Weekend Update – May 8, 2016

Depending upon how concrete you are in interpreting the meaning of the concept of “the circle of life,” the beginning and the end of that circle must be identical events as their points in space are coincident.

Various religions and philosophies believe that through a certain life path, another life awaits, but the rigorous requirements of geometry may be put aside in the process.

It’s also not clear that there had been any data dependency in the formulation of the philosophical concept.

Life, death and re-birth almost reads like a stock chart, except that the stock chart is plotted over time.

While new life generally brings joy, a geometric centric definition of “the circle of life” would both begin and end with that kind of joy.

On the other hand, a more philosophical interpretation of the concept has some diametrically different events, death and life, coinciding as the circle is closed.

Philosophy aside, markets have their own circle of life.

Start where you like in defining that circle, but among the components are low interest rates; increasing business investment for growth; increasing productivity; increasing corporate profits; increasing employment; increasing consumer spending; higher prices; higher interest rates; decreasing business investment; decreasing productivity;  decreasing employment; decreasing consumer spending and on and on.

That’s more or less a traditional look at the way things usually go, but at the moment it’s hard to know where in that circle we are or if we even have a circle.

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Weekend Update – May 1, 2016


There was potentially lots that could have moved the market last week.

Earnings season was getting into full swing as oil continued its march higher.

As if those weren’t enough, we had an FOMC Statement release and a GDP report and even more earnings to round out the week.

But basically, none of those really mattered.

The FOMC expressed some confidence in the economy even as the GDP may have said otherwise the following day and earnings were all over the place with the market not being very forgiving when already lowered expectations weren’t met or were being pushed out another quarter.

Again, none of that mattered.

What really mattered was when Carl Icahn, who unlike Chicken Little, calmly told the world that he had sold his entire stake in Apple (AAPL) for fears of what China’s “attitude” might be with regard to the company.

The initial interviewer misinterpreted Icahn’s comments to mean that he was worried about the Chinese economy itself and that may have been exactly how traders interpreted Icahn’s words, although a second interviewer correctly interpreted Icahn’s comments and got him to add clarity.

Icahn confirmed that he was actually worried about the possibility that China would be less of a reliable partner for Apple and not that he envisioned a new round of meltdowns in the CHinese economy or in their financial institutions.

Big difference.

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Weekend Update – April 24, 2016

Most of us can recall a time when we were embarrassed, unless you need for denial is a stronger than your memory.

It’s probably much worse when there are a lot of people around as witnesses.

It may be even worse if your antics are under embargo, finally being released at 2 PM, say on a Wednesday, and then really called into question the following day with the planned release of the GDP.

There’s nothing like being under the spotlight, especially when purposefully bringing attention to yourself and then somehow messing up.

I imagine, that even as poised and calm as she appears as the Chairman of the Federal Reserve, a young Janet Yellen may have been as easily subject to embarrassment as a child as any of us.

Obviously, I also imagine that the hairdo hasn’t changed over the years.

Of course, it could be really helpful to know what the actual GDP statistic will be and having your performance altered to meet the demands of reality.

This coming week has an FOMC Statement release which is followed barely 20 hours later by news of the GDP for the first quarter of 2016.

As the FOMC meeting gets underway on Tuesday, there is no doubt awareness of the consensus calling for lackluster GDP growth and the Atlanta Federal Reserve’s own decreased estimate just a few weeks ago.

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Weekend Update – January 24, 2016

With the early part of the Republican primaries having focused on one candidate’s hair, it reminded me of that old complaint that people sometimes made that their hair had a mind of its own.

For better or worse the political hair jokes have pretty much finally run their course as the days tick down to a more substantive measure of a candidate’s character and positions on more weighty matters.

While it was nice seeing some gains for the week and finally having some reason to not curse 2016, there’s no mistaking the reality that the stock market hasn’t had much of a mind of its own after the first 14 trading days of the new year.

Bad hair days would have been a lot easier to take than the bad market days that have characterized much of the past  6 weeks.

The combination of China and the price of oil have led the market down and up on a daily basis and sometimes made it do flips during the course of a single trading day.

With the price of oil having climbed about 23% during the week from its multi-year lows, the market did what it hadn’t been able to do in 2016 and actually put together back to back daily gains. Maybe it was entirely coincidental that the 48 hours that saw the resurgence in the price of crude oil were the same 48 hours that saw the market string consecutive gains, but if so, that coincidence is inescapable.

While that’s encouraging there’s not too much reason to believe that the spike in the price of oil was anything more than brave investors believing that oil was in a severely over-sold position and that its recent descent had been too fast and too deep.

That pretty much describes the stock market, as well, but what you haven’t seen in 2016 is the presence of those brave souls rushing in to pick up shares in the same belief.

Of the many “factoids” that were spun this week was that neither the DJIA nor the NASDAQ 100 had even a single stock that had been higher in 2016. That may have changed by Friday’s closing bell, but then the factoid would be far less fun to share.

Instead, oil has taken the fun out of things and has dictated the direction for stocks and the behavior of investors. If anything, stocks have been a trailing indicator instead of one that discounts the future as conventional wisdom still credits it for doing, despite having put that quality on hiatus for years.

That was back when the stock market actually did have a mind of its own. Now it’s more likely to hear the familiar refrain that many of us probably heard growing up as we discovered the concept of peer pressure.

“So, if your best friend is going to jump out of the window, is that what you’re going to do, too?”

With earnings not doing much yet to give buyers a reason to come out from hiding, the coming week has two very important upcoming events, but it’s really anyone’s guess how investors could react to the forthcoming news.

There is an FOMC announcement scheduled for Wednesday, assuming that the nation’s capital is able to dig out from under the blizzard’s drifts and then the week ends with a GDP release.

With a sudden shift in the belief that the economy was heading in one and only one direction following the FOMC’s decision to increase interest rates, uncertainty is again in the air.

What next week’s events may indicate is whether we are back to the bad news is bad news or the bad news is good news mindset.

It’s hard to even make a guess as to what the FOMC might say next week.

“My bad” may be an appropriate start with the economy not seeming to be showing any real signs of going anywhere. With corporate revenues and unadulterated earnings not being terribly impressive, the oil dividend still not materializing and retail sales weak, the suggestion by Blackrock’s (BLK) Larry Fink last week that there could be layoffs ahead would seem to be the kind of bad news that would be overwhelmingly greeted for what it would assuredly represent.

When the FOMC raised interest rates the market had finally come around to believing that a rise in rates was good news, as it had to reflect an improving economic situation. If the next realization is that the improving situation would last for only a month, you might think the reception would be less than effusive.

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

Last week was the first week since 2008 or 2009 that I made no trades at all and had no ex-dividend positions. No new positions were opened, nor were any call or put rollovers executed.

Other than a few ex-dividend positions this week, I’m not certain that it will be any different from last week. I haven’t opened very many new positions of late, having to go back nearly 2 months for a week with more than a single new position having been opened.

Unlike much of the past 6 years when market pullbacks just seemed like good times to get good stocks at better prices, the past few months have been offering good prices that just kept getting better and better.

If you had been a buyer, those better and better prices were only seen that way by the next series of prospective buyers, who themselves probably came to bemoan how less they could have paid if only they waited another day or two. 

The gains of the final two days of last week make me want to continue the passivity. Anyone having chased any of those precious few days higher lately has ended up as disappointed as those believing they had picked up a bargain.

At some point it will pay to chase stocks higher and at some point it will pay to run after value.

I’m just not convinced that two days of gains are enough to  signal that value is evaporating.

The biggest interests that I have for the week are both earnings related trades. Both Apple (AAPL) and Facebook (FB) report earnings this week.

If you’re looking for a stock in bear market correction over the past 6 months, you don’t have to go much further then Apple (AAPL). Along with some of his other holdings, Apple has punished Carl Icahn in the same manner as has been occurring to mere mortals.

Of course, that 21% decline is far better than the 27% decline fro just a few days ago before Apple joined the rest of the market in rally mode.

Interestingly, the option market doesn’t appear to be pricing in very much uncertainty with earnings upcoming this week, with an implied move of only 6.2%

Since a 1% ROI can only be achieved at a strike level that’s within that range, I wouldn’t be very excited in the sale of out of the money puts prior to earnings. The risk – reward proposition just isn’t compelling enough for me. However, if Apple does drop significantly after earnings then there may be reason to consider the sale of puts.

