Weekend Update – December 4, 2016

It’s hard to say what really came as more of a surprise.

The fact that we have a President-Elect Trump or the fact that OPEC actually came to something of an agreement this past week.

When it has come to the latter, we’d seen any number of stock market run-ups in anticipation of an OPEC agreement to limit production of crude oil in an effort to force the supply-demand curve to their nefarious favor.

Had you read the previous paragraph during any other phase of your lifetime, you would have basically found it non-sensical.

But in the past 18 months or so, we’ve been in an environment where the stock market looked favorably on a supply driven increase in the price of oil.

So when it seemed as if OPEC was going to come to an agreement to reduce production earlier in the year, stocks soared and then soured when the agreement fell apart.

Unable to learn from the past, the very next time there was rumor of an OPEC agreement stocks soared and then again soured when the predictable happened.

This week, however, everything was different.

Maybe better, too.

Or maybe, not.

What was not better was that OPEC actually came to an agreement, although you can’t be blamed if you withhold judgment in the belief that someone will cheat or that U.S. producers might be enticed to increase production as prices rise.

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Weekend Update – November 6, 2016

Some days we really have no clue as to what made the market move as it did, but nothing bothers us more than not knowing the reasons for everything.

We tend to like neat little answers and no untied bundles.

It starts early in life when we begin to ask the dreaded “Why?” question.

We want answers at an early stage in life even when we have no capacity to understand those answers. We also often make the mistake of querying the wrong people to answer those questions, simply on the basis of their ready availability and familiarity.

Those on the receiving end of  questions usually feel some obligation to provide an answer even if poorly equipped to do so.

While the market has now gone into a 9 consecutive day decline, it seems only natural to wonder why that’s been happening and of course, some people, have to offer their expert explanation.

It is of course understandable that the question is posed, as earnings haven’t been terrible and neither have economic data. Yet, a 9 day decline hasn’t happened since 1980 and has taken the market into a stealth 5% decline.

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Weekend Update – September 4, 2016

These are sensitive times.

For the longest time the FOMC and investors were the closest of allies.

The FOMC gave investors what they craved.

With cheap money increasingly made available investors could do what they want to do the most.

Invest.

In return, if you believe in trickle down economics, the great wealth created by investors would then get re-invested into the economy, helping to fund the creation of jobs, which in turn would fuel increasing demand for consumer products.

That would result in a virtuous cycle that would grow the economy, with the FOMC carefully controlling growth to keep the 40 years’ worth of inflation fears soothed.

Surely that was a win – win scenario, in theory, at least.

Then came the rumors.

Those rumors were started, fueled and spread by the very FOMC that created good times for most everyone that had a discretionary dollar to invest.

The fear that those rumors of an interest rate increase coming soon, perhaps a series of them in 2016, would become reality, periodically sowed selling waves into the blackened hearts of investors.

With even the doves among the FOMC members beginning to utter tones spoken by hawks, investors knew that their glory days were numbered and began expressing some slow acceptance of an interest rate increase.

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Weekend Update – August 7, 2016

In the 57 years since “The Day the Music Died,” the S&P 500 has risen about 3800%

What’s not to like about that?

Among those perishing in that February plane crash was “The Big Bopper” whose signature hit song “Chantilly Lace” was telling the world what he liked. 

While it may be cute when a child gives you that kind of information, not much good is to come when an adult lets free with those unfiltered thoughts.

It may be even worse when they act upon those thoughts that no one needed to hear in the first place.

The Big Bopper’s album cover makes the words of the song even more creepy, but there must have been strains of that admittedly catchy tune playing as investors were awaiting last Friday’s Employment Situation Report.

Of course, as we all know, there is nothing creepy at all about being in love with money or letting it know what you especially like about it.

It was pretty obvious what investors wanted and liked when the data was released and seemed to put a nail into the shockingly low number of new jobs reported back in June 2016.

I don’t know what the equivalent is to the obligatory “chantilly lace” in the song, but the market definitely decided it was time to put a pretty face on the impending likelihood of an interest rate increase.

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Weekend Update – April 10, 2016

There probably aren’t too many people willing to admit they remember The Osmond’s song “(Just Like A) Yo-Yo.”

The really cool people would look at you with some disdain, as the only thing that could have possibly made the yo-yo tolerable to mention in any conversation was if it was somehow in connection to the song of that title by “The Kinks.” 

With her dovish words just the prior week, Janet Yellen set off another round of market ups and downs that have taken us nowhere, other than to wonder who or what we should believe and then how to behave in response.

That’s been the case all through 2016, as another week of ups and downs have left the S&P 500 just 0.2% higher year to date. Of course, that’s within a 17 month context in which the S&P 500 has had no net movement, but has certainly had lots of ups and lots of downs.

Reminds me of something.

For those that do recall happier times with a yo-yo in hand, you may recall “the sleeper.”

“The Sleeper” was deceiving.

There was lots of energy involved in the phenomenon, but not so obviously apparent, unlike the clear ups and downs of the standard yo-yo move.

Both, though, ended up going nowhere.

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Weekend Update – February 28, 2016

It is really amazing that as big as the United States’ economy is, everything may now simply be part of a very delicate balancing act.

“Momentum” is a simple concept in classical mechanics and is generally expressed as the product of the mass of an object and its velocity.

The term “momentum” is often used when describing stocks, but many described as having momentum can be easily pushed off their track.

Another simple concept and part of classical physics, is that of “inertia.” Inertia is the resistance of any physical object to any change in its state of motion.

When a “momentum stock” has a relatively low market capitalization it isn’t too hard for resistance to match and overcome that momentum.

Greed and fear may play roles, too, in such cases, but those aren’t terms that Isaac Newton used very often.

The US economy may often move at what seems like a glacial speed, but its easy to overlook how difficult it is to alter its path due to its huge size.

That’s what makes the job of the FOMC so difficult. 

Outcomes resulting from their actions may take a long, long time to become obvious. Sometimes the FOMC acts to increase momentum and sometimes they have to act to increase resistance.

Stock market investors prefer the former, but history suggests that the early stages of the latter may be a great time for optimism.

While both momentum and inertia may be simple concepts, when considered together that’s not so much the case. Fortunately for the FOMC, the “Irresistible Force Paradox” suggests that there can be no such thing as an unstoppable object or an irresistible force.

Something has to give over the course of time.

