Sep262015

Weekend Update – September 27, 2015

Weekend Update

Subscribers to Option to Profit received preliminary notification of this week’s stock selections on Friday, September 25th, 8:00 AM EDT and updated at 10:20 AM. The full article was distributed on Saturday, at 11:25 AM)

I doubt that Johnny Cash was thinking about that thin line that distinguishes a market in correction from one that is not.

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For him, walking the line” was probably a reference to maintaining the correct behavior so that he could ensure holding onto something of great personal value.

Sometimes that line is as clear as the difference between black and white and other times the difference can be fairly arbitrary.

Lately our markets have been walking a line, not necessarily borne out of a clear distinction between right and wrong, but rather dancing around the definition of exactly what constitutes a market correction, going in and out without much regard.

The back and forth dance has, to some degree, been in response to mixed messages coming from the FOMC that have left the impression of a divergence between words and actions.

Regardless, what is at stake can hold some real tangible value, despite a stock portfolio not being known for its ability to keep you warm at night. Indirectly, however, the more healthy that portfolio the less you have to think about cranking up the thermostat on those cold and lonely nights.

It had been a long, long time since being challenged by that arbitrary 10% definition, but ever since having crossed that line a month ago there’s been lots of indecision about which direction we were heading.

This week was another good example of that, just as the final day of the week was its own good example of the back and forth that has characterized markets.

Depending on your perspective our recent indecision about which side of the line we want to be on is either creating support for a launching pad higher or future resistance to that move higher.

When you think about the quote attributed to Jim Rogers, “I have never met a rich technician,” you can understand, regardless of how ludicrous that may be, just how true it may also be.

While flipping a coin may have predictable odds in the long term, another saying has some real merit when considering the difficulty in trying to interpret charts and chart patterns,

That is “the market can stay irrational far longer than you can stay liquid.” Just a few wrong bets in succession on the direction can have devastating effects.

The single positive from the past 10 days of trading, however, is that the market has started behaving in a rational manner. It finally demonstrated that it understood the true meaning of a potential interest rate hike and then it reacted as a sane person might when their rational expectation was dashed.

Part of the indecision that we’ve been displaying has to be related to what has seemed as a lot of muddled messages coming from the FOMC and from Federal Reserve Governors. One minute there are hawkish sentiments being expressed, yet it’s the doves that seem to be still holding court, leading onlookers to wonder whether the FOMC is capable of making the decision that many believe is increasingly overdue.

In a week where there was little economic news we were all focused on personalities, instead and still stewing over the previous week’s unexpected turn of events.

It was a week when Pope Francis took center stage, then Chinese President Xi trying to cozy up to American business leaders before his less welcoming White House meeting, and then there was finally John Boehner.

The news of John Boehner’s early departure may be the most significant of all news for the week as it probably reduces the chance of another government shutdown and associated headaches for all.

It also marked something rare in Washington politics; a promise kept.

That promise of strict term limits was included in the “Contract with America” and John Boehner was a member of that incoming freshman Congressional Class of 1995 running on that platform, who has now indicated that he will be keeping that promise after only 11 terms in office.

None of that mattered for markets, but what did matter was Janet Yellen’s comments after Thursday’s market close when she said that a rate hike was likely this year and that overseas events were not likely to influence US policy.

That was something that had a semblance of a definitive nature to it and was to the market’s liking, particularly as the coming week may supply new economic information to justify the interest rate hawks gaining control.

Friday’s revised GDP data indicating a 3.9% growth rate for the year is a start, as the coming week also bring Jobless Claims, the Employment Situation Report and lots of Federal Reserve officials making speeches, including more from Janet Yellen, who had been reclusive for a while prior to the September meeting and Vice Chair Stanley Fischer.

As a prelude to the next earnings season that begins in just 2 weeks, the stage could be set for an FOMC affirmation that the economy is growing sufficiently to begin thinking about inflation for the first time in a long time.

After being on the other side of the inflation line for a long time and seeing a lost generation in Japan, it will feel good to cross over even as old codgers still dread the notion.

Both sides of the line can be the right side, but not at the same time. Now is the time to get on the right side and let rising interest rates reflect a market poised to move higher, just as low interest rates subsidized the market for the past 6 years. However, as someone who likes to sell options and take advantage of this increased volatility, I welcome continued trading in large bursts of movement up and down, as long as that line is adhered to.

