Weekend Update – October 23, 2016

This past week was the first full week of earnings for this most recent earnings season and you could be excused for wondering just how to interpret the data coming in.

The financial sector had fared well, but if you were looking for a pattern of revenue and earnings beats, or even looking for a shared sense of optimism going forward from a more diverse group of companies, you’ve been disappointed to date.

For the most part, this past week was one of mixed messages and the market really rewarded the messages that it wanted to hear and really punished when the messages didn’t hit the right notes.

With so much attention being placed on the expectation that the FOMC would have sufficient data to warrant an interest rate increase in December, you might have thought that companies would start painting a slightly more optimistic image of what awaited their businesses, perhaps based upon a building trend from the past quarter.

That optimistic guidance has yet to prevail even as some have been reporting better than expected revenues.

But no one should be surprised with the mixed messages that the market hasn’t been able to interpret and then use as a foothold to move in a sustained direction.

The mixed messages coming from those reporting just follows the wonderful example of streaming mixed messages that have been coming at us all year long from members of the Federal Reserve.

Continue reading on Seeking Alpha

 

 

All in all, if you think about the man made tragic events of the past week in Brussels, the very rational and calm manner in which world markets reacted was really re-assuring.

When we sometimes scratch our heads wondering whether the market will this time interpret good news as being bad or whether it will deem it good, you know that something is amiss.

It’s nice when clear and rational heads are in charge of things.

So often the way the market seems to react to events it’s not too easy to describe the action as having been rational and you really do have to wonder just who is running the place.

The same may be said for the Federal Reserve and its Governors.

It wasn’t always that way, though.

We always knew who was running the place.

While dictatorships may not be a good thing, sometimes a benevolent dictatorship isn’t the worst of all possible worlds.

There was a time that the individual members of the Federal Reserve and the FOMC kept their thoughts to themselves and knew how to behave in public and in private.

That is, up until about 11 years ago when newly appointed and now departed President of the Dallas Federal Reserve Bank, Richard Fisher, had made a comment regarding FOMC monetary tightening policy and was subsequently taken to the woodshed by Alan Greenspan.

That error in judgment, offering one’s opinion, wasn’t repeated again until the new Federal reserve Chairman, Ben Bernanke, ushered in an era of transparency, openness and the occasional dissenting vote.

At that time, Fisher didn’t even disagree with Federal reserve policy. He was simply giving his opinion on the timing left in an existing policy, or perhaps just disclosing what he knew to be the remaining time of that particular approach.

Still, that kind of behavior was unheard of and not terribly well tolerated.

Now, under Janet Yellen, it seems as if the various Governors are battling with one another over who gets the most air time and who can make the most noise.

Clearly, inmates can be intelligent people, but there may be a very good reason why they’re not running the show.

Why the market often latches onto the words of an FOMC inmate or one who’s not even in that inner circle, particularly when those words may run counter to the Chairman’s own recent words, is every bit of a mystery as why those words were uttered in the first place.

But that is where we seem to be at the moment as the crystal clear clarity that we’ve come to expect from the Federal Reserve is sounding more like the noises coming from the Tower of Babel.

And we all know how that worked out.

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

When there is so much confusion abounding, sometimes it makes some sense to get right back to basics.

There isn’t a much more basic approach to stocks than looking for safe and reliable dividend paying companies, especially when the waters are murky or choppy.

While I don’t disagree with those who point to the out-performance of the universe of dividend paying stocks to the universe of non-dividend paying stocks, I’m not a big fan of the dividend itself and it’s usually fruitless to argue the belief held by many that it is the dividend that makes the company a worthwhile investment that is prone to outperform others.

Ultimately you pay for that dividend by virtue of your share price having gone down the amount of the dividend and you may have to pay taxes as well, on that distribution.

What I do like about dividends is how some of that inherent decline in the share price may end up being subsidized by an option buyer and that can boost the return.

Most of the time, my preference would be to be able to get the premium from having sold the option, most often of weekly duration, and also to be able to collect the dividend.

What i especially like, although it doesn’t happen too often, is when a stock is ex-dividend on a Monday.

In such cases, if the option buyer is going to exercise his right to snatch those shares at a pre-determined price, he must do so no later than the previous Friday.

What I like to do with those Monday ex-dividend positions is to sell an extended weekly option and then I don’t really care too much if those shares get taken away from me early. 

That’s because the additional week’s premium offsets the loss of the dividend while being able to take the cash from the assignment to invest in some other position.

