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May32014

Weekend Update – May 4, 2014

The instant the Employment Situation Report was released and news of the creation of 288,000 new jobs was known, the spin and the interpretations started like wild.

Even partisans have to notice how detached they and their counterparts are from a true grasp of reality as they contrive ways to take credit or lay blame without regard to truth, in the expectation that no one will notice.

Whenever substantive economic news is released you can be certain of the immediate race to blanket the media with a version of the "truth" and talking points to reinforce one side’s continuing infallibility over the other.

Never before has the "participation rate" received so much attention as those seeking to downplay the robust numbers found their voice. Others focused on having cake and eating it too, while pointing to increased jobs and increasing insurance enrollments under the Affordable Care Act.

It’s always the same and thrives in a world where classic comments like "I was for … before I was against it," barely get noticed and flip-flops are never considered as anything other than recreational footwear.

For those paying attention those flip-flops have been increasingly frequent in the markets as "risk off" and "risk on" are again concepts in vogue. They alternate with one another for investor favor on a very regular basis as there’s little indication of direction, other than the expectation by some that the relentless move higher will simply continue.

With better numbers than expected the initial positive reaction from the market quickly gave way to the interpretation of their meaning with regard to the Federal Reserve’s Qualitative Easing taper and the forward momentum was quickly lost. As the day progressed it was clear that the thought process of the past, that "good news is bad news" and bad news will make us wealthy, was returning.

More importantly, however, in helping to shape up the day was the fact that it was a Friday. Just as Tuedays are once again pre-ordained to be market gainers, so too are Fridays recently consigned to the loss camp.

Over the past two months you could be equally certain that the final trading day of the week was most likely a Friday and that the trading week would end with renewed concerns of some escalating conflict involving Russia. Why things seem to stay quiet during the week and then come to a head on Fridays is somewhat of a mystery, but that’s been the clear trend since the onset on the crisis in Crimea.

Amazingly, yet another week that was fairly quiet during the first four trading days saw a flare up of tensions overseas on Friday and again had an impact on the markets, taking some luster off what were otherwise predominantly positive weeks. The key is that it has only been the luster, thus far, as the market hasn’t been taken down to its bare, perhaps rusting metal base.

So powerful has this trend been that another well established trend is flailing by comparison. After an impressive run of nearly two years where the markets were statistically significantly more likely to have a higher move on the date of the release of the Employment Situation Report, this Friday marked the second consecutive month where that wasn’t the case, although the pattern of the entire week of the report release being positive continued.

While economic reports are released, the FOMC announces and Russia foments, earnings are being released. Thus far, there hasn’t been very much to suggest that there is a growing economy, yet we keep reaching new market highs. The recent GDP report didn’t add anything to that belief, either, although as the ever optimistic like to point out, "it is a backward looking measure," as if forward looking measures have greater validity than that which was actually measured, rather than fantasized about.

We’ve seen this scenario before. While there are signs of tiring market the retreats to safety, such as utilities or consumer staples hasn’t lasted very long and risk is re-embraced after only the briefest of absences. While the most risky of all have been exhibiting some bubble-like behavior that brings back memories of days past and those memories aren’t necessarily good ones.

While the uncertainty continues, to me it also continues to be surprising of the relative confidence that exists that saw this Friday close with only a modest loss. While the precious metals market was demonstrating some nervousness the equity markets thought it safe to go home for the weekend and discounted the likelihood of a meltdown in overseas decorum, despite the signs that it was already occurring.

In the past, that would have been unusual, but now it is just more of the same, as nothing can stop the relentless march higher.

We’ve all heard that before, too.

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

While I’m not thrilled about the prospects about buying Apple (AAPL) shares after their significant run higher fueled by the announcement of a 7 to 1 split and an 8% increase in the dividend, I do like its reasonably predictable pattern of behavior in its peri-ex-dividend period. While not a certainty, that behavior tends to see price increasing going into the ex-dividend date and then shortly thereafter. With that ex-dividend date this week I would like to consider a purchase and hopefully a quick exit from the position.

While many are of the belief that Apple shares will continue their appreciation after the split, I think those waiting for the split are likely to be disappointed as the money will have been made by those taking some profits by selling their appreciated shares to those clamoring for a piece of the pie.

Lately, pharmaceutical companies are hot. Imagine being so confident that you would consider a $100 billion buyout offer to be insufficient. Yet, while they are in play there are also concerns about even more regulatory pressure, but this time over sky high pricing for potentially life saving drugs.

Bristol Myers Squibb (BMY) straddles the worlds of "big pharma" and bio-pharma and its shares have found a nice home in this price range for the past 6 months. With earnings having been reported I think this is a good time to enter or add shares, not just for the option premium, but also for share appreciation as the sector is suddenly of interest.

