Weekend Update – June 26, 2016

 A week ago, the world was getting ready for what all the polls had been predicting.

Only those willing to book bets seemed to have a different opinion.

Polls indicated that Great Britain was going to vote to leave the European Union, but those willing to put their money where their mouths were, didn’t agree.

Then suddenly there was a shift, perhaps due to the tragic murder of a proponent of keeping the EU intact.

That shift was seen not only in the polls, but in markets.

Suddenly, everyone was of the belief that British voters would do the obviously right thing and vote with their economic health in mind, first and foremost.

The funny thing is that it’s pretty irrational to expect rational behavior.

In a real supreme measure of confidence, just look at the 5 day performance of the S&P 500 leading up to the vote.

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Weekend Update – March 6, 2016

Depending upon what kind of outlook you have in life, the word “limbo” can conjure up two very different pictures.

For some it can represent a theologically defined place of temporary internment for those sinners for whom redemption was still possible. 

In simple terms it may be thought of as a place between the punishing heat and torment of hell below and the divineness and comfort of heaven above.

Others may just see an image reminding them of a fun filled Caribbean night watching a limber individual dancing underneath and maybe dangerously close to a flaming bar that just keeps getting set lower and lower.

Both definitions of “limbo” require some significant balancing to get it just right.

For example, you don’t get entrance into the theologically defined “Limbo” if the preponderance of your sins are so grievous that you can’t find yourself having died in “the friendship of God.” Instead of hanging around and waiting for redemption, you get a one way ticket straight to the bottom floor.

It may take a certain balance of the quantity and quality of both the good and the bad acts that one has committed during their mortal period to determine whether they can ever have a chance to move forward and upward to approach the pearly gates of heaven.

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Weekend Update – February 7, 2016

If the recently deceased Harlem Globetrotters’ great player, Meadowlark Lemon had been alive today and helping the equally great band, The Byrds, re-write their classic song, it would likely get a new title.

The title would perfectly describe what this past week was a all about.

“Spin, Spin, Spin.”

Whether it was post-Iowa Caucus result speeches by the candidates or President Obama’s comments in the aftermath of Friday’s disappointing Employment Situation Report and downward revision to the previous month, it’s easy to see the spin going around and around.

No wonder the stock market is getting dizzy and dizzier, despite its heights getting lower and lower.

With confusion coming from Iowa regarding the definition of “winning” from both sides of the aisle you could easily be excused for shaking your head as the week started.

Then, when a picture of decreasing employment numbers alongside increasing jobless claims numbers was painted as reflecting an increasingly robust economy you could have been further excused for shaking your head into the week’s end.

Politicians who want an opportunity to create a legacy, as well as lame duck politicians who want to cement a legacy are very adept at spin and the ability to portray everything in terms of black and white.

The other side is always wrong and the facts are as portrayed and not as fact.

For stock investors life was much easier when only having to deal with the paradoxical association between oil and stocks.

You simply awoke in the morning and saw where West Texas Intermediate was trading and knew that the stock market would go in the same direction.

Now they’re back into having to decide whether news they hear is good or bad and whether to react appropriately to that news or paradoxically.

Of course, that would be easier if news was really presented on a factual basis and not so quickly subjected to overwhelmingly sanctimonious spin.

With the notion that evidence of a slow down in the economy would make the likelihood of further Federal Reserve rate hikes less, bad news was once again being taken as good news. The predominance of oil, however, as a factor in the market’s direction may have been obscuring some of that newly rediscovered fractured thought process.

With the market having spent the week going back and forth with numerous large intra-day moves and some large daily moves, it all came down to Friday’s trading to determine the fate of the DJIA for the week, as it had only been 34 points lower heading into the final day of trading. That week included one day with a loss of 290 points and the following day with a gain of 193 points.

If you were among those for whom confidence could have been inspired by those kind of movements, then any kind of upcoming spin could have led you in any direction.

