares. While eBay is a better candidate in that regard, Microsoft also has a premium that will also offset some of the earnings related risk. Like eBay, the options market is anticipating a relatively sedate price move, that if correct in magnitude, even if an adverse direction, could be relatively easily managed while awaiting some recovery.

Colgate (NYSE:CL) goes ex-dividend this week and I continually tell myself that I will be someday be buying shares. As a one time Pediatric Dentist it’s probably the least I could do after a lifetime of being the fifth out of those 5 dentists on the panel. But somehow that’s never happened, to the best of my recollection.

While it does have a low beta and isn’t necessarily shares that you buy in anticipation of excitement, if those shares are not assigned during the upcoming week, there is a need to be prepared for earnings the following week and potentially the need for a longer term commitment if earnings disappoint.

I like considering Best Buy (NYSE:BBY) whenever its shares have gotten to the point of having declined 10%. It has done just that and a little bit more in the past month and does it on a fairly regular basis. But in doing so over the past 14 months the lows have been higher as have the highs along the way.

That has been a good formula for considering either adding shares and selling calls or selling puts. In either case the premium has long reflected the risk, but the risk appears to be definable and at lest there aren’t too many currency exchange concerns to cloud whatever issues Best Buy faces as it is currently once again relevant.

Bed Bath and Beyond (NASDAQ:BBBY) was on my list last week as a potential candidate to join the portfolio. However, with cash reserves low, it wasn’t a very active week, with only a single new position opened.

This week, despite the sell-off on Friday, I had the good fortune of still being able to see a number of positions get assigned and was able to replenish cash reserves. With a 2.5% decline last week, considerably worse than the S&P 500, Bed Bath and Beyond added to its post-earnings losses from the previous week, as it often does after previous earnings declines. But what it also has done after those declines is to relatively quickly recover.

I think the weakness this week brings us simply one week closer to recovery and while waiting for that recovery the shares do allow you to generate a competitive return for option sales. Because of that anticipated recovery, I might consider using an out of the money option and a time frame longer than a single week, however, particularly as Friday’s market weakness may need its own time for recovery.

Finally, SanDisk (NASDAQ:SNDK) didn’t disappoint when it announced its earnings this past week. It was certainly in line with all of the warnings that it had given over the past month and may make many wonder whether or not they may be Jack Welch’s new poster child for dysfunction at the C-suite and board levels.

With everyone seeming to pile on in their criticism of the company and calling for even more downward price pressure, I’m reminded that SanDisk has been down this path before and arose for the ashes that others had defined for it.

The year to date descent in share price has been impressive and it is only a matter of great luck that I had shares assigned right before another one of its precipitous plunges.

This one is definitely not one for the faint of heart, but I would consider entering a position through the sale of puts, rolling them over, if faced with assignment. However, with an upcoming ex-dividend date the following week, I’d be more inclined to take assignment if faced with it, collect the dividend and work the call sale side of share ownership.

 

Traditional Stocks: American Express, Bed Bath and Beyond

Momentum Stocks: Best Buy, SanDisk

Double Dip Dividend: Colgate (4/21)

Premiums Enhanced by Earnings: eBay (4/22 PM), Microsoft (4/23 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.

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Week in Review – April 13 – 17, 2015

 

 

Option to Profit Week in
Review –  April 13 –  17,  2015
 
NEW POSITIONS/STO NEW STO ROLLOVERS CALLS ASSIGNED/PUTS EXPIRED CALLS EXPIRED/PUTS ASSIGNED CLOSED
1 / 1 3 3 5  /  0 1 / 0 0

    

Weekly Up to Date Performance

April 13 – 17,   2015

Despite Friday’s big sell-off, it was a nice week. Surprisingly so, but I’ll take anything.

This week there was just a single new position opened and it beat both the adjusted and unadjusted S&P 500 by a 1.0%, as the market squandered 4 days of decent performance with a closing day’s plunge. 

The new position gained 1.0% while the unadjusted and adjusted S&P 500 each lost 1.0% for the week.

Existing positions had an unusually strong week thanks to energy and some other positions and out-performed the S&P 500 for the week by 2.5%, as they were 1.5% higher despite the market being down 1.0%.

This week 5 lots were added to the closed position list. Positions closed in 2015 continue to out-perform the market. They are an average of 5.5% higher, while the comparable time adjusted S&P 500 average performance has been 1.6% higher. That 3.9% difference represents a 253.9% performance differential.

 

Despite the market being down 1.0% for the week, this was a satisfying week.

Some of that has to do with the manner in which the market reacted to generally disappointing earnings.

It reacted in a mature way when disappointing earnings were released, if there was a significant impact from currency conversion. It also took reduced guidance in stride.

Based on the past, that wasn’t going to be a slam – dunk. The market hasn’t always been able to retrain itself even when it had already discounted what was widely known and expected.

To its credit, so far, this time around, it has.

Friday’s sell-off, another in an unending examples of why you can’t count those eggs too soon, was entirely ignited by overseas markets, especially news of increasing regulation in the Chinese stock market. Together with increasing speculation over a potential exit of Greece from the EU and you had a sea of red facing our market this morning.

Still, it wasn’t a bad week.

The real relief was being able to still see a nice number of positions get assigned and I especially like seeing that happen as their prices are moving lower.

Additionally, there was the chance to sell new cover on uncovered positions and to rollover most positions. The one position that expired, the United States Brent Oil Fund, was a position bought on speculation that oil would move nicely higher and so a deep out of the money call was sold with a 4 month time horizon.

Rather than roll that over and pay the price for doing so, it is a candidate for doing the same thing on the next move higher, as it closed today right where it was purchased 4 months ago. This time, I might look at an August option or even longer.

The best part, thanks to the strength in energy stocks for the week, despite Friday’s sell-off, was that existing positions actually gained 1.5% for the week.

With a couple of rollovers to next week, there are already some positions populating the week and a smattering of others for each week in the May 2015 cycle.

With a good number of assignments this week and the ability to replenish cash reserves at a time when the market took a nice drop, I may be more anxious and more able than has been the case lately to add some new positions.

The likelihood is that I would consider weekly options, although as volatility climbed a little on Friday’s sell-off and some positions may have upcoming earnings as part of the equation, there may be reason to look at some extended weekly expirations, as well.

Next week will be a busy one for earnings.

After today’s sell off and with cash in hand, I would really like to see some further selling, but today’s may have been fueled by entirely external factors occurring overseas. If earnings continue in the same path and we remain mature in not over-reacting to what we know to be coming, the market may have reason to continue higher.

We’ll see.

 

 

 

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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:   GPS

Puts Closed in order to take profits:  none

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

Calls Rolled over, taking profits, into extended weekly cycle:  GDX (5/1)

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 cyclenone

New STO:  BP (6/19), DOW (5/15), GDX (6/19)

Put contracts expired: none

Put contracts rolled over: none

Long term call contracts sold:  none

Calls Assigned: CSCO, LXK, MRO, SBGI, SBGI

Calls Expired:  BNO

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: ABBV (4/13 $0.51), CHK (4/13 $0.09), FCX (4/13 $0.05)

Ex-dividend Positions Next Week: FAST (4/24 $0.28)

 

 

For the coming week the existing positions have lots that still require the sale of contracts:   AGQ, ANF, BAC, CHK, CLF, COH, FAST, FCX, HAL, HFC, .INTC, JCP, JOY, LVS, MAT, MCP, MOS,  NEM, 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.



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