Maybe even an upcoming ex-dividend position.

While not every position that I’m considering in the coming week will be ex-dividend the following Monday, that does characterize most of the potential trades for the coming week.

To put them all of those into a single basket, Cisco (CSCO),  Comcast (CMCSA), Deere (DE) and JP Morgan Chase (JPM) are all ex-dividend next Monday.

They each have their own story to tell and since 2016 has been an incredibly quiet one for me in terms of adding new positions, there is virtually no chance that i will be adding all of them.

At the moment I do own shares of Cisco, but none of the other positions, all representing different sectors.

With everything else being equal, I’d probably be more inclined to consider adding shares to a sector in which I may be under-invested.

For me, that would be the finance sector, which has been embattled all year as the expected interest rate climbs haven’t materialized.

For many, the decision by JM Morgan’s Jamie Dimon to buy $26 million in his own shares was the impetus to turn the market around from its steep 2016 losses.

That turnaround started on February 11, 2016.

Those shares are still far from their 2016 high and sooner or later the inmates trading stocks and the inmates making policy will be right about the direction of interest rates.

I still hold somewhat of a grudge against Comcast when I was a consumer of its services. However, it would be the height of irrationality to ignore it for what it could contribute to my non-viewing or non-internet surfing well-being.

Once a disruptor in its own right, Comcast is working hard to remain at the cutting edge or itself be displaced as the competition and the various means of delivering content are getting more and more complex to understand.

That may be its saving grace.

When you get right down to it, nothing is as simple as having a box, your television and your computer. While there’s decidedly nothing simplistic about what Comcast is doing and where it envisions going, at some point consumers may get overwhelmed by the growth in disparate and unconnected systems and may again long for bringing it all back together under a single roof.

Even if it is and continues to be challenged, Comcast is a few dollars below some resistance and I would feel comfortable adding shares in advance of its ex-dividend date.

I haven’t owned shares of Deere for a long time, just as I haven’t owned shares of caterpillar (CAT). The two of those used to be mainstays of my portfolio, if not both at the same time, then at least alternating, often with a new purchase being initiated as an ex-dividend date was approaching.

What appeals to me about Deere at the moment is that it is a little bit off from its recent highs and only a bit higher than where it stood on February 11th.

But more importantly, this week, as with all of the other potential selections, there is a nice dividend and an equally nice option premium. That combination lends itself to any number of potential contract lengths and strike levels, depending on one’s horizon.

While I especially like the Monday ex-dividend date, this is a position that i might consider wanting to hold for a longer period of time in an effort to either reap additional option premiums or some capital gains from shares, in addition to premiums and the dividend.

While I do already own shares of Cisco and it has bounced back nicely in the past 6 weeks, I think that it, too, has some more upside potential, if only to get it back to some resistance about 5% higher from its current level.

Like most others mentioned this week, there is a generous dividend and a generous option premium that make any consideration worthwhile.

As with Deere, while the Monday ex-dividend date may lead to one specific strategy, there may also be some consideration of utilizing longer dated contracts and further out of the money strike prices in order to capitalize on some anticipated price appreciation.

By contrast, I own shares of both The Gap (GPS) and Dow Chemical (DOW).

There has been absolutely nothing good that has been said about The Gap in far too long of a time.

There was a time that The Gap could be counted upon to alternated its monthly same store sales between worse than expected and better than expected results. as a result The Gap’s shares would frequently bounce back and forth on a monthly basis and it had periodically enhanced option premiums to reflect those consistent moves.

Lately though, the news has always been disappointing and the direction of shares has been unilateral, that is, until February 11th.

There’s not too much of a likelihood that The Gap’s recent performance is related to oil prices or interest rates, but it is certainly long overdue for a sustained move higher.

At its current level, i wouldn’t mind shares staying in the same neighborhood for a while and building some support for another leg. In the meantime, at this level there is some opportunity to collect the dividend and some reasonably health premiums, as well.

Finally, just as last week, I think that there may be opportunity in Dow Chemical.

While it has unjustifiably been held hostage by falling oil prices for more than a year, it has performed admirably. The market reacted positively when the announcement was made of its fairly complex merger and subsequently planned uncoupling with DuPont (DD), although the favor was lost as the rest of the market sank.

I continue to believe that there is relatively little risk associated with shares in the event the proposed merger runs into obstacles, as shares are trading at pre-announcement levels.

That combination of dividends and option premiums keeps making Dow Chemical an appealing consideration even as lunatics may be running around elsewhere.