MetLife (MET) also just reported earnings and is currently trading a little above the mid-point of its recent comfortable range. It has actually held up nicely while interest rates have fallen and the 10 Year was testing the 2.5% level. MetLife would have been expected to also lose some luster in a falling rate environment, but it has shown very nice resilience. In addition to its usually attractive option premium shares are ex-dividend this week, compounding its lure.

Starbucks (SBUX) also is ex-dividend this week and I’ve resigned myself over the past month that shares won’t be returning, hopefully, to the levels that I previously thought represented fair pricing. I’ve only owned 3 lots of shares in 2014, but each time I hear Howard Schultz speak the more inspired I get regarding his vision for the company that goes well beyond ingestibles. It has become one of those companies upon which I like to use out of the money call options when adding shares, as I think there is always room for its short term appreciation.

eBay (EBAY) is one of those companies that so many people love to disparage. Of course it’s decision to repatriate foreign cash this week and pay taxes is somewhat puzzling, although perhaps should be cheered as being patriotic, it evokes policy discussion, particularly as other companies seek tax inversion benefits by moving offshore.

Certainly Carl Icahn can’t be terribly pleased with what eBay is doing, as he likely interprets the decision as a squandering of his billions, so I expect things to heat up at eBay. However, even without the tax issue and even without Carl Icahn as part of the equation, eBay has been as reliant of a covered option play as can be found and with some patience can be a very reliable partner in the creation of an income stream. The only thing that would make its shares more appealing to me would be the initiation of a dividend, so I hope Carl Icahn is reading.

Chesapeake Energy (CHK), speaking of Carl Icahn, reports earnings this week. It has long been one of my very favorite covered option trades, but my last lot was assigned more than $2 ago. As opposed to many trades that I like to make when earnings are announced and which are done through the sale of put contracts, with no desire to own shares, I wouldn’t mind ownership of shares.

As the week begins its trading it will simply be a question of whether a covered call position or the sale of puts provides a better rate of return and future prospects for continuing generation of income or quick closure. At the moment I’m more inclined to consider the sale of puts, however the initial market sentiment may shift my own, especially if shares open and stay higher.

Also reporting earnings this week is Nu Skin (NUS). Unlike Chesapeake, and much more like Herbalife (HLF), I’m not terribly interested in owning shares. NuSkin last reported earnings just 2 months ago after a delay of about a month in reporting its previous earnings. That;s never a good thing. In addition, its business practices are also occasionally called into question even by governments, as it has significant interests in China, which has alleged that the business ay be a pyramid scheme.

NuSkin, for its part, has re-started its distributor recruitment after nearly 3 months of abeyance in China. WHile earnings may adversely impacted, and its shares certainly dived after the initial news in January 2014, I believe that it is already baked into expectations. What I do expect is positive guidance, even though there’s possibly reason not to believe much from companies in those kind of business. While I can’t make a compelling case for owning shares, there may be a case for selling puts prior to earnings or for the more cautious, doing so after earnings if there is a plunge in reaction to the report.

GameStop (GME) reports earnings later this month. Since January 2014 its chart looks very similar to NuSkin, which is not meant as a compliment. It is one of those companies that makes you wonder how it is that it still exists in this world of streaming data. it’s most recent challenge was news of Wal-Mart (WMT) getting into the used video game business in exchange for Wal-Mart vouchers. I sold puts at that time following the sharp drop in shares and happily saw the position quickly expire,as so often the initial response has little reason to head in the same direction as cooler heads prevail.

With well known short interest that is always mentioned in the same breath as its name, GameStop had fully recovered from its Wal-Mart induced loss, but has recently faltered again. It appears to have some decent price support within about $3 of its current price and the kind of option premiums that could make that risk – reward proposition appealing for some, although May 22, 2014 earnings do add to the potential risk.

Finally, I was watching the action of JP Morgan (JPM) closely during the final hour of trading on Friday. That’s because I was expecting shares to be assigned, but a late decline in shares was threatening to see it dip below the $55.50 strike level. Ultimately shares closed at $55.58, but after the closing bell immediately slumped about a dollar lower as it announced the expectation that its trading revenues would drop 20% in the next quarter and that it had some exposure in the Russian market.

Part of the covered call strategy that I like to employ is the serial or recurrent purchase of positions. Nothing seems to work better than having shares assigned and then buying them back at lower prices.

Those kinds of opportunities are always serendipitous and you certainly can’t take credit when they occur, but they do occur with reasonable frequency. Any further erosion in shares on Moinday morning may be a good opportunity to welcome shares back after a weekend apart.