While I’m no apologist for the George Bush presidency, the seeds for the beginning of an improvement in the economy often cited as beginning in about February 2009 could only have been sown much earlier. Similarly the economic stress in early 2001 could only have had its roots quite a bit earlier. However, our minds make temporal associations and credit or blame is often laid at the feet of the one lucky or unlucky enough to be in charge at the time something becomes obvious.

We’re now facing two delicate balances.

The first is the one continually faced by the FOMC, but that has been on most everyone’s mind ever since Janet Yellen became Chairman of the Federal Reserve.

The balance between managing inflation and not stifling economic growth has certainly been on the minds of investors. Cursed by that habit of making temporal associations, the small interest rate hike at the end of 2015, which was feared by many, could be pointed to as having set the stage for the market’s 2016 correction.

That leaves the FOMC to ponder its next step. 

While stressing that its decisions are “data driven” they can’t be completely dismissive of events around them, just as they briefly made mention of some global economic instability a few months ago, widely believed to have been related to China.

This past week’s GDP sent mixed messages regarding the critical role of the consumer, even as the previous week showed an increase in the Consumer Price Index. Whether rising health care costs or rising rents, which were at the core of the Consumer Price Index increase could hardly be interpreted as representing consumer participation, the thought that comes to mind is that if you’re a hammer everything looks like a nail.

The FOMC has to balance the data and its meaning with whatever biases each voting member may have. At the same time investors have to balance their fear of rising rates with the realization that could be reflecting an economy poised to grow and perhaps to do so in an orderly way.

But there’s another delicate balance at hand.

While we’ve all been watching how oil prices have whipsawed the stock market, there’s been the disconnect between lower oil prices borne out of excess supply and stock market health.

For those pleased to see energy prices moving higher because the market has gone in the same direction, there has to be a realization that there will be a point that what is perceived as good news will finally be recognized as being something else.

It’s hard to imagine that a continuing rise in oil will continue to be received as something positive by investors. Hopefully, though, that realization will be slow in coming. Otherwise, we face having had the worst of all worlds. Stocks declining as oil declined and then stocks declining as oil moves higher.

Now that JP Morgan Chase (JPM) has let everyone know just how on the hook it may be on its oil loan portfolio, it’s becoming more and more clear why the market is following in the same direction as oil has gone.

If the price of oil goes too low there may be drains on the banking system if there are defaults on those loans. We could again be hearing the phrase “too big to fail,” although this time instead of over-leveraged individuals losing their homes, all of the beneficiaries from the US oil boom could be at risk.

Of course, if oil goes too high and does so without being fundamentally driven, it can put a damper on a consumer driven economy that isn’t looking very robust to start.

We’re just 3 weeks away from the next FOMC Statement release and Chairman Yellen’s press conference may tip some balances. For much of the past two weeks the stock market has been celebrating higher oil and data suggesting no immediately forthcoming interest rate increase.

Of course, the FOMC may have its own irresistible force at play, perhaps explaining the earlier interest rate hike which didn’t seem to be supported by economic data. That force may be. a pre-determined intention to see rates rise

The market is of the belief that oil price momentum higher won’t meet its match in the negating force of increased interest rates, but one person may hold the balance in her hands.

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

Speaking of momentum and being easily thrown of track, Cypress Semiconductor (CY) comes to mind.

It trades at a high beta and is prone to volatile moves in either direction. It’s most recent direction has been lower, after having spiked sharply higher on news of its proposed buyout of another company.

When they were stranded at the alter by another suitor shares started a sharp descent from which it may finally be ready to emerge.

With a market capitalization of less than $3 billion it was easily knocked off track, but could just as easily get back on.

With an ex-dividend date in the April 2016 option cycle and with earnings in the May 2016 option cycle, I’m likely to add shares this coming week and will probably sell the April 2016 options while doing so.

I do have some concern about the company being able to continue its dividend, but IU don’t imagine that most who are invested in Cypress Semiconductor are doing it for the dividend, so I don’t believe that would represent significant downside pressure.

While February’s nice turnaround has left the S&P 500 significantly less in the hole for 2016. the financial sector has been continuing to have a difficult time as expectations for rising interest rates have proved premature.

American International Group (AIG) is near a 52 week low, but it hasn’t been the worst of that group even as it approaches a 20% correction for 2016.

What the downward pressure in the financial sector has brought has been enhanced option premiums. With a now respectable dividend as part of the equation and an ex-dividend the following week, I would consider selling something other than a weekly option

Abercrombie and Fitch (ANF) is on a roll of late and has earnings announced this week. It has a habit of being explosive when it does announce earnings and also has a habit of quickly giving back gains from news perceived as being positive. However, it has not given back the gains since its gap higher in November 2015.

What may make consideration of Abercrombie interesting this week is that it is also ex-dividend on the same day as earnings are announced.

While I normally consider the sale of puts before or after earnings, the combination of earnings, an ex-dividend date and a 13.3% implied price move has me thinking a bit differently.

I’m thinking of buying shares and then selling deep in the money calls.

Based on Friday’s closing price of $28.50, the sale of a weekly $25 strike call option at a premium of $4 would result in an ROI of 1.8% if assigned early in order to capture the dividend.

Since the ex-dividend date is March 2nd, that early assignment would have to come on Tuesday, March 1st and would preclude earnings exposure.

If, however, early assignment does not occur, the potential ROI for a full week of holding could be 2.5%, but with earnings risk. The $25 strike price is within the lower boundary implied by the option market, so one has to be prepared for a price move that may require further action.

Weyerhauser (WY) is also ex-dividend this week and its 2016 YTD loss is nearly 15%. The consensus among analysts, who are so often very late to react to good or bad news, are solidly bullish on shares at these levels.

With its merger with Plum Creek Timber now complete, many expect significant cost savings and operational synergies. 

It’s dividend isn’t quite as high and its payout ratio is almost half that of Cypress Semiconductor, but still far too high to be sustained. REIT or no REIT, paying out more than 100% of your earnings may feel good for a while if you’re on the receiving end, but is only a formula for Ponzi schemers of “The Producers.”

For now, that doesn’t concern me, but with an eye toward the upcoming ex-dividend date, which is on a Friday, I would consider selling an extended weekly option and then wouldn’t mind terribly if the options were exercised early.

Finally, I’m not one to be very interested in getting in on a stock following a climb higher, nor am I one to spend too much time reading charts.

But Coach (COH) which is ex-dividend this week gives me some reason to be interested.