Of course, the direction also depended on whether you are now of the increasing frame of mind that good news is bad news.

While we awaited Friday morning’s Employment Situation Report release and the DJIA had been down only 0.2%, the broader indexes weren’t faring quite as well.

The S&P 500 had already been 1.3% lower on the week and the NASDAQ 100 was down 2.6%.

With Friday morning’s release, the data, while disappointing was likely not weak enough to give cause for much celebration for those looking for good reason to dismiss the possibility of future interest rate hikes in 2016.

What may have cast a pall on the market was the Presidential spin that focused on the 4.9% jobless rate and wage growth.

If you were among those interpreting bad news as being good, you had to interpret that kind of spin as being good news.

And that can only be bad as the FOMC had certainly not closed the door on further interest rate increases in its recent statement.

While the DJIA lost an additional 1.3% to end the week, the NASDAQ 100 tacked on an additional 3.4% to its already sizable loss for the week, while the S&P 500 lost an additional 1.9%.

Good luck trying to spin that as we begin to prepare for the coming week.

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

Having suffered the direct blow from decrease oil prices and the indirect blow from what those decreasing prices have wrought upon the market, it’s not easy to consider adding another energy position.

Who can begin to count the number of times over the past 15 months that it didn’t look as if we had hit a once in a generation kind of rock bottom bargain price for a barrel of oil?

With ConocoPhillips (NYSE:COP) having just slashed its dividend, you do have to wonder whether British Petroleum (NYSE:BP) could be next.

WHile its dividend this week is presumably safe, it’s harder to make that case for the remainder of 2016 if rude prices continue to test lows. In its defense, British Petroleum is better diversified than ConocoPhillips is after having spun off its refining assets a few years ago, but the risk of insufficient cash flow is still there.

What is also there is a very nice option premium in reflection of further risk.

Looking at the option premiums, I am inclined to look at more than a weekly option contract, as is normally my approach for positions going ex-dividend during the week.

The exaggerated volatility of the past 2 weeks is really enhancing the premium and the dividend is extraordinary, while likely having more safety than the option market may be surmising.

Also ex-dividend this week are DuPont (NYSE:DD) and International Paper (NYSE:IP).

While DuPont has gone considerably higher in the past two weeks, I believe that in the absence of general market weakness it can recapture much of what had been lost following the announcement of a complex deal with Dow Chemical (NYSE:DOW).

With some strength also seen in Dow Chemical recently, I took the opportunity to sell calls on uncovered shares and is a portion of the strategic theme for this week, I used an out of the money strike price and a longer term time frame than I would normally consider in an effort to lock in some higher volatility driven option premiums and to regain lost share value.

The same approach holds for if considering a purchase of International Paper.

While it’s recent earnings report exceeded expectations and met whisper numbers, its stock price trend for the past year has been decidedly lower and lower, even in the absence of structural or operating issues.

While its payout ratio is getting uncomfortably high, the generous premium should continue to be safe and I might consider locking in the premium for a longer term, perhaps to even encompass an additional ex-dividend date in May 2016, although upcoming earnings would also have to be considered if doing so.

For that reason, I might even consider going out to a July 2016 expiration in the anticipation that some of that lost luster in its price will be regained by then,

Although not ex-dividend this week, EMC Corporation (NYSE:EMC) is among some of those fallen angels in the technology sector and which are beginning to celebrate their newly found volatility with some enhanced option premiums.

Somehow lost in the story with EMC is that there is a buyout offer that appears to be on track for completion and at a price that is substantially higher than Friday’s closing price.

I’m not one to play in the same arena with those expert in the science and art of arbitrage, but this one seems to offer some opportunity, even as the deal isn’t expected to close until the end of the year.

While there may still be regulatory hurdles head, EMC appears to be a willing partner and while awaiting a decision, there are still some dividends to be had.

For that reason, I might consider buying shares and selling a longer term and significantly out of the money option contract. Since I also already have existing shares at $30, I might consider combining lots and selling calls at a strike below the cost of the original lot, not counting accumulated premiums and dividends.