Traditional Stocks: Bristol Myers Squibb, eBay, JP Morgan Chase

Momentum: GameStop

Double Dip Dividend: Apple (5/8) , MetLife (5/7), Starbucks (5/6)

Premiums Enhanced by Earnings: Chesapeake Energy (5/6 PM) , NuSkin (5/6 AM)

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.

Nov22013

Weekend Update – November 3, 2013

TheAcsManDaily Market Update

Some things are just unappreciated until they’re gone.

If you can remember those heady days of 2007, it seemed as if every day we were hitting new market highs and everyone was talking about it when not busy flipping houses.

Some will make the case that is the perfect example of a bubble about to burst, similar to when a bar of gold bullion appears on the cover of TIME magazine, just in time to mark the end of a bull run.

On the other hand, when everyone is suddenly talking about perhaps currently being in a bubble it may be a good time to plan for even more of a good thing.

That’s emblematic of the confusion swirling in our current markets. Earnings are up. Better than expected by most counts, yet revenues are down. The stock market can do only one thing and so it goes higher.

In case you haven’t been paying attention, 2013 has been a year of hitting record after record. Yet the buzz is absent, although house flipping is back. Not that I go to many social events but not many are talking about how wild the market has been. That’s markedly different from 2007.

Listening to those who purport to know about human behavior and markets, that means that we are not yet in a stock market bubble and as such, the market will only go higher, yet that’s at odds with the rampant bubble speculation that is being promoted in some media.

I’m a little more cynical. I see the paucity of excitement as being reflective of investors who have come to believe that consistently higher markets are an entitlement and have subsequently lost their true value. No one seems to appreciate a new record setting close, anymore. The belief in the right to a growing portfolio is no different from the right to use a calculator on an exam. Along with that right comes the loss of ability and appreciation of that ability.

Without spellchecker, the editors at Seeking Alpha would have a hard time distinguishing me from a third grader, but spelling really isn’t something I need to due. It’s just done for me.

While many were unprepared in 2007 because they were caught up in a bubble, 2013 may be different. In 2007 the feeling was that it could only get better and better, so why exercise caution? But in 2013 the feeling may be that there is nothing unusual going on, so what is there to be cautious about?

AS markets do head higher those heights are increasingly met with ennui instead of wonder and awe. It’s barely been more than five years since we last felt the wrath of an over-extended market but I’m certain that the new daily records will be missed once they’re gone.

As a normally cautious person when it comes to investing, but not terribly willing to sacrifice returns for caution my outlook changes with frequency as new funds find their way into my account after the previous week’s assignment of options I had sold.

This past week I didn’t have as many assignments as I had expected owing to some late price drops on Friday, so I’m not as likely to go on a spending spree this coming week, as I don’t want to dig deeply into my cash reserve. This week I’m inclined to think more in terms of dividend paying stocks and relatively few higher beta names, although opportunity is situational and Monday morning’s opening bell may bring surprise action. I appreciate surprise and for the record, I appreciate every single bit of share appreciation and income that comes my way as a gift from this market.

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

I currently own shares of MetLife (MET) and have done so several times this year. MetLife reported earnings this past week. They reported a nearly $2 billion turnaround in profits, but missed estimates, despite strength in every metric. They re-affirmed that a lower interest rate environment, as might be expected with a continuation of Quantitative Easing, could impact its assets’ performance in the coming year. That was the same news that created a buying opportunity in the previous quarter, so it should not have come as too much of a surprise. What did, however come as a surprise was the announcement that MetLife would no longer be offering earnings per share guidance. According to its CEO “we will instead expand our discussion of key financial metrics and business drivers, creating a more informed view of MetLife’s future prospects.” The price drop and it’s ex-dividend date this week make it a likely candidate for using my limited funds this week.

I’ve long believed that Robert ben Mosche, CEO of AIG (AIG) was something of a saint. Coming out of comfortable retirement in Croatia to attempt an AIG rescue, he continued on his quest even while battling cancer and still found the time to re-pay AIG’s very sizeable debt to US taxpayers. Who needs that sort of thing when you can live like royalty off the Mediterranean coast?

AIG was punished after reporting earnings this past week. It’s hard to say whether the in line earnings, but slightly lower revenue was to blame for the nearly 7% drop or whether joining forces with MetLife was to blame. Not that they literally joined forces, it’s just that ben Mosche announced that AIG will no longer comment on its “aspirational goals,” which was a way of saying that they too were no longer going to provide guidance. I haven’t owned shares in 2 months and that was at a lower price point than even after the large Friday drop, but I think the opportunity has re-arrived.

