MSFT | TheAcsMan

Oct232015

Weekend Update – October 25, 2015

There’s an old traditional Irish song “Johnny, We Hardly Knew Ye,” that has had various interpretations over the years.

The same title was used for a book about President John F. Kennedy, but in that case, it was fairly clear that the title was referring to the short time in which we had a chance to get to know the 35th President of the United States, whose life was cut down in its prime.

But in either case, both song and book are generally a combination of sadness over hopes dashed, although the song somehow finds a way to reflect the expression of some positive human traits even in the face of betrayal and tragedy.

While hardly on the same level as the tragedies expressed by song and written word, I hold a certain sadness for the short lived period of volatility that was taken from us far too soon.

The pain is far greater when realizing just how long volatility had been away and just how short a chance some of us had to rejoice in its return.

Even though rising volatility usually means a falling market and increasing uncertainty over future market prospects, it drives option premiums higher.

I live on option premiums and don’t spend very much time focusing on day to day price movements of underlying shares, even while fully cognizant of them.

When those premiums go higher I’m a happy person, just as someone might be when receiving an unexpected bonus, like finding a $20 bill in the pockets of an old pair of pants.

Falling prices leads to volatility which then tends to bring out risk takers and usually brings out all sorts of hedging strategies. In classic supply and demand mode those buyers are met by sellers who are more than happy to feed into the uncertainty and speculative leanings of those looking to leverage their money.

Good times.

But when those premiums dry up, it’s like so many things in life and you realize that you didn’t fully appreciate the gift offered while it was there right in front of you.

I miss volatility already and it was taken away from us so insidiously beginning on that Friday morning when the bad news contained in the most recent Employment Situation Report was suddenly re-interpreted as being good news.

The final two days of the past week, however, have sealed volatility’s fate as a combination of bad economic news around the world and some surprising good earnings had the market interpreting bad news as good news and good news as good news, in a perfect example of having both your cake and the ability to eat that cake.

With volatility already weakened from a very impressive rebound that began on that fateful Friday morning, there then came a quick 1-2-3 punch to completely bring an end to volatility’s short, yet productive reign.

The first death blow came on Thursday when the ECB’s Mario Draghi suggested that European Quantitative easing had more time to run. While that should actually pose some competitive threat to US markets, our reaction to that kind of European news has always been a big embrace and it was no different this time around.

Then came the second punch striking a hard blow to volatility. It was the unexpectedly strong earnings from some highly significant companies that represent a wide swath of economic activity in the United States.

Microsoft (NASDAQ:MSFT) painted a healthy picture of spending in the technology sector. After all, what prolonged market rally these days can there be without a strong and vibrant technology sector leading the way, especially when its a resurgent “old tech” that’s doing the heavy lifting?

In addition, Alphabet (NASDAQ:GOOG) painted a healthy picture among advertisers, whose budgets very much reflect their business and perceived prospects for future business. Finally, Amazon (NASDAQ:AMZN) reflected that key ingredient in economic growth. That is the role of the consumer and those numbers were far better than expected.

As if that wasn’t enough, the real death blow came from the People’s Bank of China as it announced an interest rate cut in an effort to jump start an economy that was growing at only 7%.

Only 7%.

Undoubtedly, the FOMC, which meets next week is watching, but I don’t expect that watching will lead to any direct action.

Earlier this past week my expectation had been that the market would exhibit some exhilaration in the days leading up to the FOMC Statement release in the anticipation that rates would continue unchanged.

That expectation is a little tempered now following the strong 2 day run which saw a 2.8% rise in the S&P 500 and which now has that index just 2.9% below its all time high.

While I don’t expect the same unbridled enthusiasm next week, what may greet traders is a change in wording in the FOMC Statement that may have taken note of some of the optimism contained in the combined earnings experience of Microsoft, Alphabet and Amazon as they added about $80 billion in market capitalization on Friday.

If traders stay true to form, that kind of recognition of an economy that may be in the early stages of heating up may herald the kind of fear and loathing of rising interest rates that has irrationally sent markets lower.

In that case, hello volatility, my old friend.

