Weekend Update – Page 15

February 16, 2014

Weekend Update – February 16, 2014

Is our normal state of dysfunction now on vacation?

Barely seven trading days earlier many believed that we were finally on the precipice of the correction that had long eluded the markets.

Sometimes it’s hard to identify what causes sudden directional changes, much less understand the nature of what caused the change. That doesn’t stop anyone from offering their proprietary insight into that which may sometimes be unknowable.

Certainly there will be technicians who will be able to draw lines and when squinting really hard be able to see some kind of common object-like appearing image that foretold it all. Sadly, I’ve never been very adept at seeing those images, but then again, I even have a hard time identifying “The Big Dipper.”

Others may point to an equally obscure “Principle” that hasn’t had the luxury of being validated because of its rare occurrences that make it impossible to distinguish from the realm of “coincidence.”

For those paying attention it’s somewhat laughable thinking how with almost alternating breaths over the past two weeks we’ve gone from those warning that if the 10 year Treasury yield got up to 3% the market would react very negatively, to warnings that if the yield got below 2.6% the markets would be adverse. There may also be some logical corollaries to those views that are equally not borne out in reality.

Trying to explain what may be irrational markets, which are by and large derivatives of the irrational behaviors found in those comprising the markets, using a rational approach is itself somewhat irrational.

Crediting or blaming trading algorithms has to recognize that even they have to begin with the human component and will reflect certain biases and value propositions.

But the question has to remain what caused the sudden shifting of energy from its destruction to its creation? Further, what sustained that shift to the point that the “correction” had itself been corrected? As someone who buys stocks on the basis of price patterns there may be something to the observation that all previous attempts at a correction in the past 18 months have been halted before the 10% threshold and quickly reversed, just as this most recent attempt.

That may be enough and I suppose that a chart could tell that story.

But forget about those that are suggesting that the market is responding to better than expected earnings and seeking a rational basis in fundamentals. Everyone knows or should know that those earnings are significantly buoyed by share buybacks. There’s no better way to grow EPS than to shrink the share base. Unfortunately, that’s not a strategy that builds for the future nor lends itself to continuing favorable comparisons.

I think that the most recent advance can be broken into two component parts. The first, which occurred in the final two days of the previous trading week which had begun with a 325 point gain was simply what some would have called “a dead cat bounce.” Some combination of tiring from all of the selling and maybe envisioning some bargains.

But then something tangible happened the next week that we haven’t seen for a while. It was a combination of civility and cooperation. The political dysfunction that had characterized much of the past decade seemed to take a break last week and the markets noticed. They even responded in a completely normal way.

Early in the week came rumors that the House of Representatives would actually present a “clean bill” to raise the nation’s debt ceiling. No fighting, no threats to shut down the government and most importantly the decision to ignore the “Hastert Rule” and allow the vote to take place.

The Hastert Rule was a big player in the introduction of dysfunction into the legislative process. Even if a majority could be attained to pass a vote, the bill would not be brought to a vote unless a majority of the majority party was in favor the bill. Good luck trying to get that to occur in the case of proposing no “quid pro quo” in the proposal to raise the nation’s debt ceiling.

The very idea of some form of cooperation by both sides for the common good has been so infrequent as to appear unique in our history. Although the common good may actually have taken a back seat to the need to prevent looking really bad again, whatever the root cause for a cessation to a particular form of dysfunction was welcome news.

While that was being ruminated, Janet Yellen began her first appearance as Federal Reserve Chairman, as mandated by the Humphrey-Hawkins Bill.

Despite the length of the hearings which would have even tired out Bruce Springsteen, they were entirely civil, respectful and diminished in the use of political dogma and talking points. There may have even been some fleeting moments of constructive dialogue.

Normal people do that sort of thing.

But beyond that the market reacted in a straightforward way to Janet Yellen’s appearance and message that the previous path would be the current path. People, when functioning in a normal fashion consider good news to be good news. They don’t play speculative games trying to take what is clear on the surface to its third or fourth derivative.

Unfortunately, for those who like volatility, as I do, because it enhances option premiums, the lack of dysfunction and the more rational approach to markets should diminish the occurrence of large moves in opposite directions to one another. In the real world realities don’t shift that suddenly and on such a regular basis, however, the moods that have moved the markets have shifted furiously as one theory gets displaced by the next.

How long can dysfunction stay on vacation? Human nature being what it is, unpredictable and incapable of fully understanding reality, is why so many in need stop taking their medications, particularly for chronic disorders. I suspect it won’t be long for dysfunction to re-visit.

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

Speaking of dysfunction, that pretty well summarizes the potash cartel. Along with other, one of my longtime favorite stocks, Mosaic (MOS) has had a rough time of things lately. In what may be one of the great blunders and miscalculations of all time, there is now some speculation that the cartel may resume cooperation, now that the CEO of the renegade breakaway has gone from house arrest in Belarus to extradition to Russia and as none of the members of the cartel have seen their fortunes rise as they have gone their separate ways.

In the interim Mosaic has traded in a very nice range after recovering from the initial shock. While I still own more expensively priced shares their burden has been somewhat eased by repetitive purchases of Mosaic and the sale of call contracts. Following an encouraging earnings report shares approached their near term peak. I would be anxious to add shares on even a small pullback, such as nearing $47.50.

One position that I’ve enjoyed sporadically owning has been MetLife (MET) which reported earnings last week. As long as interest rates are part of anyone’s equation for predicting where markets or stocks will go next, MetLife is one of those stocks that received a bump higher as interest rates started climbing concurrent with the announcement of the Federal Reserve;’s decision to initiate a taper to Quantitative Easing.

Cisco (CSCO), to hear the critics tell the story is a company with a troubled future and few prospects under the continued leadership of John Chambers. For those with some memory, you may recall that Chambers has been this route before and has been alternatively glorified, pilloried and glorified again. Currently, he has been a runner-up in the annual contest to identify the worst CEO of the year.

Personally, I have no opinion, but I do like the mediocrity in which shares have been mired. It’s that kind of mediocrity that creates a stream of option premiums and, in the case of Cisco, dividends, as well. With the string of disappointments continued at last week’s earnings report, Cisco did announce another dividend increase while it recovered from much of the drop that it sustained at first.

I’m never quite certain why I like Whole Foods (WFM). What this winter season has shown is that many people are content to stay at home any eat whatever gluten they can find rather than brave the elements and visit a local store for the healthier things in life. I think Whole Foods is now simply making the transition from growth stock to boring stock. If that is the case I expect to be owning it more often as with boring comes that price predictability that appeals to me so much.

This week’s potential dividend trades are a disparate group if you ignore that they have all under-performed the S&P 500 since its peak.

General Electric (GE) is just one of those perfect examples of being in the wrong place at the wrong time and perhaps not being in the right place at the right time. Much of General Electric’s woes when the market was crumbling in 2008 was its financial services group. Since the market bottom its shares have outperformed the S&P 500 by more than 50%, as GE has taken steps to reduce its financial services portfolio. Unfortunately that means that it won’t be in a position to benefit from any rising interest rate environment as can reasonably be expected to be in our future.

Still, coming off its recent price decline and offering a strong dividend this week its shares look inviting, even if only for a short term holding.

L Brands (LB) along with most of the rest of the retail sector hasn’t been reflective of a strong consumer economy. Having recovered about 50% of its recent fall and going ex-dividend this coming week I’m ready to watch it recover some more lost ground as its specialty retailing has appeared to have greater resilience than department store competitors.

Transocean (RIG) still hasn’t recovered from its recent ratings cut from “sector outperform” to “sector perform.” I’ve never understood the logic of that kind of assessment, particularly if the sector may still be in a position to outperform the broad market. However, equally hard to understand is the reaction, especially when the entire sector goes down in unison in response. Subsequently Transocean also received an outright “sell” recommendation and has been mired near its two year lows.

With a very healthy ex-dividend date this week I may have renewed interest in adding shares. While he has been quiet of late, at its latest disclosure, Icahn Enterprises (IEP) owned approximately 6% of Transocean and to some degree serves as a floor to share price, as does the dividend which is scheduled to increase to $3 annually.

However, as with L Brands, which also reports earnings on February 26, 2104, I would also consider an exit or rollover strategy for those that may want to mitigate earnings related risk that will present itself. Such strategies may include closing out the position below the purchase price or rolling over to a March 2014 option in order to have some additional time to ride out any storms.

There’s really not much reason to take sides in the validity of claims regarding the nature of Herbalife (HLF). It has certainly made for amusing theater, as long as you either stayed on the sidelines or selected the right side. With the recent suggestion that some on the long side of the equation have been selling shares this week’s upcoming earnings release may offer some opportunity, as shares have already fallen nearly 16%.

While the option market is only implying a 7.2% move in share price, the sale of a put can return a weekly 1% ROI even at a strike price 13.7% below the current price. That is about the largest cushion I recall seeing and does look appealing for those that may have an inclination to take on risk. I’m a little surprised of how low the implied price movement appears to be, however, the surprise is answered when seeing how unresponsive shares have been the past year upon earnings news.

Also reporting earnings this week is Groupon (GRPN), a stock that has taken on some credibility since replacing its one time CEO, who never enjoyed the same cycle of adulation and disdain as did John Chambers. While the “Daily Deal” space is no longer one that gets much attention, Groupon has demonstrated that all of the cautionary views warning of how few barriers to entry existed, were vacuous. Where there were few barriers were to exit the space.