Wells Fargo (WFC) goes ex-dividend this week and as much as I’ve silently prayed for its share price to drop back to levels that I last owned them, it just hasn’t worked out that way. To a large degree Wells Fargo has stayed above the various banking controversies and has deflected much of the blame and scrutiny accorded others. At some point it becomes clear that prices aren’t likely to drop significantly in the near term, so it may be time to capitulate and get back on the wagon. However, what does give me some solace is that shares have trailed the S&P 500 during the three time frames that I have been recently using, each representing a near term top of the market; May 21, August 2 and September 19, 2013.

In the world of big pharma, Merck (MRK) has shared in little of the price strength seen by some others. In fact, of late, the best Merck has been able to do to prompt its shares higher have all come on the less constructive side of the ledger. Only the announcement of workforce reductions and other cost cutting steps have been viewed positively.

But at some point a value proposition is created which isn’t necessarily tied to pipelines or other factors pertinent to long term price health. In this case, a quick 7% price drop is enough to warrant consideration of a company paying an attractive dividend and offering appealing enough option premiums to sustain interest in shares even if they stagnate while awaiting the next price catalysts. Besides, if you’re selling covered calls, there’s nothing better than share price stagnation.

What is a week without drawing comparisons between Michael Kors (KORS) and Coach (COH)? Coach has become everyone’s favorite company to disparage, although on any given day it may exchange places with Caterpillar. Kors, is of course, the challenger that has displaced Coach in the hearts of investors and shoppers. Having sold Coach puts in advance of earnings and then purchasing shares even after those expired, those were assigned this past week. However, at this price level Coach is still an appealing covered option purchase and well suited for a short term strategy, even if there is validity to the thesis that it is ceding ground to Kors.

Kors, on the other hand, is doing everything right, including entering the S&P 500. It’s hard not to acknowledge its price ascent, even after a large secondary offering. While I know nothing of fashion and have no basis by which to compare Coach and Kors, I do know that as Kors reports earnings this week the option market is implying approximately 7.5% price move in either direction. However, anything less than a 10% decline in price can still deliver a 1% ROI

Williams Companies (WMB) is one of those companies that seems to fly under the radar. Although I’ve owned shares many times there has never been a reason compelling me to do so on the basis of its business fundamentals. Instead, ownership has always been prompted by an upcoming dividend or a sudden price reversal. In this case I just had shares assigned prior to earnings, which initially saw a big spike in price and then an equally large drop, bringing it right back to the level that I have found to be a comfortable entry point.

Riverbed Technology (RVBD) reported earnings last week and I did not purchase additional shares or sell puts, as I thought I might. Too bad, because the company acquitted itself well and shares moved higher. I think that shares are just starting and while RIverbed Technology has probably been my most lucrative trading partner over the years, purely on the basis of option premiums, this time around I am unlikely to write call options on all new shares, as I think $18 is the next stop before year end, particularly if the overall market doesn’t correct.

What can anyone add to the volumes that have been said about Apple (AAPL) and Intel (INTC)? Looking for insights is not a very productive endeavor, as the only new information is likely to currently exist only as insider information. Both are on recent upswings and both have healthy dividends that get my attention because of their ex-dividend dates this week. Intel offers nothing terribly exciting other than its dividend, but has been adding to its price in a stealth fashion of late, possibly resulting in the assignment of some of my current shares that represent one of the longest of my holdings, going back to September 2012. While I have always liked Intel it hasn’t always been a good covered call stock because when shares did drop, such as after earnings, the subsequent price climbs took far too long to continually be able to collect option premiums. However, without any foreseeable near term catalysts for a significant price drop it offers some opportunities for a quick premium, dividend and perhaps share appreciation, as well.

Finally, in its short history of paying dividends Apple’s shares have predominantly moved higher after going ex-dividend, although there was one notable exception. Given the factors that may be supporting Apple’s current price levels, including pressure from activist investors and Apple’s own buybacks, I’m not overly concerned about the single historical precedence and think that the triumvirate of option premium, dividend and share appreciation makes it a good addition to even a conservative portfolio.

Traditional Stocks: AIG, Merck, Williams Companies

Momentum Stocks: Coach, Riverbed Technology

Double Dip Dividend: Apple (ex-div 11/6), Intel (ex-div 11/5), MetLife (ex-div 11/6), Wells Fargo (ex-div 11/6)

Premiums Enhanced by Earnings: Michael Kors (11/5 AM)

Oct62013

Weekend Update – October 6, 2013

TheAcsManWeekend Update

This is the time of year that one can start having regrets about the way in which votes were cast in prior elections.