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

As is typically the case when the market closes on some real strength for the week, it’s hard to want to part with cash on Monday when bargains may have disappeared.

Like volatility, those bargains are only appreciated when they’re gone. Even though you may have a strong sense that they’ll be back, the waiting is just so difficult sometimes and it’s so easy to go against your better judgment.

Although the market has gone higher in each of the past 4 weeks, the predominant character of those weeks had been weakness early on and strength to close the week. That’s made a nice environment for adding new positions on some relative weakness and having a better chance of seeing those positions get assigned or have their option contracts rolled and assigned in a subsequent week.

Any weakness to begin the coming week will be a signal to part with some of that cash, but I do expect to be a little tighter fisted than I have in the past month.

If you hold shares in EMC Corporation (NYSE:EMC), as I do, you have to wonder what’s going on, as a buyout offer from privately held Dell is far higher than EMC’s current price.

The drag seems to be coming from VMWare (NYSE:VMW), which still has EMC as its majority owner. The confusion had been related to the implied value of VMWare, with regard to its contribution to the package offered by Dell.

Many believed that the value of VMWare was being over-stated. Of course, that belief was even further solidified when VMWare reported earnings that stunned the options market by plunging to depths for which there were no weekly strikes. That’s what happens when Microsoft and Amazon, both with growing cloud based web storage services, start offering meaningful competition.

With VMWare’s decline, EMC shares followed.

EMC isn’t an inherently volatile stock, however, the recent spike higher upon news of a Dell offer and the sharp drop lower on VMWare’s woes have created an option premium that’s more attractive than usual. With EMC now back down to about $26, much of the Dell induced stock price premium has now evaporated, but the story may be far from over.

Ford Motors (NYSE:F) reports earnings on Tuesday morning and is ex-dividend the following day.

Those situations when earnings and dividends are in the same week can be difficult to assess, but despite Ford’s rapid ascent in the past month, I believe that it will continue to follow the same trajectory has General Motors (NYSE:GM).

There are a number of different approaches to this trade.

For those not interested in the risk associated with earnings, waiting until after earnings can still give an opportunity to capture the dividend. Of course, that trade would probably make more sense if Ford shares either decline or remain relatively flat after earnings. If so, the consideration can be given to seeking an in the money strike price as would ordinarily be done in an attempt to optimize premium while still trying to capture the dividend.

For those willing to take the earnings risk, rather than selling an in the money option in advance of the ex-dividend date, I would sell an out of the money option in hopes of capturing capital gains, the option premium and the dividend.

I sold Seagate Technolgy (NASDAQ:STX) puts last week and true to its natur
e, even when the sector isn’t in play, it tends to move up and down in quantum like bounces. However, with its competition on the prowl for acquisitions, Seagate Technolgy may have been a little more volatile than normal in an already volatile neighborhood.

I would again be interested in selling puts this week, but only if shares show any kind of weakness, following Friday’s strong move higher. If doing so and the faced with possible assignment, I would likely accept assignment, rather than rolling over the put option, in order to be in a position to collect the following week’s dividend.

I had waited a long time to again establish a Seagate Technology position and as long as it can stay in the $38-$42 range, I would like to continue looking for opportunities to either buy shares and sell calls or to sell put contracts once the ex-dividend date has passed.

So with the company reporting earnings at the end of this week and then going ex-dividend in the following week, I would like to capitalize on the position in each of those two weeks.

Following its strong rise on Friday, I would sell calls on any sign of weakness prior to earnings. With an implied price move of 6.6% there is not that much of a cushion of looking for a weekly 1% ROI, in that the strike price required for that return is only 7.4% below Friday’s closing price.

However, in the event of opening weakness that cushion is likely to increase. If selling puts and then being faced with assignment at the end of the week, I would accept that assignment and look for any opportunity to sell call contracts the following week and also collect the very generous dividend.

AbbVie (NYSE:ABBV) reports earnings this week and health care and pharmaceuticals are coming off of a bad week after having had a reasonably good year, up until 2 months ago.

AbbVie, though, had its own unique issues this year and for such a young company, having only been spun off 3 years, it has had more than its share of news related to its products, product pricing and corporate tax strategy.

