Jan162016

Weekend Update – January 17, 2016

Weekend Update


The world is awash in oil and we all know what that means.

From Texas to the Dakotas and to the North Sea and everything in-between, there is oil coming out of every pore of the ground and in ways and places we never would have imagined.

Every school aged kid knows the most basic law of economics. The more they want something that isn’t so easy to get the more they’re willing to do to get it.

It works in the other direction, too.

The more you want to get rid of something the less choosy you are in what it takes to satisfy your need.

So everyone innately understands the relationship between supply and demand. They also understand that rational people do rational things in response to the supply and demand conditions they face.

Not surprisingly, commodities live and die by the precepts of supply and demand. We all know that bumper crops of corn bring lower prices, especially as there’s only so much extra corn people are willing to eat as a result of its supply driven decrease in price.

Rational farmers don’t plant more corn in response to bumper crops and rational consumers don’t buy less when supply drives prices lower.

Stocks also live by the same precepts, except that most of the time the supply of any particular stock is fixed and it’s the demand that varies. However, we’ve all seen the frenzy around an IPO when insatiable demand in the face of limited supply makes people crazy and we’ve all seen what happens when new supply of shares, such as in a secondary offering is released.

Of course, much of what gains we’ve seen in the markets over the past few years have come as a result of manipulating supply and artificially inflating the traditional earnings per share metric.

When a deep Florida freeze hits the orange crop in Florida, no one spends too much time deeply delving into the meaning of the situation. The price for oranges will simply go higher as the demand stays reasonably the same, to a point. 

If, however, people’s tastes change and there is suddenly an imbalance between the supply and demand for orange juice, reasonable suppliers do the logical thing. They try to recognize whether the imbalance is due to too much supply or too little demand and seek to adjust supply.

Whatever steps they may take, the world’s economies aren’t too heavily invested in the world of oranges, no matter how important it may be to those Florida growers.

Suddenly, oil is different, even as it has long been a commodity whose supply has been manipulated more readily and for more varied reasons. than a farmer simply switching from corn to soybeans.

The price of oil still lives by supply and demand, but now thrown into the equation are very potent external and internal political considerations.

Saudi Arabia has to bribe its citizens into not overthrowing the monarchy while wanting to also inflict financial harm on anyone bringing new sources of supply into the marketplace. They don’t want to cede marketshare to its enemies across the gulf nor its allies across the ocean.

With those overhangs, sometimes irrational behavior is the result in the pursuit of what are considered to be rational objectives.

Oil is also different because the cause for the imbalance says a lot about the world. Why is there too much supply? Is it because of an economic slowdown and decreased demand or is it because of too much supply?

Stock markets, which are supposed to discount and reflect the future have usually been fairly rational when having a longer term vision, but that’s becoming a more rare phenomenon.

The very clear movement of stock markets in tandem with oil prices up or down has been consistent with a belief that the balance between supply and demand has been driven by demand.

Larry Fink, who most agree is a pretty smart guy, as the Chairman and CEO of Blackrock (BLK) was pretty clear the other day and has been consistent in the belief that the low price of oil was supply, and not demand driven. He has equally been long of the belief that lower oil prices were good for the world.

In any other time, supply driven low prices would have represented a breakdown in OPEC’s ability to hold the world’s economies hostage and would have been the catalyst for stock market celebrations.

Welcome to 2016, same as 2015.

But world markets continue to ignore that view and Fink may be coming to the realization that his voice of reason is drowned out by fear and irrational actions that only have a near term vision. That may explain why he now believes that there could be an additional 10% downside for US markets over the next 6 months, including the prospects of job layoffs.

That’s probably not something that the FOMC had high on its list of possible 2016 scenarios.

Ask John McCain how an increasing unemployment rate heading into a close election worked out for him, so you can imagine the distress that may be felt as 7 years of moderate growth may come to an end at just the wrong time for some with great political aspirations.

The only ones to be blamed if Fink’s fears are correct are those more readily associated with the existing power structure.

Just as falling stock prices in the face of supply driven falling oil prices seems unthinkable, “President Trump” doesn’t have a dulcet tone to my ears. More plausible, in the event of the unthinkable is that it probably wouldn’t take too much time for his now famous “The Apprentice” tag line to morph into “You’re impeached.”

So there’s always that as a distraction from a basic breakdown in what we knew to be an inviolate law of economics.

With 2016 already down 8% and sending us into our second correction in just 5 months so many stocks look so inviting, but until there’s some evidence that the demand to meet the preponderance of selling exists, to bite at those inviting places may be even more irrational than it would have been just a week earlier.

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

One stock that actually does look like a bargain to me reports earnings this week. Verizon (VZ) is the only stock in this week’s list that isn’t in or near bear correction territory in the past 2 months.

Even those few names that performed well in 2015 and helpe
d to obscure the weakness in the broader market are suffering in the early stages of 2015.

Not so for Verizon, even though the shares have fallen nearly 5% from its near term resistance level on December 29, 2015, the S&P 500 fell almost 9% in that time.