Since the mean can always be re-calculated based on where you want to start your observations, this reversion to the new mean, that just happens to be 10% below the peaks of the summer, can be a great neighborhood to dance around.

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

Last week I was a little busier than has been the usual case of late with regard to opening new positions. Following the sharp sell offs to end the previous week I had a reasonably good feeling about the upcoming week, but now feel fortunate to have emerged without any damage.

I don’t feel the same level of optimism as the new week is set to begin, but there really is no reason to have much conviction one way or another, although there appears to be a more hawkish tone in the air as Janet Yellen is attempting to give the impression that actions will be aligned with words.

With the good fortune of getting some assignments as the week came to its close and having some cash in hand, I would like to build on those cash reserves but still find lots of temptations that seek to separate me from the cash.

The temptations aren’t just the greatly diminished prices, but also the enhanced premiums that accompany the uncertainty that’s characterizing the market.

That uncertainty is still low by most standards other than for the past couple of years, but taking individual stocks that are either hovering around correction or even bear market declines and adding relatively high premiums, especially if a dividend is also involved, is a difficult combination to walk away from.

The stocks going ex-dividend in the upcoming week that may warrant some attention are EMC Corporation (EMC) and Cisco (CSCO).

I own shares of both and both have recently been disappointing, Cisco, after its most recent earnings report looked as if it was surely going to be assigned away from me, but as so many others got caught up in the sudden downdraft and has fallen 14% since earnings, without any particularly bad news. EMC for its part has dropped nearly 13% in that same time period.

As is also so frequently the case as option premiums are rising, those going ex-dividend may become even more attractive as an increasing portion of the share’s price drop due to the dividend gets subsidized by the option premium.

That is the case for both Cisco and EMC. In the case of EMC, when the ex-dividend is early in the week you could even be excused for writing an in the money call with the hope that the newly purchased shares get assigned, as you could still potentially derive a 1% ROI on such a trade, yet for only a single day of holding.

Cisco, which goes ex-dividend later in the week may be a situation where it is warranted to sell an expanded weekly option for the following week that is also in the money by greater than the amount of the dividend, again in an effort to prompt an early assignment.

Doing so trades off the dividend for additional premium and fewer days of holding so that the cash may potentially be recycled into other income generating positions.

On such position is Comcast (CMCSA) which is ex-dividend the following Monday and if assigned early would have to be done so at the conclusion of this week.

While the entire media landscape in undergoing rapid change and while Comcast has positioned itself as best as it can to withstand the quantum changes, a trade this week is nothing more than an attempt to exploit the shares for the income that it may be able to produce and isn’t a vote of confidence in its strategic initiatives and certainly not of its services.

The intention with Comcast is considering the sale of an in the money October 9 or October 16, 2015 call and as with Cisco or EMC, consider forgoing the dividend.

However, for any of those three dividend related trades, I believe that their prices alone are attractive enough and their option premiums enhanced enough, that even if not assigned early, they are in good position to be candidates for serial sale of call options or even repurchases, if assigned.

As long as considering a Comcast purchase, one of my favorites in the sector is Sinclair Broadcasting (SBGI). I currently own shares and most often consider initiating a new position as an ex-dividend date is approaching.

That won’t be for a while, however, the second criteria that I look at is where its price is relative to its historical trading range and it is currently below the average of my seven previous purchases in the past 16 months.

While little known, it is a major player in the ancient area of terrestrial television broadcasting and has significant family ownership. While owners of Cablevision (CVC) can argue the merits or liabilities of a closely held public company, the only real risk is that of a proposal to take the company private as a result of shares having sunk to ridiculously low levels.

I don’t see that on the horizon, although the old set of rabbit ears may be to blame for any fuzzy forecasting. Instead of relying on high technology and still being available the old fashioned way for free viewing, Sinclair Broadcasting has simply been amassing outlets all over the county and making money the old fashioned way.

As I had done with my current lot of shares, I sold some slightly longer term call options, as Sinclair offers only the monthly variety. Since it reports earnings very early in November and will likely go ex-dividend late that month, I would consider selling out of the money calls, perhaps using the December 2015 options in an effort to capture the dividend, the option premium and some capital gains on shares.