 

Traditional Stocks: none

Momentum Stocks: none

Double-Dip Dividend: Comcast (4/4 $0.27), CSCO (4/4 $0.26), Deere (3/29 $0.60), DOW (3/29 $0.46), GPS (4/4 $0.23), JPM (4/4 $0.44)

Premiums Enhanced by Earnings: None

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

Weekend Update – September 27, 2015

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Momentum Stocks: none

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

Premiums Enhanced by Earnings:  none

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

Weekend Update – August 9, 2015

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

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

Or now.

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

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

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

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

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

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

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

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

I mean besides the paper fortune teller?

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

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

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

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

“Beat on earnings, missed on revenues.”

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

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

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

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

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

One thing that is apparent is that there hasn’t been a recent rush by those brave enough to “buy on the dip.” They may sim

ply be trading off bravery for intelligence in order to be able to see yet another day.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

atively defined risk.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Momentum Stocks: none

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

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

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

Weekend Update – June 21, 2015

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

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

Sometimes, that’s the real surprise.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

llenge of uncertainty.

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

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

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

Now? Not so much.

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

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

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

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

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

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

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

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

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

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

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

ether that will be possible this year, as cash flow is decreased from both currency and declining sales.

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

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

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

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

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

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

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

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

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

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

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

Traditional Stocks: Sinclair Broadcasting

Momentum Stocks: Bank of America

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

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

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

Weekend Update – May 11, 2014

 A few hundred years ago Sir Isaac Newton is widely credited with formulating the Law of Universal Gravitation.

In hindsight, that “discovery” shouldn’t really be as momentous as the discovery more than a century earlier that the sun didn’t revolve around the earth. It doesn’t seem as if it would take an esteemed mathematician to let the would know that objects fall rather than spontaneously rise. Of course, the Law is much more complex than that, but we tend to view things in their most simplistic terms.

Up until recently, the Law of Gravity seemed to have no practical implications for the stock market because prices only went higher, just as the sun revolved around the earth until proven otherwise. Additionally, unlike the very well defined formula that describe the acceleration that accompanies a falling object, there are no such ways to describe how stocks can drop, plunge or go into free fall.

For those that remember the “Great Stockbroker Fallout of 1987,” back then young stockbrokers could have gone 5 years without realizing that what goes up will come down, fled the industry en masse upon realizing  the practical application of Newton’s genius in foretelling the ultimate direction of every stock and stock markets.

The 2014 market has been more like a bouncing ball as the past 10 weeks have seen alternating rises and falls of the S&P 500. Only a mad man or a genius could have predicted that to become the case. It’s unlikely that even a genius like Newton could have described the laws governing such behavior, although even the least insightful of physics students knows that the energy contained in that bouncing ball is continually diminished.

As in the old world when people believed that the world was flat and that its exploration might lead one to fall off the edge, I can’t help but wonder what will happen to that bouncing ball in this flat market as it deceptively has come within a whisker of even more records on the DJIA and S&P 500. Even while moving higher it seems like there is some sort of precipice ahead that some momentum stocks have already discovered while functioning as advance scouts for the rest of the market.

With earnings season nearing its end the catalyst to continue sapping the energy out of the market may need to come from elsewhere although I would gladly embrace any force that would forestall gravity’s inevitable power.

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

As a past customer, I was never enamored of Comcast (CMCSA) and jumped at the first opportunity to switch providers. But while there may be some disdain for the product and especially the service, memories of which won’t easily be erased by visions of a commercial showing a comedian riding along in a service truck, you do have to admire the company’s shares. 

Having spent the past 6 months trading above $49 it has recently been range bound and that is where the appeal for me starts. It’s history of annual dividend increases, good option premiums and price stability adds to that appeal. While there is much back story at present in the world of cable providers and Comcast’s proposed purchase of Time Warner Cable (TWC) may still have some obstacles ahead, the core business shouldn’t be adversely impacted by regulatory decisions.

Also, as a one time frequent customer of Best Buy (BBY), I don’t get into their stores very often anymore. Once they switched from a perpendicular grid store layout to a diagonal one they lost me. Other people blame it on Amazon (AMZN), but for me it was all about the floor plan. But while I don’t shop there very much anymore it’s stock has been a delight trading at the $26 level.