This week, though, came news calling into question the safety of AbbVie’s Hepatitis C drug, after an FDA warning that highlighted an increased incidence of liver failure in those patients that already had very advanced liver disease before initiating therapy.

I had some shares of AbbVie assigned the previous week and was happy to have had that be the case, as I would have preferred not being around for earnings, which are to be released this week.

As it turns out, serendipity can be helpful, as no investor would have expected the FDA news nor its timing. However, with that news now digested and the knee jerk reaction now also digested, comes the realization that it was the very sickest people, those in advanced stages of cirrhosis were the ones most likely to require a transplant or succumbed to either their disease or its treatment.

With the large decline prior to earnings I’m again interested in the stock. Unlike most recent earnings related trades where I’ve wanted to wait until after earnings to decide whether to sell puts or not, this may be a situation in which it makes some sense to be more proactive, even with some price rebound having occurred to close the week.

The option market is implying only a 5.1% price move next week. Although a 1% ROI may be able to be obtained at a strike level just outside the bounds defined by the option market, I would be more inclined to purchase shares in advance of earnings and sell calls, perhaps using an extended option expiration date, taking advantage of some of its recent volatility and possibly using a higher strike price.

Ali Baba (NYSE:BABA) also reports earnings this week and like much of what is reported from China, Ali Baba may be as much of a mystery as anything else.

The initial excitement over its IPO has long been gone and its founder, Jack Ma, isn’t seen or heard quite as much as when its shares were trading at a significant premium to its IPO price.

Having just climbed 32% in the past month I’d be reluctant to establish any kind of position prior to the release of earnings, especially following a 6.6% climb to close out this week.

Even if a sharp decline occurs in the day prior to earnings, I would still not sell put options prior to the report, as the option market is currently implying only an 8.5% move at a time when it has been increasingly under-estimating the size of some earnings related price moves.

However, in the event of a significant price decline after earnings some consideration can be given to selling puts at that time.

Finally, Twitter (NYSE:TWTR) was my most frequent trade of 2014 and very happily so.

2015, however, has been a very different situation. I currently have a single lot of puts at a far higher price that I’ve rolled over to January 2016 in an attempt to avoid assignment of shares and to wait out any potential stock recovery.

That wait has been far longer than I had expected and January 2016 is even further off into the future than I ever would have envisioned.

With the announcement that Jack Dorsey was becoming the CEO, there’s been no shortage of activity that is seeking to give the appearance of some kind of coherent strategy to give investors some reason to be optimistic about what comes next.

What may come next is something out of so many new CEO playbooks. That is to dump all of the bad news into the first full quarter’s earnings report during their tenure and create the optics that enables them to look better by comparison at some future date.

With Twitter having had a long history of founders and insiders pointing fingers at one another, it would seem a natural for the upcoming earnings report to have a very negative tone. The difference, however, is that Dorsey may be creating some good will that may limit any downside ahead in the very near term.

The option market is implying a move of 12.1%. However, a 1% ROI could be potentially delivered through the sale of put contracts at a strike price that’s nearly 16% below Friday’s close.

That kind of cushion is one that is generally seen during periods of high volatility or with individual stocks that are extremely volatile.

For now, though, I think that Twitter’s volatility will be on hiatus for a while.

While I think that there may be bad news contained in the upcoming earnings release, I also believe that Jack Dorsey will have learned significantly from the most recent earnings experience when share price spiked only to plunge as management put forward horrible guidance.

I don’t expect the same kind of thoughtless presentation this time around and expect investor reception that will reflect newly rediscovered confidence in the team that is being put together and its strategic initiatives.

Ultimately, you can’t have volatility if the movement is always in one direction.

Traditional Stocks: EMC Corp

Momentum Stocks: none

Double-Dip Dividend: Ford (10/28)

Premiums Enhanced by Earnings: AbbVie (10/30 AM), Ali Baba (10/27 AM), Ford (10/27 AM), Seagate Technology (10/30 AM), Twitter (10/27 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.

Aug152015

Weekend Update – August 16, 2015

TheAcsManWeekend Update

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.