There is some support at $90 and then a few additional support levels down to $84, but then it does get precarious all the way down to $75.

Apple hasn’t been on everyone’s lips for quite a while and we may not get to find out just how little it has also been on people’s wrists. Regardless, if the support levels between $84 and $90 are tested after earnings the put premiums should still remain fairly high. If trying this strategy and then faced with possible assignment of shares, an eye has to be kept on the announcement of the ex-dividend date, which could be as early as the following week.

While Apple is almost 20% lower over the past 6 months, Facebook has been virtually unchanged, although it was almost 30% higher over the past year.

It;s implied move is 6.8% next week, but the risk – reward is somewhat better than with Apple, if considering the sale of puts prior to earnings, as a 1% ROI for the sale of a weekly option could be obtained outside of the range defined by the option market. As with Apple, however, the slide could be more precarious as the support levels reflect some quick and sharp gains over the past 2 years.

For those that have been pushing a short strategy for GameStop (GME), and it has long been one of the most heavily of shorted stocks for quite some time, the company has consistently befuddled those who have had very logical reasons for why GameStop was going to fall off the face of the earth.

Lately, though, they’ve had reason to smile as shares are 45% lower, although on a more positive note for others, it’s only trailing the S&P 500 by 2% in 2016. They’ve had some reasons to smile in the past, as well, as the most recent plunge mirrors one from 2 years ago.

As with Apple and Facebook, perhaps the way to think about any dalliance at this moment, as the trend is lower and as volatility is higher, is through the sale of put options and perhaps considering a longer time outlook.

A 4 week contract, for example, at a strike level 4.6% below this past Friday’s close, could still offer a 3% ROI. If going that route, it would be helpful to have strategies at hand to potentially deal with an ex-dividend date in the March 2016 cycle and earnings in the April 2016 cycle.

One of the companies that I own that is going ex-dividend this week is Fastenal (FAST). I’ve long liked this company, although I’m not enamored with my last purchase, which I still own and was purchased a year ago. As often as is the case, I consider adding shares of Fastenal right before the ex-dividend date and this week is no different.

What is different is its price and with a 2 day market rally that helped it successfully test its lows, I would be interested in considering adding an additional position.

With only monthly options available, Fastenal is among the earliest of earnings reporters each quarter, so there is some time until the next challenge. Fastenal does, however, occasionally pre-announce or alter its guidance shortly before earnings, so surprises do happen, which is one of the reasons I’m still holding shares after a full year has passed.

In the past 6 months Fastenal has started very closely tracking the performance of Home Depot (HD). While generally Fastenal has lagged, in the past 2 months it has out-performed Home Depot, which was one of a handful of meaningfully winning stocks in 2015.

Finally, Morgan Stanley (MS) is also ex-dividend this week.

Along with the rest of the financials, Morgan Stanley’s share price shows the disappointment over the concern that those interest rate hikes over the rest of the year that had been expected may never see the light of day.

This week’s FOMC and GDP news can be another blow to the hopes of banks, but if I was intent upon looking for a bargain this week among many depressed stocks, I may as well get the relationship started with a dividend and a company that I can at least identify the factors that may make it move higher or lower.

Not everything should be about oil and China.

 

Traditional Stocks: none

Momentum Stocks:  GameStop

Double-Dip Dividend: Fastenal (1/27 $0.30), Morgan Stanley ($0.15)

Premiums Enhanced by Earnings:  Apple (1/26 PM), Facebook (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.

 

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Copyright 2016 TheAcsMan

Weekend Update – January 24, 2016

With the early part of the Republican primaries having focused on one candidate’s hair, it reminded me of that old complaint that people sometimes made that their hair had a mind of its own.

For better or worse the political hair jokes have pretty much finally run their course as the days tick down to a more substantive measure of a candidate’s character and positions on more weighty matters.

While it was nice seeing some gains for the week and finally having some reason to not curse 2016, there’s no mistaking the reality that the stock market hasn’t had much of a mind of its own after the first 14 trading days of the new year.

Bad hair days would have been a lot easier to take than the bad market days that have characterized much of the past  6 weeks.

The combination of China and the price of oil have led the market down and up on a daily basis and sometimes made it do flips during the course of a single trading day.

With the price of oil having climbed about 23% during the week from its multi-year lows, the market did what it hadn’t been able to do in 2016 and actually put together back to back daily gains. Maybe it was entirely coincidental that the 48 hours that saw the resurgence in the price of crude oil were the same 48 hours that saw the market string consecutive gains, but if so, that coincidence is inescapable.

While that’s encouraging there’s not too much reason to believe that the spike in the price of oil was anything more than brave investors believing that oil was in a severely over-sold position and that its recent descent had been too fast and too deep.

That pretty much describes the stock market, as well, but what you haven’t seen in 2016 is the presence of those brave souls rushing in to pick up shares in the same belief.

Of the many “factoids” that were spun this week was that neither the DJIA nor the NASDAQ 100 had even a single stock that had been higher in 2016. That may have changed by Friday’s closing bell, but then the factoid would be far less fun to share.

Instead, oil has taken the fun out of things and has dictated the direction for stocks and the behavior of investors. If anything, stocks have been a trailing indicator instead of one that discounts the future as conventional wisdom still credits it for doing, despite having put that quality on hiatus for years.

That was back when the stock market actually did have a mind of its own. Now it’s more likely to hear the familiar refrain that many of us probably heard growing up as we discovered the concept of peer pressure.

“So, if your best friend is going to jump out of the window, is that what you’re going to do, too?”

With earnings not doing much yet to give buyers a reason to come out from hiding, the coming week has two very important upcoming events, but it’s really anyone’s guess how investors could react to the forthcoming news.

There is an FOMC announcement scheduled for Wednesday, assuming that the nation’s capital is able to dig out from under the blizzard’s drifts and then the week ends with a GDP release.

With a sudden shift in the belief that the economy was heading in one and only one direction following the FOMC’s decision to increase interest rates, uncertainty is again in the air.

What next week’s events may indicate is whether we are back to the bad news is bad news or the bad news is good news mindset.

It’s hard to even make a guess as to what the FOMC might say next week.

“My bad” may be an appropriate start with the economy not seeming to be showing any real signs of going anywhere. With corporate revenues and unadulterated earnings not being terribly impressive, the oil dividend still not materializing and retail sales weak, the suggestion by Blackrock’s (BLK) Larry Fink last week that there could be layoffs ahead would seem to be the kind of bad news that would be overwhelmingly greeted for what it would assuredly represent.

When the FOMC raised interest rates the market had finally come around to believing that a rise in rates was good news, as it had to reflect an improving economic situation. If the next realization is that the improving situation would last for only a month, you might think the reception would be less than effusive.

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

Last week was the first week since 2008 or 2009 that I made no trades at all and had no ex-dividend positions. No new positions were opened, nor were any call or put rollovers executed.

Other than a few ex-dividend positions this week, I’m not certain that it will be any different from last week. I haven’t opened very many new positions of late, having to go back nearly 2 months for a week with more than a single new position having been opened.

Unlike much of the past 6 years when market pullbacks just seemed like good times to get good stocks at better prices, the past few months have been offering good prices that just kept getting better and better.

If you had been a buyer, those better and better prices were only seen that way by the next series of prospective buyers, who themselves probably came to bemoan how less they could have paid if only they waited another day or two. 

The gains of the final two days of last week make me want to continue the passivity. Anyone having chased any of those precious few days higher lately has ended up as disappointed as those believing they had picked up a bargain.

At some point it will pay to chase stocks higher and at some point it will pay to run after value.

I’m just not convinced that two days of gains are enough to  signal that value is evaporating.

The biggest interests that I have for the week are both earnings related trades. Both Apple (AAPL) and Facebook (FB) report earnings this week.

If you’re looking for a stock in bear market correction over the past 6 months, you don’t have to go much further then Apple (AAPL). Along with some of his other holdings, Apple has punished Carl Icahn in the same manner as has been occurring to mere mortals.

Of course, that 21% decline is far better than the 27% decline fro just a few days ago before Apple joined the rest of the market in rally mode.

Interestingly, the option market doesn’t appear to be pricing in very much uncertainty with earnings upcoming this week, with an implied move of only 6.2%

Since a 1% ROI can only be achieved at a strike level that’s within that range, I wouldn’t be very excited in the sale of out of the money puts prior to earnings. The risk – reward proposition just isn’t compelling enough for me. However, if Apple does drop significantly after earnings then there may be reason to consider the sale of puts.