Season’s Misgivings

The sad likelihood, however, is that officials elected through the good graces of incredibly gerrymandered districts are not likely to ever believe that their homogeneous and single minded neighbors represent thoughts other than what the entire nation shares.

That’s where both parties can at least agree that is the truth about the other side.

Living in the Washington, DC area the impact of a federal government shutdown is perhaps much more immediately tangible than in a “geometric shape not observed in nature” congressional district elsewhere. However, there is no doubt that a shutdown has adverse effect on GDP and that impact is cumulative and wider spreading as the shutdown continues.

It’s unfortunate that elected officials seem to neither notice nor care about direct and indirect impact on individuals and financial institutions. In war that sort of thing is sanitized by referring to it as “collateral damage.” As long as it’s kept out of sight and in someone else’s congressional district it doesn’t really exist.

Pete Najarian put it in terms readily understandable, much more so than when some tried expressing the cost of a shutdown in terms of drag on quarterly GDP.

Of course, the real challenge awaits as we once again are faced with the prospect of having insufficient cash to pay debts and obligations. But for what it’s worth at least the rest of the world gets a much needed laugh and boost in national ego, while McGraw Hill Financial (MHFI) and others ponder the price of their calling it as they see it.

At the moment, that’s probably not what the economy needs, but in the perverse world we live in that may mean continued Federal Reserve intervention in Quantitative Easing. While “handouts” are decried by many who don’t see a detriment to a government shutdown, the Federal Reserve handout is one that they are inclined to accept, as long as it helps to fuel the markets.

However, as we are ready to enter into another earnings season this week many are mindful of the fairly lackluster previous earnings season that just ended. While the markets have recently been riding a wave of unexpected good news, such as no US intervention in Syria, continued Quantitative Easing and the disappearance of Lawrence Summers from the landscape, we are ripe for disappointment. We were spared any potential disappointment on Friday morning as the release of the monthly Employment Situation Report fell victim to someone being furloughed.

So what would be more appropriate than to re-introduce the concept of stock fundamentals, such as earnings, into the equation? During this past summer, when our elected officials were on vacation, that’s pretty much where we focused our attention as the world and the nation were largely quiet places. While no one is particularly effusive about what the current stream of reports will offer, a market that truly discounts the future already has its eyes set on the following earnings season that may begin to bear the brunt of any trickle down from a prolonged government shutdown.

At the moment, sitting on cash reserves, I am willing to recycle funds from shares that have been assigned this Friday (October 4, 2013), but am not willing to dip further into the pile until seeing some evidence of a bottoming to the current process that had the S&P 500 drop 2.7% since September 19, 2013 until Friday’s nice showing pared the loss down to 2%. But I need more evidence than a tepid one day respite, just as it will take more than a resolution to the current congressional impasse to believe that we wouldn’t be better served by an unelected algorithm.

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

I’m certain many people miss the days when a purchase of shares in Apple (AAPL) was a sure thing. While I like profits as much as the next person, I also enjoy the hunt and from that perspective I think that Apple shares are far more interesting now as we just passed the one year anniversary of having reached its peak price and tax related selling capitalizing on the loss will likely slow. Suddenly it’s becoming like many other stocks and financial engineering is beginning to play a role in attempts to enhance shareholder value.

Without passing judgment on the merits of the role of activist investors it doesn’t hurt to have additional factors that can support share price, particularly at times that the market itself may be facing weakness. Apple has increasingly been providing opportunities for short term gains as its price undulates with the tide that now includes more than just sales statistics and product releases. Capital gains or shares, an attractive dividend and generous option premiums make its ownership easier to consider at current prices. However, with earnings scheduled to be reported on October 22, 2013 I would likely focus on the sale of weekly option contracts as Apple is prone to large earnings related moves.

While Apple has done a reasonable job in price recovery over the past few months amid questions regarding whether its products were still as fashionable as they had been, Abercrombie and Fitch (ANF) hasn’t yet made that recovery from its most recent earnings report that saw a more than 20% price drop. As far as I know, and I don’t get out very much, talks of it no longer being the “cool” place to buy clothes aren’t the first item on people’s conversational agenda. The risk associated with ownership is always present but is subdued when earnings reports are still off in the distance, as they are currently. In the meantime, Abercrombie and Fitch always offers option premiums that help to reduce the stress associated with share ownership.

Ironically, the health care sector hasn’t be treating me terribly well of late, perhaps being whipsawed by the fighting on Capitol Hill over the Affordable Care Act and proposed taxes on medical devices. Additionally, a government shutdown conceivably slows the process whereby regulated products can be brought to the market. Abbott Labs (ABT), whose shares were recently assigned at $35 has subsequently dropped about 5% and will be going ex-dividend this week. Although the dividend isn’t quite as rich as some of the other major pharmaceutical companies after having completed a spin-off earlier in the year, I think the selling is done and overdone.