Jun272015

Weekend Update – June 28, 2015

TheAcsManWeekend Update

To call the stock market of this past week “a dog” probably isn’t being fair to dogs.

Most everyone loves dogs, or at least can agree that others may be able to see some positive attributes in the species. It’s hard, however, to have similar equanimity, even begrudgingly so, toward the markets this week.

What started off strongly on Monday and somehow wasn’t completely disavowed the following day, devolved unnecessarily on Wednesday and without any strong reason for doing so.

In fact, it was a week of very little economic news. We were instead focused on societal news that likely made little to no impression on the markets as a whole, although one sector did stand out.

That sector was health care, as the Supreme Court’s decision on the Affordable Care Act was a re-affirmation of a key component of the legislation and delayed any need to come up with an alternative, while still allowing Presidential contenders to criticize it heading into election season.

That’s a win – win.

It also keeps the number of uninsured at their lowest levels ever and puts more money in the pockets of hospitals and insurers, alike.

That’s another win – win.

While those two are usually on the opposite sides of most health care related arguments investors definitely agreed that the Affordable Care Act was and will continue to be additive to their bottom lines.

There is no health care flag, however.

The “Rainbow Flag” got a big thumbs up last week as the Supreme Court re-affirmed the right to dignity and the universal right to have access to divorce courts. The Court’s decision and its impact on businesses and the economy was a topic of speculation that was designed to fill air time and empty columns in the business section, as it came on a quiet day to end the week.

The Confederate Flag, of course, got a big thumbs down, after 150 years of quiet and thoughtful deliberation over its merits and what it represented. The decision by major retailers to stop sales of items with the Confederate flag on them can only mean that their demand wasn’t very significant and those items will probably be sent overseas, just as is done with the tee shirts of the losing Super Bowl team, so we can expect to see lots of photos of strangely attired impoverished third world children in the future.

And that leaves Greece, the EU, the IMF and the World Bank. For those most part, those aren’t part of our societal concerns, but they do concern markets.

Just not too much this past week.

The European Union was very forward thinking in the design of its flag. Rather than being concrete and having the 12 stars represent its member nations, those stars are said to represent characteristics of those member states. In other words Greece could leave the EU and the flag remains unchanged. Although the symbolism of the stars being arranged in a circle to represent “unity” may have to come under some scrutiny.

The growing realization is that would likely not be the same for the EU itself, as an exit by Greece would ultimately be “de minimis.” Either way, we should get some more information this week, as IMF chief Christine Legarde’s June 30th line in the sand regarding Greece’s repayment is quickly approaching.

It may be too late for a proposed “Plan B” for Greece to prevent default, as the European Union is now in its 86th trimester.

Still, despite a week of little news, somehow it was another week of pronounced moves in both directions that ultimately managed to travel very little from home.

New and existing home sales data suggested a strengthening in that important sector and the revised GDP indicated that the first quarter wasn’t as much of a dog as we all had come to believe. But there really wasn’t enough additional corroborating data to make anyone jump to the conclusion that core inflation was now exceeding the same objective that Janet Yellen had just stated weren’t being met.

So any concerns about improving economic news shouldn’t have led anyone to begin expressing their fears of increased interest rates by selling their stocks.

But it did.

Wednesday’s sell-off followed the news that the revised 2015 first quarter GDP was only down by 0.2% and not the previously revised 0.7%.

That makes it seem as if nerves and expectations for a long overdue correction or even a long overdue mini-correction are ruling over common sense and rational thought.

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

The coming week is a holiday shortened one and will have the Employment Situation Report coming on Thursday, potentially adding to interest rate nervousness if numbers continue to be strong.

After Micron Technology’s (NASDAQ:MU) earnings disappointment last week it may be understandable why a broad brush was used within the technology sector to drive prices considerably lower on Friday. However, it wasn’t Micron Technology that introduced the weakness. The past two weeks haven’t been particularly kind to the sector.

At a time that I’m under-invested in technology and otherwise very reluctant to commit new funds, the sector has a disproportionate share of my attention in competition for whatever little I’m willing to let go.

