Tag: GM

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Weekend Update – April 26, 2015

 

The question of how much longer this market rally can keep going is the same question that’s been asked ever since the last time the market had a 10% loss.

Actually even that time, way back in April 2102, it wasn’t quite a 10% loss. For that, you would have to go back to 2011.

But that’s splitting hairs.

I wish I would have known Michael Batnick, also know as “The Irrelevant Investor” on Twitter, back in those days.

He had the answer to that burning question that is every bit as applicable today as it was every time the market hit a new high over the past few years.

With each of those highs and the gap between corrections growing and growing, it reminded me of the fallacy of believing that after 8 straight spins of the roulette wheel falling on “red” the next spin just had to yield “black.”

The belief that “this time it’s going to be different” is frequently held by those who don’t get shamed even after having been already fooled twice.

Had I known Michael Batnick in 2011, 2012, 2013 or even 2014, he would have told me that it’s hard to make a bear case on the basis of the duration of any move, because the duration is never knowable.

Since I was one of those certain that the ninth spin would just have to fall on black, I’ve also been one of those waiting for a correction since having recovered from the one in 2012. Not only waiting, but convinced that with each and every week we were a week closer to that inevitable decline.

At least that logic wasn’t totally flawed, as we did get a week closer to everything. But mostly, what we’ve gotten closer to has been the next rally higher.

What do you say about a week that ends with the S&P 500 being 1.7% higher and closing at a new all time high, while at the same time the NASDAQ 100 closes at a 15 year high? Granted those S&P 500 highs have come fairly often and fairly regularly, so they don’t really mean very much, but for those that thought that the NASDAQ could never see 5000 again, a good case can be made for never giving up hope.

That’s why I never give up hope that there’s a correction coming.

NASDAQ has given me the strength.

This past week was one almost totally devoid of economic news. Instead, it was one fully dominated by earnings, as it was the first of the two most busy weeks of earnings reports every quarter.

The earnings pattern that has become clear is that revenues are down, but profits are up, especially if you focus on the “earnings per share” part of the report. The lesson to that may be that if you can’t grow your revenues simply find a strategy to shrink your share numbers.

Hashtag “buybacks.”

As long as revenues are lower as a result of the currency exchange issues that everyone has been expecting, the market has been kind. Surprisingly, however, the market has also been kind when companies have taken their guidance lower.

Next week, while still highly focused on earnings, two events within hours of one another may disrupt or enhance the party currently under way and take some attention away from earnings.

Just a few hours before an FOMC Statement release will be a GDP Report. Expectations are that the GDP report will be disappointing, particularly in light of earlier expectations for a consumer led surge in GDP. While disappointing GDP growth could quiet fears of an interest rate increase among those that are still hung up on that eventuality, it could also give FOMC doves another month to hold court.

Is that good news or bad news?

The longer the FOMC doves continue to influence monetary policy the more doubt there can be regarding the strength of economic recovery.

That can’t be good news.

Since it seems as if even bad news has been taken as good news for such a long time, it would seem natural to believe that sooner or later we would be due for some bad news to be finally taken as bad news.

You would think that sooner or later I would learn.

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

Among those not faring well this earnings season was General Motors (NYSE:GM), predominantly on disappointing foreign news that went beyond currency exchange. Following a boost in share price following
some quick activist intervention it has returned to a level that makes it more enticing to re-enter into a position.

Having spent only $400 million on its promised $5 billion in share buybacks through the first quarter, as part of its activist appeasement, there is at least something to keep share price artificially inflated as it also artificially inflates earnings per share.

What General Motors has offered amidst all of the uncertainty and bad news over the past year has been an attractive option premium and a good dividend that, thanks to the same activist, is now even better.

Ford Motor (NYSE:F) reports earnings this week and also goes ex-dividend.

I’m not terribly interested in taking earnings risk with Ford, but those earnings are reported the morning of the day before it goes ex-dividend. In the event of a downward move after earnings are released, I would be interested in buying shares if the move down strongly after earnings.

The options market is implying a move of only 3.5%. If it approaches or exceeds that to the downside, I might take that as an indication to buy shares, although I might consider using an extended weekly option, perhaps expiring May 8, 2015, rather than the weekly option that I would ordinarily use.

Also going ex-dividend this week and also having had a difficult time following its earnings release this week is Texas Instruments (NASDAQ:TXN).