Finally, I just don’t think that I can any longer resist buying shares of eBay (NASDAQ:EBAY) at this level.

eBay was one of my more frequent holdings until the announcement of its definitive plan to spin off its profitable PayPal (NASDAQ:PYPL) unit.

What could be more appropriate when talking about the week’s spin than to look at a post-spin eBay?

For years I loved holding eBay as it made little net movement, even as it had occasional spikes and plunges usually earnings related. All that meant was that it had an attractive option premium, with relatively little risk associated with it, as long as you didn’t mind those occasional plunges that were inevitably reversed.

WIth no real challenge ahead of it other than market risk in general, eBay is now at its post spin-off low and is offering a great option premium for what I perceive to be low risk.

WIth those premiums so attractive, but mindful that there may be near term market risk, I would probably think in terms of selling longer term and out of the money call contracts on any shares that I purchased.

While the market could continue to be further dragged down by declining oil prices and while games are still being played with what economic data really means and how it should be interpreted, you do have to wonder how any of that impacts eBay.

I know that I do.

Traditional Stocks: eBay, EMC Corporation

Momentum Stocks: none

Double-Dip Dividend: British Petroleum (2/10 $0.59), DuPont (2/10 $0.38), International Paper (2/11 $0.38)

Premiums Enhanced by Earnings:

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 – October 18, 2015

You have to be impressed with the way the market has rallied back from the morning of the most recent Employment Situation Report just 2 weeks earlier.

At the low point of that morning when the market seemed appropriately disappointed by the very disappointing numbers and the lowered revisions the S&P 500 had sunk to a point more than 11% below its recent high.

At its peak point of return since that low the S&P 500 was only 4.9% below its summer time high.

The difficulty in sustaining a large move in a short period of time is no different from the limitations we see in ourselves after expending a burst of energy and even those who are finally tuned to deliver high levels of performance.

When you think about a sprinter who’s asked to run a longer distance or bringing in a baseball relief pitcher who’s considered to be a “closer” with more than an inning to go, you see how difficult it can be to reach deep down when there’s nothing left to reach for.

Sometimes you feel as if there’s no choice and hope for the best.

You also can see just how long the recovery period can be after you’ve been asked to deliver more than you’ve been capable of delivering in the past. It seems that reaching deep down to do your best borrows heavily from the future.

While humans can often take a break and recharge a little markets are now world wide, inter-connected and plugged into a 24/7 news cycle.

While it may be boring when the market takes a rest by simply not moving anywhere, it can actually expend a lot of energy if it moves nowhere, but does so by virtue of large movements in off-setting directions.

We need a market that can now take a real rest and give up some of the histrionics, even though I like the volatility that it creates so that I can get larger premiums for the sale of options.

The seminal Jackson Browne song puts a different spin on the concept of “running on empty,” but the stock market doesn’t have the problems of a soulless wanderer, even though, as much as it’s subject to anthropomorphism, it has no soul of its own.

Nor does it have a body, but both body and soul can get tired. This market is just tired and sometimes there’s no real rest for the weary.

After having moved up so much in such a short period of time, it’s only natural to wonder just what’s left.

The market may have been digging deep down but its fuel cells were beginning to hit the empty mark.

This week was one that was very hard to read, as the financial sector began delivering its earnings and the best news that could come from those reports was that significantly decreased legal costs resulted in improved earnings, while core business activities were less than robust.

If that’s going to be the basis for an ongoing strategy, that’s not a very good strategy. Somehow, though, the market consistently reversed early disappointment and drove those financials reporting lackluster top and bottom lines higher and higher.

You can’t help but wonder what’s left to give.

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

American Express (NYSE:AXP) and Wal-Mart (NYSE:WMT) may be on very different ends of the scale, but they’ve both known some very bad days this year.