While religious and political luminaries were getting most of the attention this past week, it’s hard to overlook what has unfolded before our eyes at Volkswagen (VLKAY). Regulatory agencies and the courts may be of the belief that you can’t spell “Fahrvergnügen,” Volkswagen’s onetime advertising slogan buzzword, without “Revenge.” Unfortunately, for those owning shares in the major auto manufacturer’s, such as General Motors (GM), last week’s news painted with a very broad brush.

General Motors hasn’t been immune to its own bad news and you do have to wonder if society places greater onus and personal responsibility on the slow deaths that may be promoted by Volkswagen’s falsified diesel emissions testing than by the instantaneous deaths caused by faulty lock mechanisms.

For its part, General Motors appears to really be bargain priced and will likely escape the continued plastering by that broad brush. With an exceptional option premium this week, plumped up by the release of some sales data and a global conference call, GM’s biggest worry after having resolved some significant legal issues will continue to be currency exchange and potential weakness in the Chinese market.

With earnings due to be reported on October 21st, if considering a purchase of General Motors shares, I would think about a weekly or expanded weekly option sale, or simply bypassing the events and going straight to December, in an effort to also collect the generous dividend and possibly some capital gains while having some additional time to recover from any bad news at earnings.

MetLife (MET) is a stock that is beautifully reflective of its dependency on interest rates. As rates were moving higher and the crowd believed that would go even higher, MetLife followed suit.

Of course, the same happened when those interest rate expectations weren’t met.

Now, however, it appears that those rates will be getting a boost sooner, rather than later, as the FOMC seems to be publicly acknowledging its interests in a broad range of matters, including global events and perhaps even stock market events.

With a recently announced share buyback, those shares are now very attractively priced, even after Friday’s nearly 2% gain.

With earnings expected at the end of the month, I would consider the purchase of shares coupled with the sale of some out of the money calls, hoping to capitalize on both capital gains and bigger than usual option premiums. In the event that shares aren’t assigned prior to earnings, I would consider then selling a November 20 call in an effort to bypass earnings risk and perhaps also capture the next dividend.

Finally, I’ve been anxious to once again own eBay (EBAY) and have waited patiently for its price to decline to a more appealing level. While most acknowledge that eBay gave away its growth prospects when it completed the PayPal (PYPL) spin-off, it has actually out-performed the latter since that spin-off, despite being down  nearly 12%.

While eBay isn’t expected to be a very exciting stock performer, it hadn’t been one for years, yet was still a very attractive covered option trading vehicle, as it’s share price was punctuated by large moves, usually earnings related. Those moves gave option buyers a reason to demand and a reason for sellers to acquiesce.

That hasn’t changed and the volatility induced premiums are as healthy as they have been in years. As that volatility rises in the stock and in the overall market, there’s more and more benefit to be gained from selling in the money options both for enhanced premium and for downside protection.

It would be good to welcome eBay back into my portfolio. Even if it won’t keep me warm, I could likely buy someone else’s flea bitten blanket at a great price, using its wonderful services.

 

Traditional Stocks:  eBay, General Motors, MetLife, Sinclair Broadcasting

Momentum Stocks: none

Double-Dip Dividend: Comcast (10/5 $0.25), Cisco (10/1 $0.21), EMC Corp (9/29 $0.12)

Premiums Enhanced by Earnings:  none

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.

Aug212015

Weekend Update – August 23, 2015

Weekend Update

It wasn’t too long ago that China did what it continues to believe that it does best.

It dictated and restricted behavior.

You really can’t blame them, as for the past 67 years the government has done a very good job of controlling everything within its borders and rarely had to give up much in return.

This time it believed that it could control natural market forces with edicts and with the imposition of a very market un-natural prohibition against selling shares in a large number of stocks.

In the immediate aftermath of that decision nearly 2 months ago, the Shanghai Index had actually fared quite well, especially when you consider that in the month prior that index had taken a free fall and dropped 30% over the course of 27 days.

A subsequent 21% rebound over 15 days after the introduction of new “rules” to inactivate gravitational pull, likely re-inforced the belief that the government was omnipotent and emboldened it as it went forth with a series of rapid and significant currency devaluations, even while sending confusing signals when it moved in to support its currency.