In a market that suddenly seems to like “old tech,” what’s older than Texas Instruments? I can still remember buying the most rudimentary of calculators for about $150 more than 40 years ago and thinking that we had now seen everything.

What I didn’t think I would see was a nearly 8% decline on earnings last week. That leaves it still well above its yearly high, but may represent a good re-starting point, particularly as the dividend is at hand, as well. While semi-conductors may have had a hard go of things lately, if looking for a global correction in order to get a better entry point, you may be better served by settling for a more focused correction.

While I don’t like buying shares when they are near their yearly highs, Kinder Morgan (NYSE:KMI) may be an exception, particularly as it is ex-dividend this week.

In the world of energy related companies that have been under significant stress, Kinder Morgan has ironically been a breath of fresh air as it stores and transports combustible fuels for a nation that gets even more energy hungry as prices are dropping.

Cypress Semiconductor (NASDAQ:CY) is a company that I always like owning. Mostly it has been due to the admiration that I have for its CEO, TJ Rodgers, as long as he sticks to his CEO and incubator patron roles.

Occasionally he veers into other areas and then I have to remind myself that what I really admire is the ability to make money by investing in Cypress Semiconductor and that’s far more important than admiration or personal politics.

With its acquisition of Spansion being hailed by investors shares surged to a point that was well outside my comfort zone, but following a 20% decline in the past month, it is now at the upper level of that zone.

Cypress Semiconductor is often very volatile at earnings and this time will likely be no different. While I usually want to consider the sale of puts prior to earnings, in this case I would probably consider the purchase of shares, especially if they continue to move downward in the early part of the week and then consider a sale of June 2015 option contracts, rather than the May 2015 variety, thereby providing additional time for shares to recover if shares drop drastically.

Finally, I’ve been waiting for a chance to enter into a Twitter (NYSE:TWTR) position one way or another. In 2014 I had positions on 10 different occasionsand spent most of that time trying to avoid being assigned shares after having sold put contracts.

In hindsight, I don’t mind the very high maintenance that those positions required, however, the perception of Twitter has changed, as it seems to actually have a plan to monetize itself. More importantly it has the means and the people to execute on their strategies that continue to evolve.

Following a period of withering criticism of its leadership, the unequivocal show of support for its CEO, Dick Costolo by the Board as well as some Twitter founders, seemed to stem the tide of calls for his resignation.

That and earnings.

Following a large move higher after its last earnings report and then slowly migrating higher over the subsequent 3 months, the options market is implying an 11% move next week.

However, a 1% ROI may be possible if selling a weekly put contract even if shares fall by as much as 13.6%. If selling puts and faced with an adverse move beyond the range implied by the options market, my past experience with Twitter has shown that the options market is liquid enough to have a good chance of being able to roll over those puts if trying to avoid assignment and wait out the price cycle until it starts to show signs of recovery.

Alternatively, it has also offered a chance to assume ownership of shares and then generate income by selling calls, that always have premiums reflecting the underlying risk and volatility of the shares.

Traditional Stocks: General Motors

Momentum Stocks: none

Double Dip Dividend: Ford Motor (4/29), Kinder Morgan (4/28), Texas Instruments (4/28)

Premiums Enhanced by Earnings: Cypress Semiconductor (4/30 AM), Twitter (4/28 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

Posted on

Weekend Update – April 26, 2015

 

The question of how much longer this market rally can keep going is the same question that’s been asked ever since the last time the market had a 10% loss.

Actually even that time, way back in April 2102, it wasn’t quite a 10% loss. For that, you would have to go back to 2011.

But that’s splitting hairs.

I wish I would have known Michael Batnick, also know as “The Irrelevant Investor” on Twitter, back in those days.

He had the answer to that burning question that is every bit as applicable today as it was every time the market hit a new high over the past few years.

With each of those highs and the gap between corrections growing and growing, it reminded me of the fallacy of believing that after 8 straight spins of the roulette wheel falling on “red” the next spin just had to yield “black.”

The belief that “this time it’s going to be different” is frequently held by those who don’t get shamed even after having been already fooled twice.

Had I known Michael Batnick in 2011, 2012, 2013 or even 2014, he would have told me that it’s hard to make a bear case on the basis of the duration of any move, because the duration is never knowable.

