Daily Market Update – March 21, 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:

Assignment:  ANF, COH, FAST, HFC, INTC, LB ($44), MSFT, TMUS

Rollover:  APC, BBY, LB ($47.40), TWTR (put)

Expiration:  CHK, FDO, GM, LULU, RIG, WFM

Trades, if any, will be attempted to be made prior to 3:30 PM (EDT)

Daily Market Update – March 20, 2014 (Close)

After yesterday’s late day swoon following some confusion and maybe too much candor from new Federal Reserve Chairman Janet Yellen, it looks as if the market is willing to forget the brief pseudo-panic and move forward.

After a few years of press conferences in which very little was said that surprised anyone or took the markets for a ride, it was an unexpected reminder of how tentative and fickle prices may be at any moment in time.

The market’s initial reaction to yesterday’s confusion was a good example of the perils of trading at or near historical highs even when there is news to support such highs. When the support is less than compelling it probably doesn’t take too much to see a sudden shift in gear.

What you never know and sometimes sit in fear of, is at what point do you reach a breaking point or when frenzy begins to feed upon itself. In the case of a short squeeze most of us like that kind of self-feeding frenzy, but when the market is heading lower it’s a completely different set of emotions.

However, there was never really a true sense of panic at any time during the 56 minutes or so of reaction and the market did recover nearly half of its very quick loss, so the news can’t be all bad.

At least today, after trading was ended, we were moved a bit further away from any mythical breaking point as the market spent most of the day slowly working its way to a 100 point gain until giving a little back b y the close.

When these kind of things happen, as yesterday’s sell-off as one example, it does have to make everyone watching increase their personal level of unease, even if you can put somewhat of a positive spin on the outcome. Even if the phenomenon is short lived it has to leave at least a little bit of an imprint on people’s minds and maybe a little bit of hesitancy regarding increasing risk levels or the kind of risk taken on.

On the flip side you’ll find those who will now say that some of the uncertainty regarding interest rates may now have been removed and that lifting of uncertainty clears the way for the market to move higher.

Today they were right.

The nice thing is that either of those scenarios will eventually come true. One or the other. Unlike 2011 when the market finished unchanged for the year or when green comes up on the roulette wheel, something is likely to happen and one group will be able to point to their visionary prowess while the other will conveniently ignore their position and pretend to be unwounded and just move forward.

What you can be certain of is that some algorithms are being re-tweaked and certain words in official statements, speeches, or off the cuff remarks will be given new weightings based on yesterday’s comments. That’s despite the fact that there is no definitive intent confirmed in yesterday’s comments. Instead, they’ve been interpreted in any number of ways.

For me, my vision runs out at the end of each week. I just want to get to that endpoint and start wiping off the lenses to see what may be on the next near term horizon , which generally happens to be a week or two away. I’m not thinking ahead to this Fall, nor much less to the Fall of 2015, as those focusing on interest rates have suddenly set their sights.

What my vision didn’t foresee was another onslaught on Walter Energy.

Yesterday it was about 8% higher as news came out that it was ready to bring notes to market following news the previous week that it was granted a further lending facility. Shares took a hit after that news and it was nice to see that the actual announcement of the event was met with some kindness. AS with everything else, Walter Energy gave up most of its gains in the final hour of trading after the Federal Reserve “mis-speak.”

This morning, however, I was stunned to see a large decline in the pre-open. What made this different from other large pre-open price indications was that there was actually heavy volume to support that move, as opposed to a transaction of 100 shares at a ridiculous price.

It took a couple of hours before finally finding the reason behind the drop, having received a link from a subscriber regarding a Bank of America downgrade of the sector, with especially haqrsh words for Walter Energy.

By the close of trading its rop was almost as large as the one taken this past June 2013.

The good news is that the last time it recovered that loss by the second day after.

Hopefully history repeats itself, but today was especially discouraging on that front, while the rest of the day turned out to be fairly pleasant.

With the pre-open trading suggesting that a reasonably calm opening looked likely that provided some level of comfort that yesterday’s sell off wouldn’t do irreparable damage to the ability to see respectable numbers of assignments and rollovers tomorrow.

Thankfully, there is more than Walter Energy.

Daily Market Update – March 20, 2014 (9:30 AM)

After yesterday’s late day swoon following some confusion and maybe too much candor from new Federal Reserve Chairman Janet Yellen, it looks as if the market is willing to forget the brief pseudo-panic and move forward.

After a few years of press conferences in which very little was said that surprised anyone or took the markets for a ride, it was an unexpected reminder of how tentative and fickle prices may be at any moment in time.

The market’s initial reaction to yesterday’s confusion was a good example of the perils of trading at or near historical highs even when there is news to support such highs. When the support is less than compelling it probably doesn’t take too much to see a sudden shift in gear.

What you never know and sometimes sit in fear of, is at what point do you reach a breaking point or when frenzy begins to feed upon itself. In the case of a short squeeze most of us like that kind of self-feeding frenzy, but when the market is heading lower it’s a completely different set of emotions.