In the meantime the options market is predicting a 13.9% move related to earnings, while a weekly 1.3% ROI could possibly be achieved with a price movement of less than 19%. While that kind of downward move is possible, there is some very strong support above there.

Finally, there is the frustration of owning AIG (AIG) at the moment. The frustration comes from watching for the second successive earnings report shares climb smartly higher in the after-hours and then completely reverse direction the following day. I continue to believe that its CEO, Robert Benmosche is something of a hero for the manner in which he has restored AIG and created an historical reference point in the event anyone ever questions some future day bailout of a systemically vital company.

None of that hero worship matters as far as any proposed purchased this coming week. However, shares may be well priced and in a sector that’s ready for some renewed interest.

Traditional Stocks: AIG, Cisco, MetLife, Whole Foods

Momentum Stocks: Mosaic

Double Dip Dividend: General Electric (ex-div 2/20), L Brands (ex-div 2/19), Transocean (ex-div 2/19)

Premiums Enhanced by Earnings: Groupon (12/20 PM) , Herbalife (2/18 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.

February 9, 2014

Weekend Update – February 9, 2014

Everything is crystal clear now.

After three straight weeks of losses to end the trading week, including deep losses the past two weeks everyone was scratching their heads to recall the last time a single month had fared so poorly.

What those mounting losses accomplished was to create a clear vision of what awaited investors as the past week was to begin.

Instead, it was nice to finish on an up note to everyone’s confusion.

When you think you are seeing things most clearly is when you should begin having doubts.

Who saw a two day 350 point gain coming, unless they had bothered to realize that this week was featuring an Employment Situation Report? The one saving grace we have is that for the past 18 months you could count on a market rally to greet the employment news, regardless of whether the news met, exceeded or fell short of expectations.

That’s clarity. It’s confusing, but it’s a rare sense of clarity that comes from being so successful in its ability to predict an outcome that itself is based upon human behavior.

As the week began with a 325 point loss in the DJIA voices started bypassing talk of a 10% correction and starting uttering thoughts of a 15-20% correction. 10% was a bygone conclusion. At that point most everyone agreed that it was very clear that we were finally being faced with the “healthy” correction that had been so long overdue.

When in the middle of that correction nothing really feels very healthy about it, but when people have such certainty about things it’s hard to imagine that they might be wrong. With further downside seen by the best and brightest we were about to get healthier than our portfolios might be able to withstand.

It was absolutely amazing how clearly everyone was able to see the future. What made things even more ominous and sustaining their view was the impending Employment Situation Report due at the end of the week. Following last month’s abysmal numbers, ostensibly related to horrid weather across the country, there wasn’t too much reason to expect much in the way of an improvement this time around. Besides, the Nikkei and Russian stock markets had just dipped below the 10% threshold that many define as a market correction and as we’re continually reminded, it’s an inter-connected world these days. It wasn’t really a question of “whether,” it was a matter of “when?”

Then there was all that talk of how high the volatility was getting, even though it had a hard time even getting to October 2013 levels, much less matching historical heights. As everyone knows, volatility comes along with declining markets so the cycle was being put in place for the only outcome possible.

After Monday’s close the future was clear. Crystal clear.

Instead, the week ended with an 0.8% gain in the S&P 500 despite that plunge on Monday and a highly significant drop in volatility. The market responded to a disappointing Employment Situation Report with what logically or even using the “good news is bad news” kind of logic should not have been the case.

Now, with a week that started by confirming the road to correction we were left with a week that supported the idea that the market is resistant to a classic correction. Instead of the near term future of the markets being crystal clear we are left beginning this coming week with more confusion than is normally the case.

If it’s true that the market needs clarity in order to propel forward this shouldn’t be the week to commit yourself. However, the only thing that’s really clear about our notions is that they’re often without basis so the only reasonable advice is to do as in all weeks – look for situational opportunities that can be exploited without regard to what is going on in the rest of the world.

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

If you’re looking for certainty, or at least a company that has taken steps to diminish uncertainty, Microsoft (MSFT) is the one. With the announcement of the appointment of Satya Nadella, an insider, to be its new CEO, shares did exactly what the experts said it wouldn’t do. Not too long ago the overwhelming consensus was that the appointment of an outsider, such as Alan Mullaly would drive shares forward, while an insider would send shares tumbling into the 20s.

Microsoft simply stayed on its path with the news of an inside candidate taking the reigns. Regardless of its critics, Microsoft’s strategy is more coherent than it gets credit for and this leadership decision was a quantum leap forward, certainly far more important than discussions of screen size. With this level of certainty also comes the certainty of a dividend and attractive option premiums, making Microsoft a perennial favorite in a covered option strategy.

The antithesis of certainty may be found in the smallest of the sectors. With the tumult in pricing and contracts being promulgated by T-Mobile (TMUS) and its rebel CEO John Legere, there’s no doubt that the margins of all wireless providers is being threatened. Verizon (VZ) has already seen its share price make an initial response to those threats and has shown resilience even in the face of a declining market, as well. Although the next ex-dividend date is still relatively far away, there is a reason this is a favorite among buy and hold investors. As long as it continues to trade in a defined range, this is a position that I wouldn’t mind holding for a while and collecting option premiums and the occasional dividend.

Lowes (LOW) is always considered an also ran in the home improvement business and some recent disappointing home sales news has trickled down to Lowes’ shares. While it does report earnings during the first week of the March 2014 option cycle, I think there is some near term opportunity at it’s current lower price to see some share appreciation in addition to collecting premiums. However, I wouldn’t mind being out of my current shares prior to its scheduled earnings report.

Among those going ex-dividend this week are Conoco Phillips (COP), International Paper (IP) and Eli Lilly (LLY). In the past month I’ve owned all three concurrently and would be willing to do so again. While International Paper has outperformed the S&P 500 since the most recent market decline two weeks ago, it has also traded fairly rangebound over the past year and is now at the mid-point of that range. That makes it at a reasonable entry point.

Conoco Phillips appears to be at a good entry point simply by virtue of a nearly 12% decline from its recent high point which includes a 5% drop since the market’s own decline. With earnings out of the way, particularly as they have been somewhat disappointing for big oil and with an end in sight for the weather that has interfered with operations, shares are poised for recovery. The premiums and dividend make it easier to wait.

Eli Lilly is down about 5% from its recent high and I believe is the next due for its turn at a little run higher as the major pharmaceutical companies often alternate with one another. With Pfizer (PFE) and Merck (MRK) having recently taken those honors, it’s time for Eli Lilly to get back in the short term lead, as it is for recent also ran Bristol Myers Squibb (BMY) that was lost to assignment this past week and needs a replacement, preferably one offering a dividend.

Zillow (Z) reports earnings this week. In its short history as a publicly traded company it has had the ability to consistently beat analyst’s estimates and then usually see shares fall as earnings were released. That kind of doubled barrel consistency warrants some consideration this week as the option market is implying an 11% move this week. While that is possible, there is still an opportunity to generate a 1% ROI for the week if the share price falls by anything less than 16%.

While I’m not entirely comfortable looking for volatility among potential new positions two that do have some appeal are Coach (COH) and Morgan Stanley (MS).

Coach is a frequent candidate for consideration and I generally like it more when it’s being maligned. After last week’s blow-out earnings report by Michael Kors (KORS) the obvious next thought becomes how their earnings are coming at the expense of Coach. While there may be truth to that and has been the conventional wisdom for nearly 2 years, Coach has been able to find a very comfortable trading range and has been able to significantly increase its dividend in each of the past 4 years in time for the second quarter distribution. It’s combination of premiums, dividends and price stability, despite occasional swings, makes it worthy of consistent consideration.

I’ve been waiting for a while for another opportunity to add shares of Morgan Stanley. Down nearly 12% in the past 3 weeks may be the right opportunity, particularly as some European stability may be at hand following the European Central Bank’s decision to continue accommodation and provide some stimulus to the continent, where Morgan Stanley has interests, particularly being subject to “net counterparty exposure.” It’s ride higher has been sustained and for those looking at such things, it’s lows have been consistently higher and higher, making it a technician’s delight. I don’t really know about such things and charts certainly aren’t known for their clarity being validated, but its option premiums do compel me as do thoughts of a dividend increase that it i increasingly in position to institute.

Finally, if you’re looking for certainty you don’t have to look any further than at Chesapeake Energy (CHK) which announced a significant decrease in upcoming capital expenditures, which sent shares tumbling on the announcement. Presumably, it takes money to make money in the gas drilling business so the news wasn’t taken very well by investors. A very significant increase in option premiums early in the week suggested that some significant news was expected and it certainly came, with some residual uncertainty remaining in this week’s premiums. For those with some daring this may represent the first challenge since the days of Aubrey McClendon and may also represent an opportunity for shareholder Carl Icahn to enter the equation in a more activist manner.

Traditional Stocks: Lowes, Microsoft, Verizon

Momentum Stocks: Chesapeake Energy, Coach, Morgan Stanley,

Double Dip Dividend: Conoco Phillips (ex-div 2/13), International Paper (ex-div 2/12), Eli Lilly (ex-div 2/12)

Premiums Enhanced by Earnings: Zillow (2/12 PM)

February 1, 2014

Weekend Update – February 2, 2014

Volatility is back!

That’s all you heard this week as the S&P 500 dropped 0.4% to end the unrequited January Rally that we had all been told was the historical norm.

