Tag: EBAY

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Weekend Update – September 7, 2014

There was no shortage of news stories that could have prevented the market from setting yet another new closing high this week.

While much of the week was spent on discussing the tragic sequence of events leading to the death of Joan Rivers, markets still had a job to do, but may have been in no position to stop the momentum, regardless of the nature of more germane events.

Despite what everyone agrees to have been a disappointing Employment Situation Report, the market shrugged off that news and closed the week at another new record. They did so as many experts questioned the validity of the statistics rather than getting in the way of a market that was moving higher.

As the saying goes “you don’t step in front of a moving train.”

The previous day, with the announcement by ECB President Mario Draghi of further decreases in interest rates and more importantly the institution of what is being referred to as “Quantitative Easing Lite,” the market chose to ignore the same reasoning that many believed was behind our own market’s steady ascent and could, therefore, pose a threat to that continued ascent. 

Continue reading “Almost Nothing Can Stop a Runaway Train” on Seeking Alpha

 

 

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Weekend Update – July 27, 2014

It seems that almost every week over the past few months have both begun and ended with a quandary of which path to take.

Talk about indecision, for the previous seven weeks the market closed in the an alternating direction to the previous week. This past week was the equivalent of landing on the “green” as the S&P 500 was 0.12 higher for the week, but ending the streak.

Like the biology experiment that shows how a frog immersed in water that is slowly brought to a boil never perceives the impending danger to its life, the market has continued to set new closing record high after record high in a slow and methodical fashion.

With all the talk continuing about how money remains on the sidelines from 2008-9, you do have to wonder how getting into the market now is any different from that frog thinking about climbing into that pot as it nears its boiling point.

Unless there’s new money coming in what fuels growth?

That’s not to say that danger awaits or that the slow climb higher will lead to a change in state or a frenzied outburst of energy leading to some calamitous event, but the thought could cross some minds.

Perhaps Friday’s sell off will prompt some to select one path over another, although a single bubble doesn’t mean that as you’re immersed in a bath that it is coming to a boil. It may entirely be due to other reasons, such as your most recent meal, so it’s not always appropriate to jump to conclusions.

While the frog probably doesn’t really comprehend the slowly growing number of bubbles that seem to be arising from the water, investors may begin to notice the rising number of IPO offerings entering the market and particularly their difficulty in achieving pricing objectives.

I wonder what that might signify? The fact that suddenly my discount brokerage seems to be inundating me with IPO offers makes me realize that it does seem to be getting hotter and hotter around me.

This coming week I’ve had cash reserves replenished with a number of assignments, somehow surviving the week ending plunge and I see many prices having come down, even if just a little. That combination often puts me into a spending mood, that would be especially enhanced if Monday begins either on the downside or just tepidly higher.

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

The big news in the markets this week was Facebook (FB) as its earnings report continued to make clear that it has mastered the means to monetize a mobile strategy. While it produces nothing it’s market capitalization is stunning and working its way closer to the top spot. For those in the same or reasonably close sector, the trickle down was appreciated. One of those, Twitter (TWTR) reports earnings this week and the jury is still very much out on whether it has a viable product, a viable management team and even a viable life as an independent entity.

For all of those questions Twitter can be an exciting holding, if you like that sort of thing. I currently hold shares that were assigned to me after having fallen so much that I couldn’t continue the process of rolling over puts any longer. The process to recover has been slow, but speeded a bit by selling calls on the way higher. However, while that has been emotionally rewarding, but as may be the case when puts are sold and potential ownership is something that is shunned, has required lots of maintenance and maneuvering.

With earnings this week the opportunity arises again to consider the sale of new Twitter puts, either before earnings are released or if shares plunge, afterward.

The option market is implying an 11.7% move in shares upon earnings. a 1% weekly ROI may possibly be obtained at a strike price that’s 14.8% below Friday’s close.

While Twitter is filled with uncertainty, Starbucks (SBUX) has some history behind it that gives good reason to have continuing confidence. With the market having looked adversely at Starbucks’ earnings report, Howard Schultz gave an impassioned and wholly rational defense of the company, its operations and prospects.

In the past few years each time Starbucks shares have been pummeled after earnings and Schultz has done as he did on Friday, it has proven itself an excellent entry point for shares. Schultz has repeatedly shown himself to be among the most credible and knowledgeable of CEOs with regard to his own business and business strategy. He has been as bankable as anyone that can be found.

With an upcoming dividend, always competitive option premiums and Schultz standing behind it, the pullback on Friday may be a good time to re-consider adding shares, despite still trading near highs.

While I suppose Yelp (YELP) could tell me all about the nearest Starbucks and the experience that I might expect there, it’s not a site that gets my attention, particularly after seeing some reviews of restaurants that pilloried the businesses of places that my wife and I frequent repeatedly.

Still, there’s clearly something to be had of value through using the site for someone. What does have me interested is the potential opportunity that may exist at earnings. Yelp is no stranger to large moves at earnings and for those who like risk there can be reward in return. However, for those who like smaller dosages of each a 1% ROI for the week can potentially be achieved at a strike price of $58 based on Friday’s $68.68 closing priced and an implied move of 12%. Back in April 2014 I received an almost 3% ROI for the risk taken, but don’t believe that I’m willing to be so daring now that I’m older.

Following the market’s sharp drop on Friday it was difficult to not jump the gun a little bit as some prices looked to be either “too good” or just ready. One of those was General Motors (GM). Having survived earnings last week,
albeit with a sizeable share drop over the course of a few days and wading its way through so much litigation, it is quietly doing what it is supposed to be doing and selling its products. An energized consumer will eventually trade in those cars that have long passed their primes, as for many people what they drive is perceived as the best insight into their true standing in society. General Motors has traded nicely as it has approached $33 and offers a nice premium and attractive dividend, making it fit in nicely with a portfolio that tries to accentuate income streams even while shares my gyrate in price.

I never get tired of thinking about adding shares of eBay (EBAY). With some of my shares assigned this past Friday despite some recent price strength after earnings, I think it is now in that mid-point of its trading range from where it has been relatively easy to manage the position even with some moves lower.

Carl Icahn has remained incredibly quiet on his position in eBay and my guess, based on nothing at all, is that there is some kind of behind the scenes convergence of thought between Icahn and eBay’s CEO, John Donahoe, regarding the PayPal jewel.

With all of the recent talk about “old tech,” there’s reason to consider one of the oldest, Texas Instruments (TXN) which goes ex-dividend this coming week. Having recently traded near its year’s high, shares have come down considerably following earnings, over the course of a few days. While still a little on the high side, it has lots of company in that regard, but at least has the goods to back up its price better than many others. It, too, offers an attractive combination of dividend, premiums and still possibility of share appreciation.

Reporting earnings this week are both MasterCard (MA) and MetLife (MET). Neither are potential trades whose premiums are greatly enhanced by the prospects of earnings related surprises. Both, however, are companies that I would like to once again own, possibly through the sale of put options prior to earnings being announced.

MasterCard suffered on Friday as collateral damage to Visa’s (V) earnings, which helped drag the DJIA down far more than the S&P 500, despite the outsized contribution by Amazon (AMZN) which suffered a % decline after earnings. On top of that are worries again from the Russian market, which earlier in the year had floated the idea of their own credit system. Now new rules impacting payment processors in Russia is of concern.

MasterCard has been able to generate satisfactory option premiums during an otherwise low volatility environment and despite trading in a $72 – $78 range, as it has regular bounces, such as seen this past week.

I have been waiting for MetLife to trade down to about the $52 range for the past two months and perhaps earnings will be the impetus. For that reason I might be more inclined to consider opening a position through the sale of puts rather than an outright buy/write. However, also incorporated into that decision process is that shares will be going ex-dividend the following week and there is some downside to the sale of puts in the face of such an event, much as their may be advantage to selling calls into an ex-dividend date.

Finally, there hasn’t been much that has been more entertaining of late than the Herbalife (HLF) saga. After this past week’s tremendous alternating plunge and surge and the absolute debacle of a presentation by Bill Ackman that didn’t quite live up to its billing.

While there may certainly be lots of validity to Ackman’s claims, which are increasingly not being nuanced, the opportunity may exist on both sides of the controversy, as earnings are announced next week. Unless some significant news arises in addition to earnings, such as from the SEC or FTC, it is like any other high beta stock about to report earnings.