There is some support at $90 and then a few additional support levels down to $84, but then it does get precarious all the way down to $75.

Apple hasn’t been on everyone’s lips for quite a while and we may not get to find out just how little it has also been on people’s wrists. Regardless, if the support levels between $84 and $90 are tested after earnings the put premiums should still remain fairly high. If trying this strategy and then faced with possible assignment of shares, an eye has to be kept on the announcement of the ex-dividend date, which could be as early as the following week.

While Apple is almost 20% lower over the past 6 months, Facebook has been virtually unchanged, although it was almost 30% higher over the past year.

It;s implied move is 6.8% next week, but the risk – reward is somewhat better than with Apple, if considering the sale of puts prior to earnings, as a 1% ROI for the sale of a weekly option could be obtained outside of the range defined by the option market. As with Apple, however, the slide could be more precarious as the support levels reflect some quick and sharp gains over the past 2 years.

For those that have been pushing a short strategy for GameStop (GME), and it has long been one of the most heavily of shorted stocks for quite some time, the company has consistently befuddled those who have had very logical reasons for why GameStop was going to fall off the face of the earth.

Lately, though, they’ve had reason to smile as shares are 45% lower, although on a more positive note for others, it’s only trailing the S&P 500 by 2% in 2016. They’ve had some reasons to smile in the past, as well, as the most recent plunge mirrors one from 2 years ago.

As with Apple and Facebook, perhaps the way to think about any dalliance at this moment, as the trend is lower and as volatility is higher, is through the sale of put options and perhaps considering a longer time outlook.

A 4 week contract, for example, at a strike level 4.6% below this past Friday’s close, could still offer a 3% ROI. If going that route, it would be helpful to have strategies at hand to potentially deal with an ex-dividend date in the March 2016 cycle and earnings in the April 2016 cycle.

One of the companies that I own that is going ex-dividend this week is Fastenal (FAST). I’ve long liked this company, although I’m not enamored with my last purchase, which I still own and was purchased a year ago. As often as is the case, I consider adding shares of Fastenal right before the ex-dividend date and this week is no different.

What is different is its price and with a 2 day market rally that helped it successfully test its lows, I would be interested in considering adding an additional position.

With only monthly options available, Fastenal is among the earliest of earnings reporters each quarter, so there is some time until the next challenge. Fastenal does, however, occasionally pre-announce or alter its guidance shortly before earnings, so surprises do happen, which is one of the reasons I’m still holding shares after a full year has passed.

In the past 6 months Fastenal has started very closely tracking the performance of Home Depot (HD). While generally Fastenal has lagged, in the past 2 months it has out-performed Home Depot, which was one of a handful of meaningfully winning stocks in 2015.

Finally, Morgan Stanley (MS) is also ex-dividend this week.

Along with the rest of the financials, Morgan Stanley’s share price shows the disappointment over the concern that those interest rate hikes over the rest of the year that had been expected may never see the light of day.

This week’s FOMC and GDP news can be another blow to the hopes of banks, but if I was intent upon looking for a bargain this week among many depressed stocks, I may as well get the relationship started with a dividend and a company that I can at least identify the factors that may make it move higher or lower.

Not everything should be about oil and China.

 

Traditional Stocks: none

Momentum Stocks:  GameStop

Double-Dip Dividend: Fastenal (1/27 $0.30), Morgan Stanley ($0.15)

Premiums Enhanced by Earnings:  Apple (1/26 PM), Facebook (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.

 

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Copyright 2016 TheAcsMan

Weekend Update – October 11, 2015

If you’re a fan of “American Exceptionalism” and can put aside the fact that the Shanghai stock market has made daily moves of 6% higher in the past few months on more than one occasion, you have to believe that the past week has truly been a sign of the United States’ supremacy extending to its stock markets.

We are, of optiocourse, the only nation to have successfully convinced much of the world for the past 46 years that we put a man on the moon.

So you tell me. What can’t we do?

What we can do very well is turn bad news into good news and that appears to be the path that we’ve returned to, as the market’s climb may be related to a growing belief that interest rate hikes may now be delayed and the party can continue unabated.

While it was refreshing for that short period of time when news was taken at face value, we now are faced with the prospect of markets again exhibiting their disappointment when those interest rate hikes truly do finally become reality.

Once the market came to its old realizations it moved from its intra-day lows hit after the most recent Employment Situation Report and the S&P 500 rocketed higher by 6% as a very good week came to its end on a quiet note.

While much of the gain was actually achieved when the Shanghai markets were closed for the 7 day National Day holiday celebration, it may be useful to review just what rockets are capable of doing and perhaps looking to China as an example of what soaring into orbit can lead to.

Rockets come in all sizes and shapes, but are really nothing more than a vehicle launched by a high thrust engine. Those high thrust rocket engines create the opportunities for the vehicle. Some of those vehicles are designed to orbit and others to achieve escape velocity and soar to great heights.

And some crash or explode violently, although not by design.

As someone who likes to sell options the idea of a stock just going into orbit and staying there for a while is actually really appealing, but with stocks its much better if the orbit established is one that has come down from greater heights.

That’s not how rockets usually work, though.

But for any kind of orbiting to really be worthwhile, those premiums have to be enriched by occasional bumps along the path that don’t quite make it to the level of violent explosions.

It’s just that you never really know when those violent explosions are going to come and how often. Certainly Elon Musk didn’t expect his last two rocket launches to come to sudden ends.

In China’s case those 6% increases have been followed by some epic declines, but that’s not unusual whenever seeing large moves in either direction.

As we get ready to start earnings season for real this week we may quickly learn whether our own 6% move higher was just the first leg of a multi-stage rocket launch or whether it will soon discover that there is precious little below to offer much in the way of support.

Prior to that 6% climb it was that lack of much below that created a situation where many stocks had gone into orbit, taking a rest to regain strength for a bounce higher. That temporary orbit was a great opportunity to generate some option premium income, as some of the risk of a crash was reduced as those stocks had already migrated closer to the ground.

While I don’t begrudge the recent rapid rise it would be nice to go back into orbit for a while and refuel for a slower, but more sustainable ride higher.

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

There aren’t too many data points to go on since that turnaround last week, but Apple (NASDAQ:AAPL) has been uncharacteristically missing from the party.

It seems as if it’s suddenly becoming fashionable to disparage Apple, although I don’t recall Tim Cook having given Elon Musk a hard time recently. With the opening of the movie, Steve Jobs, this week may or may not further diminish the luster.

Ever since Apple joined the DJIA on March 19, 2015 it has dragged the index 109 points lower, accounting for about 11% of the index’s decline, as it has badly lagged both the DJIA and S&P 500 during that period. The truth, however, is that upon closer look, Apple has actually under-performed both for most of the past 3 year period, even when selecting numerous sub-periods for study. The past 6 months have only made the under-performance more obvious.

With both earnings and an ex-dividend date coming in the next month, I would be inclined to consider an Apple investment from the sale of out of the money puts. If facing assignment, it should be reasonably easy to rollover those puts and continuing to do so as earnings approach. If, however, faced with the need to rollover into the week of earnings, I would do so using an extended weekly option, but one expiring in the week prior to the week of the ex-dividend date. Then, if faced with assignment, I would plan to take the assignment and capture the dividend, rather than continuing to attempt to escape share ownership.

In contrast to Apple, Visa (NYSE:V) which joined the DJIA some 2 years earlier, coincidentally having split its shares on the same day that Apple joined the index, actually added 49 points to the DJIA.

For Visa and other credit card companies there may be a perfect storm of the good kind on the horizon. With chip secured credit cards just beginning their transition into use in the United States and serving to limit losses accruing to the credit card companies, Visa is also a likely beneficiary of increasing consumer activity as there is finally some evidence that the long awaited oil dividend is finding its way into retail.

When it comes to bad news, it’s hard to find too many that have taken more lumps than YUM Brands (NYSE:YUM) and The Gap (NYSE:GPS).

Despite a small rebound in YUM shares on Friday, that came nowhere close toward erasing the 19% decline after disappointing earnings from its China operations.

YUM Brands was a potential earnings related trade last week, but it came with a condition. That condition being that there had to be significant give back of the previous week’s gains.

Instead, for the 2 trading days prior to earnings, YUM shares went higher, removing any interest in taking the risk of selling puts as the option market was still anticipating a relatively mild earnings related move and the reward was really insufficient.