While there is always added risk with earnings being reported, Verizon and some of its competitors stand to benefit from their own strategic shifts to stop subsidizing what it is that people crave. That may not be reflected in the upcoming earnings report, but if buying Verizon shares I may consider looking beyond the weekly options that I tend to favor in periods of low volatility. Although I usually am more likely to sell puts when earnings are in the equation, I’m more likely to go the buy/write route for this position.

The one advantage of the kind of market action that we’ve had recently is the increase in volatility that it brings.

When that occurs, I start looking more and more at longer term options. The volatility increase typically means higher premiums and that extends into the forward weeks. Longer term contracts during periods of higher volatility allow you to lock in higher premiums and give time for some share price recovery, as well.

Since Verizon also has a generous dividend, but won’t be ex-dividend for another 3 months, I might consider an April 2016 or later expiration date.

One of the companies that is getting a second look this week is Williams-Sonoma (WSM), which is also ex-dividend this week and only offers monthly options.

Shares are nearly 45% lower since the August 2015 correction and have not really had any perceptible attempt at recovering from those losses.

What it does offer, however. is a nice option premium, that even if shares declined by approximately 1% for the month could still deliver a 3.8% ROI in addition to the quarterly 0.7% dividend.

Literally and figuratively firing on all cylinders is General Motors (GM), but it is also figuratively being thrown out with the bath water as it has plunged alongside the S&P 500.

With earnings being reported in early February and with shares probably being ex-dividend in the final week of the March 2016 option cycle, there may be some reason to consider using a longer term option contract, perhaps even spanning 2 earnings releases and 2 ex-dividend dates, again in an attempt to take advantage of the higher volatility, by locking in on longer term contracts.

Netflix (NFLX) reports earnings this week and the one thing that’s certain is that Netflix is a highly volatile stock when reporting earnings, regardless of what the tone happens to be in the general market.

With the market so edgy at the moment, this would probably not be a good time for any company to disappoint investors.

The option market definitely demonstrates some of the uncertainty that’s associated with this coming week’s earnings, as you can get a 1% ROI even if shares drop by 22%.

As it is, shares are down nearly 20% since early December 2015, but there seem to be numerous levels of support heading toward the $81 level.

If shares do take a plunge, there would likely be a continued increase in volatility which could make it lucrative to continue rolling over puts, even if not faced with impending assignment.

Of some interest is that while call and put volumes for the upcoming weekly options were fairly closely matched, the skew was toward a significant decline in shares next week, as a large position was established at a weekly strike level $34 below Friday’s close.

Finally, last week wasn’t a very good week for the technology sector, as Intel (INTC) got things off on a sour note, which is never a good thing to do in an already battered market.

Seagate Technology (STX) wasn’t spared any pain last week, either, as it has long fallen into the same kind of commodity mindset as corn, orange juice and even oil back in the days when things made sense.

Somehow, despite having been written off as nothing more than a commodity, it has seen some good times in the past few years. That is, if you exclude 2015, as it has now fallen more than 50% since that time, but with nearly 35% of that decline having occurred in just the past 3 months.

I usually like entering a Seagate Technology position through the sale of puts, as its premium always reflects a volatile holding.

For example the sale of a weekly put at a strike price 3% below Friday’s closing price could provide a 1.9% ROI. When considering that next week is a holiday shortened week, that’s a particularly high return.

Seagate Technology is no stranger to wild intra-weekly swings. If selling puts, I prefer to try and delay assignment of shares if they fall below the strike level. Since the company reports earnings the following week, I would likely try to roll over to the week after earnings, but if then again faced with assignment, would be inclined to accept it, as shares are expected to be ex-dividend the following week.

The caveat is that those shares may be ex-dividend earlier, in which case there would be a need to keep a close eye out for the announcement in order to stand in line for the 8% dividend.

For now, Seagate does look as if it still has the ability to sustain that dividend which was increased only last quarter.

 

Traditional Stocks: General Motors

Momentum Stocks: Seagate Technolgy

Double-Dip Dividend: Williams-Sonoma (1/22 $0.35)

Premiums Enhanced by Earnings: Netflix (1/19 PM), Verizon (1/21 AM)

Remember, these are just guidelines for the coming week. The above selections may become actionable – most often coupling a sh
are 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.

Oct32015

Weekend Update – October 4, 2015

Weekend Update

If you’re a parent, even if 50 years have passed since the last episode, you can probably still remember those wonderful situations when your child was having a complete meltdown, even as the kid really didn’t know what it is that they wanted.

Sometimes a child can get so out of control over something that they wanted so badly that even when finally getting it, they just couldn’t regain control. We’ve all seen kids carry on as if there was some horrible void being perceived in their lives that was still gaping and eating away at their very core even when their immediate issue had already been resolved.

I think that’s the only way to explain the market ups and downs that we’ve been seeing, starting from the week of the most recent FOMC Statement release and all the way through to the last trading day of the past week.

The market has gone from a condition of apoplexy over the very thought of an interest rate hike to a melt down when that very same interest rate hike didn’t materialize.