The availability of expanded weekly options makes the trade more appealing in the event of an adverse move bringing shares below the $61.50 level suggested by the implied volatility, allows some greater flexibility. However, because of the possibility of other events, my preference would be to have this be as short term of a holding as possible, such that if selling puts and seeing a rise in shares after earnings, I would likely sacrifice remaining value on the options and close the position, being happy with whatever quick profits were achieved.

Traditional Stocks: eBay, General Motors, MasterCard, MetLife, Starbucks

Momentum: none

Double Dip Dividend: Texas Instruments (7/29)

Premiums Enhanced by Earnings: Herbalife (7/28 PM), Twitter (7/29 PM), Yelp (7/30 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.

Visits: 12

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Weekend Update – May 25, 2014

This was a good week, every bit as much as it was an odd one. 

You almost can’t spell “good” without “odd.”

We tend to be creatures that spend a lot of time in hindsight and attempting to dissect out what we believe to be the important components of everything that surrounds us or impacts upon us.

Sometimes what’s really important is beyond our ability to  see or understand or is just so counter-intuitive to what we believe to be true. I’m always reminded of the great Ralph Ellison book, “The Invisible Man,” in which it’s revealed that the secret to obtaining the most pure of white paints is the addition of a drop of black paint.

That makes no sense on any level unless you suspend rational thought and simply believe. Rational thought has little role when it calls for the suspension of belief.

This past week there was no reason to believe that anything good would transpire.

Coming on the heels of the previous week, which saw a perfectly good advance evaporate by week’s end there wasn’t a rational case to be made for expecting anything better the following week. That was especially true after the strong sell-off this past Tuesday.

Rational thought would never have taken the antecedent events to signal that the market would alter its typical pattern of behavior on the day of an FOMC statement release. That behavior was to generally trade in a reserved and cautious fashion prior to the 2 PM embargo release and then shift into chaotic knee-jerks and equally chaotic post-kneejerk course corrections.

Instead, the market advanced strongly from the opening bell on that day, erasing the previous day’s losses and had no immediate reaction to the FOMC release and then in an orderly fashion moved mildly higher after the words were parsed and interpreted.

The trading on that day and its timing were entirely irrational. It was odd, but it was good.

Ordinarily it would have also been irrational to expect a rational response to the minutes that offered no new news, as in the past real news was not a necessary factor for irrational buying or selling behavior.

The ensuing rational behavior was also odd, but it, too, was good.

As another new high was set to end the week there should be concern about approaching a tipping point, especially as the number of new highs is on the down trend. However, the market’s odd behavior the past week gives me reason to be optimistic in the short term, despite a belief that the upside reward is now considerably less than the downside risk in the longer term. 

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

This was a week in which those paid to observe such things finally commented on the disappointing results coming from retailers, despite the fact that the past two or three quarters have been similar and certainly not reflective of the kind of increased discretionary spending you might expect with increasing employment statistics.

With some notable exceptions, such as LuLuLemon (LULU) and Family Dollar Store (FDO) I’ve enjoyed being in and out of retailers, although I think I’d rather be maimed than actually be in and out of anyone’s actual store.

This week a number of retailers have appeal, either on their merits or because there may be some earnings related trades seeking to capitalize on their movements. Included for their merits are in the list are Bed Bath and Beyond (BBBY), eBay (EBAY), Nike (NKE) and The Gap (GPS), while Abercrombie and Fitch (ANF) and Kors (KORS) report earnings this week.

After a disappointing earnings report Bed Bath and Beyond has settled into a trading range and gas seemed to establish some support at the $60 level. Along with so many others that have seen their shares punished after earnings the recovery of share price seems delayed as compared to previous markets. For the option seller that kind of listless trading can be precisely the scenario that returns the best results.

eBay has also stagnated. With Carl Icahn still in the picture, but uncharacteristically quiet, especially after the announcement of a repatriation of some $6 billion in cash back to the United States and, therefore, subject to taxes, there doesn’t seem to be a catalyst for a return to its recent highs. That suits me just fine, as I’ve liked eBay at the $52 level for quite a while and it has been one of my more frequent in and out kind of trades. At present, I do own two other lots of shares and three lots is my self imposed limit, but for those considering an initial entry, eBay has been seen as a mediocre performer in the eyes of those expecting upward price movement, but a superstar from those seeking premium income through the serial sale of option contracts week in and out. If you’re the latter kind, eBay can be as rewarding as the very best of the rest.

The Gap reported earnings on Friday and exhibited little movement. It’s currently trading at the high end of where I like to initiate positions, but it, too, has been a very reliable covered option trade. An acceptable dividend and a fair option premium makes it an appealing recurrent trade. The only maddening aspect of The Gap is that it is one of the few remaining retailers that oddly provides monthly same store sales and as a result it is prone to wild price swings on a regular basis. Those price swings, however, tend to be alternating and do help to keep those option premiums elevated.

You simply take the good with the odd in the case of The Gap and shrug your shoulders when the market response is adverse and just await the next opportunity when suddenly all is good again.

Despite all of the past criticism and predictions of its irrelevance in the marketplace Abercrombie and Fitch continues to be a survivor.  This past Friday was the second anniversary of the initial recommendation of taking a position for Option to Profit subscribers, although I haven’t owned shares in nearly 5 months. Since that in

itial purchase there have been 18 such recommendations, with a cumulative 71.5% return, despite shares having barely moved during that time frame.

Always volatile, especially when earnings are due, the options market is currently implying a 10.2% move in price. For me, the availability of a 1% ROI from selling put contracts at a strike level outside of the lower boundary of that implied range gets my interest. In this case shares could fall up to 13.9% before assignment is likely and still deliver that return.

Kors, also known as “Coach (COH) Killer” also reports earnings this week. It has stood out recently because it hasn’t been subject to the same kind of selling pressure as some other “momentum” stocks. The option market is implying a price movement of 7.4%, while a 1% ROI from put sales may be obtained at a strike level currently 8.8% below Friday’s closing price. However, while Abercrombie and Fitch has plenty of experience with disappointing earnings and has experienced drastic price drops, Kors has yet to really face those kinds of challenges. In the current market environment earnings disappointments are being magnified and the risk – reward proposition with an earnings related trade in Kors may not be as favorable as for that with Abercrombie.

In the case of Kors I may be more inclined to consider a trade after earnings, particularly considering the sale of puts if earnings are disappointing and shares plummet.

After last week’s brief ownership of Under Armour (UA) this week it may be time to consider a purchase of Nike, which under-performed Under Armour for the week. Shares also go ex-dividend this week and have been reasonably range-bound of late. It isn’t a terribly exciting trade, but at this stage of life, who really needs excitement? I also don’t need a pair of running shoes and could care less about making a fashion statement, but I do like the idea of its consistency and relatively low risk necessary in order to achieve a modest reward.

Transocean (RIG) is off of its recent lows, but still has quite a way to go to return to its highs of earlier in the year. Going ex-dividend this week, the 5.7% yield has made the waiting on a more expensive lot of shares to recover a bit easier. As with eBay, I already have two lots of shares, but believe that at the current level this is a good time for initial entry, perhaps considering a longer term option contract and seeking capital gains on shares, as well. As with most everything in business and economy, the current oversupply or rigs will soon become an under supply and Transocean will reap the benefits of cyclicality.

Sinclair Broadcasting (SBGI) also goes ex-dividend this week. It is an important player in my area and has become the largest operator of local television stations in the nation, while most people have never heard the name. It is an infrequent purchase for me, but I always consider doing so as it goes ex-dividend, particularly if trading at the mid-point of its recent range. CUrrently shares a little higher than I might prefer, but with only monthly options available and an always healthy premium, I think that even at the current level there is good opportunity, even if shares do migrate to the low end of its current range.

Finally, Joy Global (JOY), one of those companies whose fortunes are closely tied to Chinese economic reports, has seen a recent 5% price drop from its April 2014 highs. While it is still above the price that I usually like to consider for an entry, I may be interested in participating this week with either a put sale of a buy/write.

Among the considerations are events coming the following week, as shares go ex-dividend early in the week and then the company reports earnings later in the week.

While my preference would be for a quick one week period of involvement, there always has to be the expectation of well laid out plans not being realized. In this case the sale of puts that may need to be rolled over would benefit from enhanced earnings related premiums, but would suffer a bit as the price decrease from the dividend may not be entirely reflected in the option premium. That’s similar to what is occasionally seen on the call side, when option premiums may be higher than they rightfully should be, as the dividend is not fully accounted.