I’ve often wondered about people who engage in risky behaviors, such as free fall jumping. What goes on in their mind, besides the obvious thrill, that tells them they can battle nature and natural laws and be on the winning side?

As with lots of things in life, we have the tendency to project in a very optimistic way. A single victory against all odds suddenly becomes the expected outcome in the future, as if nature and its forces had never heard of the expression “fool me once, shame on me….”

Given China’s track record in getting what it wants they can’t be blamed for believing that they are bigger than the laws that govern markets.

When you believe that you are right or invincible, you don’t really think about such pesky matters as consistency and the likelihood that things will eventually catch up with you.

While it may not be unusual to place some restrictions on trading when things are looking dire, the breadth of the Chinese stock trading restrictions was really broad. The suggestion that those responsible for rampant speculation and “malicious” short selling might suffer anirreversible form of punishment simply sought to ensure that any remaining miscreants severed their alliance with their normal behavior.

But when you’re on a streak and no one questions you, what reason is there to not continue in the same path that got you there? It’s just like not selling your stock positions and pocketing the gains.

Since those restrictions were imposed the Shanghai Index has actually gone 1% higher, which is considerably better than our own S&P 500 which has declined 5% after today’s free fall.

So clearly erecting a dam, even if on the wrong side of the natural flow, has helped and the score is Chinese Government 1, Natural Forces 0.

Except of course if you drill down to the past few days and see a drop of about 13%, while the S&P 500 has gone down 6%.

When the dam breaks, it’s not just the baby in the bath water that’s going to get wet, but more on that, later. That downdraft that we felt on our shores blew in from China as we got sucked in by the vacuum created from their free fall.

As with other instances of trying to do battle with nature there may be the appearance of a victory if you have a very, very short timeframe, but at some point the dam is going to burst and only time can really get things back under control enough to allow an opportunity to rebuild.

This past week was the worst in over 4 years as the S&P 500 fell 5.8%. At this point people are looking at individual stocks and are no longer marveling about how many are in correction territory, but rather how many are approaching or are in bear territory.

I haven’t kept track, but 2015 has been a year in which it seems that the most uttered phrase has been “and the markets have now given up all of their gains for the year.”

While I don’t spend too much time staring at charts and thinking about technical factors, you would have had a very difficult time escaping the barrage of comments about the market having dipped below its 200 Day Moving Average.

The level that I had been keeping my eye on as support was the 2045 level on the S&P 500 and that was breached in the final hour of trading on Thursday, leaving the 2000 level the next likely stop.

That too was left behind in the dust, as is the usual case when in free fall.

As mentioned earlier in the month, those technicals were showing a series of lower highs and higher
lows, which is often interpreted as meaning that a break-out is looming, but gives no clue as to the direction.

Now we know the direction, not that it helps any after the fact.

While the DJIA ended the week down a bit more than 10% off from its all time highs, allowing this to now be called a “correction,” the broader S&p 500 is only 7.8% lower. While many elected to sell on their way out in the final hour of the week, I wasn’t, but don’t expect to be very actively buying next week, without some sign of a functioning parachute or at least some very soft land at the bottom.

Buying is something that I will probably leave to those people who are more daring than I tend to be.

However, even they seem to have been a little more careful as this most recent sell-off hasn’t shown much in the way of enticing dare devils to buy on the substantial dips.

Even people prone to enjoying the thrill of a nice free fall are exercising some abundance of caution. While I prefer not to join them on the way down, I don’t mind keeping their company for now.

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

I succumbed a little to the sell off late in the week on Thursday and purchased some shares of Bank of America (NYSE:BAC) in the final hour, right before another leg downward in a market that at that point was already down nearly 300 points.

That simply was a lesson in the issue that faces us all when prices seem to be so irrationally low. Distinguishing between a value priced stock and one that is there to simply suck money out of your pocket isn’t terribly easy to do.

As the sell off continued the following day to bring the August 2015 option cycle to its end the financial sector continued to be hit very hard as interest rates continued their decline.

It wasn’t very long ago that the 10 Year Treasury was ready to hit 2.5% and many were looking at that as being the proverbial “hand writing on the wall,” but in the past month those rates have fallen more than 40% and suddenly that wall is as clean as that baby that is continually mentioned as having been thrown out with the bath water, which coincidentally may be the second most uttered phrase of late.