Now, even after the week ending bounce, YUM’s weekly option premium is quite high, especially factoring in its ex-dividend state. As discussed last week, the premium enhancement may be sufficient to look into the possibility of selling a deep in the money weekly call option and ceding the dividend in order to accrue the premium and exit the position after just 2 days, if assigned early.

You needn’t look to China to explain The Gap’s problems. Slumping sales under its new CEO and the departure of a key executive from a rare division that was performing have sent shares lower and lower.

The troubles were compounded late this past week when The Gap did, as fewer and fewer in retail are doing, and released its same store sales figures and they continued to disappoint everyone.

Having gone ex-dividend in the past week that lure is now gone for a few months. The good news about The Gap is that it isn’t scheduled to report news of any kind of news for another month, when it releases same store sales once again, followed by quarterly results 10 days later.

The lack of any more impending bad news isn’t the best of compliments. However, unlike a rocket headed for a crash the floors for a stock can be more forgiving and The Gap is approaching a multi-year support level that may provide some justification for a position with an intended short term time frame as its option premiums are increasingly reflecting its increased volatility.

Coach (NYSE:COH) has earnings due to be reported at the end of this month. It is very often a big mover at earnings and despite some large declines had generally had a history of price recovery. That, however, hasn’t been the case in nearly 2 years.

Over the past 3 years I’ve owned Coach shares 21 times, but am currently weighed down by a single lot that is nearly 18 months old. During that time period I’ve only seen fit to add shares on a single occasion, but am again considering doing so as it seems to be building upon some support and may be one of those beneficiaries of increased consumer spending, even as its demographic may be less sensitive to energy pricing.

With the risk comes a decent weekly option premium, but I might consider sacrificing some of that premium and attempting to use a higher priced strike and perhaps an extended weekly option, but being wary of earnings, even though I expect an upward surprise.

The drug sector has seen its share of bad news lately, as well and has certainly been the target of political opportunism and over the top greed that makes almost everyone cringe.

AbbVie (NYSE:ABBV) is ex-dividend this week and is nearly 20% lower from the date that the S&P 500 began its descent toward correction territory. Since its spin-off from Abbott Labs (NYSE:ABT), which is also ex-dividend this week, AbbVie has had more than its share of controversy, including a proposed inversion and the pricing of its Hepatitis C drug regimen.

Shares seem to have respected some price support and have returned to a level well below where I last owned them. With its equally respectable option premium and generous dividend, this looks like an opportune time to consider a position, but I would like it as a short term holding in an attempt to avoid being faced with its upcoming earnings report at the end of the month.

Finally, Netflix (NASDAQ:NFLX) reports earnings this week and had been on a tear until mid-August, when a broad brush took nearly every company down 10% or more.

Of course, even with that 10% decline, Icahn Enterprises (NASDAQ:IEP), would have been far better off not having sold its shares and incurring its own 13% loss in 2015.

With earnings coming this week I found it interesting that Netflix would announce a price increase for new customers in advance of earnings. In having done so, shares spiked nearly 10%.

The option market is implying a 14% price move, however, a 1% ROI could possibly be achieved by selling a weekly put at a strike level 19% below Friday’s closing price.

That’s an unusually large cushion even as the option market has been starting to recover from a period of under-estimating earnings related moves in the past quarter.

While the safety net does appear wide, my cynical side has me believing that the subscription increase was timed to offer its own cushion for what may be some disappointing numbers. Given the emphasis on new subscriber acquisitions, I would believe that metric will come in strong, otherwise this wouldn’t be an opportune time for a price increase. However, there may be something lurking elsewhere.

With that in mind, I would consider the same approach as with YUM Brands last week and would only consider the sale of puts if preceded by some significant price pullback. Otherwise, I would hold off, but might become interested again in the event of a large downward move after earnings are released.

Traditional Stocks: Apple, The Gap, Visa

Momentum Stocks: Coach

Double-Dip Dividend: AbbVie (10/13), YUM Brands (10/14)

Premiums Enhanced by Earnings: Netflix (10/14 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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Copyright 2015 TheAcsMan

Weekend Update – August 9, 2015

In an age of rapidly advancing technology, where even Moore’s Law seems inadequate to keep up with the pace of advances, I wonder how many kids are using the same technology that I used when younger.

It went by many names, but the paper “fortune teller” was as good a tool to predict what was going to happen as anything else way back then.

Or now.

It told your fortune, but for the most part the fortunes were binary in nature. It was either good news that awaited you later in life or it was bad news.

I’m not certain that anything has actually improved on that technology in the succeeding years. While you may be justified in questioning the validity of the “fortune teller,” no one really got paid to get it right, so you could excuse its occasional bad forecasting or imperfect vision. You were certainly the only one to blame if you took the results too seriously and was faced with a reality differing from the prediction.

The last I checked, however, opinions relating to the future movements of the stock market are usually compensated. Those compensations tend to be very generous as befitting the rewards that may ensue to those who predicate their actions on the correct foretelling of the fortunes of stocks. However, since it’s other people’s money that’s being put at risk, the compensations don’t really reflect the potential liability of getting it all wrong.

Who would have predicted the concurrent declines in Disney (NYSE:DIS) and Apple (NASDAQ:AAPL) that so suddenly placed them into correction status? My guess is that with a standard paper fortune teller the likelihood of predicting the coincident declines in Disney and Apple placing them into correction status would have been 12.5% or higher.

Who among the paid professionals could have boasted of that kind of predictive capability even with the most awesome computing power behind them?

If you look at the market, there really is nothing other than bad news. 200 Day Moving Averages violated; just shy of half of the DJIA components in correction; 7 consecutive losing sessions and numerous internal metrics pointing at declining confidence in the market’s ability to move forward.

While this past Friday’s Employment Situation Report provided data that was in line with expectations, wages are stagnant If you look at the economy, it doesn’t really seem as if there’s the sort of news that would drive an interest rate decision that is emphatically said to be a data driven process.

Yet, who would have predicted any of those as the S&P 500 was only 3% away from its all time highs?

I mean besides the paper fortune teller?

Seemingly paradoxical, even while so many stocks are in personal correction, the Volatility Index, which many look at as a reflection of uncertainty, is down 40% from its 2015 high.

As a result option premiums have been extraordinarily low, which in turn has made them very poor predictors of price movements of late, as the implied move is based upon option premium levels.

Nowhere is that more obvious than looking at how poorly the options market has been able to predict the range of price movements during this past earnings season.

Just about the only thing that could have reasonably been predicted is that this earnings season who be characterized by the acronym “BEMR.”

“Beat on earnings, missed on revenues.”

While a tepid economy and currency exchange have made even conservative revenue projections difficult to meet, the spending of other people’s money to repurchase company shares has done exactly what every CEO expected to be the case. Reductions in outstanding shares have boosted EPS and made those CEOs look great.

Even a highly p[aid stock analyst good have predicted that one.

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

Not too surprisingly after so many price declines over the past few weeks, so many different stocks look like bargains. Unfortunately, there’s probably no one who has been putting money at risk for a while who hasn’t been lured in by what seemed to be hard to resist prices.

It’s much easier to learn the meaning of “value trap” by reading about it, rather than getting caught in one.

One thing that is apparent is that there hasn’t been a recent rush by those brave enough to “buy on the dip.” They may sim
ply be trading off bravery for intelligence in order to be able to see yet another day.

With my cash reserves at their lowest point in years, I would very much like to see some positions get assigned, but that wish would only be of value if I could exercise some restraint with the cash in hand.

One stock suffering and now officially in correction is Blackstone (NYSE:BX). It’s descent began with its most recent earnings report. The reality of those earnings and the predictions for those earnings were far apart and not in a good way.

CEO Schwarzman’s spin on performance didn’t seem to appease investors, although it did set the tone for such reports as “despite quarterly revenues and EPS that were each 20% below consensus. That consensus revenue projection was already one that was anticipating significantly reduced levels.

News of the Blackstone CFO selling approximately 9% of his shares was characterized as “unloading” and may have added to the nervousness surrounding the future path of shares.

But what makes Blackstone appealing is that it has no debt on its own balance sheet and its assets under management continue to grow. Even as the real estate market may present some challenges for existing Blackstone properties, the company is opportunistic and in a position to take advantage of other’s misery.