Otherwise, if beginning a position with a buy/write and not seeing shares assigned at the end of the week, I might consider a rollover to a deep in the money call, thereby taking advantage of the enhanced premiums and offering a potential exit in the event that shares fall with the guidelines predicted by the implied volatility. Additionally, it might offer the chance of early assignment prior to earnings due to the Monday ex-dividend date, thereby providing a quick exit and the full premium without putting in the additional time and risk.

 

Traditional Stocks: Bed Bath and Beyond, eBay, The Gap

Momentum: Joy Global

Double Dip Dividend: Nike (5/29 $0.24), Sinclair Broadcasting (5/28 $0.15), Transocean (5/28 $0.75)

Premiums Enhanced by Earnings: Abercrombie and Fitch (5/29 AM), Kors (5/28 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.

Visits: 11

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Weekend Update – March 23, 2014

There was a time when the Chairman of the Federal Reserve did not hold press conferences.

In the past that would have been a very good thing, as the last Chairman to not have held press conferences, Alan Greenspan, was cryptic. When he did speak, such as during congressional testimony, he could send markets gyrating to opposite extremes before even having uttered a single verb. 

When Ben Bernanke succeeded him and introduced the concept of a regularly scheduled press conference people were thrilled with the idea that there would be a new era of transparency and an end to the use of words shrouded by their own opacity.

For the most part Ben Bernanke’s press conferences were yawners. Not because of a lack of interesting subject matter, but because the markets rarely reacted to any new insights and inadvertent slips of strategic policy intentions just weren’t going to come from someone who carefully measured every word.

Now it was Janet Yellen’s turn and there had even been talk of her holding such press conferences after each FOMC minutes release and not simply on an alternating monthly basis.

Yellen performed admirably, once you get over the fact that with your eyes closed she sounds like Woody Allen’s sister, never batting an eyelash when one questioner twice referred to the FOMC members as “you guys” and then herself once referred to the cultural phenomenon of “shacking up,” it was what she said or didn’t say or maybe meant or maybe didn’t mean that sent the market abruptly tumbling at 3:04 PM Wednesday afternoon.

What was learned was that in a world of imprecision, especially when discussing time frames, any lapse that leads to a more precise time frame can create reactions from people that claim to loathe uncertainty but are really more afraid of certainty. The very idea that interest rates might begin to rise as soon as 6 months from now as part of a strategic plan by the Federal Reserve was a momentary reason to panic.

But was it really because of what Janet Yellen said or more a case of traders going to a second or even third derivative of the consequences of whatever it is that she may have said or may have meant.

That seems like good enough reason to exercise the emotional part of a coherent investing strategy.

The market’s response this week showed that it is very much on edge and harbors a significant amount of nervousness, but it also shows impressive reparative ability. 

Over the past few weeks it is that reparative ability that has repeatedly been tested and repeatedly met the challenge. 

With continued challenges in mind, this week more of my attention is focused upon positions that may be less susceptible to a breakdown in the event of a market giving into some of the challenges that may await. While in recent weeks I haven’t been adverse to more risky or volatile positions, I once again find myself not being attracted to risk as the market is again near all time highs, despite its seeming resilience and resistance to challenges.

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).

The world of a stock analyst continues to confound me. On the one hand, I saw this week’s decline in shares of Bristol Myers Squibb (BMY) as an opportunity to consider bringing it back into my portfolio, particularly since I need additional healthcare representation. However, this week came a curious assessment from analysts at The Jeffries Group who raised their price target of shares to $48 and issued a “hold” rating on shares.

Since a $48 price target is about 10% below the Friday’s close, which itself is 8% lower than where shares started the month, it does beg a question or two. 

Rather than asking those questions, I like what appears to be an opportunity, having waited for shares to return to my comfort level. The fact that Bristol Myers will be paying a dividend shortly further encourages me to consider going for the trifecta; an increase in share value, an option premium and the dividend, during what is hoped to be a short period of ownership.

British Petroleum (BP) is another stock that has seen its shares fall about 8% this month. I haven’t owned shares since November 2012, but have been anxious to do so since that time, futilely hoping that it would return to the $43 level at which I had repeatedly traded its shares. Sometimes you may have to give up some hopes and perhaps come to the realization that after its 8% fall that may be the biggest gift that is to come. While its option premium is less rich than I would like the enticement of its dividend makes it one of those companies that I don’t mind owning for more than an occasional short term fling, particularly since it doesn’t appear to be poised to present undue risk, even in a falling market.

While British Petroleum may now seem to have much in the way of added risk, Holly Frontier (HFC) is not exactly be a prototypical stock to consider when looking to avoid risk. It certainly trades with some sudden and rapid moves in both directions and does so on a regular basis. Yet despite that kind of behavior it seems to also be very capable of finding its way back home. Having owned several times in the past few months and having just had shares assigned this past week, I’m interested in restoring them to my portfolio. The single caveat is that it is near the top of the range that I’ve had comfort initiating a position.

With the attentions of Nelson Peltz and Carl Icahn, Mondelez (MDLZ) and eBay (EBAY), respectively have seen their initial bursts of share appreciation moderate of late. Until Icahn came onto the scene eBay was one of my very favorite covered call trades as it

so reliably traded in a range. His sudden interest and unimaginative plan to spin off the PayPal unit was initially news divulged by eBay upon its earnings announcement and it shifted focus from mediocre performance to activist investing.

Following some fairly nasty exchanges, including a battle of words with Marc Andreessen, who sits on the board of eBay, the share price has started moderating a bit, having gone down approximately 5% from its peak earlier this month. That’s still on the high end of my trading range, but the interest is returning and would be greatly enhanced with any further drop.

Mondelez, on the other hand, has made some peace with its activist and its shares have stagnated ever since. As with eBay and so many other stocks, I like stagnation, especially if punctuated with occasional bursts of activity that keeps traders and especially potion buyers ion their toes. Mondelez goes ex-dividend this week and that has been a good time to consider entering into a new position or adding shares.

A Court of Appeals ruling on Friday regarding debit card swipe fees was greeted by differing levels of enthusiasm for shares of Visa (V) and MasterCard (MA) that appeared to adversely impact MasterCard well out of proportion to the favor found in Visa. Despite the acknowledged greater market share that Visa controls in the debit card area, analysts predominantly noted an incremental benefit to MasterCard as well, however its shares fell sharply, placing it back in the attractive price range

LuLuLemon Athletica (LULU) reports earnings this week. With a new clothing line recently released and with new leadership, as an existing shareholder with much more expensively priced shares, my hope is that they will provide guidance that casts an optimistic light on its future fortunes. No stranger to large earnings related moves there is, however, the possibility that this earnings report could be the kind that a new CEO often uses for advantage by dumping all of the bad news and dead weight so that, by comparison, future earnings reports are glowing and reflect upon the new CEO.

The option market is implying a 10.5% move when earnings are announced. By some of its own historical standards that may be an understatement of what its shares are capable of doing and the direction has been predominantly on the downside. The 1% ROI that may be able to be obtained even with a 14% drop in share price may make that risk worthy for some, especially if you believe, as I do, that this earnings report will be greeted in a positive manner.

Family Dollar Stores (FDO) has not had a good month ever since a downgrade to “sell” and disappointing earnings from Dollar General (DG). Now near its yearly lows volatility has returned to its option premiums helping to balance the risk that may be associated with this purchase, despite its historically low beta level. I already own shares and have been fighting back its price drop by attempting to take advantage of that enhanced option premium. While there may be some disagreement about what an improving retail sector means for the lower echelon of retailers, such as Family Dollar Store, I subscribe to the “high tide theory” particularly since economic recovery is leaving many behind and increasingly tethered to the lower echelon of retail.

Other than being named as one of the world’s most ethical companies, there really was no other bad news to have accounted for International Paper (IP) being unable to capitalize on the market’s advance this week. It’s current price places it close to the lower end of its trading range and makes it increasingly appealing to own. With more spin-offs of its assets planned within the next few months in pursuit of a successful strategy that has seen a number of such assets spun off, International Paper has created and optimized value without the need for outside agitation and has been a good candidate for a covered option strategy in the past year.

Finally, GameStop (GME) reports earnings this week. It received a blow to its share price when Wal-Mart (WMT) announced that it was encroaching on GameStop’s core business by offering to exchange Wal-Mart shopping credit for used video games. Whether Wal-Mart believes that they have a potentially profitable product line in used video games or simply plan to use customer entry into the stores as a means of enticing them toward other Wal-Mart purchases isn’t clear, but I think that impact on GameStop will be far less than the market has already assigned.