With Oracle (NYSE:ORCL) having also recently reported disappointing earnings and Intel (NASDAQ:INTC), Microsoft (NASDAQ:MSFT) and Seagate Technology (NASDAQ:STX) reporting in the next 3 weeks, it may be an interesting period.

While Micron Technology brought up concerns about PC sales, they are more dependent upon those than some others that have found salvation in laptops, tablets and mobile devices.

What was generally missing from Micron’s report, however, was placing the blame for lower revenues on currency exchange, unlike as was just done by Oracle. Micron focused squarely on decreasing product demand and pricing pressure.

That lack of adverse impact from currency exchange is a theme that I’m expecting as the upcoming earnings season begins. Whereas the previous earnings reports provided dour guidance on expectations of USD/Euro parity, the Dollar’s relative weakness in the most recent quarter may provide some upside surprises.

With share prices in Microsoft and Intel having dropped, this may be a good time to add positions in both, as they could both be significant beneficiaries of an improvement in currency exchange, as both await any bump coming from the introduction of Windows 10. I haven’t owned shares of Microsoft for a while and have been looking for a new entry point. At the same time, I do own shares of Intel and have been looking for an opportunity to average down and ultimately leave the position, or at least underwrite some of the paper losses with premiums on contracts written on an additional lot of shares.

While Seagate Technology doesn’t report its earnings until July 15th, following its weakness over the last 7 weeks, I’m considering the sale of puts in the weeks in advance of earnings. Those premiums are elevated and will become even more so during the actual week of earnings. In the event of an adverse price move, there might be a need to rollover the puts to try and avoid or delay assignment. However, at some point in the August 2015 option cycle the shares will be ex-dividend, so a shift in strategy, pivoting to share ownership maybe called for if still short the put options.

While Oracle and Cisco (NASDAQ:CSCO) don’t report earnings for a while, both have upcoming ex-dividend dates that add to their appeal. In the case of Oracle, it’s ex-dividend date is on Monday of the following week, which opens the possibility of ceding the dividend to early assignment in exchange for getting two weeks of premium and the opportunity to recycle proceeds from an assignment into another income producing position.

Also going ex-dividend on the Monday of the following week is The Gap (NYSE:GPS). It is one of my favorite stocks, even though it rarely seems to be doing anything right these days.

Part of its allure is that it continues to provide monthly sales data and the uncertainty with those report releases consistently creates option premium opportunities usually seen only quarterly for most stocks as they prepare to release earnings.

As long as The Gap continues to trade in a range, as it has done for quite some time, there is opportunity by holding shares and serially selling calls, while collecting dividends, as the company attempts to figure out what it wants to be, as it closes stores, yet announces plans to take over the Times Square Toys ‘R Us location, for those NYC tourists that just have to jet a pair of khakis to remember their trip.

Finally, American Express (NYSE:AXP) goes ex-dividend this week. It has been extremely range bound ever since the initial shock of losing its co-branding relationship with Costco (NASDAQ:COST) in 2016.

My wife informed me this morning that after about 30 years of near exclusive use of American Express, she has replaced it with another credit card. While that’s not related to the Costco news, it is something that American Express will likely be experiencing more and more in the coming months. That may, of course, explain the spate of mailings I’ve recently received to entice continuing loyalty.

While that comes at a cost, that’s still tomorrow’s problem and the market has likely discounted the costs of the partnership dissolution, as well as the lost revenues.

I like the price range and I like the option premium and dividend opportunities for as long as they may persist, but my loyalty to shares may only go for a week at a time.

Traditional Stocks: Intel, Microsoft

Momentum Stocks: Seagate Technology

Double-Dip Dividend: American Express (6/30), Cisco (7/1), Oracle (7/6), The Gap (7/6)

Premiums Enhanced by Earnings: none

May312015

Weekend Update – May 31, 2015

TheAcsManWeekend Update

The one thing that’s been pretty clear as this earnings season is winding down is that the market hasn’t been very tolerant unless the bad news was somehow wrapped in a currency exchange story.