A one-time favorite of mine either right before an ex-dividend date or following a large earnings related price decline, I’ve been holding onto an uncovered lot of shares for quite some time. Only the dividend has made it tolerable.

Ordinarily, I wouldn’t be terribly interested in considering adding shares of Coach following a 16% climb in the past month. However, shares are now making their second run at resistance and there is an 11% gap higher if it can successfully test that resistance.

It has been a prolonged drought for Coach as it was completely made irrelevant by Kors (KORS) for quite some time. During that time Kors had momentum and was also perceived as the force to stop Coach.

Time and tastes can change lots of things. That’s another delicate balance and for now, the balance seems to be back on the side of Coach.

Traditional Stocks: American International Group

Momentum Stocks: Cypress Semiconductor

Double-Dip Dividend: Coach (3/2 $0.34), Weyerhauser (3/4 $0.31)

Premiums Enhanced by Earnings: Abercrombie and Fitch (3/2 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 – January 31, 2016

 

 Whether you’re an addict of some sort, an avid collector or someone who seeks thrills, most recognize that it begins to take more and more to get the same exhilarating jolt.

At some point the stimulation you used to crave starts to become less and less efficient at delivering the thrill.

And then it’s gone.

Sometimes you find yourself pining for what used to be simpler times, when excess wasn’t staring you in the face and you still knew how to enjoy a good thing.

We may have forgotten how to do that.

It’s a sad day when we can no longer derive pleasure from excess.

It seems that we’ve forgotten how to enjoy the idea of an expanding and growing economy, historically low interest rates, low unemployment and low prices.

How else can you explain the way the market has behaved for the past 6 months?

Yet something stimulated the stock market this past Thursday and Friday, just as had been the case the previous Thursday and Friday.

For most of 2016 and for a good part of 2015, the stimulus had been the price of oil. but more than often the case was that the price of oil didn’t stimulate the market, but rather sucked the life out of it.

We should have all been celebrating the wonders of cheap oil and the inability of OPEC to function as an evil cartel, but as the excess oil has just kept piling higher and higher the thrill of declining end user prices has vanished.

Good stimulus or bad stimulus, oil has taken center stage, although every now and then the debacles in China diverted our attention, as well.

Every now and then, as has especially been occurring in the past 2 weeks, there have been instances of oil coming to life and paradoxically re-animating the stock market. It was a 20% jump in the price of oil that fueled the late week rally in the final week of the January 2016 option cycle. The oil price rise has no basis in the usual supply and demand equation and given the recent dynamic among suppliers is only likely to lead to even more production.

It used to be, that unless the economy was clearly heading for a slowdown, a decreasing price of oil was seen as a boost for most everyone other than the oil companies themselves. But now, no one seems to be benefiting.

As the price of oil was going lower and lower through 2015, what should have been a good stimulus was otherwise.

However, what last Thursday and Friday may have marked was a pivot away from oil as the driver of the market, just as we had pivoted away from China’s excesses and then its economic and market woes.

At some point there has to be a realization that increasing oil prices isn’t a good thing and that may leave us with the worst of all worlds. A sliding market with oil prices sliding and then a sliding market with oil prices rising.

It seems like an eternity ago that the market was being handcuffed over worries that the FOMC was going to increase interest rates and another eternity ago that the market seemed to finally be exercising some rational judgment by embracing the rate rise, if only for a few days, just 2 months ago.

This week saw a return to those interest rate fears as the FOMC, despite a paucity of data to suggest inflation was at hand, didn’t do much to dispel the idea that “one and done” wasn’t their plan. The market didn’t like that and saw the prospects of an interest rate increase as a bad thing, even if reflecting improving economic conditions.

But more importantly, what this week also saw was the market returning to what had driven it for a few years and something that it never seemed to tire of celebrating.

That was bad news.

This week brought no good news, at all and the market liked that.

Negative interest rates in Japan? That has to be good, right?

A sluggish GDP, oil prices rising and unimpressive corporate earnings should have sent the market into a further downward spiral, but instead the idea that the economy wasn’t expanding was greeted as good news.

Almost as if the Federal Reserve still had some unspent ammunition to throw at the economy that would also serve to bolster stocks, as had been the case for nearly 6 years.

It’s not really clear how much more stimulus the Federal Reserve can provide and if investors are counting on a new and better high, they may in for a big disappointment.

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

I’m a little surprised that my brokerage firm didn’t call me last week, to see if I was still alive,  because it was the second consecutive week of not having made a single trade.

Despite what seem to be bargain prices, I haven’t been able to get very excited about very many of the ones that have seemed alluring. Although this coming Monday may be the day to mark a real and meaningful bounce higher, the lesson of the past 2 months has been that any move higher has simply been an opportunity to get disappointed and wonder how you ever could have been so fooled.

I’m not overly keen on parting with any cash this week unless there some reason to believe that the back to back gains of last week are actually the start of something, even if that something is only stability and treading water.

Building a base is probably far more healthy than trying to quickly recover all that has been quickly lost.

With weakness still abounding I’m a little more interested in looking for dividends if putting cash to work.

This week, I’m considering purchases of Intel (INTC), MetLife (MET) and Pfizer (PFE), all ex-dividend this coming week.

With the latter two, however, there’s also that pesky issue of earnings, as MetLife reports earnings after the close of trading on its ex-dividend date and Pfizer reports earnings the day before its ex-dividend date.

MetLife has joined with the rest of the financial sector in having been left stunned by the path taken by interest rates in the past 2 months, as the 10 Year Treasury Note is now at its lowest rate in about 8 months.

It wasn’t supposed to be that way.

But if you believe that it can’t keep going that way, it’s best to ignore the same argument used in the cases of the price of
oil, coal and gold.

With MetLife near a 30 month low and going ex-dividend early in the week before its earnings are reported in the same day, there may be an opportunity to sell a deep in the money call and hope for early assignment, thereby losing the dividend, but also escaping the risk of earnings. In return, you may still be able to obtain a decent option premium for just a day or two of exposure.

The story of Pfizer’s proposed inversion is off the front pages and its stock price no longer reflects any ebullience. It reports earnings the morning of the day before going ex-dividend. That gives plenty of time to consider establishing a position in the event that shares either go lower or have relatively little move higher.

The option premium, however, is not very high and with the dividend considered the option market is expecting a fairly small move, perhaps in the 3-4% range. Because of that I might consider taking on the earnings risk and establishing a position in advance of earnings, perhaps utilizing an at the money strike price.