Wal-Mart, priding itself on offering the lowest prices, isn’t likely to offer the highest prices on its game repurchases. Secondly, only the most desperate of families is going to garnish their kid’s video games, which through some tradition have become the property of kids to do with as pleased and then trade them in for a chance for even more Wal-Mart goods. The rightful owners of those games, the kids, are going to need a really compelling reason to go into Wal-Mart.

Adult gamers, on the other hand, may not have enough energy to re-direct their inertia and change their game swapping habits.

The option market is implying a 5.5% move upon earnings release and GameStop is certainly no stranger to large price swings. However, the sale of a put option at a strike price about 11% below Friday’s closing price can still return a weekly ROI of 1%. That’s the sort of fun that could have me easily glued to the ticker crawl on my stock screen.

 

Traditional Stocks: Bristol Myers Squibb, British Petroleum, eBay, Family Dollar Store, Holly Frontier, International Paper, MasterCard

Momentum Stocks: none

Double Dip Dividend:  Mondelez (3/27)

Premiums Enhanced by Earnings: GameStop (3/27 AM), LuLuLemon Athletica (3/27 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.

Visits: 22

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Weekend Update – March 16, 2014

Most of us have, at one time or another believed that we were carrying the weight of the world on our shoulders. The reality will always be that unless we are the President of the United States with a decision to be made regarding pressing that red button, those feelings are somewhat exaggerated and unlikely to be borne out in fact.

It’s probably not an exaggeration, however, to suggest that in the past week the burden of the world weighed down heavily on the U.S. stock markets.

Slowing growth and questionable economic statistics from China and an unfolding crisis in Crimea were the culprits identified this week that sapped the momentum out of our markets. The complete list of “reasons” for last week’s performance was compiled by Josh Brown, but ultimately it all came down to our shoulders. Perhaps like a regressive tax the individual investor may feel an exaggerated impact as well when the market behaves badly and may also take longer to recover from the heavy load of losses.

In addition to the global issues then there were also issues of regulation, seeing the SEC and FTC weigh in on Herbalife (HLF), dueling words of umbrage from billionaires over eBay (EBAY) and litigation from the New York State Attorney General’s Office over General Motor’s (GM) role in potentially avoidable vehicular deaths.

What there wasn’t was anything positive or optimistic to be said during the week, other than sooner or later Spring will arrive. For the first time since the last real attempt at a correction nearly two years ago the market closed lower in each trading session of the past week.

While the weekend may change my opinion, as additional news may be forthcoming as Russian war games on Ukraine’s borders play themselves out and a Crimean referendum is held, I find myself optimistic for the coming week.

I usually try to find ten potential trades for each coming week. Last week I struggled to find just nine. This week my preliminary list was nearly twenty and I had a difficult time narrowing down to ten stocks.

That hasn’t happened in a while.

Certainly, as has been discussed in previous weeks following a downward moving market, the challenge is discerning between value and value traps. In that regard this past week is no different, but for inspiration, I look to the option seller’s best friend.

That would be volatility. It creates the kind of premiums that can make me salivate and it is the lack of volatility that makes me wonder whether anyone really cares anymore about the need for stock markets to react appropriately to fundamental factors, as opposed to simply moving higher under all circumstances.  

Since late 2011 we’ve been used to seeing historically low levels of volatility with occasional spikes representing market downturns. For those following along you know that there haven’t been many of those downturns in the past 20 months, although we did just recently quickly recover from an equally quick 7% loss. Those downturns saw spikes in volatility.

Suddenly there has been a lot of discussion about increasing volatility and for those that get excited about technical analysis, much is made of the significance of Volatility Index breaking above the 200 Day Moving Average.

What you don’t hear, however, are the video playbacks of all of the times the Volatility Index has surpassed that 200 Day Moving Average and it did not lead to a market breakdown, as suggested by many.

Instead, a quick look at the past year seems to indicate an alternating current of spikes in volatility between larger spikes and smaller ones. Simply put, I think we’re experiencing a regularly scheduled smaller spike in volatility.

I could be wrong, but that’s what hedging is all about.

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).

As with last week, despite the uncertainty that may usher in the coming week I see some possibilities even with some higher beta positions, on a selective basis.

While I’ve been trying to emphasize dividend paying positions for the past three months, the only potential such trades that had any appeal for me this week fell into the higher beta category.

While Best Buy (BBY) is probably immune to any direct impact from an overseas crisis, it has had no difficulty in creating its own and has certainly created a crisis of faith before regaining some respectability under new leadership. But for those that have held shares that all seems so long ago after some disappointing earnings reports. Hit especially hard this most recent earnings season, Best Buy has two months left to acquit itself and another two weeks to have their cash registers ring loudly to offset any weather related disappointments. In the meantime shares do go ex-dividend this week and have been trading in a narrow range of late. In the absence of any news it may be expected to keep doing so long enough to capture a dividend and perhaps a premium or two.

Las Vegas Sands (LVS) also goes ex-dividend this week and is also a higher beta stock. While I have traded this stock w

ith some frequency, it’s been a while since doing so as it resists going much lower. While it is at a relative low to its recent high after a 7% decline, it has still had a fairly uninterrupted trajectory. Like Best Buy, there’s not too much reason to suspect that events in Crimea will serve as a direct contagion, the higher beta may be its own heavy weight in the event of a market decline, but like cockroaches, gambling will survive even nuclear holocaust, as may Sheldon Adelson, the Chairman. It may also survive some weakness in China, as there’s no better place to bury your misery than in their Maxao casinos.

It’s usually a fallacy in the making when you use logic to convince yourself of the rationale to buy a stock. That includes the belief that if you liked a stock at one price it must certainly be even more likeable at a lower price. Yet that’s where I find myself with General Electric (GE), whose shares were just assigned from me a week ago and now find themselves priced below that earlier strike price. However, in the case of General Electric, unless there are some horrific surprises around the corner or a complete market meltdown, it’s hard to imagine that it could be classified as being a value trap at this new lower price. Down 4% in the past week and 10% YTD, if the market is heading lower, GE will have been ahead of the curve. While it’s option premium doesn’t reflect much in the way of volatility it does represent a reasonable means to surpass the performance of a flat market.

While retail has been a place that money has gone to die of late, you get a feeling that things may be reversing, at least in the minds of analysts when even Coach (COH), a literal punching leather bag for all, receives an upgrade. While my shares of Coach were assigned this week, as were my shares of Kohls (KSS), I’m ready to repurchase both in their current range, as the long fall down deserves at least a short climb higher.

Coach has shown itself to be able to faithfully defend the $46 level despite so many assaults over the past two years. That ability to consistently bounce back has made it a great covered option position, whether through outright purchase or the sale of puts.

Kohls represents exactly what I like in my stocks. That is a non-descript existence and just happily going along its way without making too much fuss, other than an occasional earnings related outburst. Dependable is far more important than being flashy and as a stock and as a company, Kohls hugs that middle lane reliably, but still provides a competitive premium thanks to those occasional outbursts.

If the thesis that retail is ready for a comeback has more of a basis than just as reflected in share price, but also reflects pent up spending from a harsh winter, MasterCard (MA) is a prime beneficiary. While already somewhat protected from the ravages of weather by virtue of being able to spend your money with just a simple mouse click, there are just some things that need to be done in the real world. Trading well below its pre-split price until recently I had not owned shares in years. Now more readily purchased in scale, I look forward to the opportunity to purchase and re-purchase these shares with some degree of regularity, WHile its dividend is paltry, there is certainly room for growth to rise to the levels of Visa (V) and Discover Financial Services (DFS). However, notwithstanding any potential bump in share price along with a dividend hike, the option premiums can make the wait worthwhile.

In a week of no industry specific news, following a flurry of changes in industry dynamics initiated by T-Mobile (TMUS), Verizon (VZ) fell 3% bringing it down to a level from which it has found significant strength. While General Electric may face some potential liability with events in Crimea or a deteriorating economy in China, I don’t see quite the same liability for Verizon. Instead, whatever burdens it has to carry will come from an increasingly competitive landscape as it and AT&T (T) are continually pushed by T-Mobile and perhaps Sprint (S). In the meantime, while trading in a range and finding support at $46, there’s always the additional lure of a 4.5% dividend.

While Verizon isn’t terribly exciting it meets its match in Intel (INTC). However, the excitement that comes from growth isn’t absolutely necessary to generate predictable profits. Intel is especially well suited when it’s share price is very close to a strike level. If volatility continues to rise the opportunity to purchase Intel expands as the price range at which it may be purchased increases, while still offering an attractive option premium which can be further enhanced by an attractive dividend.