As a covered option seller I have learned to embrace the uncertainty that ushers in a period of volatility, although I make no pretense of really understanding exactly how “volatility works. Like many things in life sometimes it’s simply easier to take one’s word for it.

Just like when you’re told that volatility is back.

Or when social media suggests a relationship that isn’t borne out in historical fact, such as very notably in 2010 or about 50% of the other times January opened the year with a loss in the past 63 years.

While the expression “greed is good,” may be far more memorable, there’s not much debate for those who follow it that “volatility is good.” Not only does it create enhanced option premiums but it may also be the ultimate portfolio insurance.

For many people hearing that volatility has returned the only reasonable course of action is to head for the exits, because the very mention of the word is associated with wild rides, mostly in the wrong direction. For them volatility is far from good and is something to be feared and avoided.

That picture isn’t entirely accurate. Volatility is simply a measure of uncertainty and size. 2013 was a year of low volatility as there was a high degree of certainty when you arose each morning that the stock market would move higher on any given day. Additionally, it did so in a largely non-dramatic fashion. The movements were small, but consistent and sustained.

Suddenly the movements are now larger and can just as easily go in one direction as in the opposite one. The range has expanded, too. You don’t need a complex formula to have a qualitative sense that something is different. Not necessarily bad, just different.

But as long as we were talking about historical norms and how disappointing it was waiting for the historically predicted January Rally that never came, the cries welcoming back volatility may have lost track of what historical levels of volatility have been.

The volatility of this past week hasn’t even reached the levels seen in October 2013 back when the S&P 500 stood at 1655, which represented a loss similar to that currently at hand. The current level of volatility is certainly dwarfed by that seen in 2011, which itself was far smaller than that seen in late 2008.

2011 which was one of my favorite years saw the S&P 500 end the year precisely unchanged. However, during the course of the year there were regular triple digit moves, often in alternating direction and ultimately accomplishing nothing. That was a covered option seller’s greatest fantasy come true.

Yet the cries of the return of volatility weren’t making the rounds in October and spreading the specter of an imminent collapse of all that has preceded the market’s climb. While so many have spoken of a 5-10% decline being a healthy thing, some began to utter an heretofore unheard 15-20% range correction in the making.

For those that have been counting on an inflow of money that has been said to still reside on the sidelines to continue fueling the market’s rise the past week’s $12 billion in outflows from equity funds represented the highest level in two years. That represents selling that won’t likely be put back at risk very quickly, but it also represents money that won’t contribute to downward pressure on prices any time soon.

While volatility has risen significantly in the past week it has done so from 5 year lows. There is also certainly more upside to volatility than there is downside. It is with an understanding of the mathematical basis for volatility that there comes an appreciation for the manner in which volatility may be quickly magnified far beyond the seeming disruption in the market.

So no. Volatility isn’t back yet, but it can be in an imperceptible instant.

With the uncertainty that awaits low beta stocks may have special value and the sale of options may increasingly become inviting even at out of the money strike levels, something that hasn’t been the case in quite a while. The market may be said to not like uncertainty but it does have its rewards.

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

Apple (AAPL) briefly closed below $500 this week. Since not too many stocks occupy that kind of rarefied neighborhood it’s not too surprising that the last couple of times a big fuss was made about a stock falling below $500 it was Apple eliciting the anguish. While there has certainly been lots of debate following Apple’s recent disappointing sales, especially of its iPhone franchise, it does go ex-dividend this week and in its short history of paying a dividend it has generally performed well in its short term aftermath. That alone has me interested in addition to Apple’s low beta and head start on any market inspired drop. Others can debate Apple’s near term future and product cycles and innovations, but the combination of dividend and volatility enhanced premiums makes it look especially good as a choice for this week. The fact that Carl Icahn seems to have made a longer term commitment and has increasingly increased that commitment at least allows for misery to have company if the short term thesis is incorrect.

Another stock that has taken quite a significant fall in the past two weeks has been Starbucks (SBUX) down nearly 10% YTD and even down 4% since its earnings related jump in share price on a day when the market itself tumbled. Perhaps the market is concerned that CEO Howard Schultz may be removing himself more from daily operations, recalling the last time that occurred. However, the root cause of Starbucks’ difficulties earlier last decade, the unbridled expansion during a period of economic contraction, isn’t likely to be repeated. Starbucks is ex-dividend this week and may also be ahead of the curve of any further market declines. It too is showing some enhancement of its option premiums, particularly when dividend capture is also considered.

EMC Corporation (EMC) and its spin off VMWare (VMW) both reported earnings last week. Both declined as a result, with EMC suffering its own disappointment and also bearing some of the VMWare burden, owing to its continuing 80% ownership. While much attention was directed toward Microsoft (MSFT) this week as speculation heated up that an insider, whose own emphasis was on cloud based strategies would be the new CEO, EMC stock continues to languish in relative obscurity and trades in a fairly defined range. A low beta, despite its connection to VMWare,a decent dividend and option premium makes EMC an ever present consideration when seeking to round out the technology sector of my portfolio without wanting to take on undue risk.

On January 8th Transocean (RIG) was cut to “sector perform” from “sector outperform.” A week later it started a decline from the $48 level but without any company specific news, although similar companies, such as Seadrill (SDRL) and ENSCO (ESV) moved in unison. Transocean, after its decline is sitting at an 18 month low which occurred at the time of the temporary suspension of its dividend. With a dividend rate now standing at over 5% and a miniscule payout ratio, combined with its option premium it is one of those few stocks that I would consider owning at this moment without concomitant call sales on shares.

Mondelez (MDLZ) is most everyone’s idea of a lackluster and unexciting company. Because of its perceived mediocrity and uninspired leadership it has gotten the attention of the activist investment community. Unfortunately for pre-existing shareholders the ascension of Nelson Peltz to the Board of Directors was accompanied by the statement that he wouldn’t pursue a deal with PepsiCo (PEP) and subsequently shares significantly under-performed the S&P 500, despite a very low beta. As a result of its recent increased volatility its option premium is beginning to perk up and is getting interesting as it share price is returning to a more manageable level.

Joy Global (JOY) and Las Vegas Sands (LVS) speak to the differing fortunes found in China. While construction and infrastructure projects are slowing, as is the manufacturing index, apparently gaming is alive and well in Macao. After an initial plunge in shares in the after hours as Las Vegas Sands reported its earnings a better understanding of the details behind the report saw a quick reversal.

Las Vegas Sands was frequently owned stock in 2012, but less so in 2013 as I had been waiting for a price retreat that never came. The recent drop from $82 may be the best such drop to be had. While shares do trade at a higher beta than I am interested in pursuing to broadly round out my existing portfolio, indications are that the engines running Las Vegas Sands’ operations aren’t going to slow down in response to Chinese economic woes.

Joy Global on the other hand has engines that literally could be stalled by a faltering Chinese economy. Like many other companies highlighted this week it has greatly underperformed the broad market of late. While doing so shares have returned to near the mid-point of a very comfortable trading range and continues to offer an option premium in line with its volatility.

The coming week is another busy one for earnings. A more detailed look at this week’s earnings related trade considerations is available in an accompanying article. This week more candidates stand out as opportunities by virtue of meeting my ROI and risk criteria in addition to Twitter (TWTR) and Green Mountain Coffee Roasters (GMCR) identified in this article.

Green Mountain Coffee Roasters somehow continues to confound everyone by remaining relevant. While shrouded in controversy it has to be hailed as one of the great share comebacks in recent years, although it is throwing so many concepts into the air these days one has to wonder whether focus is getting dissipated as its core product lines increasingly become commodities and held hostage by agreements with other companies, such as Starbucks.

However, for an earnings related trade those issues may share a lack of relevancy with the company’s future prospects. Always volatile around earnings, with 20% price moves not unusual, the options market is implying an 11% earnings related move. For those content with a 1% ROI for a trade that may last a week or less, a price move of less than 15% lower could fulfill that objective.

Twitter reports its first earnings since its IPO this week.

That thought should be enough to convince people to stay away from shares even had it not had such a surge in share price since a shaky start. Last week it held onto Facebook’s earnings coattails and rose even higher. This week as it faces its first real scrutiny and potential pressure on shares, the options market is implying a 15.8% move in either direction. Again, for those content with a 1% ROI a strike price 22% below Friday’s close can deliver the reward. With at least one good support level and a couple of additional minor ones below that, the risk appears attenuated enough for at least consideration. That is until the next real challenge in mid-February when the first lock-up period comes to an end.

Finally, what’s a week without owning shares of eBay (EBAY)? After announcing earnings the week before last which were widely expected to be disappointing came the announcement from eBay itself that Carl Icahn had taken a position and was putting forward some ideas. The initial reaction was to propel shares toward the high point of its trading range, but eBay CEO Donahoe was quick to dismiss the idea of separating the PayPal unit from eBay and he seemed to have convinced the world that Icahn offered nothing new. He also convinced the world to give back the knee jerk gains.

While shares fared reasonably well this past week they are back in the range that I like to consider ownership, albeit at the upper end of that range. However, eBay, for all of the reasons people have disparaged its ownership has consistently been an excellent covered option purchase and wouldn’t be expected to melt under the pressure of a market at siege.

In the absence of any market moving international news particularly in the currency or debt markets I don’t expect much in the way of increasing volatility this coming week, but I wouldn’t mind the opportunity to party like it’s 2011.