It was an earnings season that saw essentially free passes given early on to those reporting decreased top line revenue and providing dour guidance, as long as the bad news was related to a strong US Dollar.

As earnings season progressed, however, it became clear that some companies that could have asked for that free pass were somehow much better able to tolerate the conditions that investors were willing to forgive. That had to raise questions in some minds as to whether there was a little too much leniency as the market’s P/E ratio was beginning to get a little bit ahead of where it historically may have been considered fully priced. Not punishing share price when earnings may warrant doing so can lead to those higher P/E ratios that so often seem to have had a hard time sustaining themselves at such heights.

On the other hand, plunges of 20% or more weren’t uncommon when the disappointment and the pessimistic future outlook couldn’t be easily rationalized away. Sometimes the punishment seemed to be trying to make up for some of those earlier leniences, although if that’s the case, it’s not a very fair resolution.

In other words, this earnings season has been one where bad news was good news, as long as there was a good reason for the bad news. If there was no good reason for the bad news, then the bad news was extra bad news.

This past Friday’s GDP report was bad news. It was the kind of news that would make it difficult to justify increasing interest rates anytime very soon. That. of course, would make it good news.

The market, though, interpreted that as bad news as the week came to its close, while the same news a month ago would have been likely greeted as good news.

Same news, but take your pick on its interpretation.

This past week was one that i couldn’t decide how to interpret anything that was unfolding. Listless pre-open futures trading during the week sometimes failed to portend what was awaiting and so eager to reverse course, at the sound of the opening bell. While I tend to trade less on holiday shortened weeks usually due to lower option premiums, this past week offered me nothing to feel positive about and more than a few reasons to continue to want to wish that i had more in my cash reserve pile.

As the new week is getting ready to start, it’s another with fairly little to excite. Like this past week, perhaps the biggest news will come on the final trading day, as the Employment Situation Report is released.

Another strong showing may only serve to confuse the picture being painted by GDP data, which is now suggesting increased shrinking of our economy.

A weak employment report might corroborate GDP data, but at this point it’s hard to say what the market reaction might be. Whether that would be perceived as good news or bad news is a matter of guesswork.

If the news, however, is really good, then it’s really anyone’s guess as to what would happen, as a decreasing GDP wouldn’t seem to be a logical consequence of strongly expanding employment.

While the FOMC says that it will be data driven and has worked to remove any reference to a relative timeframe, ultimately it’s not about the data, but rather how they chose to interpret it, especially if logic seems to be failing to tie the disparate pieces together.

While markets may change how they interpret the data from day to day, hopefully the FOMC will be a bit more consistent and methodical than the paper fortune teller process markets have been subjected to of late.

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

Kohls (NYSE:KSS) is one of those companies that didn’t have a currency exchange excuse that could be used at earnings time and its shares took a nearly 15% plunge. Best of all, if not having owned shares, in the subsequent 2 weeks its share price has barely moved. That lack of movement can either represent an opportunity that hasn’t disappeared or could be the building of a new support level and invitation to take advantage of that opportunity.

With an upcoming ex-dividend date on Monday of next week, any decision to exercise an option to grab the dividend would have to be made by the close of trading this week. With only monthly options being sold, that could be an attractive outcome if purchasing shares and selling in the money June 2015 calls.

The potential downside is that the dramatic drop in Kohls’ share price still hasn’t returned it to where it launched much higher a few months ago and where the next level of technical support may be. For that reason, while hoping for a quick early assignment and the opportunity to then redeploy the cash, there is also the specter of a longer term holding in the event that shares start migrating lower to its most recent support level.

Mosaic (NYSE:MOS) is ex-dividend this week and represents a company that had a similar plunge nearly 2 years ago, but still has shown no signs of recovery. In its case the price plunge wasn’t related to poor sales or reduced expectations, but rather to the collapse of artificial price supports as the potash cartel was beginning to fall apart.

Mosaic, however, has traded in a fairly narrow range since then and has been an opportune short term purchase when at or below the mid-point of that range.

Those shares are now at that mid-point and the dividend is an additional invitation to entry for me. With its ex-dividend day being Tuesday, it may also be an example of seeking early assignment by selling an in the money weekly call in the hopes of attaining a small, but very quick gain and then redeploying cash into a new position.