Having had shares assigned for the fourth time in the past two months I would like to see a little bit of a price drop after Friday’s gain before buying shares again. However, with earnings coming up during the first week of the June 2014 option cycle you do have to be prepared for nasty surprises as are often delivered. There’s still more time for someone to blame cold weather on performance and this may be the retailer to do so. WIth that in mind, Best Buy may possibly be better approached through the sale of put options this week with the intent of rolling over if in jeopardy of being assigned shares prior to the earnings release.

There’s barely a week that I don’t consider buying or adding shares of Coach. I currently own shares purchased too soon after recent earnings and that still have a significant climb ahead of them to break even. However, with an upcoming dividend during the June 2014 cycle and shares trading near the yearly low point, I may be content with settling in with a monthly option contract, collecting the premium and dividend and just waiting for shares to do what they have done so reliably over the past two years and returning to and beyond their pre-earnings report level.

Mosaic (MOS) is another one of those companies that I’ve owned on many occasions over the years. Most recently I’ve been a serial purchaser of shares as its share price plunged following announcement of a crack in the potash cartel. Still owning some more expensive shares those serial purchases have helped to offset the paper losses on the more expensive shares. Following a recent price pullback after earnings I’m ready to again add shares as I expect Mosaic to soon surpass the $50 level and stay above there.

Dow Chemical (DOW) is also a company whose shares I’ve owned with frequency over the years, but less so as it moved from $42 to $50. Having recently decided that $48 was a reasonable new re-entry point that may receive some support from the presence of activist investors, the combination of premiums, dividends and opportunity for share appreciation is compelling.

Holly Frontier (HFC) has become a recent favorite replacing Phillips 66 (PSX) which has just appreciated too much and too fast. While waiting for Phillips 66 to return to more reasonable levels, Holly Frontier has been an excellent combination of gyrating price movements up and down and a subsequent return to the mean. Because of those sharp movements its option premium is generally attractive and shares routinely distribute a special dividend in addition to a regular dividend that has been routinely increased since it began three years ago.

The financial sector has been weak of late and we’ve gotten surprises from JP Morgan (JPM) recently with regard to its future investment related earnings and Bank of America (BAC) with regard to its calculation error of capital on its books. However, Morgan Stanley (MS) has been steadfast. Fortunately, if interested in purchasing shares its steadfast performance hasn’t been matched by its share price which is now about 10% off its recent high. 

With its newly increased dividend and plenty of opportunity to see approval for a further increase, it appears to be operating at high efficiency and has been trading within a reasonably tight price range for the past 6 months, making it a good consideration for a covered option trade and perhaps on a serial basis.

Since I’ve spent much of 2014 in pursuit of dividends in anticipation of decreased opportunity for share appreciation, Eli Lilly (LLY) is once again under consideration as it goes ex-dividend this week. With shares trading less than 5% from its one year high, I would prefer a lower entry price, but the sector is seeing more interest with mergers, acquisitions and regulatory scrutiny, all of which can be an impetus for increasing option premiums.

Finally, it’s hard to believe that I would ever live in an age when people are suggesting that Apple (AAPL) may no longer be “cool.” For some, that was the reason behind their reported purchase of Beats Music, as many professed not to understand the synergies, nor the appeal, besides the cache that comes with the name. 

Last week I thought there might be opportunity to purchase Apple shares in order to attempt to capture its dividend and option premium in the hope for a quick trade. As it work turn out that trade was never made because Apple opened the week up strongly, continuing its run higher since recent earnings and other news were announced. I don’t usually chase stocks and in this case that proved to be fortuitous as shares followed the market’s own ambivalence and finished the week lower.

However, this week comes the same potential opportunity with the newly resurgent Microsoft (MSFT). While it’s still too early to begin suggesting that there’s anything “cool” about Microsoft, there’s nothing lame about trying to grab the dividend and option premium that was elusive the previous week with its competition.

Microsoft has under-performed the S&P 500 over the past month as the clamor over “old technology” hasn’t really been a path to riches, but has certainly been better than the so-called “new technology.” Yet Microsoft has been maintaining the $39 level and may be in good position to trade in that range for a while longer. It neither needs to obey or disregard gravity for its premiums and dividends to make it a worthwhile portfolio addition.

 

Traditional Stocks: Comcast, Dow Chemical, Holly Frontier

Momentum: Best Buy, Coach, Morgan Stanley, Mosaic

Double Dip Dividend: Microsoft (5/13 $0.28), Eli Lilly (5/13 $0.49)

Premiums Enhanced by Earnings: none

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

Weekend Update – April 6, 2014

This week started on such a positive note with the reassuring words of a dove, yet ended so harshly.