Since I was one of those certain that the ninth spin would just have to fall on black, I’ve also been one of those waiting for a correction since having recovered from the one in 2012. Not only waiting, but convinced that with each and every week we were a week closer to that inevitable decline.

At least that logic wasn’t totally flawed, as we did get a week closer to everything. But mostly, what we’ve gotten closer to has been the next rally higher.

What do you say about a week that ends with the S&P 500 being 1.7% higher and closing at a new all time high, while at the same time the NASDAQ 100 closes at a 15 year high? Granted those S&P 500 highs have come fairly often and fairly regularly, so they don’t really mean very much, but for those that thought that the NASDAQ could never see 5000 again, a good case can be made for never giving up hope.

That’s why I never give up hope that there’s a correction coming.

NASDAQ has given me the strength.

This past week was one almost totally devoid of economic news. Instead, it was one fully dominated by earnings, as it was the first of the two most busy weeks of earnings reports every quarter.

The earnings pattern that has become clear is that revenues are down, but profits are up, especially if you focus on the “earnings per share” part of the report. The lesson to that may be that if you can’t grow your revenues simply find a strategy to shrink your share numbers.

Hashtag “buybacks.”

As long as revenues are lower as a result of the currency exchange issues that everyone has been expecting, the market has been kind. Surprisingly, however, the market has also been kind when companies have taken their guidance lower.

Next week, while still highly focused on earnings, two events within hours of one another may disrupt or enhance the party currently under way and take some attention away from earnings.

Just a few hours before an FOMC Statement release will be a GDP Report. Expectations are that the GDP report will be disappointing, particularly in light of earlier expectations for a consumer led surge in GDP. While disappointing GDP growth could quiet fears of an interest rate increase among those that are still hung up on that eventuality, it could also give FOMC doves another month to hold court.

Is that good news or bad news?

The longer the FOMC doves continue to influence monetary policy the more doubt there can be regarding the strength of economic recovery.

That can’t be good news.

Since it seems as if even bad news has been taken as good news for such a long time, it would seem natural to believe that sooner or later we would be due for some bad news to be finally taken as bad news.

You would think that sooner or later I would learn.

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

Among those not faring well this earnings season was General Motors (NYSE:GM), predominantly on disappointing foreign news that went beyond currency exchange. Following a boost in share price following
some quick activist intervention it has returned to a level that makes it more enticing to re-enter into a position.

Having spent only $400 million on its promised $5 billion in share buybacks through the first quarter, as part of its activist appeasement, there is at least something to keep share price artificially inflated as it also artificially inflates earnings per share.

What General Motors has offered amidst all of the uncertainty and bad news over the past year has been an attractive option premium and a good dividend that, thanks to the same activist, is now even better.

Ford Motor (NYSE:F) reports earnings this week and also goes ex-dividend.

I’m not terribly interested in taking earnings risk with Ford, but those earnings are reported the morning of the day before it goes ex-dividend. In the event of a downward move after earnings are released, I would be interested in buying shares if the move down strongly after earnings.

The options market is implying a move of only 3.5%. If it approaches or exceeds that to the downside, I might take that as an indication to buy shares, although I might consider using an extended weekly option, perhaps expiring May 8, 2015, rather than the weekly option that I would ordinarily use.

Also going ex-dividend this week and also having had a difficult time following its earnings release this week is Texas Instruments (NASDAQ:TXN).

In a market that suddenly seems to like “old tech,” what’s older than Texas Instruments? I can still remember buying the most rudimentary of calculators for about $150 more than 40 years ago and thinking that we had now seen everything.

What I didn’t think I would see was a nearly 8% decline on earnings last week. That leaves it still well above its yearly high, but may represent a good re-starting point, particularly as the dividend is at hand, as well. While semi-conductors may have had a hard go of things lately, if looking for a global correction in order to get a better entry point, you may be better served by settling for a more focused correction.

While I don’t like buying shares when they are near their yearly highs, Kinder Morgan (NYSE:KMI) may be an exception, particularly as it is ex-dividend this week.

In the world of energy related companies that have been under significant stress, Kinder Morgan has ironically been a breath of fresh air as it stores and transports combustible fuels for a nation that gets even more energy hungry as prices are dropping.