For me, a purchase of MetLife (MET) is nothing more than replacing shares that were just assigned after Friday’s opportune price surge and that have otherwise been a reliable creator of income streams from dividends and option premiums. At the current price levels MetLife has been an ideal covered call stock having come down in price in response to fears that in a reduced interest rate environment its own earnings will be reduced.

International Paper (IP) is an example of a covered call strategy gone wrong, as the last time I owned it was about a year ago having had shares assigned just prior to its decision to go on a sustained rise higher. While frequently cited by detractors as an argument against a covered option strategy, the reality is that such events don’t happen terribly often, nor does the investor have to eschew greed as share price is escalating or exercise perfect timing. to secure profits before they evaporate. I’ve waited quite a while for its share price to drop, but it is still far from where I last owned them. Still, the current price drop helps to restore the appeal.

Being levered to China or even being perceived as levered to the Chinese economy can either be an asset or a liability, depending on what questionable data is making the rounds at any given moment. Joy Global (JOY) is one of those companies that is heavily levered to China, but even when the macroeconomic news seems to be adverse the shares are still able to maintain itself within a comfortably defined trading range. With Friday’s strong close my shares were assigned, but I would like to re-establish a position, particularly at a price point below $52.50. If it stays true to form it will find that level sooner rather than later making it once again an appealing purchase target and source of option related income.

With the start of a new earnings season one stock that I’ve been longing to own again starts out the season. YUM Brands (YUM) is an always interesting stock to own due to how responsive it is to any news or rumors coming from China. Over the past year it’s been incredibly resilient to a wide range of reports that you would think were being released in an effort to conspire against share price. Food safety issues, poor drink selection during heat waves and Chinese economic slow down have all failed to keep the share price down. While the current price is near the top of its range I think that expectations have been set on the low side. In addition to reporting earnings this week shares also go ex-dividend the following day.

A little less exciting, certainly as compared to Abercrombie and Fitch is The Gap (GPS). In a universe of retailers going through violent price swings, The Gap has been an oasis of calm. It goes ex-dividend this week and if it can maintain that tight trading channel it would be an ideal purchase as part of a covered call strategy.

While The Gap isn’t terribly exciting, Molson Coors (TAP) and Williams Co. (WMB) are even less so. While I usually start thinking about either of them in the period preceding a dividend payment they have each found a price level that has offered some stability, thereby providing some additional appeal in the process that includes sale of near the money calls.

Finally, I have a little bit of a love-hate relationship with Mosaic (MOS). The hate part is only recent as shares that I’ve owned since May 2013 have fallen victim to the collapse of the potash cartel. In a “what have you done for me lately” kind of mentality that kind of performance makes me forget how profitable Mosaic had been as a covered call holding for about 5 years. However, the recent “love” part of the equation has come from the serial purchase of shares at these depressed levels and collecting premiums in alternation with their assignment. I have been following shares higher with such purchases as there is now some reason to believe that the cartel may not be left for dead.

Traditional Stocks: International Paper, Molson Coors, Williams Co.

Momentum Stocks: Apple, Joy Global, MetLife, Mosaic

Double Dip Dividend: Abbott Labs (ex-div 10/10), The Gap (ex-div 10/11), YUM Brands (ex-div 10/9)

Premiums Enhanced by Earnings: YUM Brands (10/8 PM)

Sep142013

Weekend Update – September 15, 2013

TheAcsManWeekend Update

Month after month of seeing market gains finally came to an end in August. The streak had started in November 2012 and for those who are prone to remember oddities, we even had a string of 20 consecutive gaining Tuesdays during that span.

Of course we also eclipsed the 2007 Dow Jones and S&P 500 highs and subsequently did so on repeated occasions, all while “Chicken Littles” like me kept waiting for the correction that never came.

The small head fake correction that began near the end of May was barely a blip and was quickly erased as more new highs were established, but the trading patterns of August seemed to indicate that perhaps the rally was getting tired and the market not only began sputtering, but also lost ground as Syrian related tensions were in the air.

Anxious to see a modest correction so that I would finally have something constructive to do with the cash I had been raising, I wasn’t terribly happy with what would come in September, with the first seven trading days having seen gains.

Not only did they make gains, but there were three consecutive triple digit gains. Adding insult to injury was the root cause of those triple digit gains.