Traditional Stocks: eBay, EMC, Mondelez, Transocean

Momentum Stocks: Joy Global, Las Vegas Sands

Double Dip Dividend: Apple (ex-div 2/6), Starbucks (ex-div 2/4)

Premiums Enhanced by Earnings: Green Mountain Coffee Roasters (2/5 PM), Twitter (2/5 PM)

January 31, 2014

Earnings Still Matter

Last week confirmed that I still like earnings season, which as behavioral adaptations go, is a good idea, as it never seems to end. Better to learn to like it than to fight it.

Based upon comments heard over the past few weeks, approximately 25% of the year represent critical earnings weeks. You simply can’t escape the news, nor more importantly the impact.

Or the opportunity.

Of the earnings related trades examined last week, I made trades in two: Facebook (FB) and Seagate Technolgy (STX). The former trade being before earnings and the latter after, both involving the sale of out of the money puts. Both of those trades met my criteria, as in hindsight, did Chipotle Mexican Grill (CMG), but there’s always next quarter.

While hearing stellar numbers from Netflix (NFLX) and Facebook are nice, they are not likely to lead an economy and its capital markets forward, although they can lead your personal assets forward, as long as you’re willing to accept the risks that may be heightened during a weakening market.

With “implied volatility” continuing to serve as my guide there are a number of companies that are expected to make large earnings related moves this week and they have certainly done so in the past.

Again, while I seek a 1% ROI on an investment that is hoped to last only
for the week, the individual investor can always adjust the risk and the reward. My preference continues to be to locate a strike price that is outside the range suggested by the implied volatility, yet still offers a 1% or greater ROI.

Typically, the stocks that will satisfy that demand already trade with a high degree of volatility and see enhanced volatility as earnings and guidance are issued.

The coming week is another busy one and presents more companies that may fit the above criteria. Among the companies that I am considering this coming week are Anadarko (APC), British Petroleum (BP), Green Mountain Coffee Roasters (GMCR), International Paper (IP), Michael Kors (KORS), LinkedIn (LNKD), Twitter (TWTR), Yelp (YELP) and YUM Brands (YUM).

As with all earnings related trades I don’t focus on fundamental issues. It is entirely an analysis of whether the options market has provided an opportunity to take advantage of the perceived risk. A quick glance at those names indicates a wide range of inherent volatility and relative fortunes during the most recent market downturn.

Since my preference is to sell puts when there is already an indication of price weakness this past week has seen many such positions trading lower in advance of earnings. While they may certainly go lower on disappointing news or along with broad market currents, the antecedent decline in share price may serve to limit earnings related declines as previous resistance points may be encountered and serve as brakes to downward movement. Additionally, the increasing volatility accompanying the market’s recent weakness is enhancing premiums, particularly if sentiment is further eroding on a particular stock.

Alternatively, rather than following the need for greed, one may decide to lower the strike price at which puts are sold in order to get additional protection wile still aiming for the ROI objective.

As always when considering these trades, especially through the sale of put options, the investor must be prepared to own the shares if assigned or to manage the options contract until some other resolution is achieved.

Strategies to achieve an exit include rolling the option contract forward and ideally to a lower strike or accepting assignment and then selling calls until assignment of shares.

The table above may be used as a guide for determining which of selected companies may meet the risk–reward parameters that an individual sets, understanding that adjustments may need to be made as prices and, therefore, strike prices and premiums may change.

The decision as to whether to make the trade before or after earnings is one that I make based on perceived market risk. During a period of uncertainty, such as we are presently navigating, I’m more inclined to look at the opportunities after earnings are announced, particularly for those positions that do see their shares declining sharply.

While it may be difficult to find the courage to enter into new positions during what may be the early stages of a market correction, the sale of puts is a mechanism to still be part of the action, while offering some additional downside protection if using out of the money puts, while also providing some income.

That’s not an altogether bad combination, but it may require some antacids along the way.

January 19, 2014

Weekend Update – January 19, 2014

As you get older you realize certain truths and realities and they aren’t always warm and fuzzy.

One of those realities is that often many years of marriage come to an end once the children have left the household. Without the diversion of children always in need comes the realization that there is nothing of substance to hold together a failing foundation. Sometimes the realization is there, but swept under the rug as other events take precedence, but you always know that someday reality can no longer be delayed.

With my youngest child having graduated college that appears to be the story that we’ve heard on multiple occasions from like aged acquaintances and friends. Like most everything else in life there are parallels to the stock market.

We now find ourselves in a market faced with certain realities but without the diversions offered by European monetary crises, sequestration, fiscal cliffs, government shutdowns, quantitative easing, credit downgrades and budgetary deadlines. Those diversions conveniently removed focus from the very foundation upon which stocks find their fair price and to which markets have traditionally responded.

All that is now left behind is earnings and it’s not a pretty prospect.

Perhaps in a manner similar to those in long standing unions who suddenly suffer from improved judgment following a youth blinded by the superficial, the market went through a period of not being terribly discerning and always finding reason to go higher. Interpreting economic news to be something other than what it is has its counterpart in idealizing the idea more than the hard facts.

The reality that is being faced is that of earnings and the failing of earnings to support an ongoing rise in the stock market.

Early suggestions that this earnings season would result in a 6% increase could only be the result of optics as publicly held shares have diminished through massive stock buybacks. However, it doesn’t take much insight to realize that the abysmal state of retail earnings has to have some meaning with regard to the ability of individuals to find discretionary spending within their reality.

As with the past two quarters with the big money financial centers reporting positive earnings, there is little reason to believe that will extend to the other members of the S&P 500 as they begin their reporting in earnest this week.

I’m prepared for the reality, but I still like the fantasy, so I expect to continue playing along this week, just a little more mindful of the obstacles that have a lot of catching up to do.

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

Among those reporting earnings this week is Coach (COH) which had fallen 6.2% last week, in preparation for what has become a near regular occurrence in the past 18 months upon earnings. While its most recent past has been to shed significant value when all is bared the option market is expecting an implied move of nearly 10%, in addition to the recent weakness. While Coach has had its competitive challenges it has somehow been able to find a fairly well defined trading range, punctuated with some significant moves and periods of recovery or occasionally, decline. In 2013, I traded Coach for all earnings reports, three of which were through the sale of puts. Despite the dramatic moves following all of last year’s earnings reports, predominantly lower, Coach has been and may continue to be an erratic position that offers acceptable reward for defined risk.

Cypress Semiconductor (CY) also reports earnings this week. Just a few months ago, prior to its last report, it did what many have been doing of late and offered some earnings warnings and saw shares plummet more than 20%, leaving virtually nothing more to fall. Like Coach, Cypress Semiconductor has a habit of seeing its share price gravitate back toward a set level with some regularity. Having already fallen approximately 4% in the past two weeks. While the option market is implying a 9% move this week as earnings are announced, I think that it will be much less pronounced and more likely to have some upside potential. After having shares assigned this past Friday, rather than selling puts,as I often do when earnings are at hand, I am considering the purchase of shares and sale of calls on only a portion of shares or at both the $10 and $11 levels to potentially capitalize on share appreciation.

Anadarko (APC) had a brief spike in price this past week, nearly three weeks after plummeting upon news that it might be facing a $14 billion judgment in a case involving a company that it had purchased several years ago. The spike came as Anadarko stated that it believed the judge in the case set damages that were punitive, rather than remedial and believed that the appropriate amount was more in the $2 billion range. It will likely take a long time to come to some resolution, but even at $14 billion there is certainty and the ability to move forward. As shares seem to be creating a new base I think this is a good entry point, as well as a good point to add shares to start the process of offsetting the paper losses from older shares.

Chesapeake Energy (CHK), while trading in a range of late, has also been trading with relatively large daily and intra-day moves. As a result shares enjoy generous option premiums that reflect the volatility, despite having traded in a very stable range for the past 5 months. Offering expanded weekly options I would consider selecting an expiration prior to the scheduled February 20, 2014 earnings report date.

Having already announced earnings Unitedhealth Group (UNH) added to its recent losses and is now down approximately 5% since its recent high. It appears to have some price support a dollar lower than its current price, which may be a good thing considering the unknowns that await as more news trickles in regarding registration demographics and utilization among newly enrolled health care policy holders. While I never move into a position with the idea that it will be a long term holding, I don’t hold too much concern for that unwanted possibility as it’s as likely to recover from any price drops as most anything else and could easily be justified as being a core holding.

The potential dividend choices this week share a “household theme” covering aspects of the kitchen, laundry room and bathroom, but represent different ends of the consumer spectrum when defensive investing is foremost.

While Clorox (CLX) and Colgate Palmolive (CL) may be best known for consumer staples and nothing terribly ostentatious, Williams Sonoma (WSM) offers products that are every bit as critical to some. Those who would sacrifice anything to ensure that they can purchase an oversized block of Mediterranean pink salt have money every bit as valuable as those that like bright white shirt collars and bright white teeth.

More importantly, at least for me, they have all recently under-performed the S&P 500 and all trade with a low beta at a time that I want to balance risk and still generate a reasonable income stream from premiums and dividends. While both Clorox and Colgate Palmolive have earnings reports due in the February option cycle, WIlliams Sonoma, which tends to trade with more volatility upon earnings, does not report until the end of the March 2014 cycle.