For American Express it came with the news that it was no longer going to be accepted as the sole credit card at Costco (NASDAQ:COST) stores around the nation. While that was bad enough, the really bad news came with the realization of just how many American Express card holders were actually holders of the Costco co-branded card.

There was a great Bloomberg article this week on some of the back story behind the American Express and Costco relationship and looks at their respective cultures and the article does raise questions about American Express’ ability to continue commanding a premium transaction payment from retailers, as well as continuing to keep their current Costco cardholders without the lure of Costco.

What American Express has been of late is a steady performer and the expectation should be that the impact of its loss of business in 2016 has already been discounted.

American Express reports earnings this week, but it’s option premiums aren’t really significantly enhanced by uncertainty.

Normally, I look to the sale of puts to potentially take advantage of earnings, but with American Express I might also consider the purchase of shares and the concomitant sale of calls and then strapping on for what could be a bumpy ride.

Wal-Mart, on the other hand only recently starting accepting American Express cards and that relationship was seen as a cheapening of the elite American Express brand, but we can all agree that money is money and that may trump everything else.

Apparently, however, investors didn’t seem to realize that Wal-Mart’s well known plan to increase employee salaries was actually going to cost money and they were really taken by surprise this week when they learned just how much.

What’s really shocking is that some very simple math could have spelled it out with some very reasonable accuracy since the number of workers eligible to receive the raise and the size of the raise have been known for months.

It reminds me of the shock expressed by Captain Renault in the movie “Casablanca” as he says “I’m shocked to find gambling is going on in here,” as he swoops up his winnings.

Following the decline and with a month still to go until earnings are reported, this new bit of uncertainty has enhanced the option premiums and a reasonable premium can possibly be found even when also trying to secure some capital gains from shares by using an out of the money strike price.

The Wal-Mart news hit retail hard, although to be fair, Target’s (NYSE:TGT) decline started as a plunge the prior day, when it fell 5% in the aftermath of an unusually large purchase of short term put options.

While I would look at Target as a short term trade, selling a weekly call option on shares, in the hope that there would be some recovery in the coming week, there may also be some longer term opportunities. That’s because Target goes ex-dividend and then reports earnings 2 days later during the final week of the November 2015 option cycle.

DuPont (NYSE:DD), Seagate (NASDAQ:STX) and YUM Brands (NYSE:YUM) don’t have very much in common, other than some really large share plunges lately, something they all share with American Express and Wal-Mart.

But that’s exactly the kind of market it has been. There have been lots of large plunges and very slow recoveries. It’s often been very difficult to reconcile an overall market that was hitting all time highs at the same time that so many stocks were in correction mode.

DuPont’s plunge came after defeating an activist in pursuit of Board seats, but the announcement of the upcoming resignation of its embattled CEO has put some life back into shares, even as they face the continuing marketplace challenges.

Dupont will report earnings the following week and will be ex-dividend sometime during the November 2015 option cycle.

While normally considering entering a new position with a short term option sale, I may consider the use of a monthly option in this case in an effort to get a premium reflecting its increased volatility and possibly also capturing its dividend, while hoping for some share appreciation, as well.

Seagate Technology is simply a mess at a time that hardware companies shouldn’t be and it may become attractive to others as its price plunges.

Storage, memory and chips have been an active neighborhood, but Seagate’s recent performance shows you the risks involved when you think that a stock has become value priced.

I thought that any number of times about Seagate Technology over the course of the past 6 months, but clearly what goes low, can go much lower.

Seagate reports earnings on October 30th, so my initial approach would likely be to consider the sale of weekly, out of the money puts and hope for the best. If in jeopardy of being assigned due to a price decline, I would consider rolling the contract over. The choice of time frame for that possible rollover will depend upon Seagate’s announcement of their next ex-dividend date, which should be sometime in early November 2015.

With that dividend in mind, a very generous one and seemingly safe, thoughts could turn to taking assignment of shares and then selling calls in an effort to keep the dividend.