After committing some money to Bank of America, I’m actually considering adding more financial sector positions in the expectation that the decline in interest rates will be coming to an end very soon as there’s some reason to believe that the FOMC’s dependence on data may be lip service.

Generally, the association between interest rates and the performance of stocks in the financial sector is reasonably straight forward. With some limitations, an increasing interest rate environment increases the margins that such companies can achieve when they put their own money to work.

MetLife (NYSE:MET) is a good example of that relationship and its share price has certainly followed interest rates lower in the past few weeks, just as it dutifully followed those rates higher.

The decline in its shares has been swift and has finally brought them back to the mid-point of the range of the past dozen purchases. While that decline has been swift, the range has been fairly consistent and as the lower end of that range is approached there’s reason to consider braving some of the prevailing winds.

With the swiftness of the decline and with the broader market exhibiting volatility, the option premiums now associated with MetLife are recapturing some of the life that they had earlier in this year and all throughout 2014.

I often like to consider adding shares of MetLife right before an ex-dividend date, but I find the current stock price level to be compelling reason enough to consider a position and perhaps consider a longer term option contract to ride out any storm that may continue to be ahead.

Blackstone (NYSE:BX) hasn’t exactly followed that general rule, but lately it has fallen back in line with that very general rule, as it has plunged in share price since its earnings report and news of some insider selling.

As an example of how easy it has been to be too early in expressing optimism, I thought that Blackstone might be ready for a purchase just 2 weeks ago, but since then it has fallen 12%, although having had nothing but positive analyst comments directed toward it during those weeks. It, too, seems to have been caught in a significant downdraft and continued uncertainty in its near term fortunes are reflected in the very rich option premiums it’s now offering.

My major concern with Blackstone at the moment is whether its dividend, now at an 8.4% yield, can be sustained.

At a time when uncertainty is the prevailing mood, there’s some comfort that could come from having dividends accrue, as long as those dividends are safe.

While it’s dividend isn’t huge, at 2.5% and very safe, Sinclair Broadcasting (NASDAQ:SBGI) again looks inviting as it followed other media companies lower this week and is now at a very appealing part of its trading range.

They have no worries about exchange rates, the Chinese economy or any of those “stories du jour” that have everyone’s attention.

Having reached an agreement with DISH Network earlier in the week to allow retransmission of its signal it saw shares plummet the following day.

Sinclair Broadcasting is ubiquitous around the nation but not exactly a household name, even in its home turf in the Mid-Atlantic. It offers only monthly options and has generally been a longer holding for me, having owned shares on six occasions in the past 15 months.

Lexmark (NYSE:LXK) was one of the early and very pronounced casualties of this most recent earnings season and it has shown no sign of recovery. The market didn’t even cheer as Lexmark announced workforce reductions.

What Lexmark has done since earnings hasn’t been encouraging as its total decline has been in excess of 30%, with a substantial portion of that coming after the initial wave of selling upon earnings being released.

Lexmark also only offers monthly options and it has a dividend yield that’s both enticing and unnerving. The good news is that expected earnings for the next quarter are sufficient to cover the dividend, but there has to be some concern going forward, as Lexmark has found itself in the same situation as its one time parent IBM (NYSE:IBM) having pivoted from its core business and perhaps needing to do so again.

With virtually no exposure to China you might have thought that Deere (NYSE:DE) would have had somewhat of an easier time of things as reporting its earnings for the past quarter.

If so, you would have been wrong, but getting it right hasn’t been the norm of late, regardless of what company is being considered.

The drop seen in Deere shares definitely came as a surprise to the options markets and to most everyone else as they became yet another to beat on earnings, but to miss on revenues.

As is the general theme, as volatility is climbing, at nearly its highest level in 3 years, the premiums are welcoming greater risk taking, even as they provide some cushion to risk.

Following its loss on Friday, even Starbucks (NASDAQ:SBUX) is now among those in correction, having sustained that decline over the past 2 weeks. With some significant exposure in China it may be understandable why Starbucks was a full participant in the market’s weakness.

Like many other stocks, the sudden decline in the context of a market decline that has led to a surge in volatility, option premiums are beginning to look better and better.

As volatility increases, which itself is a reflection of increasing risk, there is the seeming paradox of more of that risk being mollified through the sale of in the money options. The cushion provided by those in the money options increases as the volatility increases, so that the relative risk is reduced more than an upward moving market.