In that case, if assigned early, there is still a decent 2 day return. If not assigned early, then there is the dividend to help cushion the blow and possibly the opportunity to either be assigned as the week comes to its end or to rollover the position, if a price decline isn’t unduly large.

Intel had a nice gain on Friday and actually has a nice at the money premium. That premium is somewhat higher than usual, particularly during an ex-dividend week. As with Pfizer, even if assigned early, the return for a very short holding could be acceptable for some, particularly as earnings are not in the picture any longer.

As with a number of other positions considered this week, the liquidity of the options positions should be  sufficient to allow some management in the event rollovers are necessary.

2015 has been nothing but bad news for American Express (AXP) and its divorce from Costco (COST) in now just a bit more than a month away.

The bad news for American Express shareholders continued last week after reporting more disappointing earnings the prior week. It continued lower even as its credit card rivals overcame some weakness with their own earnings reports during the week.

At this point it’s very hard to imagine any company specific news for American Express that hasn’t already been factored into its 3 1/2 year lows.

The weekly option premium reflects continued uncertainty, but I think that this is a good place to establish a position, either through a buy/write or the sale of puts. Since the next ex-dividend date is more than 2 months away, I might favor the sale of puts, however.

Yahoo (YHOO) reports earnings this week and as important as the numbers are, there has probably been no company over the past 2 years where far more concern has focused on just what it is that Yahoo is and just what Yahoo will become.

Whatever honeymoon period its CEO had upon her arrival, it has been long gone and there is little evidence of any coherent vision.

In the 16 months since spinning off a portion of its most valuable asset, Ali Baba (BABA), it has been nothing more than a tracking stock of the latter. Ali Baba has gone 28.6% lower during that period and Yahoo 28% lower, with their charts moving in tandem every step of the way.

With Ali Baba’s earnings now out of the way and not overly likely to weigh on shares any further, the options market is implying a price move of 7.6%.

While I usually like to look for opportunities where I could possibly receive a 1% premium for the sale of puts at a strike price that’s outside of the lower boundary dictated by the option market, I very much like the premium at the at the money put strike and will be considering that sale.

The at the money weekly put sale is offering about a 4% premium. With a reasonably liquid option market, I’m not overly concerned about difficulty in being able to rollover the short puts in the event of an adverse move and might possibly consider doing so with a longer term horizon, if necessary.

Finally, there was a time that it looked as if consumers just couldn’t get enough of Michael Kors (KORS).

Nearly 2 years ago the stock hit its peak, while many were writing the epitaph of its competitor Coach (COH), at least Coach’s 23% decline in that time isn’t the 60% that Kors has plunged.

I haven’t had a position in Kors for nearly 3 years, but do still have an open position in Coach, which for years had been a favorite “go to” kind of stock with a nice dividend and a nice option premium.

Unfortunately, Coach, which had long been prone to sharp moves when earnings were announced, had lost its ability to recover reasonably quickly when the sharp moves were lower.

While Coach is one of those rare gainers in 2016, nearly 13% higher, Kors is flat on the year, although still far better than the S&P 500.

While I don’t believe that Coach has turned the tables on Kors and is now “eating their lunch” as was so frequently said when Kors was said to be responsible for Coach’s reversal of fortune, I think that there is plenty of consumer to go around for both.

Kors reports earnings this week and like COach, is prone to large earnings related moves.

With no dividend to factor into the equation, Kors may represent a good  opportunity for those willing to take some risk and consider the sale of out of the money puts.

WIth an implied move of 8.5% next week, it may be possible to get a 1.1% ROI even if shares fall by as much as 11.3% during the week.

A $4.50 move in either direction is very possible with Kors after having dropped nearly $60 over the past 2 years. However, if faced with the possibility of assignment of shares, particularly since there is no dividend, I would just look for any opportunity to continue rolling the short puts over and over.

If not wanting to take the take the risk of a potential large drop, some consideration can also be given to selling puts after earnings, in the event of a large drop in shares. If that does occur, the premiums should still be attractive enough to consider making the sale of puts after the event.

 

Traditional Stocks: American Express

Momentum Stocks:  none

Double-Dip Dividend: Intel (2/3 $0.26), MetLife (2/3 $0.38), Pfizer (2/3 $0.30)

Premiums Enhanced by Earnings: Michael Kors (2/2 AM), Yahoo (2/2 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 – November 29, 2015

We used to believe that the reason people so consistently commented about how tired they were after a big Thanksgiving meal was related to the turkey itself.

Within that turkey it was said that an abundance of the basic amino acid,”tryptophan,” which is a precursor of “serotonin”  played a role in its unique ability to induce sleep.

More reasoned people believe that there is nothing special about turkey itself, in that it has no more tryptophan than any other meat and that simply eating without abandon may really explain the drowsiness so commonly experienced. Others also realize that tryptophan, when part of a melange of other amino acids, really doesn’t stand out of the crowd and exert its presence.

Then there’s the issue of serotonin itself, a naturally produced neurotransmitter, which is still not fully understood and can both energize and exhaust, in what is sometimes referred to as “the paradox of serotonin.”

From what is known about serotonin, if dietary tryptophan could exert some pharmacological influence by simply eating turkey, we would actually expect to find reports of people who got wired from their Thanksgiving meals instead of sedated.

Based upon my Thanksgiving guests this year, many of whom found the energy to go out shopping on Thursday and Friday nights, they were better proof of the notion that Black Fridays matter, rather than of the somnolent properties of turkey.

In the case of the relationship between the tryptophan in turkey and ensuing sleep, it may just be a question of taking disparate bits of information, each of which may have some validity and then stringing them together in the belief that their individual validity can be additive in nature.

Truth doesn’t always follow logic.

Another semi-myth is that when traders are off dozing or lounging in their recliners instead of trading, the likelihood of large market moves is enhanced in a volume depleted environment.

You definitely wouldn’t have known it by the market’s performance during this past week, as Friday’s trading session began the day with the S&P 500 exactly unchanged for the week and didn’t succeed in moving the needle as the week came to its end.

Other than the dueling stories of NATO ally Turkey and stuffing ally turkey, there wasn’t much this week to keep traders awake. The former could have sent the market reeling, but anticipation of the latter may have created a calming influence.

You couldn’t be blamed for buying into the tryptophan myth and wondering if everyone had started their turkey celebration days before the calendar warranted doing so.