Caterpillar (NYSE:CAT) hasn’t really taken the same kind of single day plunge of some of those other companies, but its slow decline is finally making Jim Chanos’ much publicized 2 year short position seem to be genius.

It’s share price connection to Chinese economic activity continues and lately that hasn’t been a good thing. Caterpillar is both ex-dividend this week and reports earnings. That’s generally not a condition that I like to consider, although there are a number of companies that do the same and when they are also attractively priced it may warrant some more attention.

In this case, Caterpillar is ex-dividend on October 22nd and reports earnings that same morning. That means that if someone were to attempt to exercise their option early in order to capture the dividend, they mist do so by October 21st.

Individual stocks have been brutalized for much of 2015 and they’ve been slow in recovering.

Among the more staid selections for consideration this week are Colgate-Palmolive (NYSE:CL) and Fastenal (NASDAQ:FAST), both of which are ex-dividend this week.

I’ve always liked Fastenal and have always considered it a company that quietly reflects United States economic activity, both commercial and personal. At a time when so much attention has been focused on currency exchange and weakness in China, you would have thought, or at least I would have thought, that it was a perfect time to pick up or add shares of a company that is essentially immune to both, perhaps benefiting from a strong US Dollar.

Well, if you weren’t wrong, I have been and am already sitting on an expensive lot of uncovered shares.

With only monthly option contracts and earnings already having been reported, I would select a slightly out of the money option strike or when the December 2015 contracts are released possibly consider the slightly longer term and at a higher strike price, in the belief that Fastenal has been resting long enough at its current level and is ready for another run.

Colgate-Palmolive is a company that I very infrequently own, but always consider doing so when its ex-dividend date looms.

I should probably own it on a regular basis just to show solidarity with its oral health care products, but that’s never crossed my mind.

Not too surprisingly, given its business and sector, even from peak to trough, Colgate-Palmolive has fared far better than many and will likely continue to do so in the event of market weakness. While it may not keep up with an advancing market, that’s something that I long ago reconciled myself to, when deciding to pursue a covered option strategy.

As a result of it being perceived as having less uncertainty it’s combined option premium and dividend, if captured, isn’t as exciting as for some others, but there’s also a certain personal premium to be paid for the lack of excitement.

The excitement may creep back in the following week as Colgate reports earnings and in the event that a weekly contract has to be rolled over I would considered rolling over to a date that would allow some time for price recovery in the event of an adverse price move.

Reporting earnings this week are Alphabet (NASDAQ:GOOG) and Under Armour (NYSE:UA).

Other than the controversy surrounding its high technology swim suits at the last summer Olympics, Under Armour hasn’t faced much in the way of bad news. Even then, it proved to have skin every bit as repellent as its swim suits.

The news of the resignation of its COO, who also happened to serve as CFO, sent shares lower ahead of earnings.

The departure of such an important person is always consequential, although perhaps somewhat less so when the founder and CEO is still an active and positive influence in the company, as is most definitely the case with under Armour.

However, the cynic sees the timing of such a departure before earnings are released, as foretelling something awry.

The option market is implying a price move of about 7.5%, while a 1% ROI may possibly be obtained through the sale of puts 9% below Friday’s closing price.

For me, the cynic wins out, however. Under Armour then becomes another situation that I would consider the sale of puts contracts after earnings if shares drop strongly after the report, or possible before earnings if there is a sharp decline in its advance.

I’m of the beli
ef that Google’s new corporate name, “Alphabet” will be no different from so many other projects in beta that were quietly or not so quietly dropped.

There was a time that I very actively traded Google and sold calls on the positions.

That seems like an eternity ago, as Google has settled into a fairly stodgy kind of stock for much of the past few years. Even its reaction to earnings reports have become relatively muted, whereas they once were things to behold.

That is if you ignore its most recent earnings report which resulted in the largest market capitalization gain in a single day in the history of the world.