While avoiding the use of military force, at least in the near term, is somewhat comforting, the very idea that a Russian proposed plan could avert military action against Syria was about as implausible as anything that occurred in the 20th or 21st centuries, with the possible exception of the Russian President speaking directly to American citizens through an op-ed piece in the New York TImes (NYT).

Russian peace plan? Can those words even possibly all be in a single paragraph?

But with fear centered around uncertainty regarding military action against Syria temporarily tabled, the market ignored August and also ignored the historical nature of Septembers past. By Friday morning, just seconds after the opening bell, all of August’s losses had been recovered.

Somehow, I am neurologically incapable of saying “Thank you, Vladimir.”

Instead, the increasingly nervous part of me wonders what there is that awaits that will continue to send markets higher? Are there unseen catalysts or are there now more opportunities for disappointment, particularly if Russian efforts, inspired by an off the cuff remark by Secretary of State Kerry, prove to be inadequate?

I’ve been asking questions in a similar vein for months now, but the answer has always been in the affirmative, even if the catalysts weren’t always apparent.

Of course, now there’s also the question of the market’s reaction to the expected announcement of the nomination of Lawrence Summers as the next Federal Reserve Chairman. The rumor that such an announcement would come today was denied, but that should come as no surprise, as President Obama had his heart set on doing so by attaching a banner to a Tomahawk missile.

If Syria fails to deliver a market correction and neither fear of the “Taper” nor the nomination of Summers can do so, at least we will have Congress back and fully engaged so that a new round of budget crises can at least allow the market to bounce up and down, which is far more healthy for someone relying on a covered option strategy. If that happens, I can hold my head up high and point to a momentary drop lower and sat “See? That correction.”

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

I’ve only opened a limited number of new positions in the last few weeks and don’t anticipate seeing that pattern change this week, unless there is a substantive near term correction to last week’s price increases. Those increases, for example, are the reason why I have no Double Dip Dividend selections this coming week, as the risk of experiencing some price pullbacks outweighs the benefits of garnering option premiums and dividends. As it is, instead of the usual number of potential selections, this week’s list contains only 5 names.

Certainly a controversial place to begin looking in the new week is Apple (AAPL). I purchased shares last week following the large drop on Wednesday when disappointment began to settle in for varied reasons. The small recovery that I was expecting never really came, but instead of being disappointed by the inability to quickly close my position, I think that there is simply continued opportunity to pick up additional shares. However, as opposed to the rare instance of having purchased shares and not immediately having sold calls, I do plan to do so this time around if adding shares.

Apple, while not necessarily making significant changes to its product line is making significant changes to the way it conducts its business. From a trade-in program, to less expensive models, to not taking pre-orders on the upcoming iPhone 5S, to dividends and buybacks, they are shaking up their daily approach to existence on all fronts. From my vantage point the short term emphasis is that “cash is king” and that share price matters. I especially like Tim Cook’s philosophy that market share isn’t as important as having enough money to be in control of one’s destiny. The recent product announcements should see to it that the cash keeps pouring in and helps to secure that destiny.

Continuing with the controversial theme is Cliffs Natural Resources (CLF). I had written about the possibility of adding shares recently, but did not do so. Instead, I continued selling calls on a lower priced lot of shares to try and continue to offset substantial paper losses from older lots. That’s a slow process but I think at this current level the process can be speeded up by adding more shares. Highly levered to economic news from China does add to the risk of ownership, but Cliffs has been demonstrating some price stability at this level.

I may as well add to the controversy with Phillip Morris (PM). Whatever your opinions are about ownership of a company that directly results in countless premature deaths, it’s hard to overlook their move to increase the dividend and the reasonably narrow range in which shares trade. Combine those attributes with an appealing option premium and you have a combination that’s hard to resist and doesn’t even require nicotine to keep you hooked.

They say that there’s no such thing as bad publicity, although JP Morgan (JPM) may disagree. However, if you want to see the poster child for resilience you don’t have to look much further than this company. After an avalanche of bad news, having inherited the burden from Goldman Sachs (GS), JP Morgan has somehow been able to keep its share price respectably positioned. This week it announced plans to commit nearly $6 Billion toward legal defenses and compliance. In addition to an option premium that provides some comfort, shares will be ex-dividend during the October 2013 option cycle so I may consider using a longer term option sale and would actually welcome early assignment.

Finally, while earnings season is set to begin again in just a few weeks, Oracle (ORCL) is a laggard and reports this week. With the upcoming report the company will have had six months to make some changes, whether substantive or purely optical, to create a more positively received report. Following two successive negative reports that were not well received by the market, I think that its inconceivable that Larry Ellison would allow his name to be badly tarnished again by anything other than his own words and actions. No doubt that he is unhappy with share performance since that first disappointment.