Whether the moves have been up or down the rational basis has become more elusive and knowing what to do in response has been difficult. It’s been a little bit easier to simply accept the fact that there is such a phenomenon as “the terrible twos” and just ride out the storm.

Trying to understand that kind of behavior is tantamount to trying to use rational thought processes when dealing with a child in the midst of an uncontrollable outburst.

Sometimes it’s just best to ignore what you see unfolding before your eyes and let events run their course. That may not be a call for total passivity, though, and completely giving up on things, but the belief that you can outsmart or out-think a rampaging child or a rampaging market is destined for failure.

Followings Friday’s 1.4% gain in the S&P 500 that index was down only about 8.7% from its summer time highs, after having been down as much as 11.9% after the first day of trading this past week.

In doing so, the market has continued its dance around that 10% correction line while having a regular series of irrational outbursts that have alternated between plunges and surges.

Like most parents, there is some pride that comes into play when a child finally is able to come to a stage in life when those uncontrollable and irrational outbursts have run their course. For most kids once they’ve gotten through that phase it never returns, although for some adults it may manifest itself in different ways.

I don’t know if this week is going to be that week when some pride is warranted, but at the very least the market took some time in-between its outbursts this week to collect itself. In doing so, it either continued to hover around that 10% correction line and avoided spiraling out of control or took some positive steps toward finally recovering from that correction.

It started with a 300+ point drop on Monday with almost nothing happening on Tuesday as it geared up for a 200+ point gain on Wednesday.

Then, it did virtually nothing again on Thursday, only to see the bottom drop out after some very disappointing Employment Situation Report numbers on Friday morning.

This time, “disappointing” meant employment numbers that were far lower than expected and lower revisions to the previous month.

Had the same numbers been put forward a few months ago they would have engendered elation, but now that market thinks it knows what it wants and as always, when it doesn’t get it there’s a tantrum at hand.

Then, suddenly, something just seemed to click, just a it occasionally does with a child. Sometimes it may simply be exhaustion or a realization of the futileness of demonstrable outbursts, but at other times a spark may get lit that creates a path to a greater understanding of things.

The morning turnaround on Friday occurred at that point at which the S&P 500 was approaching its lowest level since the correction began and had chartists scurrying to their charts to see where the next stop below awaited.

Instead, however, the S&P 500 climbed 3% from those depths having turned positive for the day by noontime and then continuing so soar even more.

Of course, while there may be some pride in what can be interpreted as a sudden realization of the unwarranted behavior in the morning, I always get wary of such large moves, even when they’re to my benefit. When seeing those kinds of intra-day reversals, my thoughts go from recognizing them as reasonably normal tantrums, to the less normal exhibition of a bipolar disorder.

With earnings season beginning at the end of this coming week, we may soon find out whether the market is capable of exhibiting some rational responses to real news.

I’m optimistic that those responses will be more appropriate than has been the case over the last 2 earnings seasons when the o
ption market had repeatedly under-estimated the magnitude of those responses.

Any sign that top line and bottom line numbers are both heading in the right direction may paint those disappointing Employment Situation Report numbers as an aberration. That could be just the spark we all need to get over the hump of interest rate worries and escape the developmental binds that throw us into fits of rage.

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

I never get tired of doing the same thing over and over again. There may be a psychiatric diagnostic code for that sort of thing, but when it comes to stocks it can be a very rational way of behaving especially when those stocks start falling into a pattern of trading in a narrow price range.

However, if all those stocks did was to trade in that narrow range and didn’t have a moment of explosive behavior or two before returning to a more normal path, there would be no reason to consider owning them for any reason other than perhaps for the relative safety of their dividend income.

But those occasional moves higher and lower make the sale of calls worthwhile even when the shares are seemingly moribund. Both General Electric (NYSE:GE) and Bank of America (NYSE:BAC) are recently exhibiting the kind of behavior that can generate a very respectable return, both in relative and absolute terms, especially if the opportunity presents to buy shares on a serial basis following share assignment.

I had 2 lots of General Electric assigned this past week and would be very willing to own them for the sixth time in 6 weeks. However, following its late day turnaround on Friday, along with the rest of the market, I would probably only do so if its price came closer to $25.

With a remaining lot of shares and options set to expire this week, I would still have an eye on selling new weekly calls, but if requiring rollover at the end of the week, I would consider bypassing the cycle ending week of October 16th, and perhaps selling extended weekly calls, as General Electric will report earnings that morning.

I now own 2 lots of Bank of America and three lots at any one time is my self imposed limit, but trading at the $15.50 level has a relative feeling of safety for me. As with General Electric, however, if purchasing or adding shares, there is that little matter of upcoming earnings. While most likely beginning the process with a weekly call, if requiring a rollover as being faced with expiration rather than assignment, I would probably opt to bypass the October 16 expirations in the event of some poorly received news on earnings.

Poorly received news is an apt way to describe anything emanating from China these days. While there are lots of potential “poster child” examples of the risks associated with any stock that has exposure in China, among the more respected names has to be caterpillar (NYSE:CAT).

For many rational reasons, well known short seller Jim Chanos laid out his short thesis on caterpillar nearly 30 months ago and following a substantial move higher, the virtue of patience has begun to start its rewards.