Or maybe traders are just getting tired of the aimless back and forth that has us virtually unchanged on the DJIA for 2015 and up only 1.5% on the S&P 500 for the year.

Tryptophan or no tryptophan, treading water for a year can also tire you out.

The week started off with the news of China doubling its margin requirements and an agreement on a $160 Billion tax inversion motivated merger, yet the reaction to those news items was muted.

The same held for Friday’s 5.5% loss in Shanghai that barely raised an eyebrow once trading got underway in the United States, as drowsiness may have given way to hibernation.

Even the revised GDP, which indicated a stronger than expected growth rate, failed to really inflate or deflate. There was, however, a short lived initial reaction which was a repudiation of the recent seeming acceptance of an impending interest rate hike. For about an hour markets actually moved outside of their very tight range for the week until coming to its senses about the meaning of economic growth.

Next week there could be an awakening as the Employment Situation Report is released just days before the FOMC begins their December meeting which culminates with a Janet Yellen press conference.

Other than the blip in October’s Employment Situation Report, the predominance of data since seems to support the notion of an improving economy and perhaps one that the FOMC believes warrants the first interest rate hike in almost 10 years.

With traders again appearing to be ready to accept such an increase it’s not too likely that a strong showing will scare anyone away and may instead be cause for a renewed round of optimism.

On the other hand, a disappointing number could send most into a tizzy, as uncertainty is rarely the friend of traders and any action by the FOMC in the face of non-corroborating data wouldn’t do much to inspire confidence in anything or any institution.

For my part, I wouldn’t mind giving the tryptophan the benefit of the doubt and diving deeply into those turkey leftovers with express instructions to be woken up only once 2016 finally arrives.

Knowing that flat years, such as this one has been to date, are generally followed by reasonably robust years, overloading on the tryptophan now may be a good strategy to avoid more market indecision and avoid the wasteful use of energy that could be so much better spent in 2016.

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

A number of potential selections this week fall into the “repeat” category.

Unlike a bad case of post-Thanksgiving indigestion, the kind of repeating that occasionally takes place when selling covered calls, is actually an enjoyable condition and is more likely to result in a look of happiness instead of one of gastric distress.

This week I’m again thinking of buying Bank of

America (BAC), Best Buy (BBY), Morgan Stanley (MS) and Pfizer (PFE), all of which I’ve recently owned and lost to assignment.

Sometimes that has been the case on multiple occasions over the course of just a few weeks. Where the real happiness creeps in is when you can buy those shares back and do so at a lower price than at which they were assigned.

With the S&P 500 only about 2% below its all time high, I would welcome some weakness to start the week in hopes of being able to pick up any of those 4 stocks at lower prices. My anticipation is that Friday’s Employment Situation Report will set off some buying to end the week, so I’d especially like to get the opportunity to make trades early in the week.

Bank of America and Morgan Stanley, of course, stand to benefit from increasing interest rates, although I suppose that some can make the case that when the news of an interest rate increase finally arrives, it will signal a time to sell.

If you believe in the axiom of “buying on the rumor and selling on the news,” it’s hard to argue with that notion, but I believe that the financials have so well tracked interest rates, that they will continue doing so even as the rumor becomes stale news.

As an added bonus, Bank of America is ex-dividend this week, although it’s dividend is modest by any standard and isn’t the sort that I would chase after.

Both, however, may have some short upside potential and have option premiums that are somewhat higher than they have been through much of 2015.

While both are attractive possibilities in the coming week or weeks, if forced to consider only one of the two, I would forgo Bank of America’s added bonus and focus on Morgan Stanley, as it has recovered from its recent earnings related drop, but now may be getting ready to confront its even larger August decline.

Bank of America, on the other hand, is not too far from its 2015 high point, but still can be a good short term play, perhaps even being a recurrent one over the next few weeks.

Also ex-dividend this week are two retailers, Wal-Mart (WMT) and Coach (COH) and together with Best Buy (BBY) and Bed Bath and Beyond (BBBY) are my retail focus, as I expect this year to be like most others, as the holiday season begins and ends.

While Coach may have lost some of its cachet, it’s still no Wal-Mart in that regard.

Coach has struggled to return to its April 2015 levels, although it may finally be stabilizing and recent earnings have suggested that its uncharacteristically poor execution on strategy may be coming to an end.

With a very attractive dividend and an option premium that continues to reflect some uncertainty, I wouldn’t mind finding some company for a much more expensive lot of shares that I’ve been holding for quite some time. With the ex-dividend date this week, the stars may be aligned to do so now.

I bought some Wal-Mart shares a few weeks ago after a disastrous day in which it sustained its largest daily loss ever, following the shocking revelation that increasing employee wages was going to cost the company some money.

The only real surprise on that day was that apparently no one bothered doing the very simple math when Wal-Mart first announced that it was raising wages for US employees. They provided a fixed amount for that raise and the number of employees eligible for that increase was widely known, but basic mathematical operations were out of reach to analysts, leading to their subsequent shock some months later.

Wal-Mart shares will be getting ready to begin the week slightly higher than where I purchased my most recent shares. I don’t very often add additional lots at higher prices, but the continuing gap between the current price and where it had unexpectedly plunged from offers some continued opportunity.

As with Coach, in advance of an ex-dividend date may be a fortuitous time to open a position, particularly as the option premium and dividend are both attractive, as are the shares themselves.

Neither Best Buy nor Bed Bath and Beyond are ex-dividend this week, although Best Buy will be so the following week.

That may give reason to consider selling an extended option if purchasing Best Buy shares, but it could also give some reason to sell weekly options, but to consider rolling those over if assignment is likely.

In doing so, one strategy might be to select a rollover date perhaps two weeks away and still in the money. In that manner, there may still be reason for the holder of the option contract to exercise early in order to capture the dividend, but as the seller you would receive a relatively larger premium that could offset the loss of the dividend while at the same time freeing up the cash tied up in shares of Best Buy in order to be able to put it to use in some other income producing position.

Bed Bath and Beyond is a company that I frequently consider buying and would probably have done much more frequently, if only it had offered a dividend or consistently offered weekly options for sale and purchase.

It still doesn’t offer a dividend, but sitting near a 2 year low and never being in one of their stores without lots of company at the cash register, the shares really have their appeal during the holiday season.

Finally, even with an emphasis on financials and retail, Pfizer (PFE) continues to warrant a look.