This time of the year it’s supposed to be the other way around with the lamb having the final word as months of a less threatening nature await ahead.

Instead, after Friday’s close, whatever optimism may have been generated by setting even more record highs earlier in the week, had given way to caution and perhaps preparation for some ill winds.

Back when I was in college it wasn’t meant as a compliment if you were referred to as being a “dove.” and the proverbial lamb was always being led to slaughter.  In fact, if you were called a “dove,” that was only in polite circles. Otherwise, the words used were far more descriptive and derisive.

By the same token, the doves out there may not have had the kindest of words for the hawks, but in nature, it’s usually the hawk that triumphs. In fact, recalling the recent mauling of a peace dove that had been just released by Pope Francis and some children, it didn’t really even require a hawk. A seagull and a lowly crow were enough for the task.

This week, though, it was the dove that ruled the day and set the tone for the week. Well, at least most of it, until its fragile nature beset itself.

A fragile market can be equally susceptible even to less formidable foes, as Friday’s sell-off had little basis and came on the day of the Employment Situation Report, which for the past 20 months or so has been strongly correlated to a higher moving market on the day of release and for the week as a whole. While the week as a whole did show an advance, the former correlation stood for only a short time before strong selling set in.

Whatever doubts there may have been regarding where Janet Yellen stood on that continuum from dove to hawk following her initial press conference, she made it clear that on issues of the Federal Reserve’s actions to help lower the unemployment rate, she was an unabashed dove and while there may be more dissenting voting members than before sitting on the Federal Reserve, she still controls the hawks, but probably keeps at least one eye wary at all times.

The stock market loved that re-affirmation of policy the way we love the beauty of a dove, even though like short sellers, we may privately relish its obliteration by a swooping predator hawk.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend and Momentum categories, with no “PEE” selections this week (see details).

While this was an especially brutal week for stocks on the NASDAQ and particularly for many of those stocks that had borne a disproportionate amount of everyone’s attention as they moved ever higher, many others were included in whatever wrath took hold.

With earnings season beginning this coming week there may be some return to fundamentals, however, disappointments, particularly if weather hasn’t been fully factored in or discounted may further exploit market fragility.

MasterCard (MA) was one such casualty of the stampede. There was little to account for its 2.5% drop on Friday, bringing it to its 5 month low. The previous week, faced with some potentially adverse decisions regarding swipe fees it reacted well, yet this week it did otherwise without any new challenges being sent its way. While it goes ex-dividend on Monday it’s puny dividend isn’t something that’s likely to be missed by those entering into new positions as shares find themselves at a 5 month low. Believing that last week’s selling was overdone I would consider a slightly longer option contract and the use of an out of the money strike as a means to allow some time for price repair while collecting an option premium while waiting.

While not falling quite as much as MasterCard on Friday, shares of Starbucks (SBUX) also succumbed to selling pressure. While the past week was filled with news regarding other players entering into the breakfast marketplace, including offering free cups of coffee, there was really an absence of Starbucks specific news. While breakfast taco waffles may garner some attention, Starbucks has become as much a way of life as it has a product provider. It’s current price is one where it has shown considerable strength and it too may warrant the use of slightly longer term option contracts and an out of the money strike.

Apollo Education (APOL) was a stock that I highlighted last week as a possible earnings trade. As usual, I prefer those through the sale of well out of the money put contracts prior to earnings, especially if share price is trending downward prior to earnings. In Apollo’s case shares had instead shown strength prior to the earnings release, so I stayed away from selling puts at that time. After earnings shares did sustain a drop and I then sold some out of the money puts in the hope that the drop wouldn’t continue beyond another few strike levels. While there was almost a need to roll them over on Friday as the market was crumbling, Apollo shares showed resilience, even as the market did not.

While I still don’t have much confidence in the product it offers nor the manner in which it generates its revenues, that’s largely irrelevant, as it continues to offer some reasonable returns even if shares continue to experience some decline. Once again, however, I would most likely consider the sale of puts rather than an outright purchase of shares and concomitant sale of calls.

There’s probably very little that can be added to make a discussion of Herbalife (HLF) newsworthy, but when there is, it will really be worth paying attention. While Herbalife has been a good target of put sellers following the severe price drop in the wake of regulatory and legal investigations that are being escalated, it has recovered very nicely with the realization that any real news is likely to be in the distance. It too, is a position that I would likely consider entry through the sale of out of the money puts.