Cypress Semiconductor (NASDAQ:CY) is a company that I always like owning. Mostly it has been due to the admiration that I have for its CEO, TJ Rodgers, as long as he sticks to his CEO and incubator patron roles.

Occasionally he veers into other areas and then I have to remind myself that what I really admire is the ability to make money by investing in Cypress Semiconductor and that’s far more important than admiration or personal politics.

With its acquisition of Spansion being hailed by investors shares surged to a point that was well outside my comfort zone, but following a 20% decline in the past month, it is now at the upper level of that zone.

Cypress Semiconductor is often very volatile at earnings and this time will likely be no different. While I usually want to consider the sale of puts prior to earnings, in this case I would probably consider the purchase of shares, especially if they continue to move downward in the early part of the week and then consider a sale of June 2015 option contracts, rather than the May 2015 variety, thereby providing additional time for shares to recover if shares drop drastically.

Finally, I’ve been waiting for a chance to enter into a Twitter (NYSE:TWTR) position one way or another. In 2014 I had positions on 10 different occasionsand spent most of that time trying to avoid being assigned shares after having sold put contracts.

In hindsight, I don’t mind the very high maintenance that those positions required, however, the perception of Twitter has changed, as it seems to actually have a plan to monetize itself. More importantly it has the means and the people to execute on their strategies that continue to evolve.

Following a period of withering criticism of its leadership, the unequivocal show of support for its CEO, Dick Costolo by the Board as well as some Twitter founders, seemed to stem the tide of calls for his resignation.

That and earnings.

Following a large move higher after its last earnings report and then slowly migrating higher over the subsequent 3 months, the options market is implying an 11% move next week.

However, a 1% ROI may be possible if selling a weekly put contract even if shares fall by as much as 13.6%. If selling puts and faced with an adverse move beyond the range implied by the options market, my past experience with Twitter has shown that the options market is liquid enough to have a good chance of being able to roll over those puts if trying to avoid assignment and wait out the price cycle until it starts to show signs of recovery.

Alternatively, it has also offered a chance to assume ownership of shares and then generate income by selling calls, that always have premiums reflecting the underlying risk and volatility of the shares.

Traditional Stocks: General Motors

Momentum Stocks: none

Double Dip Dividend: Ford Motor (4/29), Kinder Morgan (4/28), Texas Instruments (4/28)

Premiums Enhanced by Earnings: Cypress Semiconductor (4/30 AM), Twitter (4/28 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

Posted on

Weekend Update – April 5, 2015

It was a little odd having the Employment Situation Report released on a day that stock markets were closed yet bond markets and equity futures were trading on an abbreviated schedule.

It reminds me of the frustrations that I sometimes experience when being unable to react to news that moves a stock’s price after the market has closed on the Friday of option expiration. The option holder has the advantage of being able to exercise or not until nearly 90 minutes after the market has closed while as the seller of an option I can do nothing to respond to the news.

In trading circles that is something referred to as “a case of the blue calls.”

Not that I would know, but I would imagine that’s something like being in the old Times Square, before Mayor Rudy Giuliani cleaned it up and chased all of the adult entertainment away. Those glass walls between the patrons pumping quarters into the booth and the paid entertainment must have been frustrating for those watching events unfold but being incapable of taking appropriate action. That’s especially the case if knowing that a more genteel, moneyed and privileged clientele was in the back room and had less restricted access.

Or so I’ve heard. I believe that there was an expression describing that situation, as well.

While analysts are going to be spending time trying to find something good to say about the data released, the number of new jobs created was the smallest in more than a year and included downward revisions of the past 2 months. In fact, the 126,000 new jobs created in March was about half of what the consensus had been expecting. The 69,000 jobs downward revisions makes you wonder whether the decidedly negative reaction to what was perceived as a heating up jobs market previously was warranted.

The smaller than expected job creation number caused an immediate and large decline in interest rates and a meaningful decline in stock futures, although on very light volume.

Still, there was a net increase in jobs, and there is no specter of unmanageable and unruly lines queuing up as in scenes from 75 years ago. Yet we will begin trading on Monday on the far end of a 3 day vacuum having been unable to respond to the immediate reactions to Friday morning’s news.

After a few days to mull it over we may learn whether the disappointing employment news is ultimately interpreted as being good or bad for the stock market and more specifically for the likelihood of interest rates being increased sooner rather than later.