While it was only a matter of time until retail would begin to dig its way out from under the piles of snow, no sector has brutalized me more this past year than the one that requires digging. Freeport McMoRan (FCX) is among that group that hasn’t been terribly kind to me, despite my belief that it would be the “stock of the year” for 2013.

With copper itself being brutalized this past week, despite gold’s relative strength, Freeport McMoRan has itself had the weight of the market’s response to the less than robust Chinese economy to shoulder. But the one thing that you can always count on is that data from China can easily correct reality and that explains the seemingly recurrent see-saw ride that we have been on in those sectors that are tied to their data. The true plunge in copper prices, if sustained, will not be good news for Freeport McMoRan, whose generous dividend payout could conceivably be jeopardized.

On the other hand, shares are now at a level that has repeatedly created substantial returns for those willing to test the waters.

Finally, not many companies, especially those with a newly appointed CEO had as bad a week as General Motors. You might think that having paid its first dividend in years this past Friday there would be reasons to rejoice, but finding yourself at the top of the headlines related to customer deaths isn’t an enviable place, nor one conducive to a thriving share price. When the Attorney General of any state piles on that doesn’t help.

However, with a chorus of those clamoring for General Motors to re-test the $30 level purely on a technical basis there may be reason enough to believe that won’t be the case. Having timed a purchase of shares as inopportunely as possible, I’d like nothing more than to see that position restored to some respect.

As with the recent news that the FTC will b

e investigating allegations that Herbalife was engaged in a Ponzi scheme, the bad news for General Motors, while coming as an acute event, will take a long while to play out, regardless of the merits of the cases or the human tragedies caught up in what is now a story of fines, punishment andperhaps even acquittal.

Traditional Stocks: Coach, General Electric, General Motors, Intel, Kohls, MasterCard, Verizon

Momentum Stocks: Freeport McMoRan

Double Dip Dividend: Best Buy (ex-div 3/18), Las Vegas Sands (ex-div 3/18)

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.

Visits: 15

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Weekend Update – December 15, 2013

People tend to have very strong feelings about entitlements.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Double Dip Dividend: none

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

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.

Visits: 9

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Weekend Update – December 8, 2013

Sometimes good things can go good.

Anyone who remembers the abysmal state of television during the turn of this century recalls the spate of shows that sought to shock our natural order and expectations by illustrating good things gone bad. There were dogs, girls, police officers and others. They appealed to viewers because human nature had expectations and somehow enjoyed having those expectations upended.

That aspect of human nature can be summed up as “it’s fun when it happens to other people.”

For those that loved that genre of television show, they would have loved the stock markets of the last few years, particularly since the introduction of Quantitative Easing. That’s when good news became bad and bad news became good. Our ways of looking at the world around us and all of our expectations became upended.

Like everyone else, I blame or credit Quantitative Easing for everything that has happened in the past few years, maybe even the continued death of Disco. Who knew that pumping so much money into anything could possibly be looked at in a negative way despite having possibly saved the free world’s economies? While many decried the policy, they loved the result, in a reflection of the purest of all human qualities – the ability to hate the sinner, but love the sin.

Then again, I suppose that stopping such a thing could only subsequently be considered to be good, but rational thought isn’t a hallmark of event and data driven investing.

With so many believing that all of the most recent gains in the market could only have occurred with Federal Reserve intervention, anything that threatens to reduce that intervention has been considered as adverse to the market’s short term performance. That means good news, such as job growth, has been interpreted as having negative consequences for markets, because it would slow the flow. Bad news simply meant that the punch bowl would continue to be replenished.

For the very briefest of periods, basically lasting during the time that it wasn’t clear who would be the successor to Ben Bernanke, the market treated news on its face value, perhaps believing that in a state of leadership limbo nothing would change to upset the party.

It had been a long time since good news resulted in a market responding appropriately and celebrating the good fortune by creating more fortunes. This past week started with that annoying habit of taking news and believing that only a child’s version of reverse psychology was appropriate in interpreting information, but the week ended with a more adult-like response, perhaps a signal that the market has come to peace with idea that tapering is going to occur and is ready to move forward on the merits of news rather than conjecture of mass behavior.

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

Coming off a nearly 200 point advance on Friday what had initially looked like relative bargains were now pricey in comparison and at risk to retrace their advances.

While last week was one in which dividends were a primary source of my happiness, unfortunately this week is not likely to be the same. As in life where I just have to get by on my looks, this week I’ll have to get by on new purchases that hopefully don’t do anything stupid and have a reasonable likelihood of being assigned or having their calls rolled over to another point in the near future. The principle reason for that is that most of the stocks going ex-dividend this week that have some appeal for me only have monthly options available. Since I’m already overloaded on options expiring at the end of the this monthly cycle my interests are limited to those that have weekly options. With volatility and subsequently premiums so low, as much as I’d like to diversify by using expanded options, they don’t offer much solace in their forward week premiums.

While the energy sector may be a little bit of a mine field these days, particularly with Iran coming back on line, Williams Companies (WMB) fits the profile that I’ve been looking for and is especially appealing this week as it goes ex-dividend. Williams has been able to trade in a range, but takes regular visits to the limits of the range and often enough to keep its option premium respectable. With no real interest in longer term or macro-economic issues, I see Williams for what it has reliably been over the course of the past 16 months and 9 trades. Despite its current price being barely 6% higher than my average cost of shares, it has generated about 35% in premiums, dividends and share appreciation.

Another ex-dividend stock this week is Macys (M). Retail is another minefield of late, but Macys has not only been faring better than most of the rest, it has also just hit its year’s high this past week. Ordinarily that would send me in the opposite direction, particularly given the recent rise. With the critical holiday shopping season in full gear, some will have their hopes crushed, but someone has to be a winner. Macys has the generic appeal and non-descript vibe to welcome all comers. While I wouldn’t mind a quick dividend and option premium and then exit, it is a stock that I could live with for a longer time, if necessary.

Citibank (C) is no longer quite the minefield that it had been. It may be an example of a good stock, gone bad, now gone good again. When I look at its $50 price it reminds me of well known banking analysts Dick Bove, who called for Citibank to hold onto the $50 price as the financial meltdown was just heating up. Fast forward five years and Bove was absolutely correct, give or take a 1 to 10 reverse split.

But these days Citibank is back, albeit trading with more volat
ility than back in the old days. I’m under-invested in the financial sector, which didn’t fare well last week. If the contention that this is a market that corrects itself through its sector rotation, then this may be a time to consider loading up on financials, particularly as there are hints of interest rate rises. Citibank’s beta inserts some more excitement into the proposition, however.

Like many others, Dow Chemical (DOW) took its knocks last week before recovering much of its loss. Also like many that I am attracted toward, it has been trading in a price range and has been thwarted by attempts to break out of that range. Mindful of a market that is pushing against its highs, this is a stock that I don’t mind owning for longer than most other holdings, if necessary. The generous dividend helps the patient investor wait on the event of a price reversal. For those a little longer term oriented, Dow Chemical may also be a good addition for a portfolio that sells LEAPs.

Like all but one of this week’s selections, I have owned shares of International Paper (IP) on a number of occasions in the past year. While shares are now well off of their undeserved recent lows there is still ample upside opportunity and shares seemed to have created support at the $45 level. My preference, as with some other stocks on this week’s list is that a little of the past week’s late gains be retraced, but that’s not a necessary condition for re-purchasing International Paper.

Baxter International (BAX) has been also in a trading range of late having been boxed in by worries related to competition in its hemophilia product lines to concerns over the impact of the Affordable Care Act’s tax on medical devices. Also having recovered some of its past week’s losses it, too, is trading at the mid-point of its recent range and doesn’t appear to have any near term catalysts to see it break below its trading range. The availability of expanded options provide some greater flexibility when holding shares.

Joy Global (JOY) had been on an upswing of late but has subsequently given back about 5% from its recent high. It reports earnings this week and its implied price move is nearly 6%. However, its option pricing doesn’t offer premiums enhanced by earnings for any strike levels beyond that are beyond the implied move. While a frequent position, including having had shares assigned this past week, the risk/reward is not sufficient to purchase shares or sell puts prior to the earnings release. However, in the event hat shares do drop, I would consider purchasing shares if it trades below $52.50, as that has been a very comfortable place to initiate positions and sell calls.