This week’s dividend stocks for consideration are two that

I haven’t owned for a while, as I’ve been waiting for them to return to more reasonable price levels. Sometimes the realization comes that waiting only prevents being an active participant. Aetna (AET) Abbott Labs (ABT) have long been absent from my portfolio despite continually thinking about adding them back.

With a large number of existing positions already going ex-dividend this week I’m not as anxious to add any additional ones. However, of those two, Abbott Labs is more appealing for having a higher dividend rate and for having already come off some recent price peaks. In need of additional health care sector stocks, Abbott also carries that personal appeal at this point in time. However, it reports earnings the following week so my preference, if purchasing shares, would be a quick holding and given its current option premium would even be willingly accepting of an early assignment.

Aetna has simply left me behind in the dust as I’ve been waiting for it to return to what I believed was a fair price, but apparently the market has long disagreed. While it may be some time until we all realize whether new healthcare mandates are a positive or negative for the insurers, the one thing that most everyone can agree is that the long term is always positive when your fee structure is highly responsive to actuarial data. Add to that an increasing interest rate environment and the future may be bright for insurers.

Among the shares that I had assigned this past week were Comcast (CMCSA) and Coach (COH). Following the week ending sell-off I was grateful to have as many assignments as there were, especially to replenish cash reserves in the event of buying opportunities ahead. However, among those assigned, these two are ones that I’m eager to re-incorporate into my portfolio.

Comcast, despite my personal feelings about the product and service, has just been a spectacular growth story and has had great guidance under the control of the Roberts family. My celebration of “Comcast Liberation Day” a few years ago didn’t mean that I would boycott share ownership or overlook its attributes as an investment. It’s recent 10% price drop in the past two months from its highs has offered an opportunity to find some more realistic entry points. While I’ve been following shares for quite some time, it only recently began offering weekly and expanded weekly options. For me, that was the signal, combined with the reduced share price to start initiating positions.  I envision a similar opportunity with Comcast shares on a serial basis as I have experienced with Coach.

Coach remains a stock that I feel like I could happily buy most week in and out as long as it’s trading in a $48-$54 range and have done so repeatedly when it has done so. Despite a near absence of positive news in almost two years and the company having been written off as a loser in the competitive wars, especially with Michael Kors (KORS), for those who can recognize that multiple small stock gains can be very meaningful it has been a consistent performer. With earnings approaching at the end of the month I would be less inclined to use longer term option contracts at this time, as Coach has had a recent history of sharp and unpredictable moves following earnings.

While Coach has been unable to do anything right in the eyes of many, until recently, Under Armour (UA) could do no wrong. WHile it’s still not clear whether the design of their latest skating wear for US Olympians was in any way related to their disappointing performance, Under Armour’s CEO, Kevin Plank, was a perfect study in how to present his company when under public scrutiny. 

While it received a downgrade about 3 weeks ago and subsequently fell more than 7% in that aftermath, it fell an additional 9% from that sentinel point late this week as it was carried along with the rest of the deluge. As with many others the selling was in the absence of substantive news.

With earnings season beginning this coming week, Under Armour is among those announcing early in the process on April 17, 2014. It’s volatility is commanding a health option premium at a time when many others are languishing, however, the risk may be compounded during the following week. For that reason, if considering the purchase of shares I would likely use a weekly contract and if necessary roll that over to a longer term contract in anticipation of that enhanced risk. As earnings approach, Under Armour may also turn out to be a potential earnings related trade through the sale of out of the money put options.

Finally, a number of years ago I was studying two stocks with an eye toward adding one to my regular rotation in need of another energy sector position. They were Anadarko (APC) and Apache (APA). For a while I would get their stock symbols confused and really had a difficult time discerning their differences. I still have no real idea of what those differences may be, but for some reason I gravitated toward Anadarko.

This week, that dalliance may have come to an end, at least for the time being, as my shares were assigned following an untimely and unexpected end to the Tronox litigation that was an unwelcome part of its Kerr McGee purchase.

Whatever positive comments I would normally make about Anadarko relative to its prospects for trading in a range and offering an attractive premium can now be transferred to Apache. The best part, though, is that Apache is approximately 10% below its recent high and can make me forget about Anadarko for now.

Traditional Stocks: Apache, Comcast, MasterCard, Starbucks

Momentum Stocks: Apollo Educational, Coach, Herbalife, Under Armour

Double Dip Dividend: Aetna (4/8), Abbott Labs (4/11)

Premiums Enhanced by Earnings: none

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