With shares now down about 40% from a year ago, there’s still no telling if this is the bottom, but a constellation of events has me considering a position.

With its ex-dividend date the next week and then earnings the following week and a weekly option premium that reflects the near term risk, I’m ready to consider that risk.

If selling a weekly option doesn’t look as if it will result in an assignment, I would probably consider trying to roll over those options to the ex-dividend week, but with a mind toward giving up that dividend by selling a deep in the money call option in an effort to collect some additional premium, but to be out of shares prior to earnings.

Failing that, however, the next step would be to attempt to roll over those shares and again selecting an expiration date that bypasses the immediate threat of earnings and then holding on tightly as one of the least respected CEOs over the past few years may again be in people’s cross-hairs.

YUM Brands (NYSE:YUM) reports earnings this week and as ubiquitous as their locations may be in the United States, it’s almost always their Chinese holdings that get the attention of investors.

Following a strong move higher on Friday, I would be reluctant to start the week by selling puts on YUM shares, as it reports earnings Tuesday afternoon, unless there is some significant giveback of those weekending gains. At the moment, the option market is implying a price move of about 5.7%.

A 1% ROI could potentially be obtained through the sale of a weekly put at a strike level 6.7% below Friday’s close, but that may be an insufficient cushion, given YUM’s earnings history, even when the CHinese economy has not been so highly questionable. However, in the event of some price pullback prior to earnings or a large price drop after earnings, I would consider a posit
ion.

In the event of a large pullback after earnings, however, rather than selling puts, as I might usually want to do, YUM is expected to have its ex-dividend date the following week, so I might consider the purchase of shares and the sale of calls. But even then, depending on the prevailing option premiums, I could possibly consider sacrificing the dividend for the premiums that could come from selling deep in the money calls and possibly using an extended option expiration date.

Equally ubiquitous, at least in some portions of the United States is Dunkin Brands (NASDAQ:DNKN). Following a disastrous reception on Thursday to their forward guidance and the barely perceptible rebound the following day, this is a stock that I’ve wanted to repurchase for nearly a year.

With only monthly options available and without a wide assortment of strike levels, this may be a good position to consider a longer term option sale, as it reports earnings at the beginning of the November 2015 cycle and will likely have its ex-dividend date in the November or December cycle.

During this latest downturn, I’ve had a more profound respect for trying to accumulate dividends, especially as the increased volatility has created option premiums that subsidize more of the dividend related price drop in shares. In doing so, sometimes there may be just as good opportunity in trying to induce early assignment of shares by selling deeper in the money calls that you usually might do in a lower volatility environment and using an extended option timeframe.

Both Verizon (NYSE:VZ) and Oracle (NYSE:ORCL) may benefit from those approaches, although when the size of the dividend is larger than the strike price unit, such as in the case of Verizon, the advantage is a bit muted.

However, with Verizon reporting earnings on October 20th, some consideration might be given toward selling an in the money option expiring on that date, in an effort to get the larger, earnings enhanced premium, even while potentially sacrificing the dividend.

Oracle doesn’t offer the same generous dividend as does Verizon, nor does it have earnings immediately at hand.

It can be approached in a much more simplistic fashion in an attempt to capture both the dividend and the option premium by considering a sale of a call hovering near the current price. because it is ex-dividend on a Friday, there may be some opportunity to enhance the yield by selling an extended weekly option, again, possibly risking early assignment, but atoning for some of that with some additional premium

Finally, how can there be anything good to say about Abercrombie and Fitch (NYSE:ANF)? I’ve been practicing Chanos like patience on a much more expensive lot of shares, but in the meantime have found some opportunity by buying shares and selling calls in the $20-22 range.

Having now done so on 4 occasions in 2015 it nay be time to do so again as it closed in at the lower end of that range. With its earnings due relatively late in the current cycle this position can be considered either through the sale of puts or as a buy/write.

Traditional Stocks: Caterpillar, Dunkin Donuts, General Electric

Momentum Stocks: Abercrombie and Fitch, Bank of America

Double-Dip Dividend: Oracle (10/9 $0.15), Verizon (10/7 $0.565)

Premiums Enhanced by Earnings: YUM Brands (10/6 PM)

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

Sep182015

Weekend Update – September 20, 2015

Weekend Update

This past Monday, prior to the market’s opening, I posted the following for Option to Profit subscribers:

“In all likelihood, at this point there are only two things that would make the market take any news badly.

The first is if no interest rate increase is announced.

Markets seem to have finally matured enough to understand that a rate hike is only a reflection of all of the good and future good things that are developing in our economy and are ready to move on instead of being paralyzed with fear that a rate hike would choke off anemic growth.

The second thing, though, is the very unlikely event of a rate hike larger than has been widely expected. That means a 0.5% hike, or even worse, a full 1% hike.

That would likely be met with crazed selling.”

Based on the way the market was trading this week as we were awaiting the FOMC Statement which was very widely expected to announce an interest rate increase, you would have been proud.