Now, Alphabet is sitting near its all time highs and has become a target in a way that it hasn’t faced before. While it has repeatedly faced down challenges to its supremacy in the world of search, the new challenge that it is facing comes from Cupertino and other places, as ad blockers may begin to show some impact on Alphabet’s bread and butter product, Google.

Here too, the reward offered for the risk of selling puts isn’t very great, as the option market is implying a 6% move. That $40 move in either direction could bring shares down to the $620 level, at which a barely acceptable 1% ROI for a weekly put sale may be achieved.

With no cushion between what the market is implying and where a 1% ROI can be had, I would continue to consider the sale of puts if a large decline precedes the report or occurs after the report, but I don’t think that I would otherwise proactively trade prior to earnings.

Finally, VMWare (NYSE:VMW) also reports earnings this week.

If you’re looking for another stock that has plunged in the past week or so, you don’t have to go much further than VMWare, unless your definition requires a drop of more than 15%.

While it has always been a volatile name, VMWare is now at the center of the disputed valuation of the proposed buyout of EMC Corp (NYSE:EMC), which itself has continued to be the major owner of VMWare.

I generally like stocks about to report earnings when they have already suffered a large loss and this one seems right.

The option market is implying about a 5.2% move next week, yet there’s no real enhancement of the put premium, in that a 1% ROI could be obtained, but only at the lower border of the implied move.

The structure of the current buyout proposal may be a factor in limiting the price move that option buyers and sellers are expecting and may be responsible for the anticipated sedate response to any news.

While that may be the case, I think that the downside may be under-stated, as has been the case for many stocks over the past few months, so the return is not enough to get me to take the risk. But, as also has been the case for the past few months, it may be worthy considering to pile on if VMWare disappoints further and shares continue their drop after earnings are released.

That should plump up the put premium as there might be concern regarding the buyout offer on the table, which is already suspect.

Traditional Stocks: American Express, DuPont, Target, Wal-Mart

Momentum Stocks: Seagate Technology, YUM Brands

Double-Dip Dividend: Caterpillar (10/22 $0.71), Colgate-Palmolive (10/21 $0.38), Fastenal (10/23 $0.28),

Premiums Enhanced by Earnings: Alphabet (10/22 PM), Under Armour (10/22 AM), VMWare (10/20 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 16, 2015

Most everyone understands the meaning of “a bull in a China shop.”

Even I, who always had problems with idiomatic expressions, could understand that the combination of bull and china wasn’t very good. You simply did not want a bull any where near fragile china, especially if it was precariously placed so that everyone could enjoy its sight.

At the very least you had to keep a close eye on the bull in an effort to avoid or minimize damage. Even better would be to keep it on a tight leash.

Now, it’s China that you have to keep an eye upon lest your bull gets damaged as China continues to tighten its leashes.

Lately China has become a threat to the bull that everyone’s been enjoying. The bull market itself has already been precariously positioned for a while and its tentativeness has been accentuated by some of the recent unpredicted and unpredictable actions by the Chinese government and the Peoples Bank of China (“PBOC”), which are essentially the same thing.

Just to confuse things a bit, in the midst of a series of 3 moves to devalue the Chinese Yuan, came an interruption by the PBOC in the currency markets to support the currency.

That sort of thing, trying to fight the tide of the currency market doesn’t typically work out as planned, but you can’t blame the PBOC for trying, given how the government’s actions in the stock markets have seemed to stop the hemorrhaging these past few weeks.

The theory at play may be that the tighter the leash the easier it is to control things when oxygen is no longer fueling natural existence.

While many suspect that China is looking to jump start its economy with a 10% currency devaluation, that is being denied, at least in terms of the size of the devaluation. What isn’t being denied is that the Chinese economy isn’t growing by the same leaps and bounds as it had been, if those leaps and bounds were real in the first place.

It should come as no surprise that China is using bully measures to try and bring things under control, because while they may be new at this game we call “capitalism,” the rulers understand the consequences of failure.