Finally, for those who really seek reckless adventure, perhaps only frolicking in a landfill brimming with its products offers more excitement than considering shares of LED light bulb maker Cree (CREE) in advance of earnings. The last time I considered an earnings related trade in Cree I didn’t recommend the purchase or sale of puts to my subscribers, but did make the put sale for my personal account. However, I did so only after earnings, believing that the 16% drop offered sufficient protection to make an out of the money put sale with relative impunity.

Like some other stocks this past week that continued to fall even days after earnings plunges, that’s what Cree did. Rolling over the puts on a few occasions, eventually taking assignment and then selling calls until its final assignment at a strike level 5% higher than the original put strike price made it worthwhile, but more thrilling than necessary.

So unnecessary that I may be ready to do so again.

Traditional Stocks: Anadarko, Unitedhealth Group

Momentum Stocks: Chesapeake Energy

Double Dip Dividend: Colgate Palmolive (ex div 1/22), Clorox (ex-div 1/27), Williams Sonoma (ex-div 1/22)

Premiums Enhanced by Earnings: Cree (1/21 PM), Coach (1/22 AM), Cypress Semiconductor (1/22 AM)

January 12, 2014

Weekend Update – January 12, 2014

Confusion Reigns.

January is supposed to be a very straightforward month. Everyone knows how it’s all supposed to go.

The market moves higher and the rest of the year simply follows. Some even believe it’s as simple as the first five trading days of the year setting the tone for the remainder still to come.

Since the market loves certainty, the antithesis of confusion, the idea of a few days or even a month ordaining the outcome of an entire year is the kind of certainty that has broad appeal.

But with the fifth trading day having come to its end on January 8th, the S&P 500 had gone down 11 points. Now what? Where do we turn for certainty?

To our institutions, of course, especially our central banking system which has steadfastly guided us through the challenges of the past 6 years. The year started with some certainty as Federal Reserve Chairman nominee Janet Yellen was approved by a vote that saw fewer negative votes cast than when her predecessor Ben Bernanke last stood for Senate approval, although there were far fewer total votes, too. On a positive note, while there was voting confusion among political lines, there was only certainty among gender lines.

While Dr. Yellen’s confirmation was a sign to many that a relatively dovish voice would predominate the FOMC, even as some more hawkish governors become voting members this year, the announcement that Dr. Stanley Fischer was being nominated as Vice-Chair sends a somewhat different message and may embolden the more hawkish elements of the committee.

That seems confusing. Why would you want to do that? But then again, why would you have pulled the welcome mat out from under Ben Bernanke?

Then on Friday morning came the first Employment Situation Report of the new year and no one was remotely close in their guesses. Nobody was so pessimistic as to believe that the fewest new jobs created in 14 months would be the result.

But the real confusion was whether that was good news or bad news. Did we want disappointing employment statistics? How would the “new” Federal Reserve react? Would they step way from the taper or embrace it as hawks exert their philosophical position?

More importantly, how is a January Rally supposed to take root in the remaining 14 trading days in this kind of muddled environment?

Personally, I like the way the year has begun, there’s not too much confusion about that being the case, despite my first week having been mediocre. While the evidence is scant that the first five days has great predictive value, there is evidence to suggest that there is no great predictive value for the remainder of the year if January ends the month lower. I like that because my preference is alternating periods of certainty and confusion, as long as the net result remains near the baseline. That is a perfect scenario for a covered option strategy and also tends to increase premiums as volatility is enhanced.

I prefer to think of it as counter-intuitive rather than confusing.

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

There’s not much confusion when it comes to designating the best in large retail of late. Most everyone agrees that Macys (M) has been the best among a sorry bunch, yet even the best of breed needed to announce large layoffs in order to get a share price boost after being range bound. However, this week the embattled retail sector seems very inviting despite earnings disappointments and the specter of lower employment statistics and spending power.

Finding disappointments among retailers isn’t terribly difficult, as even Bed Bath and Beyond (BBBY), which could essentially do nothing wrong in 2013 more than made up for that by reporting its earnings report. While earnings themselves were improved, it was the reduced guidance that seems to have sent the buyers fleeing. There was no confusion regarding how to respond to the disappointment, yet its plummet brings it back toward levels where it can once again be considered as a source of option premium income, in addition to some opportunity for share appreciation.

L Brands (LB) shares are now down approximately 12% in the past 6 weeks. It is one of those stocks that I’ve owned, but have been waiting far too long to re-own while waiting for its price to return to reasonable levels. Like Bed Bath and Beyond it offered lower guidance for the coming quarter after heavy promotions that are likely to reduce margins.

Target (TGT) has had enough bad news to last it for the rest of the year. While it recently reported that it sales had been better than expected prior to the computer card data hack, it also acknowledged that there was a tangible decline in shopping activity in its aftermath. Its divulging that as many as 70 million accounts may have been compromised, it seemed to throw all bad news into the mix, as often incoming CEOs do with write-downs, so as to make the following quarter look good in comparison. For its part, Target, recovered nicely on Friday from its initial price decline and has been defending the $62.50 line that I believe will be a staging point higher.

Sears Holdings (SHLD) on the other hand doesn’t even pretend to be a ret

ailer. The promise of great riches in its real estate holdings is falling on deaf ears and its biggest proponent and share holder, Eddie Lampert, has seen his personal stake reduced amid hedge fund redemptions. Shares plummeted after reporting disappointing holiday sales. What’s confusing about Sears Holding is how there is even room for disappointment and how the Sears retail business continues, as it has recently been referred to as a “national tragedy.”

But I have a soft spot in my heart for companies that suffer large event driven price drops. Not that I believe there is sustainable life after such events, but rather that there are opportunities to profit from other people like me who smell an opportunity and add support to the share price. However, my time frame is short and I don’t necessarily expect investor largesse to continue.

I did sell puts on Sears Holding on Friday, but would not have done so if the event and subsequent share plunge had been earlier in the option cycle. Sears Holdings, only offers monthly options and in this case there is just one week left in that cycle. If faced with the possibility of assignment I would hope to be able to roll the puts options forward, but do have some concerns about a month long exposure, despite what would likely be an attractive premium.

While there’s no confusion about the nature of its products, Lorillard’s (LO) recent share decline, while not offering certainty of its end, does offer a more reasonable entry point for a company that offers attractive option premiums even when its very healthy dividend is coming due. Like Sears Holdings, Lorillard only offers monthly option contracts, but in this case I have no reservations about holding shares for a longer time period if not assigned.

Conoco Phillips (COP) has been eclipsed in my investing attention by the enormous success of its spin-off Phillips 66 (PSX), but had never fallen off my radar screen. While waiting for evidence that the same will occur to Phillips 66 through its own subsequent spin-off of Phillips 66 Partners (PSXP), my focus has returned to the proud parent, whose shares appear to be ready for some recovery. However, with a dividend likely during the February 2014 option cycle, I don’t mind the idea of shares continuing to run in place and generate option income in a serial manner.

Perhaps not all retailers are in the same abysmal category. Lowes (LOW), while not selling much in the way of fashions or accessories and perennially being considered an also ran to Home Depot, goes ex-dividend this week and has traded reliably at its current level, making it a continuing target for a covered option strategy. I’ve owned in 5 times in 2013, usually for a week or two, and wonder why I hadn’t owned it more often. Following its strong close to end the week I would like to see a little giveback before making a purchase. Additionally, since the ex-dividend date is on a Friday, I’m more likely to consider selling an option expiring the following week or even February, so as to have a greater chance of avoiding early assignment of having sold an in the money option.

Whole Foods (WFM) also goes ex-dividend this week, but its paltry dividend alone is a poor reason to consider share ownership. However, its inexplicable price drop after having already suffered an earnings related drop makes it especially worthy of consideration. While I already own more expensively priced shares and often use lesser priced additional lots in a sacrificial manner to garner option premiums to offset paper losses, I’m inclined to shift the emphasis on share gain over premium at this price level. Reportedly Whole Foods sales suffered during the nation wide cold snap and that may be something to keep in mind at the next earnings report when guidance for the next quarter is offered.

Although earnings season will be in focus this week, especially with big money center banks all reporting, I have no earnings selections this week. Instead, I’m thinking of adding shares of Alcoa (AA) which had fared very nicely after being dis-invited from membership in the DJIA and not so well after leading off earnings season on Thursday.

While I typically am niot overly interested in longer term oiutlooks, CEO Klaus Kleinfeld’s suggestion that demand is expected to increase strongly in 2014 could help to raise Alcoa’s margins. Even a small increase would be large on a percentage basis and could easily be the fuel for shares to continue their post DJIA-explusion climb.

Finally, I was a bit confused as Verizon’s (VZ) shares took off mid-day last week and took it beyond the range that I thought my shares wouldn’t be assigned early in order to capture the dividend. In the absence of news the same didn’t occur with shares of AT&T which was also going ex-dividend the next day and other cell carriers saw their shares drop. In hindsight, the drop in shares the next day, well beyond the impact of dividends, was just as confusing. Where there is certainty, however, is that shares are now more reasonably priced and despite their recent two day gyrations trade with low volatility compared to the market, making them a good place to park money for the defensive portion of a portfolio.

Traditional Stocks: Bed Bath and Beyond, Conoco Phillips, L Brands, Lorillard, Target, Verizon

Momentum Stocks: Alcoa, Sears Holdings

Double Dip Dividend: Lowes (ex-div 1/17), Whole Foods (ex-div 1/14)

Premiums Enhanced by Earnings: none

January 5, 2014

Weekend Update – January 5, 2014

There’s a lot to be said in support of those who practice a strategy of surrounding themselves with those that suffer by comparison of whatever attribute is under consideration.