The proudness would have arisen as it seemed that the market was finally at peace with the idea that a small interest rate increase, the first in 9 years, wouldn’t be bad news, at all.

Finally, it seemed as if the market was developing some kind of a more mature outlook on things, coming to the realization that an interest rate hike was a reflection of a growing and healthy economy and was something that should be celebrated.

It always seemed somewhat ironic to me that the investing class, perhaps those most likely to endorse the concept of teaching a man how to fish rather than simply giving a handout, would be so aghast at the possibility of a cessation of a zero interest rate policy (“ZIRP”), which may have been tantamount to a handout.

The realization that ours was likely the best and most fundamentally sound economy in the world may have also been at the root of our recent disassociation from adverse market events in China.

So while the week opened with more significant weakness in China, our own markets began to trade as if they were now ready to welcome an interest rate increase and seeing it for what it really reflected.

All was well and in celebration mode as we awaited the news on Thursday.

As the news was being awaited, I saw the following Tweet. 

I don’t follow many people on Twitter, but Todd Harrison, the founder of Minyanville is one of those rare combinations of humility, great personal and professional successes, who should be followed.

I have an autographed copy of his book “The Other Side of Wall Street,” whose full title really says it all and is a very worthwhile read.

Like the beer pitchman, Todd Harrison doesn’t Tweet much, but when he does, it’s worth reading, considering and placing somewhere in your memory banks.

Many people in their Twitter profiles have a disclaimer that when they re-Tweet something it isn’t necessarily an endorsement.

When I re-Tweet something, it is always a reflection of agreement. There’s no passive – aggressiveness involved in the re-Tweet by saying “I endorse the re-Tweeting of this, but I don’t necessarily endorse its content.”

I believed, as Todd Harrison did, some 4 minutes before the FOMC statement release, that the knee jerk reaction to the FOMC decision wasn’t the one to follow.

But a funny thing happened, but not in a funny sort of way.

For a short while that knee jerk reaction would have been the right response to what should have been correctly viewed as disappointment.

What was wrong was a reversion back to a market wanting and believing that it was given another extension of the ZIRP handout. That took a market that had given up all of its substantial gains and made another reversal, this time going beyond the day’s previous gains.

With past history as a guide, going back to Janet Yellen’s predecessor, who introduced the phenomenon of the Federal Reserve Chairman’s Press Conference, the market kept going higher during the prepared statement portion of the conference and continued even higher as some clarification was sought on what was meant by “global concerns.”

Of course, everyone knew that meant China, although one has to wonder whether those global concerns also included the opinions held and expressed by Christine Legarde of the International Monetary Fund and others, who believe that it would be wrong for the FOMC to introduce an interest rate increase in 2015.

While some then began to wonder whether “global concerns” meant that the Federal Reserve was taking on a third mandate, it all turned suddenly downward.

With the exception of a very early Yellen press conference when she mischaracterized the FOMC’s time frame on rate increases and the market took a subsequent tumble, normally, Yellen’s dovish and dulcet tones are like a tonic for whatever may have been ailing the market/ This week, however, the juxtaposition of dovish and hawkish sentiments from the FOMC Statement, the subsequent press conference prepared statement and questions and answers may have been confusing enough to send traders back to their new found friend.

Logic.

Perhaps it was Yellen’s response that she couldn’t give a recipe to define what would cause the FOMC to act or perhaps it was the suggestion that the FOMC needn’t wait until their next meeting to act that sent markets sharply lower as they craved some certainty.

Or maybe it was a sudden realization that if markets had gone higher on the anticipation of a rate increase, logic would dictate that it go lower if no increase was forthcoming.

And so the initial response to the FOMC decision was the right response as the market may have shown earlier in the week that it was finally beginning to act in a mature fashion and was still capable of doing so as the winds shifted.

Perhaps the best question of that afternoon was one that pointed out an apparen
t inconsistency between expectations for full employment in the coming years, yet also expectations for inflation remaining below the Federal Reserve’s 2% target.

Good question.

Her answer “If our understanding of the inflation process is correct……we will see further upward pressure on inflation, may have represented a very big “if” to some and may have deflated confidence at the same time as a re-awakening was taking place that suggested that perhaps the economy wasn’t growing as strongly as had been hoped to support continued upward movement in the market.

That’s the downside to focusing on fundamentals.

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

As the market continues its uncertainty, even as it may be returning more to consideration of fundamentals, I continue to like the idea of going with some of the relative safety that may be found with dividends.

Last week I purchased more shares of General Electric (GE), hoping to capture both the dividend and the volatility enhanced premium. Those shares, however were assigned early, but having sold a 2 week option the ROI for the 3 days of holding reflected that additional time value and was a respectable 1.1%.

Even though I still hold some shares with an October 2, 2015 $25 expiration hanging over them, this week I find myself wanting to add shares of General Electric, once again, as was the case in each of the last two weeks.

Although there is no dividend in sight for another 3 months, the $25 neighborhood has been looking like a comfortable one in which to add shares as volatility has made the premiums more and more attractive and there may also be some short term upside to shares to help enhance the return.