After all, lately that seems to be all that markets have cared about and the speculation has gone back and forth as the data has done the same.

As far as the Treasury market is concerned their bet is on lower interest rates after the Employment Situation Report was released and they’re said to be smarter than the average investor.

When rates go
back up just as quickly, as they have volleyed back and forth over the past few weeks, we can remind ourselves that the back and forth of rates simply reflects how smart those bond traders really are.

One might think that any further decline in rates would be good for stocks particularly as an alternative to bonds, unless it is interpreted as being bad news that the tepid economic expansion was actually beginning a deceleration phase.

Couple that thought with the worry that the upcoming earnings season is going to highlight currency woes more than costs savings from lower energy and you do have the makings of continued uncertainty about where the next catalyst to move stocks higher will be coming from.

Normally, I like uncertainty, but unfortunately, the uncertainty that we’ve seen over the past few weeks as markets have regularly alternated between triple digit gains and losses hasn’t really moved volatility as much as it would seem to have been logical. That’s because most days have actually traded with great certainty, showing little variance from where the day’s trading started and then giving way to an all new kind of certainty the very next day.

We’ll see how that certainty shows itself on Monday.

It’s anyone’s guess.

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

Whole Foods (NASDAQ:WFM) is one of many stocks that I currently own that are not earning their keep because they’re too far below their purchase price to warrant writing calls and generating premium income. While shares do go ex-dividend this week, the dividend is too small to justify chasing or to make a trade simply in the hopes of capturing that dividend.

However, I’ve been happy to see some of the share gains seen after earnings in February get digested, notwithstanding this past Thursday’ strong gain. The slow and methodical retracement of those gains is providing an opportunity to add shares of Whole Foods again with the goal of using new shares to help offset some of the losses on the non-performing lot, as was done 5 times in 2014.

However, following the previous share increase after earnings those shares just seemed too expensive to use as an offset to paper losses. However, now they appear to be more reasonably priced and ready to stabilize at that lower level.

Having add my General Motors (NYSE:GM) shares assigned last month I’ve wanted to repurchase shares since then. At the time the entry of an activist into the picture was unexpected and poor timing for me, but I’m glad to see shares come down from that activist induced high.

Through several bouts of share ownership during the Mary Barra era I’ve continued to be amazed at how well share price has persever

ed against a barrage of bad news. The toll on share price has generally been small and short lived, while being able to roll over option contracts helped to increase yield while awaiting assignment.

Shares offer attractive premiums, an increasingly attractive dividend and the watchful eyes of activists. That can be a good combination particularly since earnings are still a month away, giving some opportunity to collect those premiums before contending with the challenge of currency.

Bed Bath and Beyond (NASDAQ:BBBY) reports earnings this week and used to be one of those traditionally being among the last of S&P 500 members to report earnings. Now it’s either still among the last or possibly among the first, as earnings seasons now just tend to flow one into the next.

While Bed bath and Beyond isn’t likely to suffer much due to the strengthening dollar, in fact it may benefit from increased buying power, it may report some detriment from the west coast port disruptions.

Bed Bath and Beyond is no stranger to large moves when announcing its earnings, but this time the options market is implying a move of 6.5%. A 1% ROI may be possible by selling put options as much as 7.1% below the week’s closing price. That’s not as large of a cushion as I would prefer seeing, but if selling puts and faced with the possibility of assignment, I wouldn’t mind taking ownership of shares rather than attempting to roll the put options over.

Being booted from the DJIA isn’t necessarily a bad thing, just as being added isn’t always a good thing as far as stock prices go.

Few have done as well as Alcoa (NYSE:AA), which despite a nearly 50% decline since reaching it’s peak post-DJIA share price is still about 65% higher and has well out-performed the S&P 500 and the DJIA.

Alcoa, which reports earnings this week, and while perhaps no longer considered to be the kick-off to a new earnings season still remains the first to get much attention.

Shares have been in a considerable decline for the past 2 months after having recovered from most of the decline that preceded the market’s decline in early December 2014. The subsequent recovery in share price at that time was in lock step with the S&P 500 from mid-December to mid-January when earnings intervened.

Unlike most earnings related trades that I consider, for this one I’m not looking at the sale of puts, but rather a buy/write and am further considering the use of a slightly out of the money option, rather than an in the money strike price, in the belief that there’s reason to suspect both on a technical basis and a fundamental basis that there is room to move higher.