Most of us intuitively know what needs to be done if we want to make ourselves or our actions look good when under scrutiny.

The mutual fund industry had done it for years. It’s all about what you compare yourself to, although looking good raises expectations for even more of the same and most of us also know how that often works out.

As observers it’s only natural that we make our assessments on the basis of comparison to whatever standard is available. Among our many human foibles is that we often tend to be superficial and are just as likely to forego deeper analyses when faced with pleasing circumstances. We also want to go with the perceived winners in the belief that they will always be winners. Certainly the investing experience doesn’t bear out that strategy. Yesterday’s winner isn’t necessarily tomorrow’s champion.

Fresh on the heels of a 31% gain in the S&P 500, 2014 is going to have a difficult time in comparison. While maybe hoping that 2015 is going to be an abysmal year in the meantime 2014 has to contend with the obvious stress of the obligatory comparisons.

For the individual investor 2013 has ended with so many stocks at or near their highs that it’s actually very difficult to find that lesser entity for comparison purposes. Everything just looks so good that nothing really looks good, especially going forward, which is the only direction that counts. Looking at chart after chart brings up strikingly similar patterns with very little able to stand out on the basis of its own beauty. Comparing one “super–model” to the next is likely to be an empty exercise for many reasons, but ultimately it becomes clear that there are no distinguishing factors to make anyone stand out.

Without comparisons our own minds get numb. We need differences to appreciate the reality of any situation. When so many stock charts begin to look so similar it becomes difficult to discern where to start when looking for new positions.

While another human tendency is the desire to go with winners this time of the year introduces a traditional concept that looks in the opposite direction for its rewards. This is the time of the year when the “Dogs of the Dow Theory” gets so much attention. In a year that so many stocks are higher the comparison to those that have truly under–performed is really heightened.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum and “PEE” categories this week (see details). With earnings season beginning once again this week attention must also be diverted into the consideration of those reports when adding new positions and when selecting the time frame for hedging options. For that reason I’m looking increasingly at option time frames that offer some buffer in time between expiration dates and earnings dates, perhaps making greater use of expanded options and forward month expirations, as well.

This week’s potential selections varied widely in performance compared to the S&P 500 during 2013. While no “Dogs of the Dow” candidates are offered, some were dogs in their own right regardless of what they were being compared to at the time. But as always, since I like to hedge my bets and play on both sides of prevailing sentiment, there may be room for both out–performers and under–performers as 2014 gets underway.

While General Electric’s (GE) 33.5% gain for 2013 was laudable it essentially mirrored the S&P 500 for the year. An analyst downgrade on Friday had virtually no impact, although shares did fall nearly 2% the previous day to start the New Year. Increasingly shedding its dependence on financial divisions that helped to bring it to $6 just 5 years ago, GE may now be wondering if this wouldn’t be a good time to emphasize that division, as interest rates are beginning to rise. But even a stagnant GE in 2014 when considered in the context of its dividend and option premiums offers a good place to invest if the aim is to out–perform the S&P 500.

Barclays (BCS) is one of those in the financial sector that had greatly lagged the S&P 500 in 2013. With significant international exposure it shouldn’t be too surprising that it might better reflect the lesser fortunes experienced by the European markets, among others. I already own shares and will consider adding more as it appears that there will be a move higher which I expect will be confirmed by improved earnings when reported during the February 2014 option cycle, which may also see a dividend payment.

Chesapeake Energy (CHK) has long been a favorite stock upon which to sell covered calls or enter ownership through the sale of puts. It out–performed the S&P 500 by nearly the amount that Barclays under–performed for the year, but after some recent weakness that reduced shares by 7% its chart has started looking less like the crowd. While certainly not in the “loser” category it’s potential looks better to me than those that haven’t taken the time for the share price to take a breather of late.

As long as in comparison mode, last January Family Dollar Store (FDO) dropped 12% upon earnings release, which followed a 9% drop the previous month. The option market isn’t expecting a repeat of that performance, perhaps because shares are already down 11% since its September high. Instead a 5.9% implied move is priced into option contracts. The sale of out of the money puts at a strike price at the lower end of the implied move could return 0.9% for the effort. That is just below my typical threshold for making such a trade, but if looking for a relative “dog,” this may be the one ready for a rebound.

Joy Global (JOY) is one of those stocks that recently broke out of its reliable trading range. Once that happens I lose interest in re–acquiring shares, having already owned it on eight occasions in 2013. What I don’t lose is interest in seeing shares return to that range. Following an earnings related share fall the price rebounded beyond where it started is descent. However, a recent downgrade has started nudging shares back toward the upper edge of the range that has proved to be a good entry point. While no one really has any good idea of what awaits the Chinese economy and by extension, Joy Global’s fortunes, it has proven to be a resilient stock and offers an option premium to go along with its frequent alternations in price direction.

It has been a long time since I had own any communications stocks until a recent T–Mobile holding. While both Verizon (VZ) and AT&T (T)were core holdings during the recovery stages in 2009, I haven’t found them very appealing for much of the recovery. However, both do go ex–dividend this week and the cellphone services sector is certainly livening up a bit. But beyond that, for the first time in a long time there were glimpses of these shares offering meaningful option premiums during their ex–dividend week that seemed to warrant their consideration once again. In fact, I didn’t wait until Monday and purchased shares of Verizon after weakness on Friday and may elect to accompany those shares with its rival’s shares, as well.

Darden Restaurants (DRI) was a selection just a few weeks ago but went unrequited as news broke regarding activist investor coercion regarding potential spin–off plans for its low growth Red Lobster chain. Shares go ex–dividend this week and earnings pressure is still two months away. Although a $55 strike would require challenging its 52 week high, this is a potential trade that I would consider using a forward month contract, such as the February 2014, in anticipation of some increasing pressure from the investment community and activists intent on re–engineering.

Finally, a study in comparative contrasts are Walter Energy (WLT) and Icahn Enterprises (IEP). While Icahn Enterprises was nearly 145% higher for the year Walter Energy dropped nearly 54%.

While Carl Icahn may get more done on the basis of brute force investing and schoolyard tactics, Walter Energy now relies on the power of redemption and grace, and maybe just a little on business cycles.

A quick look at the comparative charts shows what a difference time can make, as Walter Energy greatly out–performed Icahn Enterprises prior to this year and how Icahn Enterprises had been simply a market performer until the past year.

Interestingly in the past month Walter Energy has risen about 15% while Icahn Enterprises has fallen a similar amount.

This past year no one has received more attention for his investing and activism than Carl Icahn. This week yet another company Hertz (HTZ) acknowledged that it was in the Icahn crosshairs, as it adopted a poison pill provision to keep him at bay. Icahn Enterprises, a tangled web of holding companies and investment activities shows little sign of slowing down as long as the market remains healthy. With the ability to raise stock prices with a simple Tweet, Carl Icahn may be more in control of his destiny than the market was intended to allow.

With a healthy dividend likely during the February 2014 option cycle and an attractive option premium, Icahn Enterprises may be a good choice for someone with a little daring to spare, as the ascent has been steep.

Walter Energy, on the other hand, has been slowly working its way higher, although still having a long way to go to erase its past year’s loss. While there is certainly no guarantee that last year’s loser will be this year’s darling, Walter Energy certainly is the former. It has, however, for the daring, offered excellent option premiums even for deep in the money options, that do mitigate some of the risk inherent in ownership of shares.

Traditional Stocks: Barclays, General Electric

Momentum Stocks: Chesapeake Energy, Icahn Enterprises, Joy Global, Walter Energy

Double Dip Dividend: AT&T (ex–div 1/8), Darden (ex–div 1/8), Verizon (ex–div 1/8)

Premiums Enhanced by Earnings: Family Dollar Store

December 29, 2013

Weekend Update – December 29, 2013

How do you follow up a year in which the market has advanced nearly 30%? If you look at the historical data the year after a great year such as the one we’ve just had tends to be quite good, too – just not as good. While comparison isn’t really worthwhile, after all, it’s the accumulation of assets that really has meaning from year to year, you can’t help but feel some disappointment when comparisons are made to a stellar year.

As I look at charts I’m struck by how similar so many charts look as the year draws to a close. So many stocks are at or near their highs for the year, making it hard to find any bargains and making it especially hard to find value among well regarded stocks.

From my jaded perspective that sets one up for disappointment, even if the direction is still higher.

Buying at the high isn’t a great strategy, it also tends to set you up for disappointment, but there may not be very many alternatives. Similarly, buying after a significant run higher nay not be a good strategy, but that’s how some are starting the new year as demonstrated by MolyCorp (MCP), a stock that I do own. Shares roared ahead nearly 15% to end the week, reportedly upon the rationale in an article published in Seeking Alpha, that suggested it would be the beneficiary of the “January Effect.”

Based on Molycorp’s performance in 2012, the same expectation could have been made for the January Effect this past year and it did, in fact, last all of six days, but was not preceded by a similar price surge. After that sixth day shares were below where they had ended 2012, which in turn was about 60% lower where the year had started, while this year thus far shares are down a mere 41%.

While I would love to see MolyCorp sustain and even grow that price leap, particularly since I decided not to use it as a strategic tax loss, I have a hard time understanding those that climbed aboard that runaway train late in the process. But that may be exactly the same potential fate awaiting many as the new year is ready to start.

As MolyCorp demonstrated last year, even if you get off to a good start it doesn’t preclude you from flaming out.