A covered option strategy is at its best when the same stock can be used over and over again as a vehicle to generate premiums and dividends. For now, General Electric may be that stock.

Verizon (VZ) doesn’t have an upcoming dividend this week, but it will be offering one within the next 3 weeks. In addition to its recently increased dividend, the yield was especially enhanced by its sharp decline in share price at the end of the week as it gave some dour guidance for 2016.

There’s not too much doubt that the telecommunications landscape is changing rapidly, but if I had to put my confidence in any company within that smallest of sectors to survive the turmoil, it’s Verizon, as long as their debt load isn’t going to grow by a very unneeded and unwanted purchase of a pesky competitor that has been squeezing everyone’s margins.

I see Verizon’s pessimism as setting up an “under promise and over deliver” kind of scenario, as utilities typically find a way to thrive, but rarely want to shout up and down the streets about how great things are, lest people begin taking notice of how much they’re paying for someone else’s obscene profits.

Among those being considered that are going to be ex-dividend this week are Cypress Semiconductor (CY) and Green Mountain Keurig (GMCR).

I already own shares of Cypress Semiconductor and have a way to go to reach a breakeven on those shares which I purchased after its proposed buyout of another company fell through. I’ve held shares many times over the years and have become very accustomed to its significant and sizable moves, while somehow finding a way to return back to more normative pricing.

Following this past Friday’s decline its well below the $10 level that I’ve long liked for adding shares. With an ex-dividend date on Tuesday, if the trade is to be made, it will be likely done early in the week.

However, the other consideration is that Cypress Semiconductor is among the early earnings reporters and it will be reporting  on the day before its next option contract expires. For that reason, if considering a share purchase, I would probably look at a contract expiration beyond October, in the event of further price erosion.

Also going ex-dividend but not until Monday of the following week are Deere (DE) and Dow Chemical (DOW).

Like so many other stocks, they are badly beaten down and as a result are featuring an even more alluring dividend yield. However, their Monday ex-dividend date is something that can add to that allure, as any decision to exercise the option has to be made on the previous Saturday.

That presents opportunity to look at strategies that might seek to encourage early assignment through the sale of in the money call options utilizing expanded weekly options.

While Caterpillar (CAT) and others are feeling the pain of China’s economic slowdown, that’s not the case for Deere, but as is often the case, there are sympathy pains that become all too real.

Dow Chemical, on the other hand has continued to suffer from the belief that its fortunes are closely tied to oil prices. It;s CEO refuted that barely 9 months ago and subsequent earnings reports have borne out his contention, yet Dow Chemical continues to suffer as oil prices move lower.

If looking for a respite from dividends, both Bank of America (BAC) and Bed Bath and Beyond (BBBY) may be worth a look this week.

The financial sector was hard hit the past few days and Bank of America was additionally in the spotlight regarding the issue of whether its CEO should also hold the Chairman’s title.

As with Jamie Dimon before him who successfully faced the same shareholder issue and retained both designations, no one is complaining about the performance of Brian Moynihan.

Even as I sit on some more expensive shares that have options sold on them expiring in two weeks, I have no reason to complain.

Following a second consecutive day of large declines, Bank of America is trading near its support that has seemed to hold up well under previous assault attempts. As with other stocks that have suffered large declines, there is greater ability to attempt to capitalize on price gains without giving up much in the way of option premiums.

Bed Bath and Beyond reports earnings this week and has seen its price in steady decline for the past 4 months. Unlike others that have had a more precipitous decline as they’ve approached the pleasure of a 20% decline, Bed Bath and Beyond has done it in a gradual style.

While those intermediate points along the drop down may represent some resistance on the way back up, that climb higher is made easier when the preceding decline
wasn’t vertical.

When considering an earnings related trade I usually look for a weekly return of 1% or greater by selling put options at a strike price that’s below the bottom range implied by the option market. The preference is that the strike price that provides that return be well below that lower boundary, The lower, the better the safety cushion.

For Bed Bath and Beyond the implied move is about 6.3%, but there is no safety cushion below a $56.50 strike level to yield that 1% return. Therefore, instead of selling puts before earnings, I would consider, as has been the predominant strategy of the past two months, of considering the sale of puts after earnings are announced, but only if there is a significant price decline.

Finally, Green Mountain Keurig is going ex-dividend this coming week, but it hardly qualifies as being among the relatively safe universe of stocks that I would prefer owning right now.

I usually like to think about opening a position in Green Mountain Keurig through the  sale of puts. However, with the ex-dividend date this week that would be like subsidizing someone who was selling those puts for the dividend related price decline.

Other than the dividend, there’s is little that I could say to justify a long term position on Green Mountain and even have a hard time justifying a short term position.

However, Green Mountain’s ex-dividend day is on Friday and expanded weekly options are available.

I would consider the purchase of shares and the concomitant sale of deep in the money expanded weekly calls in an attempt to see those shares assigned early.

As an example, with Green Mountain closing at $56.74 on Friday, the October 2, 2015 $54.50 call option would have delivered a premium of $3.08.

For a rational option buyer to consider early exercise on Thursday, the price of shares would have to be above $54.79 and likely even higher than that, due to the inherent risk associated with owning shares, even if only for minutes on Friday morning after taking their possession.