Having purchased shares last week and having seen them assigned, there’s not too much reason to believe that their planned merger with Ireland based Allergan (AGN), is going to be resolved any time soon.

While we wait for that process to play itself out, there may be fits and starts. There will clearly be opposition to the merger, as attention will focus on many issues, but none as controversial as the tax avoidance that may be a primary motivator for the transaction.

If the news for Pfizer eventually turns out to be negative and an immovable roadblock is placed, I don’t think that very much of Pfizer’s current price

reflects the deal going to its anticipated completion.

With that in mind, the upside potential may be greater than the downside potential. As long as the option premiums are reflected any increased risk, this can be an especially lucrative trade the longer the process gets stretched out, particularly if Pfizer trades in a defined range and the position can be serially rolled over or purchased anew.

Traditional Stocks:  Bed Bath and Beyond, Morgan Stanley, Pfizer

Momentum Stocks:  Best Buy

Double-Dip Dividend: Bank of America (12/2 $0.05), Coach (12/2 $0.34), Wal-Mart (12/2 $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 – October 11, 2015

If you’re a fan of “American Exceptionalism” and can put aside the fact that the Shanghai stock market has made daily moves of 6% higher in the past few months on more than one occasion, you have to believe that the past week has truly been a sign of the United States’ supremacy extending to its stock markets.

We are, of optiocourse, the only nation to have successfully convinced much of the world for the past 46 years that we put a man on the moon.

So you tell me. What can’t we do?

What we can do very well is turn bad news into good news and that appears to be the path that we’ve returned to, as the market’s climb may be related to a growing belief that interest rate hikes may now be delayed and the party can continue unabated.

While it was refreshing for that short period of time when news was taken at face value, we now are faced with the prospect of markets again exhibiting their disappointment when those interest rate hikes truly do finally become reality.

Once the market came to its old realizations it moved from its intra-day lows hit after the most recent Employment Situation Report and the S&P 500 rocketed higher by 6% as a very good week came to its end on a quiet note.

While much of the gain was actually achieved when the Shanghai markets were closed for the 7 day National Day holiday celebration, it may be useful to review just what rockets are capable of doing and perhaps looking to China as an example of what soaring into orbit can lead to.

Rockets come in all sizes and shapes, but are really nothing more than a vehicle launched by a high thrust engine. Those high thrust rocket engines create the opportunities for the vehicle. Some of those vehicles are designed to orbit and others to achieve escape velocity and soar to great heights.

And some crash or explode violently, although not by design.

As someone who likes to sell options the idea of a stock just going into orbit and staying there for a while is actually really appealing, but with stocks its much better if the orbit established is one that has come down from greater heights.

That’s not how rockets usually work, though.

But for any kind of orbiting to really be worthwhile, those premiums have to be enriched by occasional bumps along the path that don’t quite make it to the level of violent explosions.

It’s just that you never really know when those violent explosions are going to come and how often. Certainly Elon Musk didn’t expect his last two rocket launches to come to sudden ends.

In China’s case those 6% increases have been followed by some epic declines, but that’s not unusual whenever seeing large moves in either direction.

As we get ready to start earnings season for real this week we may quickly learn whether our own 6% move higher was just the first leg of a multi-stage rocket launch or whether it will soon discover that there is precious little below to offer much in the way of support.

Prior to that 6% climb it was that lack of much below that created a situation where many stocks had gone into orbit, taking a rest to regain strength for a bounce higher. That temporary orbit was a great opportunity to generate some option premium income, as some of the risk of a crash was reduced as those stocks had already migrated closer to the ground.

While I don’t begrudge the recent rapid rise it would be nice to go back into orbit for a while and refuel for a slower, but more sustainable ride higher.

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

There aren’t too many data points to go on since that turnaround last week, but Apple (NASDAQ:AAPL) has been uncharacteristically missing from the party.

It seems as if it’s suddenly becoming fashionable to disparage Apple, although I don’t recall Tim Cook having given Elon Musk a hard time recently. With the opening of the movie, Steve Jobs, this week may or may not further diminish the luster.

Ever since Apple joined the DJIA on March 19, 2015 it has dragged the index 109 points lower, accounting for about 11% of the index’s decline, as it has badly lagged both the DJIA and S&P 500 during that period. The truth, however, is that upon closer look, Apple has actually under-performed both for most of the past 3 year period, even when selecting numerous sub-periods for study. The past 6 months have only made the under-performance more obvious.

With both earnings and an ex-dividend date coming in the next month, I would be inclined to consider an Apple investment from the sale of out of the money puts. If facing assignment, it should be reasonably easy to rollover those puts and continuing to do so as earnings approach. If, however, faced with the need to rollover into the week of earnings, I would do so using an extended weekly option, but one expiring in the week prior to the week of the ex-dividend date. Then, if faced with assignment, I would plan to take the assignment and capture the dividend, rather than continuing to attempt to escape share ownership.

In contrast to Apple, Visa (NYSE:V) which joined the DJIA some 2 years earlier, coincidentally having split its shares on the same day that Apple joined the index, actually added 49 points to the DJIA.

For Visa and other credit card companies there may be a perfect storm of the good kind on the horizon. With chip secured credit cards just beginning their transition into use in the United States and serving to limit losses accruing to the credit card companies, Visa is also a likely beneficiary of increasing consumer activity as there is finally some evidence that the long awaited oil dividend is finding its way into retail.

When it comes to bad news, it’s hard to find too many that have taken more lumps than YUM Brands (NYSE:YUM) and The Gap (NYSE:GPS).

Despite a small rebound in YUM shares on Friday, that came nowhere close toward erasing the 19% decline after disappointing earnings from its China operations.

YUM Brands was a potential earnings related trade last week, but it came with a condition. That condition being that there had to be significant give back of the previous week’s gains.

Instead, for the 2 trading days prior to earnings, YUM shares went higher, removing any interest in taking the risk of selling puts as the option market was still anticipating a relatively mild earnings related move and the reward was really insufficient.

Now, even after the week ending bounce, YUM’s weekly option premium is quite high, especially factoring in its ex-dividend state. As discussed last week, the premium enhancement may be sufficient to look into the possibility of selling a deep in the money weekly call option and ceding the dividend in order to accrue the premium and exit the position after just 2 days, if assigned early.

You needn’t look to China to explain The Gap’s problems. Slumping sales under its new CEO and the departure of a key executive from a rare division that was performing have sent shares lower and lower.