Starbucks, after a prolonged period of very mediocre option premiums is now beginning to show some of the reason why option sellers prefer high volatility. It’s not only for the increased premium, but also for the premium on that premium which allows greater reward even when willing to see shares assigned at a loss.

As an example, at Starbuck’s closing price of $52.84, the weekly $52 option sale would have delivered a premium of $1.64, which would net $0.80, a 1.5% yield, if shares were assigned, even if those shares fell 1.6%.

Those kind of risk and reward end points on otherwise low risk stocks haven’t been seen in a few years and is very exciting for those who do sell options on a regular basis.

Finally, not many companies have had their obituaries prepared for release as frequently as GameStop (NYSE:GME) has had to endure for many years.

Somehow, though, even as we think that the model for gaming distribution is changing there exists a strong core of those still yearning for physicality, even if in a virtual world.

GameStop reports earnings this week and it is no stranger to strong moves. The option market, however is implying only an 8.8% move, which seems substantial, but as this most recent earnings season will attest, may be under-stated.

For those bold enough to consider the sale of puts before earnings, a 1% ROI can be achieved if shares fall less than 12.1%.

As with a number of other earnings related trades over the past few months, I’m not so bold as to consider the trade in advance of earnings, but might consider selling puts after earnings in the event of a large move downward.

Lately, that has been a better formula for balancing reward and risk, although it may result in some lost opportunities in the event that shares don’t plummet beyond the strike prices implied by the option market. That, however, can be a small price to pay when the moves have so frequently been out-sized in their magnitude and offering a reward that ends up being dwarfed by the risk.

Considering that GameStop has fallen only 4.6% from its highs, it may be under additional pressure in the event of even a mild disappointment or less than optimistic guidance.

While it may be premature to begin the flow of tears and recount the good memories of GameStop and a youth wasted, I would be cautious about discounting the concerns entirely as far as the market’s reaction may be concerned.

Traditional Stock: Blackstone, Deere, General Electric, MetLife, Starbucks

Momentum Stock: none

Double-Dip Dividend: Lexmark (8/26 $0.36), Sinclair Broadcasting (8/28 $0.16)

Premiums Enhanced by Earnings: GameStop (8/27 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.

Aug82015

Weekend Update – August 9, 2015

Weekend Update

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

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

Or now.

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

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

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

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

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

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

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

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

I mean besides the paper fortune teller?

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

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

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

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

“Beat on earnings, missed on revenues.”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Momentum Stocks: none

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

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

Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.

Jun202015

Weekend Update – June 21, 2015

Weekend Update

No matter how old you are, people love getting gifts.

That may even be the case when you end up paying for them yourself.

Sometimes, that’s the real surprise.

Last year, for example, I received a surprise birthday gift when hitting one of those round numbers. It was a trip to my favorite city, New Orleans, and I was further surprised by friends and family that had assembled there and then individually popped up at totally unexpected times and places.

The real surprise was when I received the hotel bill and then subsequently the other bills. While I’ll be forever remembering the moment a tap on my shoulder at a busy restaurant announced, “Sir, your drinks are here,” only to turn around and see one of my sons unexpectedly turn up holding a platter of shots. Priceless, but as long as we’re talking about price, I think that I would have chosen less costly libations had I known what was to be in store for me.

In hindsight, though, it was a great gift, but I paid the price as many expect will be the case after years of the Federal Reserve injecting liquidity into the system and keeping interest rates at historic lows, much as is now occurring throughout Europe and the world.

Following the FOMC Statement release this past week was Janet Yellen’s press conference and as one person said to me, hers was the “best tightrope walking” he’d ever seen.

Janet Yellenda, has a nice ring to it and she certainly did a great job of staying on course while questions came at her trying their best to throw her off message. Many of those questions were posed to see her lose her tight cling to the carefully nuanced words that served to tantalize, while hinting of what was ahead.

Instead of seeing the gift for what it was, they wanted to know when the bill would be coming due and maybe who was going to end up holding the bag when the celebrations were all over.

Of course, there are those really sick people for whom the gift would be seeing someone else fail or fall off that tightrope wire, but Yellen was better than any gust of wind that could come her way.