However, there was never really a true sense of panic at any time during the 56 minutes or so of reaction and the market did recover nearly half of its very quick loss, so the news can’t be all bad.

When these kind of things happen it does have to make everyone watching increase their level of unease, even if you can put somewhat of a positive spin on the outcome. Even if the phenomenon is short lived it has to leave at least a little bit of an imprint on people’s minds and maybe a little bit of hesitancy regarding increasing risk levels or the kind of risk taken on.

On the flip side you’ll find those who will now say that some of the uncertainty regarding interest rates may now have been removed and that lifting of uncertainty clears the way for the market to move higher.

The nice thing is that either of those scenarios will eventually come true. One or the other. Unlike 2011 when the market finished unchanged for the year or when green comes up on the roulette wheel, something is likely to happen and one group will be able to point to their visionary prowess while the other will conveniently ignore their position and pretend to be unwounded and just move forward.

What you can be certain of is that some algorithms are being re-tweaked and certain words in official statements, speeches, or off the cuff remarks will be given new weightings based on yesterday’s comments. That’s despite the fact that there is no definitive intent confirmed in yesterday’s comments. Instead, they’ve been interpreted in any number of ways.

For me, my vision runs out at the end of each week. I just want to get to that endpoint and start wiping off the lenses to see what may be on the next near term horizon , which generally happens to be a week or two away. I’m not thinking ahead to this Fall, nor much less to the Fall of 2015, as those focusing on interest rates have suddenly set their sights.

With a reasonably calm opening looking likely that provides some level of comfort that yesterday’s sell off won’t do irreparable damage to the ability to see respectable numbers of assignments and rollovers tomorrow.

This is looking like another in a recent series of weeks in which relatively few new positions have been opened. Fortunately there have been a number of existing positions finding cover, even if only briefly for “DOH Trades” but that does help add to returns, little by little.

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Daily Market Update – March 19, 2014 (Close)

With what appears to be a day of relative quiet coming from Europe and not too much expected from the FOMC minutes the only thing capturing attention today is the prospects of Janet Yellen having a slip of the tongue during her first post-FOMC release press conference.

Although I was listening, I’m not certain of what she said that at 3:04 PM EDT set off a massive sell off. Looking at this minute by minute chart of today’s trading, you don’t see many precipitous drops like the one in the late afternoon.

We’ve started taking these press conferences for granted, but it wasn’t too long ago when we were all shocked when Ben Bernanke announced that he would hold a first ever such press conference. Given the very precise and methodic way in which Bernanke weighed each word, he could have spoken daily without spooking anyone unless that was his intention.

Now there’s clamoring for the press conferences to become a monthly event despite the fact that it hasn’t really yielded much in the way of new or market moving information.

At least if you ignore today.

Although there are people hoping for some new information to be passed along, even if unintentionally, the past hasn’t indicated that to be the case, but the past has only included a single individual in control of the words.

I didn’t expect much different from Janet Yellen. It would be hard to imagine that after so many years of public exposure and lots of opportunities to have provided unintentional information that she would start doing so today. However, her precision in defining the time frame of actions related to interest rates may have caught some by surprise. She put, what some may interpret as a concrete time frame of 6 months for rates to rise after Quantitative Easing ends.

There was confusion regarding her precision and then her imprecision in referring to whether referring to this year’s fall season or next year’s. That’s because QE is likely to end in January 2015 and one would have interpreted her initial words to mean that interest rates would be expected to rise some “considerable time” thereafter. However, she then referred to that time as “this fall,” instead of “next fall.”

That reportedly got traders or their algorithms nervous.

Whatever.

Coming up to the mid-way point of the week I’m not seeing very many more new positions for the week but am hopeful that there are more opportunities for getting new cover and hope to see a reasonable number of assignments as the monthly expiration comes to a close on Friday.

For those having done this long enough you do know that even when there is nothing new in an FOMC release that doesn’t mean that the market will just find itself in a big yawn. Sometimes the reaction is really inexplicable.

Today was just one of those times, but it was pretty orderly, even though it did reflect a nervous market.

What can make those kind of moves especially frustrating and maddening is when that inexplicable reaction occurs just days before that expiration, especially a monthly expiration and serves to steal your fantasies of being awash in assignment cash and rollovers.

Never take anything for granted; don’t count your chickens before they’re hatched; or whatever aphorism you prefer, but there is a lot to be said for that warning.

For that matter that may also apply to the belief that absolutely nothing of news will come from today’s events.

You never do know until it’s all said and done.

Heading into the monthly close I am still optimistic regarding assignments and maybe even some additional rollovers to help next week get off to a decent income flow start. Today turned out to be a quiet day other than for the past 56 minutes.

While the first two days of this week have been a good antidote to the  successive losses of last week, it has removed some of the ability to spend on new positions. Who knows, maybe the final hour’s sell-off created some new opportunities, but I didn’t really have the  desire to test the market.

While still optimistic that the market may go higher, based on the volatility pattern I mentioned earlier in the week, I did take the opportunity yesterday to purchase some portfolio protection in the form of a Volatility ETN.

On the one hand while low volatility causes low option premiums it also makes such insurance relatively inexpensive.