LuLuLemon Athletica (LULU) on the other hand, has an implied move of about 8% and can potentially return 1.1% even if the stock falls nearly 9%. In this jittery market a 9% drop isn’t even attention getting, but a 20% drop , such as LuLuLemon experienced in June 2013 does get noticed. Its shares are certainly able to have out-sized moves, but it has already weathered quite a few challenges, ranging from product recalls, the announced resignation of its CEO and comments from its founder that may have insulted current and potential customers. I don’t expect a drop similar to that seen in December 2012, but can justify owning shares in the event of an earnings related drop.

Riverbed Technology (RVBD), long a favorite of mine, is generally a fairly staid company, as far as staying out of the news for items not related to its core business. It can often trade with some volatility, especially as it has a habit of providing less than sanguine guidance and the street hasn’t yet learned to ignore the pessimistic outlook, as RIverbed tends to report very much in line with expectations. Recently the world of activist investors knocked on Riverbed’s doors and they responded by enacting a “poison pill.” While I wouldn’t suggest considering adding shares solely on the basis of the prompting from activist investors, Riverbed has long offered a very enticing risk/reward proposition when selling covered calls or puts. It is one of the few positions that I sometimes consider a longer term option sale when purchasing shares or rolling over option contracts.

Finally, and this is certainly getting to be a broken record, but eBay (EBAY) has once again fulfilled prophecy by trading within the range that was used as an indictment of owning shares. For yet another week I had two differently priced lots of eBay shares assigned and am anxious to have the opportunity to re-purchase if they approach $52, or don’t get higher than $52.50. While there may be many reasons to not have much confidence in eBay to lead the market or to believe that its long term strategy is destined to crumble, sometimes it’s worthwhile having your vision restricted to the tip of your nose.

Traditional Stocks: Baxter International, Dow Chemical, eBay, International Paper

Momentum Stocks: Citibank, Riverbed Technology

Double Dip Dividend: Macys (ex-div 12/11), Williams Co (ex-div 12/11)

Premiums Enhanced by Earnings: Joy Global (12/11 AM), LuLuLemon Athletica (12/12 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.

Visits: 16

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Weekend Update – December 1, 2013

We may be on the verge of the Eve of Inflection.

Thanksgiving is that time of year when many sit back and think about all of their bounty and good fortune in the past year.

Sometimes the processes of reflection and introspection bring about inflection. Sometimes reviewing where you’ve been and where you appear to be heading are sufficient causes to consider a change in path or direction.

Nowhere is that more true than among many hedge fund managers now faced with the end of the year in sight and a stock market that has been out-performing their own trading and expertise. Many have already made the decision to increase risk taking behavior and eschew hedging in a last ditch effort to catch up to the averages and to secure their bonuses or save their jobs.

That may be more an example of desperation rather than introspection, but that kind of behavior may also herald an inflection point, not only in personal behavior but also in the very nature of the markets, especially if you take a contrarian view. When others change their behavior and begin to chase it may be time to take cover.

Sometimes that change in path is neither wanted nor welcome, but perhaps unavoidable. With the market hitting new highs on a nearly daily basis, what hasn’t escaped notice is that the rate of increase is itself decreasing. Most will tell you that in the case of a momentum stock a sign that its heady days are about to become a memory is when the rate of growth begins decreasing. In this case, it seems that it is the market as a whole whose rate of increase has recently been on the decline.

Depending on your perspective, if you are eternally bullish that decline is just a chance to digest some gains and prepare for the next leg higher. For the bears that slowing is the approach to the point of inflection.

Every roller coaster has them. Every stock market has them. On roller coasters, even when your eyes are closed you know when a change in slope direction is about to occur. It’s not quite as intuitive or simple in the stock market because human nature often believes that simple laws governing events can be suspended. No one thinks in a cautionary manner when the prevailing spirit is “laissez les bon temps rouler.”

While the overall market would likely find that a point of inflection would take it lower, there may be opportunity in stocks whose points of inflection may have been reached and are now bound to go higher or are already on their way.

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

Stanley Black and Decker (SWK) reported its earnings early in the most recent earnings season. It was the first to blame the government shutdown on its poorer than anticipated results and shares plummeted about 15%. Having recovered nearly half of that loss, with about another 6 weeks to go until the next earnings report, shares go ex-dividend this week. It has been a bit more than a year since the last time I owned shares, then too purchased in part because of its upcoming dividend. I think Stanley Black and Decker still has some room to move higher relative to the overall market and now offers good opportunity in advance of its next report.

To a degree Stanley Black and Decker and Fastenal (FAST) are related and dependent upon residential and commercial growth. This past week’s durable goods orders report didn’t necessarily send news of a robust economy, but Fastenal has been trading in a range of late which is always a reason to consider as part of a covered option strategy. I already own two lots of Fastenal, but continue to like it at its current price in anticipation that it will remain near that price.

The Gap (GPS) is one of those clothing retailers that still insists on releasing monthly comparison statistics. The past two monthly reports have sent shares moving in opposite directions as the report itself is the source of exceptionally high option premiums. With conflicting interpretations in two successive monthly reports there is little reason to believe that any volatility surrounding the monthly reports are indicative of systemic or irreparable issues at the retailer. Even with the prospect of another negative report this coming week, I don’t believe that the market will react as rashly as had occurred in October and from which point shares have now fully recovered.

While both AIG (AIG) and Halliburton (HAL) do go ex-dividend this week, their dividends alone aren’t appealing enough to focus attention on their purchase. Both, however, are sufficiently off from their recent high levels to warrant consideration. Both also represent stocks that appear to have set new baseline price levels as they have been slowly and methodically moved higher until very recently. Those are opportunities that get enhanced by the prospects of an inflection and their option premiums complemented by the possibility of also capturing dividends, albeit modest ones.

Dow Chemical (DOW) may also appear to be in the category of having fallen some from its recent high point and perhaps ready for a turnaround, with its current levels serving as that point of inflection taking the stock to a modestly higher level. While it may also be subject to some of the larger macro-economic issues such as those faced by Stanley Black and Decker and Fastenal, Dow Chemical’s dividend offers some protection during a
market decline and its option premiums help to provide a cushion during either bigger picture declines or stock specific missteps.

While the previously mentioned positions are all fairly sedate choices that may be expected to do better if there is an inflection in the market, there may also be room for consideration of some more volatile additions to the portfolio, particularly as part of short term trading strategies.

Freeport McMoRan (FCX) has reversed course from its nearly 15% climb in October, simply an example of successive points of inflection in a short period of time. I think that the selling is now overdone, not only in Freeport McMoRan, but in the metals complex and that shares of Freeport are once again getting ready for another period of inflection. While I have held some positions in Freeport McMoRan much longer than my typical holding, its dividend has made the holding period more tolerable. That dividend appears to be secure, even while there is some talk of gold miners being at risk of cutting dividends if ore prices continue to decline.

For the ones really enjoying roller coaster rides, Walter Energy (WLT) may be just the thing. Its recent drop for its near term high seems to be developing a new price floor that can serve as the point of inflection taking the price higher, although I would expect that based on its recent behavior such a move might be short lived. However, that rapid alternation in direction has made Walter Energy a very good recent covered call trade, although for some the sale of puts may be a more appropriate manner to take advantage of the share’s volatility.

Finally, it’s yet another week to consider eBay (EBAY). Despite a 2.5% gain on Friday, eBay is simply proving the analysts correct, in that it continues to be a moribund stock trading in a tight range. It was decried just two weeks ago for being unable to escape from that range while the rest of the market seemed to be thriving. In the meantime, those practicing a covered call strategy and owning shares of eBay, over and over again, have fared well. Responding to the analyst’s cry, eBay did test that lower range and has now bounced back nicely to the point that it is once again in the middle of that range. That’s an ideal position to consider opening a new position or adding to an existing position.

Traditional Stocks: Dow Chemical, eBay, Fastenal, The Gap

Momentum Stocks: Freeport McMoRan, Walter Energy

Double Dip Dividend: AIG (ex-div 12/3 ), Halliburton (ex-div 12/4), Stanley Black and Decker (ex-div 12/4)

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.

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Weekend Update – November 24, 2013

Sometimes the strategy is self-defense. Sometimes it’s just doing what you need to do to keep beta at bay.

I don’t know about other people, but I’m getting a little more nervous than usual watching stocks break the 16000 level on the Dow Jones and the 1800 level on the S&P 500.

What’s next 5000 NASDAQ? Well that’s not so ludicrous. All it would take is 4 years of 6% gains and we would could set the time machine back to a different era.

In hindsight I know what I would do at the 5000 level.

For those old enough to remember the predictions of Dow 35000 all we need is a repeat of the past 56 months and we’re finally there and beyond.