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

While believing in Santa Claus may be a tall order for anyone reading these pages, believing in the Santa Claus Rally and further believing in the January Rally may be far easier and offer reason to continue looking for investment opportunities. If those traditions do continue there is a certain degree of impunity even at such high levels and so I feel a little less concerned about some of this week’s selections. Due to the shortened trading week’s proportionately lower weekly option premiums I am also looking to use expanded options, where possible and hoping the January Rally continues to at least the tenth of January.

I was all set to purchase Apple (AAPL) last week, thinking that there was no real catalyst in the near term to send shares moving significantly in one direction or another. Then on Sunday came word of the China Mobile deal and shares advanced about 4% the next day and there went my plans to add shares. I mistakenly believed that the China Mobile deal had already been reflected in the share price, particularly since official web sites had heavy handedly starting taking orders for the iPhone before the deal was acknowledged. But even them the rise of 4% seemed relatively subdued, given the potential ability to add to Apple’s fortunes.

The more I look at Apple the more I now see a stock that will continue being a covered option play, just as it was not for most of 2012. I expect its rise to continue and am not deterred by this week’s gain, that was attenuated a bit as the week wore on. If Starbucks (SBUX) can rise effortlessly from $45 to $80, why can’t Apple do the same from $450 to $800?

While I don’t feel a compelling need to own any Apple products, I also don’t get excited about Starbucks’ offerings. Yet, I’ve been waiting too long for its shares to stop their ascent and return to what may have been irrationally low levels. After a small drop of about 4% over the past month that may be the best that I can hope for, at a time when discovering opportunities is increasingly challenging.

I’m currently woefully under-invested in the financial sector and have been waiting for a while to add correct that situation. However, that hasn’t been a terribly easy thing to do as financials climb higher and may be poised to add even more as interest rates begin their climb. Morgan Stanley (MS) has certainly had a transformation over the past two years and has seen its share price more than double and is near its yearly high. The latter would tend to have me shy away from shares. However, as the year begins I think the sector will get a boost if the overall market stays true to form and interest rates continue tes
ting the 3% level. Any interest I may have in Morgan Stanley are fueled by short term considerations only, as earnings are announced on the final day of the monthly option expiration.

I jumped the gun a bit by purchasing Bristol Myers Squibb (BMY) last Friday, hoping to capture a bit more in premium as both last week and this week are short trading weeks and as a result have even lower option premiums. Shares also go ex-dividend before New Years and my hope was either for quick assignment and re-investment or capturing both dividend and premium, while getting a portion of the dividend related reduction in share price underwritten by the option buyer. I had been considering the purchase of shares for a couple of weeks, but unfortunately couldn’t find the reason to do so. While within striking distance of its yearly high, the upcoming dividend and premium offset some of the concerns, especially going into the New Year.

I went from being an avid share holder of Anadarko (APC) to a disappointed one as word came out of a large judgment in a nearly decade old legal case involving a company that Anadarko had purchased. While the size of that judgment may still be reduced, it appears that the uncertainty associated with the issue has now been removed. Of course, for most people, before the judgment was announced the entire issue had already been forgotten, When looking for a difficult to find bargain, Anadarko may be the poster child for 2014. Now that shares seem to have stabilized I’m ready to consider adding more shares in an attempt to sacrifice them for their premiums and help to whittle down the paper losses on some older shares.

Marathon Oil (MRO) isn’t as exciting as Anadarko has made itself, but it, too, is a company that I look forward to owning after some price retracements. Now offering weekly and expanded weekly options it has become more appealing to me as I increasingly try to stagger expiration dates in order to not be held hostage by a sudden and sizeable market move and having too many eggs in a single basket. Marathon Oil is down approximately 5% from its recent high, which is about half the size of its largest retracements. While there may be some more downside potential the shorter term time commitment when considering the sale of options adds greater flexibility.

EMC Corporation (EMC) also isn’t terribly exciting, certainly less so after its spin-off of VMWare (VMW) several years ago. But in the world of covered call selling “exciting” is unnecessary. Boring and predictable is far more profitable, as long as there are some occasional hiccoughs along the way. EMC is one of those companies that does have those occasional hiccoughs, often courtesy of VMWare, that helps it to continue having an acceptable option premium, despite its fairly steady share performance. Additionally, while its dividend is also not terribly exciting, it does go ex-dividend the following week. For those considering the use of a monthly option the ROI can potentially be bumped up a bit, as a result.

Finally, LuLuLemon Athletica (LULU) is now two weeks post announcing its CEO succession and its disappointing earnings. Since then it has treaded water and that makes it an appealing consideration. Similar to last week’s discussion of Cree (CREE), if I purchase shares of LuLuLemon, I may not immediately write calls or may only do so on a portion of my shares, as I believe the next move will be decidedly higher. However, even if LuLuLemon continues to tread water it can be a very profitable holding for those that do write call options on their shares and then have the opportunity to repeatedly rollover from week to week while the stock is deciding what to do with its life.

Traditional Stocks: Anadarko, Apple, EMC Corp., Marathon Oil, Starbucks

Momentum Stocks: LuLuLemon Athletica, Morgan Stanley

Double Dip Dividend: Bristol Myers Squibb (ex-div 12/31)

Premiums Enhanced by Earnings: none

December 22, 2013

Weekend Update – December 22, 2013

With word this week of the passing of a famed “end of the world” prophet, it may be logical to wonder “what now?”

Is there life after the destruction of the world is canceled?

As far as we know even after the most dire of events there is a future yet to come, but like anything in the future it can never be known, even if clues abound, but that won’t stop the predictions

The overwhelming opinion whenever thought of the end of Quantitative Easing was considered was negative, as it alone was thought to be propping up the stock market. As with those preparing for earthly catastrophe, investors of that belief took the opportunity to sell positions, because as we all know in the post–apocalyptic world, cash is king.

But the clarion call announcing the coming of the dreaded taper finally came and it turns out not to be the end of the world. However, as opposed to that now deceased self–anointed prophet, after two recent failed predictions of the earth’s destruction, he decided to get out of the prophesy business. That’s not likely to be the case for those who prophesied market doom in the event that the Federal Reserve punch bowl was depleted.

Those predictions will keep coming.

I don’t know what challenges are on the near term horizon but I’m hopeful that there will be a sea of calm for a while, as the DJIA is again at an all time high. Strictly speaking there is still tim
e for a Santa Claus Rally this week, although Ben Bernanke may have provided the rally last week, helping the market recover from the depths of a less than 2% decline.

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

I don’t really know what the next catalyst will be to propel shares of Apple (AAPL) higher, even as there are renewed calls for $700. Ever since Carl Icahn entered into the equation shares have fared very nicely, despite having given up some of those gains over the past few days. What I do know is that for those that bought shares at their price peak the last day to have qualified for short term capital losses was nearly 3 months ago. At that time a sale would have resulted in a loss of about $225. However, another way to look at it is that the sale afforded as much as a nearly $90 tax credit for some investors on the Federal side alone. Adding that credit to the sale price brings shares above Friday’s closing price. To a large degree selling pressure has been greatly relieved going forward. That’s good enough for me to consider adding shares going into the final week’s of trading for the year, particularly since the last three quarters have predictably seen a rise in shares in the 6 weeks prior to its ex–dividend date.

Annaly Mortgage (NLY) is one of the first companies I bought when starting to manage my own portfolio, but I haven’t owned shares in more than 5 years. I don’t think I ever really understood the strategy behind Annaly, as I’ve never really understood bonds, other than to know that bond traders are probably the smartest of all, even if performance doesn’t always indicate that to be the case. For most, the appeal of Annaly has been its dividend, which was just reduced, as its stock price has fallen on hard times in the year since the passing of its co–founder and CEO.

Although I don’t spend too much time looking at charts, for those that follow MACD as an indicator, Annaly’s share price crossed over the signal line, providing a bullish signal. For me, the signal is this week’s dividend, some share price stability and an option premium enhancing the dividend. Less leveraged and more hedged than in the past this may be a good time to begin interest in Annaly once again, despite a rising rate environment.

As long as I’m not going to spend too much time looking at charts, I may as well mention that Cree (CREE) did catch my attention, as it too crossed over the MACD signal line. It’s price chart is also interesting as it demonstrates some significant and sudden moves up and down over the past few months. I think that the stock is poised for a sharp move higher and this may be one of those infrequent occasions that I don’t immediately sell call options on shares, or may not cover all shares. Its lighting products are increasingly capturing aisle space and newspaper mention as incandescent bulbs fade away.

Despite still owning a much more expensive lot of Walter Energy (WLT), it has become a favorite stock of late as it has regularly bounced higher and then dropped lower, helping to create attractive option premiums at a time when those are rare finds. Of course, with those premiums comes significant risk. For those that have the tolerance it’s shares can be rewarding, but I would temper some of the reward by greatly reducing the risk by using deeper in the money strike prices and short term contracts, although expanded contracts may actually level out some of the day to day risk and still provide a meaningful premium.

Target (TGT) hasn’t recovered quite as quickly from its recent earnings drop as many, including me, believed would be the case. A strong day Wednesday, undoubtedly buoyed by the post–FOMC buying hysteria, was quickly quelled the following day on news of Target customers having their credit card security breached. What I find encouraging is how quickly Target has responded and how they are using the incident as an excuse for an additional 10% discount in the days before Christmas, hoping to lure even more shoppers for price cuts that probably would have been offered even without the security breach.