However, if assigned early, there would be a 1.5% ROI for the 4 days of holding even if the shares fell somewhat less than 3.4%.

Their coffee and their prospects for continued marketplace success may both be insipid, but I do like the tortured logic and odds of the dividend related trade as we look ahead to a week where logic seeks to re-assert itself.

 

Traditional Stock: General Electric, Verizon

Momentum Stock: Bank of America

Double-Dip Dividend: Cypress Semiconductor (9/22), Deere (9/28), Dow Chemical (9/28), Green Mountain Keurig (9/25)

Premiums Enhanced by Earnings: Bed Bath and Beyond (9/24 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.

Jun132015

Weekend Update – June 14, 2015

Weekend Update

The investing community is either really old or thinks it’s really well versed in history.

The prospects of interest rates going higher must be evoking memories of the Jimmy Carter era when personal experiences may have been pretty painful if on the wrong side of a prime interest rate of 21.5%.

I’d be afraid, too, of reliving the prospects of having to take out a 20% loan on my Chevrolet Vega.

The interest rate isn’t what would bother me, though. That Vega still evokes nightmares.

If not old enough to have had those personal experiences, then investors must be great students of history and simply fear the era’s repeat.

Unfortunately, neither group seems to readily recall the experiences of the intervening years when hints of inflation appearing over the horizon were addressed by a responsive Federal Reserve and not the Federal Reserve presided over by the last Chairman to have come from a corporate background.

It’s unfortunate only because the stock market has been held hostage, despite having reached new highs recently, by fears of a return to a long bygone era, which was also characterized by a passive Federal Reserve Chairman who opposed raising interest rates as a fiscal tool and while inflation was rapidly growing, believed that it would self-correct. 

G. William Miller was certainly correct on that latter belief as rates did self-correct once reaching that 21.5% level, although they lasted longer than did most people’s Vegas, while Miller’s length of tenure as Chairman of the Federal Reserve did not.

Passivity and benign neglect weren’t the best ways to approach an economy then and probably not a very good way to do so now.

This past week seemingly provided more of the confirmatory data the FOMC has been waiting upon to make the long signaled move that has also been long feared. Following the previous week’s Employment Situation Report and this past week’s JOLTS report and Retail Sales report, every indication is now pointing to an economy that is heating up.

Not as much as the crankcase of my Vega that caused so many engine blocks to crack, but enough to get the FOMC to act in a way that the interest rate dovish Miller would not.

Still, the various bits of information coming in during the week caused major moves in both stock and bond markets, although the cumulative impact was negligible, even while the details were attention getting.

 

While Janet Yellen has been referred to as a “dove,” when compared to Miller, she is a ravenous hawk who only needs a clear signal of when to swoop. While the FOMC will meet this week it’s not too likely that there will be any policy changes announced, although sometimes it’s all about the wording used to describe the committee’s thoughts.

As recently as 2 weeks ago many were thinking that rate hikes might not come until 2016. However, now the prevailing chatter is that September 2015 is the target date for action.

However with the July 2015 meeting coming at the very end of the month and the opportunity to peruse another month’s worth of data what would be easier than making that decision then, particularly coming in-between June and September scheduled press conferences?

That would take most by surprise, but at least it gets this ordeal over.

Like so many things in life, the anticipation can be the real ordeal as the reality pales in comparison. Somehow, though, that’s not a lesson that’s readily learned.

Unless the upcoming earnings season will have some very nice upside surprises due to a continuing strengthening of the US Dollar that never arrived, there doesn’t appear to be any catalyst on the horizon to prompt the stock market to test its highs. That is unless we finally get a chance to remove the yoke of fear.

Real students of history will know that the fear of those interest rate hikes, especially in the early stages of an overtly improving economy, is unwarranted.

After a week of not opening a single new position I’d love to see some clarity that can only come from FOMC decisiveness. It may well be a long hot summer ahead, but it’s time to embrace the heating up of the economy for what it is and celebrate its arrival and put the ghost of G. William to rest.

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

While markets were gyrating wildly this past week and news regarding Greece, the IMF and ECB kept going back and forth, I found myself shaking my head as the biggest story of the week seemed to be the upcoming CEO change at Twitter (TWTR). 

Although I am short puts and have a real interest in seeing shares rise, I sat wondering why a company that was so small, employed so few people and contributed so little to the economy, could possibly receive so much attention for a really inconsequential story.

Beyond that, the company could go away tomorrow and its 300 million monthly active users wouldn’t be facing a gap very long others in Silicon Valley could step in to fill that gap in a heartbeat and do so without all of the dysfunction characterizing the company.

One thing that strikes me is that with the change the Board of Directors will continue to have 3 past CEOs. A friend of mine was once Chairman of an academic department that had 4 past Chairman still active on the faculty. He said it was absolutely intolerable and he couldn’t act with
out continuing second guessing and sniping.

Among the characteristics of some selections this week is strong and unequivocal leadership. Right or wrong, it helps to be decisive.