Shares command an attractive option premium and the dividend yield is spectacular. However, I wouldn’t necessarily count on it being maintained at that level, as a look at Blackstone’s dividend payment history shows that it is a moving target and generally is reduced as share price moves significantly lower. The good news, however, is that shares generally perform well following a dividend decrease.

Joining Blackstone in its recent misery is Bed Bath and Beyond (NASDAQ:BBBY). While it has been in decline through 2015, its most recent leg of that decline began with its earnings report in June.

That report, however, if delivered along with the most recent reports beginning a month ago, may have been met very differently. Bed Bath and Beyond missed its EPS by 1% and met consensus expectations for revenue.

Given, however, that Bed Bath and Beyond has been an active participant in share buybacks, there may have been some disappointment that EPS wasn’t better.

However, with more of its authorized cash to use on share buy backs, Bed Bath and Beyond has been fairly respectful in the way it uses other people’s money and has been more prone to buying shares when the stock price is depressed, in contrast to some others who are less discriminating. As shares are now right near a support level and with an option premium recognizing some of the uncertainty, these shares may represent the kind of value that one of its ubiquitous 20% of coupons offers.

The plummet is Disney shares this week following earnings is still somewhat mind boggling, although short term memory lapses may account for that, as shares have had some substantial percentage declines over the past few years.

Disney’s decline came amidst pervasive weakness among cable and content providers as there is a sudden realization that their world is changing. Words such as “skinny” and “unbundling” threaten revenues for Disney and others, even as revenues at theme parks and movie studios may be bright spots, just as for Comcast (NASDAQ:CMCSA).

As with so many other stocks as the bell gets set to ring on Monday morning, the prevailing question will focus on value and relative value. Disney’s ascent beyond the $100 level was fairly precipitous, so there isn’t a very strong level of support below its current price, despite this week’s sharp decline. That may provide reason to consider the sale of puts rather than a buy/write, if interested in establishing a position. Additionally, a longer term time frame than the one week that I generally prefer may give an opportunity to generate some income with relatively low risk while awaiting a more attractive stock price.

While much of the attention has lately been going to PayPal (NASDAQ:PYPL) and while I am now following that company, it’s still eBay (NASDAQ:EBAY) that has my focus, after a prolonged period of not having owned shares. Once a mainstay of my holdings and a wonderful covered option trade it has become an afterthought, as PayPal is considered to offer better growth prospects. While that may be true, I generally like to see at least 6 months of price history before considering a trade in a new company.

However, as a covered option trader, growth isn’t terribly important to me. What is important is discovering a stock that can have some significant event driven price movements in either direction, but with a tendency to predictably revert to its mean. That creates a situation of attractive option premiums and rel
atively defined risk.

eBay is now again trading in a narrow range after some of the frenzy associated with its PayPal spin-off, albeit the time frame for that assessment is limited. However, as it has traded in a relatively narrow range following the spin-off, the option premium has been very attractive and I would like to consider shares prior to what may be an unwanted earnings surprise in October.

Sinclair Broadcasting (NASDAQ:SBGI) reported earnings last week beating both EPS and revenue expectations quite handily. However, the market’s initial response was anything but positive, although shares did recover about half of what they lost.

Perhaps shares were caught in the maelstrom that was directed toward cable and content providers as one thing that you can predict is that a very broad brush is commonly used when news is at hand. But as a plebian provider of terrestrial television access, Sinclair Broadcasting isn’t subject to the same kind of pressures and certainly not to the same extent as their higher technology counterparts.

I often like to consider the purchase of shares just before Sinclair Broadcasting goes ex-dividend, which it will do on August 28th. However, with the recent decline, I would consider a purchase now and selling the September 18, 2015 option contract at a strike level that could generate acceptable capital gains in addition to the dividend and option premium, while letting the cable and content providers continue to take the heat.

It seems only appropriate on a week that is focused on an old time paper fortune teller that some consideration be given to International Paper (NYSE:IP) as it goes ex-dividend this week. With its shares down nearly 17% from their 2015 high, the combination of perceived value, very fair option premium and generous dividend may be difficult to pass up at this time, while having passed it up on previous occasions during the past month.

International Paper’s earnings late last month fell in line with others that “BEMR,” but it shares remained largely unchanged since that report and shares appear to have some price support at its current level.

You may have to take my word for it, but Astra Zeneca (NYSE:AZN) is going ex-dividend this week. That information didn’t appear in any of the 3 sources that I typically use and my query to its investor relations department received only an automated out of office response. The company’s site stated that a dividend announcement was going to be made when earnings were announced on July 30th, but a week after earnings the site didn’t reflect any new information. Fortunately,someone at NASDAQ knew what I wanted to know.

Astra Zeneca pays its dividends twice each year, the second of which will be ex-dividend this week and is the smaller of the two distributions, yet still represents a respectable 1.3% payment.

I already own shares and haven’t been disappointed by shares lagging its peers. What I have been disappointed in, however, has been it’s inability to mount any kind of sustained move higher and the inability to sell calls on those shares, particularly as there had been some liquidity issues.

The recent stock split, however, has ameliorated some of those issues and there appears to be some increased options trading volume and smaller bid-ask discrepancies. Until that became the case, I had no interest in adding shares, but am now more willing to do so, also in anticipation of some performance catch-up to its other sector mates.

The promise that seemed to reside with shares of Ali Baba (NYSE:BABA) not so long ago has long since withered along with many other companies whose fortunes are closely tied to the Chinese economy.

Ali Baba reports earnings this week and the option market is predicting only a 6.7% price move. That seems to be a fairly conservative assessment of the potential for exhilaration or the potential for despair. However, a 1% ROI through the sale of a weekly put option is not available at a strike that’s below the bottom of the implied range.

For that reason, I would approach Ali Baba upon earnings in the same manner as with Green Mountain Keurig’s (NASDAQ:GMCR) earnings report. That is to only consider action after earnings are released and if shares drop below the implied lower end of the range. There is something nice about letting others exercise a torrent of emotion and fear and then cautiously wading into the aftermath.

Finally, during an earnings season that has seen some incredible moves, especially to the downside, Cree (NASDAQ:CREE) should feel right at home. It has had a great habit of surprising the options market, which is supposed to be able to predict the range of a stock’s likely price move, on a fairly regular basis.

With its products just about every where that you look you would either expect its revenues and earnings to be booming or you might think that it was in the throes of becoming commoditized.

What Cree used to be able to do was to trade in a very stable manner for prolonged periods after an earnings related plunge and then recover much of what it lost as subsequent earnings were released. That hasn’t been so much the case in the past year and its share price has been in continued decline in 2015, despite a momentary bump when it announced plans to spin-off a division to “unlock its full value.”

The option market is implying a 9.4% move when earnings are announced this coming week. By historical standards that is a low estimation of what Cree shares are capable of doing. While one could potentially achieve a 1% weekly ROI at a strike price nearly 14% below Friday’s closing price, as with Ali Baba, I would wait for the lights to go out on the share’s price before considering the sale of short term put options.

Traditional Stocks: Bed Bath and Beyond, Blackstone, Disney, eBay, Sinclair Broadcasting

Momentum Stocks: none

Double-Dip Dividend: Astra Zeneca (8/12 $0.45), International Paper (8/12 $0.40)

Premiums Enhanced by Earnings: Ali Baba (8/12 AM), Cree (8/11 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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Copyright 2015 TheAcsMan

Weekend Update – May 3, 2015

For all the talk about how April was one of the best months of the year, that ship sailed on April 30th when the DJIA lost 192 points, to finish the month just 0.2% higher.

It will take complete Magellan-like circumnavigation to have that opportunity once again and who knows how much the world will have changed by then?

Higher Interest rates, a disintegrating EU, renewed political stalemate heading into a Presidential election, rising oil prices and expanding world conflict are just some of the destinations that may await, once having set sail.

Not quite the Western Caribbean venue I had signed up for.

With the market getting increasingly difficult to understand or predict, I’m not even certain that there will be an April in 2016, but I can’t figure out how to hedge against that possibility.

But then again, for all the talk about “Sell in May and go away,” the DJIA recovered all but 9 of those points to begin the new month. With only a single trading day in the month, if there are more gains ahead, that ship certainly hasn’t sailed yet, but getting on board may be a little more precarious when within just 0.4% of an all time closing high on the S&P 500.

The potential lesson is that for every ship that sails a new berth is created.