I recently had shares of Sinclair Broadcasting (NASDAQ:SBGI) assigned and tried to repurchase them last week in order to capture the dividend, but just couldn’t get the trade executed. However, even with the dividend now out of the picture, I am interested in adding the shares once again.

While so much attention has recently focused on cable and content providers, Sinclair Broadcasting is simply the largest television station operator in the United States. The tightly controlled family operation shows that there is still a future in doing nothing more than transmitting signals the old fashioned way.

While I usually prefer to start new positions with an eye toward a weekly option or during the final week of a monthly option, Sinclair Broadcasting is one of those companies that I don’t mind owning for a longer period of time and don’t get overly concerned if its shares test support levels. I would have preferred to have entered the position last week, but at $30/share I still see some opportunity, but would not chase this if it moved higher as the week begins.

With old tech no longer moribund, people are no longer embarrassed to admit that they own shares of Microsoft (NASDAQ:MSFT). Instead, so many seem to have re-discovered Microsoft before the rest of the world and no longer joke about or disparage its products or strategies. They simply forgot to tell the rest of the world that they were going to be so prescient, but fortunately, it’s never to late to do so.

Microsoft continues to have what has made it a great covered call trade for many years. It still offers an attractive premium and it offers dividend growth. Of course the risk is now greater as shares have appreciated so much over those years. But along with that risk comes an offset that may offer some support. In the belief that passivity or poorly conceived or integrated strategies are no longer the norm it is far easier to invest in shares with confidence, even as the 52 week high is within reach.

While new share heights provide risk there is also the feeling that Microsoft will be in a better position to proactively head into the future and react to marketplace challenges. Even the brief speculation about a buyout of salesforce.com (NYSE:CRM) helped to reinforce the notion that Microsoft may once again be “cool” and have its eyes on a logical strategy to evolve the company.

For the moment it seems as if some of the activist and boardroom drama at DuPont (NYSE:DD) may have subsided, although it’s not too likely that it has ended.

The near term question is whether activists give up their attempts at enhancing value and exit their positions with respectable profits or double down, perhaps with new strategic recommendations.

While the concern about Trian exiting its position may have been responsible for the steep price decline after the shareholder vote last month, it’s not entirely clear that the Trian stake was in any meaningful way responsible for DuPon’t share performance, as they like to credit themselves.

It’s apparently all a matter of interpretation.

In fact, from the time the Trian stake was first disclosed nearly 2 years ago, DuPont has only marginally out-performed the S&P 500. However, from the beginning of the market recovery in March 2009 up until the points that Trian’s stake was disclosed, DuPont’s share performance was more than 50% better than that of the S&P 500.

So while the market has clearly shown that they perceive Peltz’s position and strategy to be an important support for DuPont’s share price and they may have already discounted his exit, CEO Kullman’s strategic path may have easier going without activist distractions

Finally, following the release of some clinical trial results of its drug Opdivo in the treatment of lung cancer, shares of Bristol Myers Squibb (NYSE:BMY) fell nearly 7% on Friday. Those shares are still well above the level where they peaked following an earnings related move in October 2014, so there is still some concern that th
e decline last week may have more to go.

However, the results of those clinical trials actually had quite a few very positive bits of news, including significantly increased survival rates in a sizeable sub-population of patients and markedly lower side effects. On Friday, the market interpreted the results as being very disappointing, but after a few days that interpretation can end up becoming markedly different.

As we all know too well.

Traditional Stocks: Bristol Myers Squibb , DuPont, Microsoft, Sinclair Broadcasting

Momentum Stocks: none

Double-Dip Dividend: Kohls (6/8), Mosaic (6/2)

Premiums Enhanced by Earnings: none

Apr172015

Weekend Update – April 19, 2015

TheAcsManWeekend Update

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What then?

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

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

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

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

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

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

Invest in yourself.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Traditional Stocks: American Express, Bed Bath and Beyond

Momentum Stocks: Best Buy, SanDisk

Double Dip Dividend: Colgate (4/21)

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