It also helps to offer a dividend, as that’s another recurring theme for me, of late.

General Electric (GE) has been led by the same individual for nearly 15 years. While it may not be helpful to his legacy to compare General Electric’s stock performance relative to the S&P 500 under his tenure to that of his predecessor, no one can accuse GE of standing still and being indecisive.

The one thing that I continually bemoan is that I haven’t owned shares of GE as often as I should have over the past few years. Despite it’s relative under-performance over the years, other than 2015 YTD, it has been a very reliable covered call position. Its fairly narrow trading range, reasonable premium and its safe and excellent dividend are a great combination if not looking for dizzying growth and the risk that attends such growth.

Shares are ex-dividend this week and that may be the motivator I need to consider committing some funds at a time when I’m not terribly excited about doing so.

Although Larry Ellison has stepped back from some of his responsibilities at Oracle (ORCL), there’s not too much doubt that he is in charge. Who other than such a powerful leader could convince two other powerful business leaders to be in a CEO sharing arrangement?

Oracle reports earnings this week and is expected to go ex-dividend during the July 2015 option cycle. The options market is predicting only a 3.9% price move over the course of the coming week. 

There isn’t an appealing premium available for selling puts outside of the price range predicted by the options market, but Oracle is a company that I wouldn’t mind owning, rather than simply taking advantage of it to generate earnings volatility induced premiums. It’ like GE, is a company that I haven’t owned frequently enough over the years, as it has also been a very good covered call position, even while frequently trailing the S&P 500 over recent years.

Cypress Semiconductor (CY) is another company with a strong leader, who also happens to be a visionary. It’s stock price surged upon news that it was going to acquire Integrated Silicon Solution (ISSI), but over the past week has been on somewhat of a rollercoaster ride as the buyout went from Cypress Semiconductor missing a self-designated deadline to obtain regulatory approval, to then arranging financing and culminating in ISSI announcing that it had accepted the Cypress offer.

Or so it seemed.

That rollercoaster ride is likely to continue next week as the coveted buyout target has just recommended accepting an offer from a Chinese private equity consortium just a day after announcing it had accepted Cypress’ offer.

A special meeting of ISSI stockholders has now been called for June 19, 2015. With a close eye on that meeting and its outcome, I would consider waiting until then to make a decision of Cypress Semiconductor shares, that will go ex-dividend the following week.

While it’s clear that the market valued the combination of the two companies, the disappointment may now be factored in, although perhaps not fully. Cypress Semiconductor is a company that I’ve long admired, particularly as it has acted as an technology incubator and have liked as a covered option trade, although at a lower price. 

American Express (AXP) has also been led by a strong CEO for nearly 15 years. Of late, he may have been subject to some criticism for the opacity related to the company’s relationship with Costco (COST), as their co-branding credit card agreement will be ending in 2016 and surprisingly represented a large share of American Express’ profits. However, for much of the earlier years American Express was a good investment vehicle and offered a differentiated and profitable product.

Since that announcement and once the surprise was digested, American Express has traded in a narrow range following a precipitous drop in shares that discounted the earnings hit that was still to be a year away.

That steadiness in share price with the overhang of uncertainty, has made shares another good covered call and they, too, will be ex-dividend during the July 2015 option cycle.

International Paper (IP) may stand as the exception to the previous stocks. It has a new CEO and won’t be offering a dividend until the August or September 2015 cycle.

In fact, its recently retired CEO was once on a CNNMoney list of the 5 most over-paid CEOs.

What it does have is a recent 10% decline in share price that has finally brought it back to the neighborhood in which I wouldn’t mind considering shares. Like GE and Oracle, in hindsight, I wish I had owned shares more frequently over the years, not because of its share out-performance, as that certainly figured into the poor value received from its past CEO, but rather from that steady combination of option premiums and dividends along with a reasonably steady share price. 

Finally, although the sector isn’t very large, there hasn’t been a shortage of activity going in within the small universe of telecommunications companies and cable and satellite providers, of late.  

Verizon (VZ) has been making its own news with a proposed buyout of AOL (AOL), which is a relatively small one when compared to the other deals being made or proposed.

While matching the performance of the S&P 500 YTD, it is lagging well behind in the past month, but in doing so, it is also becoming more attractive, as it returns to the $47 neighborhood. It also will be going ex-dividend in the July 2015 option cycle and always has a reasonable option premium relative to the manageable risk that it generally offers.

At a time when there is ongoing market certainty there is a certain amount o
f comfort that comes from dividends and that comfort makes decisions easier to make.

 

Traditional Stocks: American Express, Cypress Semiconductor, International Paper, Verizon

Momentum Stocks: none

Double-Dip Dividend: General Electric (6/18)

Premiums Enhanced by Earnings:  Oracle (6/17 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.

 

 

May22015

Weekend Update – May 3, 2015

Weekend Update

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Funny how a single product can turn it all around.

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

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

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

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

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

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

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

Traditional Stocks: Coach

Momentum Stocks: Abercrombie and Fitch, T-Mobile

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

Premiums Enhanced by Earnings: Keurig Green Mountain (5/6 PM)

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