What really may have sailed is the coming of any consumer led expansion that was supposed to lead the economy into its next phase of growth. With the release of this month’s GDP figures, the disappointment continued as the expected dividend from lower energy prices hasn’t yet materialized, many months after optimistic projections.

How so many esteemed and knowledgeable experts could have been universally wrong, at least in the time frame, thus far, as fascinating. Government economists, private sector economists, CEOs of retail giants and talking heads near and far, all have gotten it wrong. The anticipated expansion of the economy that was going to lead to higher interest rates just hasn’t fulfilled the logical conclusions that were etched in stone.

Interestingly, just as it seems to be coming clear that there isn’t much reason for the FOMC to begin a rise in interest rates, the 10 Year Treasury Note’s interest rate climbed by 5%. It did so as the FOMC removed all reference from a ticking clock to determine when those hikes would begin, in favor of data alone.

I don’t know what those bond traders are thinking. Perhaps they are just getting well ahead of the curve, but as this earnings season has progressed there isn’t too much reason to see any near term impetus for anything other than risk. No one can see over the horizon, but if you’re sailing it helps to know what may be ahead.

What started out as an earnings season that was understanding of the currency related constraints facing companies and even gave a pass on pessimistic guidance, has turned into a brutally punishin
g market for companies that don’t have the free pass of currency.

All you have to do is look at the reactions to LinkedIn (NYSE:LNKD), Twitter (NYSE:TWTR) and Yelp (NYSE:YELP) this week, as they all reported earnings. Some of those would have gladly seen their stocks tumble by only 20% instead of the deep abyss that awaited.

Before anyone comes to the conclusion that the ship has sailed on those and similar names, I have 4 words for you: Green Mountain Coffee Roasters, now simply known as Keurig Green Mountain (NASDAQ:GMCR).

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

Coach (NYSE:COH) reported earnings last week and in 2015, up until that point, had quietly diverged from the S&P 500 in a positive way, if you had owned shares. As the luster of some of its competitors was beginning to fade and in the process of implementing a new global strategy, it appeared that Coach was ready to finally recover from a devastating earnings plunge a year ago.

It was at that time that everyone had firmly shifted their favor to competitor Michael Kors (NYSE:KORS) and had started writing Coach off, as another example of a company sailing off into oblivion as it grew out of touch with its consumers.

Who knew at that time that Kors itself would so quickly run out of steam? At least the COach ride had been a sustained one and was beginning to show some signs of renewed life.

I’ve owned shares of Coach many times over the years and have frequently purchased shares after earnings or sold puts before or after earnings, always in the expectation that any earnings plunge would be short lived. That used to be true, but not for that last decline and I am still suffering with a lot that I optimistically sold $50 August 2015 calls upon, the day before earnings were released.

Unlike many stocks that have suffered declines and that then prompts me to add more shares, I haven’t done so with Coach, but am ready to do so now as shares are back to where they started the year.

With a dividend payout that appears to be safe, an acceptable option premium and the prospects of shares re-testing its recently higher levels, this seems like an opportune time to again establish a position, although I might consider doing so through the sale of puts. If taking that route and faced with an assignment, I would attempt to rollover the puts until that time in early June 2015 when shares are expected to go ex-dividend, at which point I would prefer to be long shares.

As far as fashion and popularity go, Abercrombie and Fitch (NYSE:ANF) may have seen its ship sail and so far, any attempt to right the ship by changing leadership hasn’t played out, so clearly there’s more at play.

What has happened, though, is that shares are no longer on a downward only incline, threatening to fall off the edge. It’s already fallen off, on more than one occasion, but like Coach, this most recent recovery has been much slower than those in the past.

But it’s in that period of quiescence for a stock that has a history of volatility that a covered option strategy, especially short term oriented, may be best suited.

Just 2 weeks ago I created a covered call position on new shares and saw them assigned that same week. They were volatile within a very narrow range that week, just as they were last week. That volatility creates great option premiums, even when the net change in share price is small.

With earnings still 3 weeks away, as is the dividend, the Abercrombie and Fitch trade may also potentially be considered as a put sale, and as with Coach, might consider share ownership if faced with the prospect of assignment approaching that ex-dividend date.

T-Mobile (NYSE:TMUS), at least if you listen to its always opinionated CEO, John Legere, definitely has the wind blowing at its back. Some of that wind may be coming from Legere himself. There isn’t too much doubt that the bigger players in the cellphone industry are beginning to respond to some of T-Mobile’s innovations and will increasingly feel the squeeze on margins.

So far, though, that hasn’t been the case. as quarterly revenues for Verizon (NYSE:VZ) and AT&T (NYSE:T) are at or near all time highs, as are profits. T-Mobile, on the other hand, while seeing some growth in revenues on a much smaller denominator, isn’t consistently seeing profits.

The end game for T-Mobile can’t be predicated on an endless supply of wind, no matter how much John Legere talks or Tweets. The end game has to include being acquired by someone that has more wind in their pockets.

But in the meantime, there is still an appealing option premium and the chance of price appreciation while waiting for T-Mobile to find a place to dock.

Keurig Green Mountain was the topic of the second article I everpublished on Seeking Alpha 3 years ago this week. It seems only fitting to re-visit it as it gets to report earnings. Whenever it does, it causes me to remember the night that I appeared on Matt Miller’s one time show, Bloomberg Rewind, having earlier learned that Green Mountain shares plunged about 30% on earnings.

Given the heights at which the old Green Mountain Coffee Roasters once traded, you would have been justified in believing that on that November 2011 night, the ship had sailed on Green Mountain Coffee and it was going to be left in the heap of other momentum stocks that had run into potential accounting irregularities.

But Green Mountain had a second act and surpassed even those lofty highs, with a little help from a new CEO with great ties to a deep pocketed company that was in need of diversifying its own beverage portfolio.

Always an exciting earnings related trade, the options market is implying a 10.2% price move upon earnings. In a week that saw 20% moves in Yelp, LinkedIn and Twitter, 10% seems like child’s play.

My threshold objective of receiving a 1% ROI on the sale of a put option on a stock that is about to report earnings appears to be achievable even if shares fall by as much as 12.1%.

It will likely be a long time before anyone believes that the ship has sailed on Intel (NASDAQ:INTC), but there was no shortage of comments about how the wind had been taken out of Intel’s sales as it missed the mobile explosion.

As far as Intel’s performance goes, it looks as if that ship sailed at the end of 2014, but with recent rumors of a hook-up with Altera (NASDAQ:ALTR) and the upcoming expiration of a standstill agreement, Intel is again picking up some momentum, as the market initially seemed pleased at the prospects of the union, which now may go the hostile route.

In the meantime, with that agreement expiring in 4 weeks, Intel is ex-dividend this week. The anticipation of events to come may explain why the premium on the weekly options are relatively high during a week that shares go ex-dividend.

Finally, perhaps one of the best examples of a company whose ship had sailed and was left to sink as a withered company was Apple (NASDAQ:AAPL).

Funny how a single product can turn it all around.

it was an odd week for Apple , though. Despite a nearly $4 gain to close the week, it finished the week virtually unchanged from where it started, even though it reported earnings after Monday’s close.

While it’s always possible to put a negative spin on the various components of the Apple sales story, and that’s done quarter after quarter, they continue to amaze, as they beat analyst’s consensus for the 10th consecutive quarter. While others may moan about currency exchange, Apple is just too occupied with execution.

Still, despite beating expectations yet again, after a quick opening pop on Tuesday morning shares finished the week $4 below that peak level when the week came to its end.

None of that is odd, though, unless you’ve grown accustomed to Apple moving higher after earnings are released. What was really odd was that the news about Apple as the week progressed was mostly negative as it focused on its latest product, the Apple Watch.

Reports of a tepid reception to the product; jokes like “how do you recognize the nerd in the crowd;” reports of tattoos interfering with the full functioning of the product; criticizing the sales strategy; and complaints about how complicated the Apple Watch was to use, all seemed so un-Apple-like.

Shares are ex-dividend this week and in the very short history of Apple having paid a dividend, the shares are very likely to move higher during the immediate period following the dividend distribution.

With the announcement this past week of an additional $50 billion being allocated to stock buybacks over the next 23 months, the ship may not sail on Apple shares for quite some time.