This being a holiday shortened trading week adds a little bit to the stress level, because of the many axioms you hear about the markets. The one that I believe has as much validity as the best of them is that low volume can create artificially large market moves. When so many are instead focusing on the historical strength of markets during the coming week, I prefer to steer clear of any easy guide to riches.

When faced with a higher and higher moving market you could be equally justified in believing that momentum is hard to stop as you could believe that an inflection point is being approached. The one pattern that appears clear of late is that a number of momentum stocks are quickly decelerating when faced with challenges.

When I find myself a little ill at ease with the market’s height, I focus increasingly on “beta,” the measure of a stock’s systemic risk compared to the overall market. I want to steer clear of stock’s that may reasonably be expected to be more volatile during a down market or expectations of a declining market.

As a tool to characterize short term risk beta can be helpful, if only various sources would calculate the value in a consistent fashion. For example, Tesla (TSLA), which many would agree is a “momentum” stock, can be found to have a beta ranging from 0.33 to 1.5. In other words, depending upon your reference source you can walk away believing that either Tesla is 50% more volatile than the market or 67% less volatile.

Your pick.

While “momentum” and “beta” don’t necessarily have correlation, common sense is helpful. Tesla or any other hot stock du jour, despite a reported beta of 0.33, just doesn’t seem to be 67% less volatile than the overall market, regardless of what kind of spin Elon Musk might put on the risk.

During the Thanksgiving holiday week I don’t anticipate opening too many new positions and am focusing on those with low beta and meeting my common sense criteria with regard to risk. Having had many assignments to close out the November 2013 option cycle I decided to spread out my new purchases over successive weeks rather than plow everything back in at one time and risk inadvertently discovering the market’s peak.

Additionally, I’m more likely to look at either expanded option possibilities or monthly options, rather than the weekly variety this week. In part that’s due to the low premiums for the week, but also to concerns about having positions with options expiring this week caught in a possible low volume related downdraft and then being unable to find suitable new option opportunities in future weeks. If my positions aren’t generating revenue they’re not very helpful to me.

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

While eschewing risk may be in order when you think a market top is at hand, sometimes risky behavior can be just the thing when it comes to assembling a potentially profitable mix of stocks. In this case the risky behavior comes from the customers of Lorillard (LO), Philip Morris (PM) and Molson-Coors (TAP).

With word that Europeans may finally be understanding the risks associated with tobacco and may be decreasing use of their ubiquitously held cigarettes, Philip Morris shares had a rough week. The 6% drop accompanying what should be good news from a public health perspective brings shares back to a much more inviting level. Shares did successfully test an $85 support level and subsequently bounced back a bit too much for my immediate interest, but I would welcome another move toward that level, particularly as I would prefer an entry cost right near a monthly strike level.

Lorillard, on the other hand, has essentially no European exposure, but perhaps in sympathy gave up just a little bit from its 52 week high after a sustained run higher over the past 6 weeks. While there is certainly downside risk in the event of a lower moving market, shares do go ex-dividend this week and think of all of those people lighting up after a hearty Thanksgiving meal. The near term risk factors identified for Europe aren’t likely to have much of an impact in the United States market, where the only real risk factors may be use of the products.

That Thanksgiving meal may very well be complemented with a product from Molson Coors. I imagine there will also be those using a Molson Coors product while using a Lorillard product, perhaps even dousing one in the other. Shares, which are down nearly 5% from its recent highs go ex-dividend this week. Because of the strike prices available, Molson Coors is one position that I may consider using a November 29, 2013 option contract, as many more strike levels are available, something that is useful when attempting to capture both a decent option premium and the dividend, while also enticing assignment of shares.

Speaking of risky behavior, the one exception to the central theme of staying away from high beta names is the consideration of adding shares of Walter Energy (WLT). While the last 9 months have seen its shares plummet, the last three months have been particularly exciting as shares had gone up by as much as 75%. For those with some need for excitement this is certainly a candidate, with a beta value 170% greater than the average of all other recommended positions this week, the stock is no stranger to movement. But speaking of movement, although I don’t look at charts in any depth, there appears to be a collision in the making as the 50 dma is approaching the 200 dma from below. Technicians believe that is a bullish indicator. Who knows. What I do know is that the coal, steel and iron complex, despite a downgrade this past Friday of the steel sector, has been building a higher base and I believe that the recent pullback in Walter Energy is just a good opportunity for a quick trade, perhaps using the sale of puts rather than covered calls.

While not falling into the category of risky behavior, Intel’s (INTC) price movement this week certainly represents odd behavior. Not being prone to exceptionally large moves of late on Thursday it soared 3%, which by Intel’s standards really is soaring. It then fell nearly 6% the following day. While the fall was really not so odd given that Intel forecast flat revenues and flat operating profits, it was odd that the price had gone up so much the previous day. Buying on Thursday, in what may have been a frenzied battle for shares was a nice example of how to turn a relatively low risk investment into one that has added risk.

But with all of the drama out of the way Intel is now back to a more reasonable price and allows the ability to repurchase shares assigned the previous week at $24 or to just start a new position.

While I would have preferred that Joy Global (JOY) had retreated even further from its recent high, its one year chart is a nearly perfect image of shares that had spent the first 6 months of the year above the current price and the next 6 months below the current price, other than for a brief period in each half year when the relationship was reversed. Joy GLobal is an example of stock have a wide range of beta reported, as well, going from 1.14 to 2.17. However, it has also traded in a relatively narrow range for the past 6 months, albeit currently near the high end of that range.

With earnings scheduled later in the December 2013 option cycle there is an opportunity to attempt to thread a needle and capture the dividend the week before earnings and avoid the added risk. However, I think that Joy Global’s business, which is more heavily reliant on the Chinese economy may return to its recent highs as earnings are delivered.

Lowes (LOW) reported earnings this past week, and like every previous quarter since the dawn of time the Home Depot (HD) versus Lowes debate was in full force and for yet another quarter Lowes demonstrated itself to be somewhat less capable in the profit department. However, after its quick return to pricing reality, Lowes is once again an appealing portfolio addition. I generally prefer considering adding shares prior to the ex-dividend date, but the share price slide is equally compelling.

Hewlett Packard (HPQ) is one of those stragglers that has yet to report earnings, but does so this week. Had I known 35 years ago that a classmate would end up marrying its future CEO, I would likely not have joined in on the jokes. It is also one of those companies that I swore that I would never own again as it was one of my 2012 tax loss positions. I tend to hold grudges, but may be willing to consider selling puts prior to earnings, although the strike price delivering a 1% ROI, which is my typical threshold, is barely outside of the implied price move range of 8%. It’s not entirely clear to me where Hewlett Packard’s future path may lead, but with a time perspective of just a week, I’m not overly concerned about the future of the personal computer, even if Intel’s forecasts have ramifications for the entire industry.

Lexmark (LXK) is a company that I like to consider owning when there is also an opportunity to capture a dividend. That happens to be the case this week. When it announced that it was getting out of the printer business investors reacted much as you would have imagined. They dumped shares, which for most people are electronically maintained and not in printed form. After all, why own a printer company that says that printers are a dead end business? Who knew that Lexmark had other things in mind, as it has done quite nicely focusing on business process and content management solutions. While it has been prone to large earnings related moves or when shocking the investment community with such news as it was abandoning its most recognizable line of business, it has also been a rewarding position, owing to dividends and option premiums. However, always attendant is the possibility of a large news related move that may require some patience in awaiting recovery.

Finally, I find myself thinking about adding shares of eBay (EBAY) again this week, just as last week and 10 other times this past year. Perhaps I’m just obsessed with another CEO related missed opportunity. Shares didn’t fare too well based upon an analyst’s report that downgraded the company saying that shares were “range bound at $49-$54.” While that may have been the equivalent of a death siren, for me that was just validation of what had been behind the decision to purchase and repurchase shares of eBay on a regular basis. While being range bound is an anathema to most stock investors, it is a dream come true to a covered option writer.

Happy Thanksgiving.

Traditional Stocks: eBay, Intel, Lowes, Philip Morris

Momentum Stocks: Joy Global, Walter Energy

Double Dip Dividend: Lexmark (ex-div 11/26), Lorillard (ex-div 11/26), Molson-Coors (ex-div 11/26)

Premiums Enhanced by Earnings: Hewlett Packard (11/26 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.

Visits: 19

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Weekend Update – November 17, 2013

Things aren’t always as they seem.