In the United States and Europe, we’re accustomed to cycles and the kinds of depths to which we get taken while awaiting the inevitable upward return.

Plus, we can “vote the bums out.”

In China, where personal and societal freedom has been traded for growing prosperity, what does the population have left if the prosperity disappears?

They can’t necessarily exercise their constitutional right to change their government representatives every two, four or 6 years as is often the cry after currency devaluation is felt by citizens as a their standard of living is reduced.

Of course the rulers remember the lesson of popular dissent and how their forefathers came to be in power, so this may be a government especially willing to pull out the stops, including a currency war.

While currency wars aren’t terribly common, when the bull is cornered it typically lashes out.

That’s usually not good for the bull, but now I’m left confused as to which side of the metaphor I’m working.

That may sum up where the new week is set to begin.

With markets successfully steering clear of violating support levels and having done so in a dramatic way mid-week and actually managing to not fritter away the effort, you would believe that there is reason for optimism.

However, despite revisions to previous month’s government Retail Sales Reports, the actual earnings reports coming from national retailers isn’t necessarily painting a picture of a spending consumer. That’s even as the JOLTS report indicates increasing job turnover, presumably leading to higher wages for more workers and more job openings for incoming workforce members.

The coming week has more retail sales reports and hopefully will give the market a fundamental reason to begin a test of resistance levels, while we await the next stutter step from China.

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

With all of the concern about what happens next in China, it seems odd to begin the week thinking about adding another position in Las Vegas Sands (NYSE:LVS).

I have 2 much more expensively priced share lots and have been awaiting an opportunity to add another. With all of the bad news focusing around gaming p
rospects in Macau, one of only two special administrative areas within China, Las Vegas Sands has seen its share price plummet and then go into regular paroxysms of pronounced movements higher and lower, as the news runs sweet and sour.

However, its current price now represents the downward paroxysm that has taken shares below the mid-point of a reasonably stable price channel over the past 8 months. That seems like a reasonable entry point.

While the trading range has been fairly well defined, which would seem to limit uncertainty, the option premium seems to respect the continuing uncertainty of doing business in Macau, during a period of time that market volatility is otherwise so low. Whereas uncertainty has been very much under-estimated for many stocks, especially as they were in the throes of earnings releases, Las Vegas Sands seems to be getting its fair due in terms of option pricing.

While i still own those more expensive shares and while the dividend has made it minimally more palatable, my hope for a new position, if added, would be to have it assigned before its next ex-dividend date at the end of the September option cycle.

On a positive note, Microsoft (NASDAQ:MSFT) may not have the same worries about China as do some other companies. I suppose that having so much of your intellectual property getting pirated within China makes you a little more resistant to the effects of currency devaluation.

So there’s always that.

Microsoft hopefully has some other good things going for it, as reviews for its new operating system, Windows 10, have been generally favorable. However, one has to remember that we often tend to be less picky about things when they’re free.

Microsoft is ex-dividend this week and one thing that isn’t free is a dividend. You know that when you look at your stock’s share price on its ex-dividend date. Although studies show long term out-performance by stocks offering dividends, that’s not very different from saying people who run marathons live longer.

Both may be true, but the underlying reason a company can afford to pay a dividend or the underlying reason that someone can run a marathon may be related to pre-existing financial health or physical health, respectively.

However, when the option premium tends to subsidize some of that decline in a stock’s share price, part of that dividend really may be free, thanks to the buyer of the option premium.

In this case, Microsoft is offering a relatively large option premium for a weekly at the money option helping to offset some of the obligatory price decline as shares go ex-dividend.

Also going ex-dividend this week are Cablevision (NYSE:CVC) and Dunkin Donuts (NASDAQ:DNKN). While watching television and eating donuts may not be the formula necessary to be able to run those marathons, there’s more to life than just good health.

A broad selection of television offerings, fast internet speed, hot coffee and a jelly donut can be its own kind of health.