Traditional Stocks: Coach

Momentum Stocks: Abercrombie and Fitch, T-Mobile

Double Dip Dividend: Intel (5/5), Apple (5/7)

Premiums Enhanced by Earnings: Keurig Green Mountain (5/6 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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Copyright 2015 TheAcsMan

Weekend Update – April 5, 2015

It was a little odd having the Employment Situation Report released on a day that stock markets were closed yet bond markets and equity futures were trading on an abbreviated schedule.

It reminds me of the frustrations that I sometimes experience when being unable to react to news that moves a stock’s price after the market has closed on the Friday of option expiration. The option holder has the advantage of being able to exercise or not until nearly 90 minutes after the market has closed while as the seller of an option I can do nothing to respond to the news.

In trading circles that is something referred to as “a case of the blue calls.”

Not that I would know, but I would imagine that’s something like being in the old Times Square, before Mayor Rudy Giuliani cleaned it up and chased all of the adult entertainment away. Those glass walls between the patrons pumping quarters into the booth and the paid entertainment must have been frustrating for those watching events unfold but being incapable of taking appropriate action. That’s especially the case if knowing that a more genteel, moneyed and privileged clientele was in the back room and had less restricted access.

Or so I’ve heard. I believe that there was an expression describing that situation, as well.

While analysts are going to be spending time trying to find something good to say about the data released, the number of new jobs created was the smallest in more than a year and included downward revisions of the past 2 months. In fact, the 126,000 new jobs created in March was about half of what the consensus had been expecting. The 69,000 jobs downward revisions makes you wonder whether the decidedly negative reaction to what was perceived as a heating up jobs market previously was warranted.

The smaller than expected job creation number caused an immediate and large decline in interest rates and a meaningful decline in stock futures, although on very light volume.

Still, there was a net increase in jobs, and there is no specter of unmanageable and unruly lines queuing up as in scenes from 75 years ago. Yet we will begin trading on Monday on the far end of a 3 day vacuum having been unable to respond to the immediate reactions to Friday morning’s news.

After a few days to mull it over we may learn whether the disappointing employment news is ultimately interpreted as being good or bad for the stock market and more specifically for the likelihood of interest rates being increased sooner rather than later.

After all, lately that seems to be all that markets have cared about and the speculation has gone back and forth as the data has done the same.

As far as the Treasury market is concerned their bet is on lower interest rates after the Employment Situation Report was released and they’re said to be smarter than the average investor.

When rates go
back up just as quickly, as they have volleyed back and forth over the past few weeks, we can remind ourselves that the back and forth of rates simply reflects how smart those bond traders really are.

One might think that any further decline in rates would be good for stocks particularly as an alternative to bonds, unless it is interpreted as being bad news that the tepid economic expansion was actually beginning a deceleration phase.

Couple that thought with the worry that the upcoming earnings season is going to highlight currency woes more than costs savings from lower energy and you do have the makings of continued uncertainty about where the next catalyst to move stocks higher will be coming from.

Normally, I like uncertainty, but unfortunately, the uncertainty that we’ve seen over the past few weeks as markets have regularly alternated between triple digit gains and losses hasn’t really moved volatility as much as it would seem to have been logical. That’s because most days have actually traded with great certainty, showing little variance from where the day’s trading started and then giving way to an all new kind of certainty the very next day.

We’ll see how that certainty shows itself on Monday.

It’s anyone’s guess.

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

Whole Foods (NASDAQ:WFM) is one of many stocks that I currently own that are not earning their keep because they’re too far below their purchase price to warrant writing calls and generating premium income. While shares do go ex-dividend this week, the dividend is too small to justify chasing or to make a trade simply in the hopes of capturing that dividend.

However, I’ve been happy to see some of the share gains seen after earnings in February get digested, notwithstanding this past Thursday’ strong gain. The slow and methodical retracement of those gains is providing an opportunity to add shares of Whole Foods again with the goal of using new shares to help offset some of the losses on the non-performing lot, as was done 5 times in 2014.

However, following the previous share increase after earnings those shares just seemed too expensive to use as an offset to paper losses. However, now they appear to be more reasonably priced and ready to stabilize at that lower level.

Having add my General Motors (NYSE:GM) shares assigned last month I’ve wanted to repurchase shares since then. At the time the entry of an activist into the picture was unexpected and poor timing for me, but I’m glad to see shares come down from that activist induced high.

Through several bouts of share ownership during the Mary Barra era I’ve continued to be amazed at how well share price has persever
ed against a barrage of bad news. The toll on share price has generally been small and short lived, while being able to roll over option contracts helped to increase yield while awaiting assignment.

Shares offer attractive premiums, an increasingly attractive dividend and the watchful eyes of activists. That can be a good combination particularly since earnings are still a month away, giving some opportunity to collect those premiums before contending with the challenge of currency.

Bed Bath and Beyond (NASDAQ:BBBY) reports earnings this week and used to be one of those traditionally being among the last of S&P 500 members to report earnings. Now it’s either still among the last or possibly among the first, as earnings seasons now just tend to flow one into the next.

While Bed bath and Beyond isn’t likely to suffer much due to the strengthening dollar, in fact it may benefit from increased buying power, it may report some detriment from the west coast port disruptions.

Bed Bath and Beyond is no stranger to large moves when announcing its earnings, but this time the options market is implying a move of 6.5%. A 1% ROI may be possible by selling put options as much as 7.1% below the week’s closing price. That’s not as large of a cushion as I would prefer seeing, but if selling puts and faced with the possibility of assignment, I wouldn’t mind taking ownership of shares rather than attempting to roll the put options over.

Being booted from the DJIA isn’t necessarily a bad thing, just as being added isn’t always a good thing as far as stock prices go.

Few have done as well as Alcoa (NYSE:AA), which despite a nearly 50% decline since reaching it’s peak post-DJIA share price is still about 65% higher and has well out-performed the S&P 500 and the DJIA.

Alcoa, which reports earnings this week, and while perhaps no longer considered to be the kick-off to a new earnings season still remains the first to get much attention.

Shares have been in a considerable decline for the past 2 months after having recovered from most of the decline that preceded the market’s decline in early December 2014. The subsequent recovery in share price at that time was in lock step with the S&P 500 from mid-December to mid-January when earnings intervened.

Unlike most earnings related trades that I consider, for this one I’m not looking at the sale of puts, but rather a buy/write and am further considering the use of a slightly out of the money option, rather than an in the money strike price, in the belief that there’s reason to suspect both on a technical basis and a fundamental basis that there is room to move higher.

While it’s too soon to tell how its continuing performance will be, AT&T (NYSE:T) has joined Alcoa as an ex-member of the DJIA. During the two week period of its exile, shares have out-performed the S&P 500, just as its replacement has t
railed.

While 2 weeks doesn’t make for a trend, as AT&T shares are ex-dividend this week, I think there may be enough past history with other ex-members in the immediate period of their expulsion to create a tiny additional increment of confidence. WHile that confidence doesn’t necessarily extend to believing that shares will move higher in the very near term, it does make me feel better about the prospects of it continuing to out-perform the broader market.

With it’s very generous dividend the option premium isn’t very large, but at the very least will offset some of the decline in price that will occur as the dividend is taken into account. With much of the competitive hoopla and pressure now in the past and with less of a concern about currency fluctuations, this may be a good time to consider a position as shares may be a bit more immune to some of the pressures that may face many other multi-national companies as earnings are soon to be released.

Finally, being added to the DJIA isn’t necessarily a golden ticket, either, as some more recently added members may attest.

In exchange for AT&T’s departure Apple (NASDAQ:AAPL) was added and has since trailed the narrow index as excitement mounts over the prospects for its latest product entry.

I’m not as excited about that as I am about the prospects of Apple announcing a dividend increase most likely concurrent with its next earnings release in 3 weeks. Between now and then I think there are going to be many opportunities for Tim Cook and others to increasingly whip up excitement and demand for a product that has a fairly low bar being set.

In the meantime Apple continues to offer an attractive option premium and can easily be considered as either a buy/write or put sale, as there is considerable liquidity on either side of the options aisle.

Traditional Stocks: Apple, General Motors

Momentum Stocks: none

Double Dip Dividend: AT&T (4/8), Whole Foods (4/8 $0.13)

Premiums Enhanced by Earnings: Alcoa (4/8 PM), Bed Bath and Beyond (4/8 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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Weekend Update – March 29, 2015

Fresh off of his estate’s victory in a copyright infringement suit, Marvin Gaye comes to my mind this week as I can’t help but wonder what’s going on.