As I listened to Janet Yellen face her Senate inquisitors as the hearing process began for her nomination as our next Federal Reserve Chairman, the inquisitors themselves were reserved. In fact they were completely unrecognizable as they demonstrated behavior that could be described as courteous, demur and respectful. They didn’t act like the partisan megalomaniacs they usually are when the cameras are rolling and sound bites are beckoning.

That can’t last. Genteel or not, we all know that the reality is very different. At some point the true colors bleed through and reality has to take precedence.

Closing my eyes I thought it was Woody Allen’s sister answering softball economic questions. Opening my eyes I thought I was having a flashback to a curiously popular situational comedy from the 1990s, “Suddenly Susan,” co-starring a Janet Yellen look-alike, known as “Nana.” No one could possibly sling arrows at Nana.

These days we seem to go back and forth between trying to decide whether good news is bad news and bad news is good news. Little seems to be interpreted in a consistent fashion or as it really is and as a result reactions aren’t very predictable.

Without much in the way of meaningful news during the course of the week it was easy to draw a conclusion that the genteel hearings and their content was associated with the market’s move to the upside. In this case the news was that the economy wasn’t yet ready to stand on its own without Treasury infusions and that was good for the markets. Bad news, or what would normally be considered bad news was still being considered as good news until some arbitrary point that it is decided that things should return to being as they really seem, or perhaps the other way around..

While there’s no reason to believe that Janet Yellen will do anything other than to follow the accommodative actions of the Federal Reserve led by Ben Bernanke, political appointments and nominations have a long history of holding surprises and didn’t always result in the kind of comfortable predictability envisioned. As it would turn out even Woody Allen wasn’t always what he had seemed to be.

Certainly investing is like that and very little can be taken for granted. With two days left to go until the end of the just ended monthly option cycle and having a very large number of positions poised for assignment or rollover, I had learned the hard way in recent months that you can’t count on anything. In those recent cases it was the release of FOMC minutes two days before monthly expiration that precipitated market slides that snatched assignments away. Everything seemed to be just fine and then it wasn’t suddenly so.

As the markets continue to make new closing highs there is division over whether what we are seeing is real or can be sustained. I’m tired of having been wrong for so long and wonder where I would be had I not grown cash reserves over the past 6 months in the belief that the rising market wasn’t what it really seemed to be.

What gives me comfort is knowing that I would rather be wondering that than wondering why I didn’t have cash in hand to grab the goodies when reality finally came along.

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

Sometimes the most appealing purchases are the very stocks that you already own or recently owned. Since I almost exclusively employ a covered option strategy I see lots of rotation of stocks in and out of my portfolio. That’s especially true at the end of a monthly option cycle, particularly if ending in a flourish of rising prices, as was the case this week.

Among shares assigned this past week were Dow Chemical (DOW), International Paper (IP), eBay (EBAY) and Seagate Technology (STX).

eBay just continues to be a model of price mediocrity. It seems stuck in a range but seems to hold out enough of a promise of breaking out of that range that its option premiums continue to be healthy. At a time when good premiums are increasingly difficult to attain because of historically low volatility, eBay has consistently been able to deliver a 1% ROI for its near the money weekly options. I don’t mind wallowing in its mediocrity, I just wonder why Carl Icahn hasn’t placed this one on his radar screen.

International Paper is well down from its recent highs and I’ve now owned and lost it to assignment three times in the past month. While that may seem an inefficient way to own a stock, it has also been a good example of how the sum of the parts can be greater than the whole when tallying the profits that can arise from punctuated ownership versus buy and hold. Having comfortably under-performed the broad market in 2013 it doesn’t appear to have froth built into its current price

Although Dow Chemical is getting near the high end of the range that I would like to own shares it continues to solidify its base at these levels. What gives me some comfort in considering adding shares at this level is that Dow Chemical has still under-performed the S&P 500 YTD and may be more likely to withstand any market downturn, especially when buoyed by dividends, option premiums and some patience, if required.

Unitedhealth Group (UNH) is in a good position as it’s on both sides of the health care equation. Besides being the single largest health care carrier in the United States, its purchase of Quality Software Services last year now sees the company charged with the responsibility of overhauling and repairing the beleague
red Affordable Care Act’s web site. That’s convenient, because it was also chosen to help set up the web site. It too, is below its recent highs and has been slowly working its way back to that level. Any good news regarding ACA, either programmatically or related to the enrollment process, should translate into good news for Unitedhealth

Seagate Technology simply goes up and down. That’s a perfect recipe for a successful covered option holding. It’s moves, in both directions, can however, be disconcerting and is best suited for the speculative portion of a portfolio. While not too far below its high thanks to a 2% drop on Friday, it does have reasonable support levels and the more conservative approach may be through the sale of out of the money put options.

While I always feel a little glow whenever I’m able to repurchase shares after assignment at a lower price, sometimes it can feel right even at a higher price. That’s the case with Microsoft (MSFT). Unlike many late to the party who had for years disparaged Microsoft, I enjoyed it trading with the same mediocrity as eBay. But even better than eBay, Microsoft offered an increasingly attractive dividend. Shares go ex-dividend this week and I’d like to consider adding shares after a moth’s absence and having missed some of the run higher. With all of the talk of Alan Mullally taking over the reins, there is bound to be some let down in price when the news is finally announced, but I think the near term price future for shares is relatively secure and I look forward to having Microsoft serve as a portfolio annuity drawing on its dividends and option premiums.

I’m always a little reluctant to recommend a possible trade in Cliffs Natural Resources (CLF). Actually, not always, only since the trades that still have me sitting on much more expensive shares purchased just prior to the dividend cut. Although in the interim I’ve made trades to offset those paper losses, thanks to attractive option premiums reflecting the risk, I believe that the recent sustained increase in this sector is for real and will continue. Despite that, I still wavered about considering the trade again this week, but the dividend pushed me over. Although a fraction of what it had been earlier in the year it still has some allure and increasing iron ore prices may be just the boost needed for a dividend boost which would likely result in a significant rise in shares. I’m not counting on it quite yet, but think that may be a possibility in time for the February 2014 dividend.

While earnings season is winding down there are some potentially interesting trades to consider for those with a little bit of a daring aspect to their investing.

Not too long ago Best Buy (BBY) was derided as simply being Amazon’s (AMZN) showroom and was cited as heralding the death of “brick and mortar.” But, things really aren’t always as they seem, as Best Buy has certainly implemented strategic shifts and has seen its share price surge from its lows under previous management. As with most earnings related trades that I consider undertaking, I’m most likely if earnings are preceded by shares declining in price. Selling puts into price weakness adds to the premium while some of the steam of an earnings related decline may be dissipated by the selling before the actual release.

salesforce.com (CRM) has been a consistent money maker for investors and is at new highs. It is also a company that many like to refer to as a house of cards, yet another way of saying that “things aren’t always as they seem.” As earnings are announced this week there is certainly plenty of room for a fall, even in the face of good news. With a nearly 9% implied volatility, a 1.1% ROI can be attained if less than a 10% price drop occurs, based on Friday’s closing prices through the sale of out of the money put contracts.

Then of course, there’s JC Penney (JCP). What can possibly be added to its story, other than the intrigue that accompanies it relating to the smart money names having taken large positions of late. While the presence of “smart money” isn’t a guarantee of success, it does get people’s attention and JC Penney shares have fared well in the past week in advance of earnings. The real caveat is that the presence of smart money may not be what it seems. With an implied move of 11% the sale of put options has the potential to deliver an ROI of 1.3% even if shares fall nearly 17%.

Finally, even as a one time New York City resident, I don’t fully understand the relationship between its residents and the family that controls Cablevision (CVC), never having used their services. As an occasional share holder, however, I do understand the nature of the feelings that many shareholders have against the Dolan family and the feelings that the publicly traded company has served as a personal fiefdom and that share holders have often been thrown onto the moat in an opportunity to suck assets out for personal gain.

I may be understating some of those feelings, but I harbor none of those, personally. In fact, I learned long ago, thanks to the predominantly short term ownership afforded through the use of covered options, that it should never be personal. It should be about making profits. Cablevision goes ex-dividend this week and is well off of its recent highs. Dividends, option premiums and some upside potential are enough to make even the most hardened of investors get over any personal grudges.

Traditional Stocks: Dow Chemical, eBay, International Paper, Unitedhealth Group

Momentum Stocks: Seagate Technology

Double Dip Dividend: Cablevision (ex-div 11/20), Cliffs Natural (ex-div 11/20), Microsoft (ex-div 11/19)

Premiums Enhanced by Earnings: Best Buy (11/19 AM), salesforce.com (11/18 PM), JC Penney (11/20 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.

Visits: 14