For those that had so recently come to expect that perhaps the FOMC would raise interest rates with this past week’s statement release, the market made it clear that they considered the delay as a real gift, even if the celebration and enjoyment lasted just for a day or so.

Sooner or later, there’s also a price that needs to be paid.

That gift, withholding the interest rate increase that just a couple of weeks ago seemed as if it might come this past week, not only was being delayed, but perhaps being delayed all the way to September. As if that gift wasn’t enough, there was a suggestion that any rate increase wasn’t necessarily going to be part of a planned series of regular rate increases, as had been the practice during the Greenspan era.

Could it get any better? At least that was how most heard her words as she delicately balanced them against one another, saying only those things that could be construed by willing ears as “Laissez les bons temps rouler,” as they like to say in New Orleans.

On Thursday, the day after the FOMC Statement release and press conference, it didn’t seem that it could get any better, as the market celebrated what could only be interpreted as a gift for stock investors.

Still, the reality is that while we are winding down a monetary policy era that has likely been to the benefit of our stock markets, the rest of the world is now beginning on that path and may offer stiff winds for us as the bill gets tallied.

The gales coming from Europe were evident this past week as the market was also reacting to the tightrope walk that Greece was doing as it vacillated between being reasonable and unrealistic.

Telling its IMF and ECB safety nets that there were better safety nets out there, while forgetting that neither Russia nor China has ever saved anyone without exacting a price that makes simple interest paid to the IMF and ECB look absolutely charitable, our own markets swayed along with those cross currents of uncertainty.

There may be lots of those cross currents ahead, so that balancing skill may come in very handy while waiting for earnings season to begin again in July and offering the possibility of getting grounded in fundamental reality.

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

Last week marked the second consecutive week in which I didn’t open any new positions, something that would have been unimaginable to me at any point during the past 7 or more years. This coming week I can see more of the same, as there’s very little compelling news ahead to make we want to let go of the cash in my hand. As the bill may be ready to come due soon, I’d like to be ready with that cash on hand to balance the cha
llenge of uncertainty.

Of course, as is usually the case, once the reality of the bill finally settles in, most of the time that represents an opportunity to again start moving forward.

For now, unless there is some further compelling reason to come from upcoming GDP, Retail Sales, Employment Situation and JOLTS reports to believe that the economy is heating up sufficiently to warrant a rate increase in July, the next catalyst may very well come from earnings.

This past week Oracle (NYSE:ORCL) reported earnings. It is among a very small handful of significant companies that report late in the cycle. In fact, their report was almost 3 months following the close of the quarter upon which they reported. While many of those reported soon after earnings season started, less than 2 weeks after the close of that quarter, the expectation for currency related revenue declines was so high at that time, that those companies didn’t see stock prices harshly punished for the dollar’s strength.

Now? Not so much.

Most, in fact, took the previous earnings report opportunity to provide decreased forward guidance as the expectation was that we were headed for US Dollar and Euro parity.

Nearly 3 months later that projection hasn’t become reality, as the US dollar has weakened significantly since March 31, 2015 and that can be expected to show up in the next quarter’s earnings reports. Unfortunately for Oracle share holders, had the company reported in April, there’s a chance that they would have gotten the same free pass as did others at that time.

Sinclair Broadcasting (NASDAQ:SBGI) and Comcast (NASDAQ:CMCSA) are both firmly in the control of their founding families and are on different ends of the spectrum when it comes to their approach to bringing content into the home.

The family nature of Comcast was highlighted this past Friday with the passing of its founder, Ralph Roberts, at age 95. My mother used to say, “they should never go younger,” and while I was never a fan of their product and service, the man was an outlier in many good ways.

With Comcast having recently been extricated from a potential buyout of another cable company, it’s also finding that there are opportunities outside of people’s television sets and streaming devices, as its ownership of Universal Studios makes it the beneficiary of some blockbuster movie releases.

On the downside, it is near its 52 week high as it gets ready to go ex-dividend the week after next. That gives some reason for pause, although neither Greece nor currency headwinds should be an issue, although rising interest rates can be particularly hurtful for a capital intensive company.

However, I especially like Monday ex-dividend dates and like the idea of being assigned early on those positions, as you can get an additional week of premium in exchange for giving up the dividend and holding the stock position for a shorter period of time than planned, while having the opportunity to re-invest the assignment proceeds into another position. With the availability of expanded weekly options on Comcast there are a number of different expiration dates that can be used in an effort to capture additional time premium or try to find the right balance between premium, dividend and time.