With the Passover holiday approaching this week, I’m also reminded that much of the basis of re-telling the story of the exodus from Egypt is in response to the questions asked by children.

Among the classes of children traditionally described are the wise child, the evil child, the simple one and the one who doesn’t even know how to ask a question.

When it comes to trying to understand the past week I’m feeling a bit more like one of the latter two of those categories, although I still retain the option of holding onto my evil persona.

The week started with the Vice-Chair of the Federal Reserve, who coincidentally had been the Governor of the Bank of Israel many years after the exodus, getting some laughs with jokes that maybe only economists would appreciate. However, to his credit he was able to tone down his hawkish sentiments while still staying true to his tenets, but without frightening markets. That was nice to see, as it was his comments just 2 days after Janet Yellen’s congressional testimony that brought an end to the February rally and, perhaps coincidentally, set us on the path for March.

That hasn’t been a very good path for most investors and with only 2 days of trading remaining in the quarter has it threatening to be the first losing quarter in quite a while as we learned that the most recent quarterly corporate profits over the same time period fell for the first time since 2008.

Yet that news didn’t seem to bother markets this morning as they had a rare session ending with a higher close.

With Stanley Fischer putting everyone into a good mood from a dose of Federal Reserve humor all went pretty well to start the week, with Monday looking like it would mark the first time of having two consecutive days higher in over a month. That was the case until the final 15 minutes of trading and then the market just continued in that downward path throughout most of the rest of the week.

But why? Someone, somewhere had to be asking the obvious question that 3 out of 4 categories of children are capable of asking.

What’s going on?

Friday’s GDP data for the 4th Quarter of 2014 showed no change with the economy growing at an annual 2.2% rate. That’s considerably less than projections based upon lower energy prices fueling a resurgence of consumer activity in the coming year, even recognizing that those perceived benefits were theoretically in only their very nascent stages in late 2014.

While the GDP data is certainly backward looking there’s been nothing happening to support that consumer led growth that we’ve all believed was coming.

Corporate profits are falling, retail sales are flat and home sales aren’t exactly setting the economy on fire, all as energy prices are well off their earlier eye popping lows.

So you might think that would all add an arrow to the quiver of interest rate doves, but the market hasn’t been embracing the idea of continuing low interest rates as much as it’s been fearing the prospects of increasing interest rates.

But this week had nothing to fear. Even the most influential of the hawks seemed and sounded accommodating, but the market wasn’t buying it.

This past week, like recent weeks, has made little sense no matter how much you try to explain it. Just like it’s hard to explain how the defendant’s weren’t aware of the existence of Marvin Gaye’s “Got to Give It Up” or that somehow pestilence, boils and locusts rained down upon the Pharoahs.

No matter how you look at it reason is not reigning.

Even a child who doesn’t know how to ask knows when something is going on.

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

I purchased some American Express (NYSE:AXP) shares a few weeks ago shortly after the news of their loss of Costco (NASDAQ:COST) as a co-branding partner. Coincidentally that decision came at the same time as both my wife and I had individual issues with American Express customer service.

With a combined history of more than 65 years of using American Express as our primary personal and business cards, we’ve done so largely for their customer service. My wife, after speaking to almost 15 representatives is ready to give her card the boot and she reminded me that she’s had that card longer than she’s had me, so I should be on notice.

Coming as no surprise, American Express just announced workforce cutbacks that will only serve to weaken what really distinguished them from the rest, but that may be what it takes to start making shares look attractive again as the company substitutes cost savings for revenues.

Fortunately, my shares from a few weeks ago were quickly assigned and now it looks as if another opportunity may be at hand as it has re-traced its bounce from the sizable drop it took when the Costco news was made known. It’s upcoming ex-dividend date this week adds to the attraction as the company is wasting no time in taking steps to offset what are now expected to be significant revenue losses beginning in 2016.

Who knew to ever ask just how important Costco was to American Express?

I purchased shares of Dow Chemical last week in order to capture the dividend. What I wasn’t expecting was the announcement coming Friday morning of their plans to merge a portion of the company with Olin Corporation (NYSE:OLN) while becoming a majority owner of Olin.

Fortunately that announcement waited until Friday morning so that I was able to retain the dividend. Had it come after Thursday’s close and based on the initial price reaction, those shares would have been assigned early.

While Dow Chemical has been somewhat phlegmatic lately as it tracks energy prices, the sale to Olin appears to be responsive to activist Dan Loeb’s desire to shed low margin businesses. This deal looks to be a great one for Dow Chemical and may also demonstrate that it is serious about improving margins.

GameStop (NYSE:GME) reported earnings this past Friday and recovered significantly from its preliminary decline. I was amazed that it did so after watching what appeared to be a very wooden and canned performance by its CFO during an interview before trading began that didn’t seem very convincing. However, shortly after trading did begin shares climbed significantly.

I like considering adding shares of GameStop after a decline, as there is a long history of people predicting its coming demise and offering very rational and compelling reasons of why they are correct, only to see shares have a mind of their own.

I had shares assigned just a week earlier and was happy to see that assignment come right after its ex-dividend date but before earnings. Now at a lower price it looks tempting again, although I would probably hold out for a little bit more of a decline, perhaps approaching Friday morning’s opening lows.

While GameStop has a reasonably low beta you wouldn’t know it if you owned shares, but fortunately the options market knows it and typically offers premiums that reflect the sudden moves shares are very capable of taking.

Up until about 30 minutes before Friday’s close it hadn’t been a very good week to be in the semiconductor business. That may have changed, at least for a moment or two, as it was announced that Intel (NASDAQ:INTC) was in talks to purchase Altera (NASDAQ:ALTR).

Among those stocks benefiting from that late news was Micron Technology (NASDAQ:MU), which has fallen even more than Intel in 2015.

Micron Technology reports earnings this week and is no stranger to large earnings related moves. The options market, however is implying only a 5.5% price move next week. While I normally look for a strike level that’s outside of the range defined by the implied move that offers at least a 1% ROI for the week, this coming week is a bit odd.

That’s because Micron Technology reports earnings after the market’s close on Thursday, yet the market will be closed for trading on Good Friday.

For that reason I would consider looking at the possibility of selling puts for the following week, but would like to see shares give up some of the gains made in response to the Intel news.

While Intel’s late news helped to rescue it from having sunk below $30 for the first time in 9 months, it did nothing for Oracle (NYSE:ORCL) nor Cisco (NASDAQ:CSCO). They, along with Intel had been significantly under-performing the S&P 500 this week and for the year to date.

Both Cisco and Oracle are ex-dividend this week and following their drops this past week both are beginning to have appeal once again.

With a holiday shortened week and also going ex-dividend the expectation is that option premiums would be noticeably lower, However, both Cisco and Oracle are offering a compelling combination of option premiums and dividends along with some chance of recovering some of their recent losses.

The real challenge for each may be related to currency exchange and how it will impact earnings. However, barring early earnings warnings, Cisco won’t report earnings for another 7 weeks and Oracle not for another 12 weeks, so hopefully that would allow plenty of time to extricate from a position before the added risk of earnings comes into play.

Finally, I came close to buying shares of SanDisk (NASDAQ:SNDK) just a couple of days ago, looking to replace shares that were assigned just 2 weeks earlier.

It’s not often that you see a company give earnings warnings twice within the space of about 2 months, but SanDisk now has that distinction and has plunged on both of those occasions.

What SanDisk may have discovered is what so many others have, in that being an Apple (NASDAQ:AAPL) supplier may be very much a mixed blessing or curse, depending on your perspective at the moment.

While its revenues are certainly being squeezed I’m reminded of a period about 10 years ago when SanDisk was essentially written off by just about everyone as flash memory was becoming to be considered as nothing more than a commodity.

In that time anyone with a little daring would have done very well in that time period with shares nearly doubling the S&P 500 performance.

With a nearly 25% drop over the past few days, even as a commodity or a revenue stressed company, SanDisk may have some opportunity as it approaches its 18 month lows.

As with many other stocks that have taken large falls, I would consider entering a new position through the sale of put options and if faced with the possibility of assignment would try to roll the position over to a forward week in an attempt to delay or preclude assignment while still collecting a premium.

Traditional Stocks: Dow Chemical

Momentum Stocks: GameStop, SanDisk

Double Dip Dividend: American Express (3/31), Cisco (3/31), Oracle (4/2)

Premiums Enhanced by Earnings: Micron Technology (4/2 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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Copyright 2015 TheAcsMan