A sub–topic this week is food as represented by YUM Brands (YUM), Campbell Soup (CPB), Whole Foods (WFM) and Darden Restaurants (DRI).

YUM Brands has continued to show
great resilience to news, which invariably is greeted with negative reactions that prove to have been short sighted. Whatever the obstacle or whatever the China–centric thesis, YUM has shown that once people get a taste for fast food it’s really difficult to break the addiction. Short of widespread public health outbreaks in China, there are few barriers to performance. YUM Brands, besides offering a nice option premium and going ex–dividend later in the month, has continued seeing its beta fall and may offer less risk than before if facing a general market decline.

Whole Foods (WFM) which had been on a one way upward climb since its shares split has come down about 5% since its recent earnings report. It is embarking on a more mainstream expansion strategy while also re–enforcing its perceived commitment to a higher standard, as it announced plans to remove a very popular yogurt brand from its stores. While the exit of Jim Chanos from a long position last month may be a signal to some, the performances of stocks he sold and bought since the filing date has been mixed, at best. I’ve grown somewhat tired of waiting for shares to retreat and now think that its recent earnings related drop may be all in store, especially in an otherwise flat or rising market. Like a number of other positions this week its MACD indicates a recent buy signal which may complement an otherwise weak option premium and dividend.

Campbell Soup (CPB) may be an anachronism. Once ubiquitous in households, a panoply of alternatives, including those perceived t
o be more consistent with healthy lifestyles are available and come without cobwebs. On the positive side of the ledger Campbell has an appealing dividend right after New Years, offers an attractive option premium, low beta and it too, has recently crossed the MACD signal line. Since you don’t have to buy the product to qualify for share ownership

Finally, Among the conversations these past weeks has been talk of the worst CEO of 2013. While Clarence Otis of Darden Restaurants. was only a runner up he has fallen a long way in recent years. Shares moved up nicely several months ago when news of an activist investor’s interest became known. Shares did less well after announcing disappointing earnings at its flagship Red Lobster and Olive Garden units. However, under activist pressure Darden plans to spin off its low growth properties. Their plan may not be enough to satisfy the activists and Darden may need to explore more measures, including exploiting its real estate holdings. The good news is that Darden goes ex–dividend during the January 2014 cycle and appears to be able to maintain that dividend.

Traditional Stocks: Apple, Campbell Soup, Darden Restaurants, Target, Whole Foods

Momentum Stocks: Cree, Walter Energy, Yum Brands

Double Dip Dividend: Annaly Mortgage (ex–div 12/27)

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 o
f 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.

December 15, 2013

Weekend Update – December 15, 2013

People tend to have very strong feelings about entitlements.

Prior to this week there were so many people waiting for the so-called “Santa Claus Rally” that you would have thought that it was considered to be an entitlement.

After the week we’ve just had you can probably add it to the other market axioms that haven’t really worked out this year. If anything, so far it appears that you should have taken your vacation right now along with Santa Claus, who must have not realized that his vacation conflicted with the scheduled rally. You also should probably not taken the wizened advice to vacation months ago when the traditional prevailing attitude implored you to “sell in May and go away.”

The past week saw the S&P 500 drop 1.7% to a closing level not seen in a 22 trading sessions. This week’s drop places us a full 1.8% below the recent record high. Yet, like during a number of other smallish declines in 2013, this one is also being warily eyed as being the precursor to the long overdue, but healthy, 10% decline. We have simply become so accustomed to advances that even what would ordinarily be viewed as downward blips are hard to accept.

For those that have a hard time dealing with conflict, these are not good times, as the Santa Claus Rally is being threatened by the specter of a correction in the waiting. While there’s still time for the traditional rally it’s hard to know whether Santa Claus factored the thought of an outgoing Federal Reserve Chairman presiding over his final FOMC meeting and holding his final press conference.

Oh, and then there’s also the little matter of possibly announcing the beginning of the taper to Quantitative Easing. Just a week earlier the idea that such an announcement would come in December was considered highly unlikely. Now it seems like a real possibility and not the kind that the markets were altogether comfortable with, even as they expressed comfort with the previous week’s Employment Situation Report.

While I admire Ben Bernanke and believe that he helped to rescue the world’s financial markets, it may not be far fetched to cast him as the “Grinch” who stole the Santa Claus Rally if the markets are taken off guard. Personally, I don’t believe that he will make the decision to begin the tapering, in deference to Janet Yellen, his expected successor, privilege to decide on timing, magnitude and speed.

However, I’m not really willing to commit very much to that belief and will likely exercise the same caution as I did last week.

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

Last week was one of my slowest trading weeks in a long time. Even with cash to spend there never seemed to be a signal that price stability would temper downward risk. Moving forward to this week comes the challenge of trying to distinguish between value and value trap, as many of the stocks that I regularly follow are at more appealing prices but may be at at continued risk.

With lots of positions set to expire this week, the greatest likelihood is that whatever new positions I do establish this week will be with the concomitant use of expanded weekly options or even the January 18, 2014 option, rather than options expiring this coming Friday. The options market is certainly expecting some additional fireworks this coming week as option premiums are generally considerably higher than in recent months.

Microsoft (MSFT) is one of those stocks that has come down in the past week, but like so many still has some downside potential. Of its own weight it can easily go down another 3%, but under the burden of a market in correction its next support level is approximately 8% lower. Since the market’s recent high just a few weeks ago, Microsoft has slightly under-performed the market, but it does trade with a low beta, perhaps offering some relative down side protection. As with many other stocks this week its option premium is far more generous than in the recent past making it perhaps more difficult to resist, but with that reward comes the risk.

There’s probably not much reason or value in re-telling the story of Blackberry (BBRY). Most already have an idea of how the story is going to end, but that doesn’t quiet those who dream of a better future. For some, the future is defined by a weekly option contract and Blackberry reports earnings this week. The options market is implying about a 12% move and for the really adventurous the sale of a put with a strike level almost 17% below Friday’s close could yield a weekly ROI of 1.4%. On a note that shouldn’t be construed as being positive, as the market itself appears a bit more tenuous, Blackberry’s own beta has taken a large drop in the past 3 months. The risk, still remains, however.

Although I discussed the possibility of purchasing shares of Joy Global (JOY) in last week’s article after they reported earnings, I didn’t do so, as it fell hostage to my inactivity even after a relatively large price drop. Despite a recovery from the low point of the week, Joy Global, which has been very much a range bound trading stock of late is still in the range that has worked well for covered call sales. The same is a little less so for Caterpillar (CAT) which is approaching the upper end of its range as it has worked its way toward the $87.50 level. However, with even a mild retreat I would consider once again adding shares buoyed a little bit with the knowledge that shares do also go ex-dividend near the end of the January 2014 option cycle.

Citibank (C) was another that I considered purchasing last week and following a small price drop it continues to have some appeal, also having slightly under-performed the S&P 500 in the past three weeks. However, despite its beta having fallen considerably, it is still potentially a stock that could respond far more so than the overall market. Its option premium for an at the money weekly strike is approximately 18% higher than last week, suggesting that the week may be somewhat more risky than of late.

While my shares of Halliburton (HAL) haven’t fared well in the past week, I am looking at reuniting my “evil troika” by considering purchases of both British Petroleum (BP) and Transocean (RIG), which are now also down from their recent highs. Following in a week in which Anadarko (APC) plunged after a bankruptcy court ruling from a nearly decade old case, the “evil troika” is proof that there is life after litigation and after jury awards, fines and clean up costs. While oil and oil services have been volatile of late, both British Petroleum and Transocean share with Microsoft the fact that they have already under-performed the S&P 500 during this latest downturn but have low betas, hopefully offering some relative downside protection in a faltering market. Perhaps even better is that they are beyond the point of significant downward movement emanating from judicial decisions.

Coach (COH) hasn’t been able to garner much respect lately, although there has been some insider buying when others have been disparaging the company. Meanwhile it has been trading in a fairly well defined range of late. It is a stock that I’ve owned eight times during 2013 and regret not having owned more frequently, particularly since it began offering weekly and then expanded options. Like a number of stocks that I’m considering this week, it too is still closer to the upper end of the range than I would normally initiate new positions and wouldn’t mind seeing a little more weakness.

Seagate Technology (STX) may have a higher beta than is warranted to consider at a time that the market may be labile, however it has recently traded well at the $47.50 level and offers an attractive reward for those willing to accept the frequent movements its shares make, even on an intraday basis. My expectation is that If I do consider a trade it would either be the sale of puts before Wednesday’s big events or otherwise waiting for the aftermath and looking at expanded option dates.

Finally, and yet again, it seems as if it may be time to consider a purchase of eBay (EBAY). While I’ll never really lose count of how many times I own a specific stock, going in and out of positions as they are assigned, eBay is just becoming the perfect example of a stock trading within a range. For anyone selling options on eBay, perhaps the best news was its recent downgrade that chided it for trading in a range and further expecting that it would continue range bound. Although you can’t necessarily trade on the basis of the absolute value of price movements of a stock, the next best way to do so is through buying shares and selling covered calls and then repeating the process as often as possible.

Traditional Stocks: British Petroleum, Caterpillar, eBay, Microsoft, Transocean

Momentum Stocks: Citibank, Coach, Joy Global, Seagate Technology

Double Dip Dividend: none

Premiums Enhanced by Earnings: Blackberry (12/20 AM)