Sinclair Broadcasting is in the terrestrial business and just keeps getting larger and larger. It’s not particularly an exciting stock, but does trade with a fairly large price range without any particularly moving news.

It is now at a price that is still above its range mid-point, but that however, has been a reliable launching pad for new positions. With only monthly options available the time commitment is longer as the July 2015 cycle begins this coming week. With earnings coming during the August 2015 cycle any short term price decline necessitating a rollover may look to bypass additional earnings risk and go to a September 2015 expiration, which would also include an upcoming dividend.

Philip Morris (NYSE:PM) and Blackberry (NASDAQ:BBRY) can both elicit some emotional responses, but for very different reasons. Both have upcoming events this week that can offer some opportunity.

Philip Morris is ex-dividend this week and that dividend is very attractive. The company recently stopped its aggressive buyback program as it was feeling the pain of currency exchange and did so, ostensibly, in favor of the dividend. With a history of annual dividend increases coming for the third quarter of each year, there is some question as to wh
ether that will be possible this year, as cash flow is decreased from both currency and declining sales.

Earnings are scheduled to be reported on the day prior to the end of the July 2015 monthly cycle, so in the event that shares haven’t been assigned prior to that, I would consider attempting to rollover any expiring option to a date that may give sufficient time to recover from any price decline.

Blackberry reports earnings this week and is sitting precariously near its yearly lows. The options market is implying an 8% price move when earnings are released on Tuesday morning.

Blackberry usually has released earnings on Friday mornings over the past few years and I’ve generally overlooked it because my preference is to sell a weekly put on most earnings related trades. I further prefer those that report early in the week, so as to have time for some price recovery if at risk for assignment, particularly as some price recovery could ease the ability to rollover the position to delay or avoid assignment.

With a Tuesday morning report and the chance of achieving a 1% ROI at a strike just outside the range implied by the options market, the interest in a short put position is rekindled. However, the greatest likelihood is that I would be more inclined to consider a put sale after earnings, if the price declines, as the premium can really get further enhanced as the price challenges that 52 week low.

I currently own shares of Dow Chemical (NYSE:DOW) and am at risk of having those shares assigned in order to capture the dividend. With those contracts expiring on July 2, 2015 and the ex-dividend date of Friday, June 26th, the $0.42 dividend would require a price of at least $53.92 for the $53.50 options to be assigned early. If that looks like a possibility as trading nears it close on Thursday, I may consider rolling over the option position in order to secure the dividend.

However, with any price decline in shares, particularly if coming early in the week, I would consider adding additional shares and again consider selling call options for the following, holiday shortened week, or even for the week afterward.

Dow Chemical has recently been trading well off its lows that were fueled by decreasing oil prices. CEO Andrew Liveris, who has come under fire on his own for allegedly using his position to finance his lifestyle, did an excellent job in convincing investors that Dow Chemical was a beneficiary of decreasing oil prices, rather than a victim, as it was being treated early in 2015, prior to his going on the offensive.

I think that even if oil prices head moderately higher in the near term, Andrew Liveris would be able to convince people that was also to the benefit of Dow Chemical, just as I expect he’ll be able to convince internal Dow Chemical “watch dogs” that his personal actions were entirely appropriate.

Finally, I had Bank of America (NYSE:BAC) shares assigned this past week, but following weakness among financials on Friday, as well as following the week’s peak in interest rates, shares declined.

That decline, although still leaving shares near a 6 month high, does provide another entry point opportunity. While its shares may continue to be pressured if the bond market bids interest rates lower, the bond market knows exactly where interest rates are going to be headed and financials should be following along.

While the premiums aren’t spectacular, I would look at a potential purchase of shares with an eye toward a longer term holding trying to capitalize on share gains supplemented by option premiums while awaiting the reality of rate increases to come.

Traditional Stocks: Sinclair Broadcasting

Momentum Stocks: Bank of America

Double-Dip Dividend: Comcast (6/29), Dow Chemical (6/26), Philip Morris (6/23)

Premiums Enhanced by Earnings: Blackberry (6/23 AM)

Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.

May312015

Weekend Update – May 31, 2015

Weekend 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

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.