While it’s too soon to tell how its continuing performance will be, AT&T (NYSE:T) has joined Alcoa as an ex-member of the DJIA. During the two week period of its exile, shares have out-performed the S&P 500, just as its replacement has t

railed.

While 2 weeks doesn’t make for a trend, as AT&T shares are ex-dividend this week, I think there may be enough past history with other ex-members in the immediate period of their expulsion to create a tiny additional increment of confidence. WHile that confidence doesn’t necessarily extend to believing that shares will move higher in the very near term, it does make me feel better about the prospects of it continuing to out-perform the broader market.

With it’s very generous dividend the option premium isn’t very large, but at the very least will offset some of the decline in price that will occur as the dividend is taken into account. With much of the competitive hoopla and pressure now in the past and with less of a concern about currency fluctuations, this may be a good time to consider a position as shares may be a bit more immune to some of the pressures that may face many other multi-national companies as earnings are soon to be released.

Finally, being added to the DJIA isn’t necessarily a golden ticket, either, as some more recently added members may attest.

In exchange for AT&T’s departure Apple (NASDAQ:AAPL) was added and has since trailed the narrow index as excitement mounts over the prospects for its latest product entry.

I’m not as excited about that as I am about the prospects of Apple announcing a dividend increase most likely concurrent with its next earnings release in 3 weeks. Between now and then I think there are going to be many opportunities for Tim Cook and others to increasingly whip up excitement and demand for a product that has a fairly low bar being set.

In the meantime Apple continues to offer an attractive option premium and can easily be considered as either a buy/write or put sale, as there is considerable liquidity on either side of the options aisle.

Traditional Stocks: Apple, General Motors

Momentum Stocks: none

Double Dip Dividend: AT&T (4/8), Whole Foods (4/8 $0.13)

Premiums Enhanced by Earnings: Alcoa (4/8 PM), Bed Bath and Beyond (4/8 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

Posted on

Weekend Update – November 30, 2014

An incredibly quiet and uneventful week, cut short by the Thanksgiving Day holiday, saw the calm interrupted as a group of oil ministers from around the world came to an agreement.

They agreed that couldn’t agree, mostly because one couldn’t trust the other to partner in concerted actions what would turn out to be in everyone’s best interests.

If you’ve played the Prisoner’s Dilemma Game you know that you can’t always trust a colleague to do the right thing or to even do the logical thing. The essence of the game is that your outcome is determined not only by your choice, but also by the choice of someone else who may or may not think rationally or who may or may not believe that you think rationally.

The real challenge is figuring out what to do yourself knowing that your fate may be, to some degree, controlled by an irrational partner, a dishonest one or one who simply doesn’t understand the concept of risk – reward. That and the fact that they may actually enjoy stabbing you in the back, even if it means they pay a price, too.

Given the disparate considerations among the member OPEC nations looking out for their national interests, in addition to the growing influence of non-OPEC nations, the only reasonable course of action was to reduce oil production. But no single nation was willing to trust that the other nations would have done the right thing to maintain oil prices at higher levels, while still obeying basic laws of supply and demand, so the resulting action was no action. The stabbing in the back was probably in the minds of some member nations, as well.

If the stock market was somehow the partner in a separate room being forced to make a buying or selling decision based on what it thought the OPEC members would do, a reasonable stock market would have expected a reduction in supply by OPEC members in support of oil prices. After all, reasonable people don’t stab others in the back.

That decision would have resulted in either buying, or at least holding energy shares in advance of the meeting and then being faced with the reality that those OPEC members, hidden away, whose interests may not have been aligned with those of investors, made a decision that made no economic sense, other than perhaps to pressure higher cost producers.

And so came the punishment the following day, as waves of selling hit at the opening of trading. Not quite a capitulation, despite the large falls, because panic was really absent and there was no crescendo-like progression, but still, the selling was intense as many headed for the exits.

While fleeing, the question of whether this decision or lack of decision marked the death of the OPEC cartel, meaning that oil would start trading more on those basic laws and not being manipulated by nations always seeking the highest reward.

The more religious and national tensions existing between member nations and the more influence of non-member nations the less likely the cartel can act as a cartel.