While I usually like to consider earnings related trades on the basis of selling deep out of the money puts, Oracle may work equally well as an outright purchase and sale of calls. In the event of another price meltdown I would not go out of my way to greet Ellison if you see him in Lanai, although I don’t believe the police department was included with the sale of the island.

Traditional Stocks: JP Morgan Chase, Phillip Morris

Momentum Stocks: Apple, Cliffs Natural Resources

Double Dip Dividend: none

Premiums Enhanced by Earnings: Oracle (9/11 PM)

Remember, these are just guidelines for the coming week. The above selections may be 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 over-riding objective is to create a healthy income stream for the week with reduction of trading risk.

Disclosure: I am long AAPL, CLF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may initiate positions, add shares or sell puts in AAPL, CLF, JPM, ORCL and PM

Sep112013

I Bought Apple

TheAcsManArticles

There are some people that just love to take in wounded birds and believe that somehow that can nurse the poor wounded creature back to health. For some sainted few that is their “raison d’etre.”

I bought shares of Apple (AAPL) this morning after it was wounded by downgrades from Bank of America (BAC), UBS (UBS), Piper Jaffray (PJC) and Credit Suisse (CS).

You’re welcome, but I’m not saint. I certainly can’t be categorized as an “Apple lover.” Neither the products nor the shares have had consistent appeal for me, but the subjectivity is out of place when it comes to capitalizing on opportunity.

Clearly, this opportunity stems from the high profile downgrades. Such downgrades confirm for me that there is greater value placed on not missing out on potential gains than there is in protecting portfolios from disappointments.

Recent history has not given strong indication that Apple shares will rally after product launch events, particularly as the quality of the leaks regarding the “news” seem to get better and better. There are few, if any, upside moving surprises. In fact, one wouldn’t be terribly far off base to suggest that the sum total of predictions of what will be announced easily exceed the capability of squeezing all of the new options into a single device. As a result there is always bound to be someone leaving the party disappointed.

For those further expecting the announcement of new relationships, such as in China, there has to be some thought that the downside to disappointment may likely exceed the upside of what may already be partially built into the price.

Yet, protecting a client’s assets takes a back seat.

My basic understanding of math tells me that it’s more difficult to recover from a $5 loss than it is to find an opportunity to make $5 in place of the opportunity you missed.

But with a short-sighted view of what the future holds, analysts have created opportunity, just perhaps not for their clients.

I almost never buy shares without concomitant sale of option contracts, but in this case I listened to my own advice from just a few weeks ago when Carl Icahn entered into the picture.

In addition to now having a more favorable entry point to re-establish a position that was recently assigned, so too does Apple find itself in a better position to further implement its buy-back program. There’s no shortage of money still unspent in that program and there may be more added to the bucket.

No doubt this will be a topic of Icahn and Tim Cook’s upcoming dinner, which Icahn confirmed a few days ago would be this month.

But now that the product offerings are well known, they have no doubt been dissected by many who can extol or pan the virtues and relative value of the innovations. To attempt to analyze the advances incorporated into the iPhone 5c and 5s is somewhat meaningless with regard to short term investing, which is all I hope to ever do.

What I hope to do is turn shares into short term realized profit vehicles. For that reason I don’t dwell on the possibility that the fingerprint reader may be an entry way into mobile secure commerce solutions.

What I dwell on is how likely is Apple to withstand this onslaught and then I’m likely to sell call options into price strength, as I expect a bounce in shares, particularly as Syria is temporarily off the table.

Apple will continue being an incredible cash machine with these new devices. Argue about their price points as much as you want, argue about cannibalization, too. The reality will be that the phones will fly off the shelves and tie up the consumer base for another year or two. After all, it’s not just about selling product, it’s also about making certain that your consumer base is effectively barred from going to the competition without the burden of additional cost.

I’m still a product holdout, but the rest of my family isn’t, some of whom only joined the parade this week.

Scoff at the superficial changes, but Apple knows better than most others that bold colors will not only drive new sales. but will instantly help distinguish itself in the hands of one adolescent as another is watching.

While everyone enjoys talking about “the big picture,” today’s downgrades and market reaction have been anything but mindful of that more encompassing view.

This is what opportunities are made of, despite the fact that risk shares the same parent. Having been very critical of Apple over the past 15 months, and questioning why people had not taken profits before they evaporated, I’ve nonetheless found a number of opportunities over that time to re-establish short term positions. In the past the drivers of those decisions were predominantly based upon option premiums and dividends. This time, however, the catalyst is share appreciation as the market will realize that its immediate reaction was unwarranted.