You have to enjoy yourself, as well, and a combination of price appreciation, a satisfactory dividend and an option premium can create an enjoyable atmosphere.

Both companies offer only monthly option contracts, but this being the final week of the August 2015 cycle, there is a potential opportunity for them to effectively offer a weekly option during their ex-dividend week.

Cablevision is a company firmly in the grip of a single family and one that is perennially rumored to be for sale. Back in May, the last time I owned shares, not coincidentally just prior to its ex-dividend date, shares surged upon news of a foreign buyer for a privately owned cable company. That rumor took Cablevision along for a ride as well, especially since Cablevision indicated that it was now willing to sell itself.

While recent activity in the sector is focused on the changing landscape for product distribution and introducing the phrase “skinny bundle” into common parlance, Cablevision has fared better than the rest during recent sector weakness. In fact, after years of lagging behind, it has finally been an out-performer, at least as long as rumors and deep pockets or willing lenders are available.

When thinking about stocks that should have relatively little to be concerned about when China is considered, Dunkin Donuts comes to mind, but perhaps not for long. Earlier this year it announced plans for a major expansion in China, but it will hopefully shelve any thoughts of emulating its New England model.

I still am amazed after years of living and working in and around Boston how so many locations could exist so close to one another.

I don’t know whether it was Dunkin Donuts or its more upscale competitor that discovered that cannibalization doesn’t seem to extend to coffee purveyors, but there is still plenty of room around the rest of the nation for more and more of their outlets and maybe reason to slow down some overseas expansio
n.

While I would prefer a single week’s holding in order to capture the dividend, I would also consider the use of a longer term call option sale to try for capital appreciation of shares while other companies may have significant currency exchange concerns.

On that same day that it was revealed that activist Nelson Peltz took a large position in a food services company, DuPont (NYSE:DD) received an analyst upgrade and shares did something that they haven’t really done ever since Peltz was rebuffed when seeking a seat on the Board.

DuPont isn’t alone in seeming to be bargain priced, but it has actually accounted for 17% of the DJIA decline since coming off of its highs in the aftermath of Peltz being sent packing. So it has had more than its fair share of angst of late.

The option market doesn’t appear to expect any continued unduly large moves in share price and this is also a position that I would consider purchasing and using a longer term option in order to capitalize on share gains and a competitive dividend.

Finally salesforce.com (NYSE:CRM) reports earnings this week. Its share price has been the beneficiary of two successively well received earnings reports and rumors about a buyout from Microsoft.

In the nearly 4 months that have passed since those rumors the stock has given up very little of what was gained when the speculation began.

The option market is predicting up to 9.2% price movement, but as has been the case on a number of occasions this earnings season, the option market has been under-estimating some of the risk associated with earnings, particularly when they are disappointing.

While selling puts prior to earnings can be rewarding when shares either move higher or fall less than the implied move, I generally like to consider doing so when the stock is already showing some weakness heading into earnings.

salesforce.com hasn’t been doing that, although it is about 3% below its closing high for the year. What makes a put sale tempting is that a 1% ROI for the week may be obtained even if the shares fall 11%.

However, considering just how often the option market has missed the risk associated with earnings this quarter, salesforce.com is another in a series of earnings related put sales that I would only seriously consider after earnings and in the event of a precipitous fall in the market’s response.

While salesforce.com may have the expertise to know how to most efficiently utilize a herd of bulls to exact the greatest amount of damage its own recent rise carries significant risk in this market if there is the slightest disappointment in its earnings report and guidance. If that report does disappoint, there may still be reward to be found in selling put contracts as sellers pile on to depress the price, while helping to maintain a relatively high option premium even after the carnage.

Traditional Stocks: DuPont

Momentum Stocks: Las Vegas Sands

Double-Dip Dividend: Microsoft (8/18 $0.31), Cablevision (8/19 $0.15), DNKN (8/20 $0.26)

Premiums Enhanced by Earnings: salesforce.com (8/20 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