The poor UAE oil minister at a press conference complained that it wasn’t fair for OPEC to be blamed for low oil prices, forgetting that once you form a cartel the concept of fairness is already taken off of the table, as for more than 40 years the cartel has unfairly squeezed the world for every penny it could get.

With the belief that the death of OPEC may be at hand comes the logical, but mistaken belief that the ensuing low oil prices would be a boon for the stock market. That supposition isn’t necessarily backed up by reality, although logic would take your mind in that direction.

As it happens, rising oil prices, especially when due to demand outstripping supply makes for a good stock market, as it reflects accelerating economic growth. Falling oil prices, if due to decreased demand is certainly not a sign of future economic activity. However, we are now in some uncharted territory, as falling prices are due to supply that is greater than demand and without indication that those falling prices are going to result in a near term virtuous cycle that would send markets higher.

What we do know is that creates its own virtuous cycle as consumers will be left with more money to spend and federal and state governments will see gas taxes revenues increase as people drive more and pay less.

The dilemma now facing investors is whether there are better choices than energy stocks at the moment, despite what seems to be irrationally low pricing. The problem is that those irrational people in the other room are still in control of the destinies of others and may only begin to respond in a rational manner after having experienced maximum pain.

As much as I am tempted to add even more energy stocks, despite already suffering from a disproportionately high position, the lesson is clear.

When in doubt, don’t trust the next guy to do the right thing.

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

When Blackstone (NYSE:BX) went public a number of years ago, just prior to the financial meltdown, imagine yourself being held an a room and being given the option of investing your money in the market, without knowing whether the privately held company would decide to IPO. On the surface that might have sounded like a great idea, as the market was heading higher and higher. But the quandary was that you were being asked to make your decision without knowing that Blackstone was perhaps preparing an exit strategy for a perceived market top and was looking to cash out, rather than re-invest for growth.

Had you known that the money being raised in the IPO was going toward buying out one of the founders rather than being plowed back into the company your decision might have been different. Or had you known that the IPO was an attempt to escape the risks of a precariously priced market you may have reacted differently.

So here we are in 2014 and Blackstone, which is the business of buying struggling or undervalued businesses, nurturing them and then re-selling them, often through public markets, is again selling assets.

Are they doing so because
they perceive a market peak and are securing profits or are they preparing to re-invest the assets for further growth? The dilemma faced is across the entire market and not just Blackstone, which in the short term may be a beneficiary of its actions trying to balance risk and reward by reducing its own risk.

The question of rational behavior may be raised when looking at the share price response to Dow Chemical (NYSE:DOW) on Friday. In a classic case of counting chickens before they were hatched I was expecting my shares to be assigned on Friday.

While I usually wait until Thursday or Friday to try to make rollovers, this past shortened week I actually made a number of rollovers on Tuesday, which were serendipitous, not having expected Friday’s weakness. The rollover trade that didn’t get made was for Dow Chemcal, which seemed so likely to be assigned and would have offered very little reward for the rollover.

Who knew that it would be caught up in the energy sell-off, well out of proportion to its risk in the sector, predominantly related to its Kuwaiti business alliances? The question of whether that irrational behavior will continue to punish Dow Chemical shares is at hand, but this drop just seems like a very good opportunity to add shares, both as part of corporate buybacks as well as for a personal portfolio. With my shares now not having been assigned, trading opportunities look beyond the one week horizon with an eye on holding onto shares in order to capture the dividend in late December.

The one person that I probably wouldn’t want to be in the room next to me when I was being asked to make a decision and having to rely on his mutual cooperation, would be John Legere, CEO of T-Mobile (NYSE:TMUS). He hasn’t given too much indication that he would be reluctant to throw anyone under the bus.

However, with some of the fuss about a potential buyout now on hiatus and perhaps the disappointment of no action in that regard now also on hiatus, shares may be settling back to its more sedate trading range.

That would be fine for me, still holding a single share lot and having owned shares on 5 occasions in the past year. Its option volume trading is unusually thin at times, however, and with larger bid – ask spreads than I would normally like to see. At its current price and now having withstood the pressures of its very aggressive pricing campaigns for about a year, I’m less concerned about a very bad earnings release and see upside potential as it has battled back from lower levels.

EMC Corp (NYSE:EMC) may also have had some of the takeover excitement die down, particularly as its most likely purchaser has announced its own plans to split itself into two new companies. Yet it has been able to continue trading at its upper range for the year.