The troubles were compounded late this past week when The Gap did, as fewer and fewer in retail are doing, and released its same store sales figures and they continued to disappoint everyone.

Having gone ex-dividend in the past week that lure is now gone for a few months. The good news about The Gap is that it isn’t scheduled to report news of any kind of news for another month, when it releases same store sales once again, followed by quarterly results 10 days later.

The lack of any more impending bad news isn’t the best of compliments. However, unlike a rocket headed for a crash the floors for a stock can be more forgiving and The Gap is approaching a multi-year support level that may provide some justification for a position with an intended short term time frame as its option premiums are increasingly reflecting its increased volatility.

Coach (NYSE:COH) has earnings due to be reported at the end of this month. It is very often a big mover at earnings and despite some large declines had generally had a history of price recovery. That, however, hasn’t been the case in nearly 2 years.

Over the past 3 years I’ve owned Coach shares 21 times, but am currently weighed down by a single lot that is nearly 18 months old. During that time period I’ve only seen fit to add shares on a single occasion, but am again considering doing so as it seems to be building upon some support and may be one of those beneficiaries of increased consumer spending, even as its demographic may be less sensitive to energy pricing.

With the risk comes a decent weekly option premium, but I might consider sacrificing some of that premium and attempting to use a higher priced strike and perhaps an extended weekly option, but being wary of earnings, even though I expect an upward surprise.

The drug sector has seen its share of bad news lately, as well and has certainly been the target of political opportunism and over the top greed that makes almost everyone cringe.

AbbVie (NYSE:ABBV) is ex-dividend this week and is nearly 20% lower from the date that the S&P 500 began its descent toward correction territory. Since its spin-off from Abbott Labs (NYSE:ABT), which is also ex-dividend this week, AbbVie has had more than its share of controversy, including a proposed inversion and the pricing of its Hepatitis C drug regimen.

Shares seem to have respected some price support and have returned to a level well below where I last owned them. With its equally respectable option premium and generous dividend, this looks like an opportune time to consider a position, but I would like it as a short term holding in an attempt to avoid being faced with its upcoming earnings report at the end of the month.

Finally, Netflix (NASDAQ:NFLX) reports earnings this week and had been on a tear until mid-August, when a broad brush took nearly every company down 10% or more.

Of course, even with that 10% decline, Icahn Enterprises (NASDAQ:IEP), would have been far better off not having sold its shares and incurring its own 13% loss in 2015.

With earnings coming this week I found it interesting that Netflix would announce a price increase for new customers in advance of earnings. In having done so, shares spiked nearly 10%.

The option market is implying a 14% price move, however, a 1% ROI could possibly be achieved by selling a weekly put at a strike level 19% below Friday’s closing price.

That’s an unusually large cushion even as the option market has been starting to recover from a period of under-estimating earnings related moves in the past quarter.

While the safety net does appear wide, my cynical side has me believing that the subscription increase was timed to offer its own cushion for what may be some disappointing numbers. Given the emphasis on new subscriber acquisitions, I would believe that metric will come in strong, otherwise this wouldn’t be an opportune time for a price increase. However, there may be something lurking elsewhere.

With that in mind, I would consider the same approach as with YUM Brands last week and would only consider the sale of puts if preceded by some significant price pullback. Otherwise, I would hold off, but might become interested again in the event of a large downward move after earnings are released.

Traditional Stocks: Apple, The Gap, Visa

Momentum Stocks: Coach

Double-Dip Dividend: AbbVie (10/13), YUM Brands (10/14)

Premiums Enhanced by Earnings: Netflix (10/14 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 – August 30, 2015

Good luck to you if you have staked very much on being able to prove that you can make sense of what we’ve been seeing in the US stock market.

While it’s always impossible to predict what the coming week will bring, an even more meaningful tip of the hat would go to anyone that has a reasonable explanation of what awaits in the coming week, especially since past weeks haven’t necessarily been simple to understand, even in hindsight.

Sure, you can say that it’s all about the confusion over in China and the series of actions taken to try and control the natural laws of physics that describe the behavior of bubbles. You can simply say that confusion and lack of clear policy in the world’s second largest economy has spilled over to our shores at a time when there is little compelling reason for our own markets to make any kind of meaningful move.

That appears to be a reasonable explanation, in a case of the tail wagging the dog, but the correlation over the past week is imperfect and not much better over the past 2 weeks when some real gyrations began occurring in China.

The recovery last week was very impressive both in the US and in China, but in the span of less than 2 months, ever since China began restrictions on stock trading activity, we can point to three separate impressive recoveries in Shanghai. During that time the correlation between distant markets gets even weaker.

Good luck, then, guessing what comes next and whether the tail will still keep wagging the dog, now that the dog realizes that a better than expected GDP may be finally evidencing the long expected energy dividend to help boost consumer participation in economic growth.

Sure, anyone can say that a 10% correction has been long overdue and leave it at that, and be able to hold their head up high in any argument now that we’ve been there and done that.

There has definitely not been a shortage of people coming out of the woodwork claiming to have gone to high cash positions before this recent correction. If they did, that’s really admirable, but it’s hard to find many trumpeting that fact before the correction hit.

What would have given those willing to disengage from the market and go to cash following unsuccessful attempts to break below support levels a signal to do so? Those lower highs and higher lows over the past month may have been the indication, but even those who wholeheartedly believe in technical formations will tell you that acting on the basis of that particular phenomenon has a 50-50 chance of landing you on the right side.

And why did it finally happen now?

The time has been ripe for about 3 years. I’ve been continually wrong in that regard for that long and I certainly can’t hold my head up very high, even if I had gotten it right this time.

Which I didn’t. But being right once doesn’t necessarily atone for all of the previous wrong calls.

No sooner had the chorus of voices come together to say that the character and depth of the decline seen were increasingly arguing against a V-shaped recovery that the market now seems to be attempting that V-shaped recovery.

What tends to make the most sense is simply considering taking a point of view that’s in distinct contrast to what people clamoring for attention attempt to build their reputations upon and are equally prepared to disavow or conveniently forget.

Of course, if you want to add to the confusion, consider how even credible individuals see things very differently when also utilizing a different viewing angle of events.

Tom Lee, former chief US equity strategist for JP Morgan Chase (NYSE:JPM) and founder of Fundstrat Global, who is generally considered bullish, notes that history shows that the vast majority of 10% declines do not become bear markets.