In this case I purchased iShares S&P 500 Short Term Volatility ETN (VXX) at about $44 and sold January 2015 $100 calls.

For those that understand the ETN vehicle, they really aren’t meant for long term holding as they get re-balanced everyday and can lose some value each time. Compound that loss over time and it can add up even if your directional bet is correct.

The Volatility ETN acts as portfolio protection because it tends to move higher when the market moves lower and it tends to do so in a leveraged fashion, so you buy a position that is much less in overall value than your typical new position. For example, a 1% decrease in the market may show a 5% increase in the Volatility ETN. In that case your portfolio will show a smaller loss. How much smaller depends on how convinced you are that insurance will pay off and at what levels you are willing to purchase it.

I didn’t purchase very much but may add even more if volatility gets even cheaper, especially if heading back to about the 2 level on the underlying index.

The use of this kind of portfolio protection is just like any other kind of insurance. Sometimes you’re happier if it never gets used, but it does represent a cost and detracts from your overall ROI if purchased.

Purchasing the protection is an expression of  bearish sentiment, but at some point if shares are inexpensive enough you can dally with it without really making a strong statement regarding your sentiment.

Or you can look at it as simply hedging your hedges and then take it to yet another derivative when you also sell calls on the hedge. Whatever its use, these volatility products are very high maintenance and can lead to disappointment on their own, so know about it, but don’t go rushing in to any of them.

PS: The early morning version of the Daily Market Update referred to Janet Yellen in a gender specific fashion that was pointed out by one reader to have been incorrect. In fact, it is inappropriate to refer to Janet Yellen using the word “his,” although if you do close your eyes she does sound like Woody Allen.

Daily Market Update – March 19, 2014 (9:15 AM)

With what appears to be a day of relative quiet coming from Europe and not too much expected from the FOMC minutes the only thing capturing attention today is the prospects of Janet Yellen having a slip of the tongue during his first post-FOMC release press conference.

We’ve started taking these for granted, but it wasn’t too long ago when we were all shocked when Ben Bernanke announced that he would hold a first ever such press conference.

Now there’s clamoring for it to become a monthly event despite the fact that it hasn’t really yielded much in the way of new or market moving information.

Although there are people hoping for some new information to be passed along, even if unintentionally, the past hasn’t indicated that to be the case, but the past has only included a single individual in control of the words.

I don’t expect much different from Janet Yellen. It would be hard to imagine that after so many years of public exposure and lots of opportunities to have provided unintentional information, she’s probably not going to start doing so today.

Coming up to the mid-way point of the week I’m not seeing very many more new positions for the week but am hopeful that there are more opportunities for getting new cover and hope to see a reasonable number of assignments as the monthly expiration comes to a close on Friday.

For those having done this long enough you do know that even when there is nothing new in an FOMC release that doesn’t mean that the market will just find itself in a big yawn. Sometimes the reaction is really inexplicable.

What can make it especially frustrating and maddening is when that inexplicable reaction occurs just days before that expiration, especially a monthly expiration and serves to steal your fantasies of being awash in assignment cash and rollovers.

Never take anything for granted; don’t count your chickens before they’re hatched; or whatever aphorism you prefer, but there is a lot to be said for that warning.

For that matter that may also apply to the belief that absolutely nothing of news will come from today’s events.

You never do know until it’s all said and done.

Heading into the monthly close I am optimistic regarding assignments and maybe even some additional rollovers to help next week get off to a decent income flow start.

While the first two days of this week have been a good antidote to the  successive losses of last week, it has removed some of the ability to spend on new positions.

While still optimistic that the market may go higher, based on the volatility pattern I mentioned earlier in the week, I did take the opportunity yesterday to purchase some portfolio protection in the form of a Volatility ETN.

On the one hand while low volatility causes low option premiums it also makes such insurance relatively inexpensive.

In this case I purchased iShares S&P 500 Short Term Volatility ETN (VXX) at about $44 and sold January 2015 $100 calls.

For those that understand the ETN vehicle, they really aren’t meant for long term holding as they get re-balanced everyday and can lose some value each time. Compound that loss over time and it can add up even if your directional bet is correct.

The Volatility ETN acts as portfolio protection because it tends to move higher when the market moves lower and it tends to do so in a leveraged fashion, so you buy a position that is much less in overall value than your typical new position. For example, a 1% decrease in the market may show a 5% increase in the Volatility ETN. In that case your portfolio will show a smaller loss. How much smaller depends on how convinced you are that insurance will pay off and at what levels you are willing to purchase it.

I didn’t purchase very much but may add even more if volatility gets even cheaper, especially if heading back to about the 2 level on the underlying index.

The use of this kind of portfolio protection is just like any other kind of insurance. Sometimes you’re happier if it never gets used, but it does represent a cost and detracts from your overall ROI if purchased.

Purchasing the protection is an expression of  bearish sentiment, but at some point if shares are inexpensive enough you can dally with it without really making a strong statement regarding your sentiment.

Or you can look at it as simply hedging your hedges and then take it to yet another derivative when you also sell calls on the hedge.