Michael Batnick, who is the director of research at Ritholtz Wealth Management, looked at things not from the perspective of the declines, but rather from the perspective of the advances seen.

His observation is that the vast majority of those declines generally occurred in “not the healthiest markets.”

Not that such data has application to events being seen in China, but it may be worthwhile to make note of the fact that the tremendous upside moves having recently been seen in China have occurred in the context of that market still having dropped 20%.

Perhaps not having quite the same validity as laws of physics, it may make some sense to be wary of the kind of moves higher that bring big smiles to many. If China’s stock market can still wag the United States, even with less than perfect correlation, there’s reason to be circumspect not only of their continued attempts to defy natural market forces, but also of that market’s behavior.

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

While I’m among those happy to have seen the market put 2 consecutive impressive gains together, particularly after the failed attempt to bounce back from a 600+ point loss to begin the week, I don’t think that I’ll be less cautious heading into this week.

I did open 2 new positions last week near the market lows, and despite their performance am still ambivalent about those purchase decisions. For each, I sold longer term contracts than would be my typical choice, in an attempt to lock in some volatility induced premiums and to have sufficient time for price recovery in the event of a short term downturn.

With an unusually large number of personal holdings that are ex-dividend this week, I may be willing to forgo some of the reluctance to commit additional capital in an effort to capture more dividend, especially as option premiums are being enhanced by volatility.

Both Coach (NYSE:COH) and Mosaic (NYSE:MOS) are ex-dividend this week.

For me, both also represent long suffering existing positions that I’ve traded many times over the years, and have been accustomed to their proclivity toward sharp moves higher and lower.

However, what used to be relatively short time frames for those declines have been anything but that for some existing lots, even as having traded other lots at lower prices.

Since their previous ex-dividend dates both have under-performed the S&P 500, although the gap has narrowed in the past month, even as both are within reach of their yearly lows.

On a relative basis I believe that both will out-perform the S&P 500 in the event of the latter’s weakness, but may not be able to keep pace if the market continues to head higher. However, for these trades and unlike having used longer term contracts with trades last week, my eyes would be focused on a weekly option and would even be pleased if shares were assigned early in an effort to capture the dividend.

That’s one of the advantages of having higher volatility. Even early assignment can be as or more profitable than in a low volatility environment and being able to capture both the premium and dividend, when the days of the position being open are considered.

Despite having spent some quality time with Meg Whitman’s husband a few months ago, I had the good sense not to ask him anything a few days before Hewlett Packard (NYSE:HPQ) was scheduled to report earnings.

That would have been wrong and no one with an Ivy League legacy, that I’ve ever heard about, has ever crossed that line between right and wrong.

While most everyone is now focusing on the upcoming split of Hewlett Packard, my focus is dividend centric. As with Coach and Mosaic, the option premium is reflecting greater volatility and is made increasingly attractive, even during an ex-divided event.

However, since Hewlett Packard’s ex-dividend date is on Friday, there is less advantage in the event of an early assignment. That, though, points out another advantage of a higher volatility environment.

That advantage is that it is often better to rollover in the money positions, with or without a dividend in mind, than it is to accept assignment and to seek a new investment opportunity.

In this case, if faced with likely early assignment, I would probably consider rolling over to the next week and at least if still assigned early, then would be able to pocket that additional week’s option premium, which could become the equivalent of having received the dividend.

For those who are exceptionally daring, Joy Global (NYSE:JOY) is also ex-dividend this week and it is another of my long suffering positions.

These days, anything stocks associated with China have additional risk. For years Joy Global was one of a very small number of stocks that I considered owning that had large exposure to the Chinese economy. I gave considerably more credibility to Joy Global’s forecasting of its business in China than to official government reports of economic growth.

The daring part of a position in Joy Global has more to do with just having significant interests in China, but also because it reports earnings the day after going ex-dividend. I generally do stay away from those situations and much prefer to have earnings be release first and then have the stock go ex-dividend the following day.

In this case, one can consider the purchase of shares and the sale of a deep in the money weekly call option in the hopes that someone might consider trying to capture the dividend and then perhaps selling their shares before exposure to earnings risk.

In such an event, the potential ROI can be 1.1% if selling a weekly $22 call option, based upon Friday’s $24.01 close.

However, if not assigned early, the ROI becomes 1.8% and allows for an 8% price cushion in the event of the share’s decline, which is in line with the option market’s expectations.

For those willing to cede the dividend, there is also the possibility of considering a put sale in advance of earnings.

The option market is implying only an 8.1% move next week. However, it may be possible to achieve a 1% return for the sale of a weekly put that is at a strike price 12.5% below Friday’s closing price.

Going from daring to less so, I purchased shares of $24.06 shares General Electric (NYSE:GE) last week and sold longer dated $25 calls in an effort to combine premium, capital gains on shares and an upcoming ex-dividend date.

Despite the shares having climbed during the course of the week and now beyond that strike level, I may be considering adding even more shares, again trying to take advantage of that combination, especially the higher than usual option premium that’s available.

General Electric hasn’t yet announced that ex-dividend date, but it’s reasonable to expect it sometime near September 18th. While my current short call position is for October 2, 2015, for this additional proposed lot, I may consider the sale of a September 18 slightly out of the money option contracts.

In the event that once the ex-dividend date is announced and those shares are in jeopardy of being assigned early, I might consider rolling over the position if volatility allows that to be a logical alternative to assignment.

Finally, as long as Meg Whitman is on my mind, I’m not certain how much longer I can go without owning shares of eBay (NASDAQ:EBAY). While it has traded in a very consistent range and very much paralleling the performance of the S&P 500 over the past month, it is offering an extremely attractive option premium in addition to some opportunity for capital gains on shares.

The real test, of course, begins as it releases its next earnings report which will no longer include PayPal’s (NASDAQ:PYPL) contributions to its bottom line. That is still 6 weeks away and I would consider the purchase of shares and the sale of intermediate term option contracts in order to take advantage of that higher market volatility induced premium.

At least that much makes sense to me.

Traditional Stock: eBay, General Electric

Momentum Stock: none

Double-Dip Dividend: Coach (9/3 $0.34), Hewlett Packard (9/4 $0.18), Joy Global (9/2 $0.20), Mosaic (9/1 $0.28)

Premiums Enhanced by Earnings: Joy Global (9/3 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 stre

am for the week, with reduction of trading risk.