EMC isn’t a terribly exciting company, but it has enough movement from buyout speculation, earnings and speculation over the future of its large VMWare (NYSE:VMW) holding to support an attractive option premium, in addition to an acceptable dividend.

I currently own sh

ares of both Coach (NYSE:COH) and Mosaic (NYSE:MOS). They both are ex-dividend this coming week. Beyond that they also have in common the fact that I’ve been buying shares and selling calls on them for years, but most recently they have been mired at a very low price level and have been having difficulty breaking resistance at $38 and $51, respectively.

While they have been having difficulty breaking through those resistance levels they have also been finding strength at the $35 and $45 levels, respectively. Narrowing the range between support and resistance begins to make them increasingly attractive for a covered option trade, especially with the dividend at hand.

I’ve been sitting on some shares of General Motors (NYSE:GM) for a while and they are currently uncovered. I don’t particularly like adding shares after a nice rise higher, as General Motors had on Friday, but at its current price I think that it is well positioned to get back to the $35 level and while making that journey, perhaps buoyed by lower fuel prices, there is a nice dividend next week and some decent option premiums, as well. What is absolutely fascinating about the recent General Motors saga is that it has been hit with an ongoing deluge of bad news, day in and day out, yet somehow has been able to retain a reasonably respectable stock price.

Finally, it’s another week to give some thought to Abercrombie and Fitch (NYSE:ANF). That incredibly dysfunctional company that has made a habit of large price moves up and down as it tries to break away from the consumer irrelevancy that many have assigned it.

Abercrombie and Fitch recently gave some earnings warnings in anticipation of this week’s release and shares tumbled at that time. If you’ve been keeping a score card, lately the majority of those companies offering warnings or revising guidance downward, have continued to suffer once the earnings are actually released.

The options market is anticipating a 9.1% price move this week in response to earnings. However, it would still take an 11.8% decline to trigger assignment at a strike level that would offer a 1% ROI for the week of holding angst.

That kind of cushion between the implied move and the 1% ROI strike gives me reason to consider the risk of selling puts and crossing my fingers that some surprise, such as the departure of its always embattled CEO is announced, as a means of softening any further earnings disappointments.

Traditional Stocks: Blackstone, Dow Chemical, EMC Corp, General Motors

Momentum: T-Mobile

Double Dip Dividend: Coach (12/3), Mosaic (12/2)

Premiums Enhanced by Earnings: Abercrombie and Fitch (12/3 AM)

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

Visits: 18

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Weekend Update – October 26, 2014

It’s too bad that life doesn’t come with highly specific indicators that give us direction or at least warn us when our path isn’t the best available.

Parents are supposed to do that sort of thing, but in real life the rules are pretty simple. You don’t go swimming for 30 minutes after a meal, you don’t kill people and you don’t swallow your chewing gum.

The seven additional commandments are really just derivative of those critically important first three.

Knowing the difference between right and wrong gives one the ability to change direction when getting too close to what is known to be on the wrong side of what society finds acceptable. Most people get the concept and also apply it to their personal safety.

In stock investing it’s not that simple, although there are lots of rules and all kinds of advance warning signals that may or may not work, depending on whether you were giving or receiving the information. As opposed to adolescents who eventually become adults and lose the “it can never happen to me” mentality, investors often feel a sense of immunity from what may await just beyond that point that others would avoid.

It would have been really, really nice if there was some kind of warning system that both alerted us to an upcoming decline and especially the fact that it would be abruptly followed by a reversal.

Much has been said about the various kinds of recoveries that can be seen, but if this most recent bounce higher will in fact be the recovery to the nearly 9% drop on an intra-day basis, then it is certainly of the “V-shape” variety.

This week came word that by a very large margin the activity in personal 401(k) retirement accounts had been to move out of equities, after the declines, and into fixed income instruments, after those interest rates had seen a 15% increase.

What may really complicate things is that there really is no society to provide guidance and set the boundaries. There are short sellers who like to see movement in one direction and then there are the rest of us, although we can all change those roles at any moment in time that seems to suit us.

For those that depended on the “key reversal” of a few weeks ago as a sign to buy or dipping below the 200 day moving average as a sign to sell, the past few weeks have frustrating.

On the other hand, news of rampant selling in 401(k) accounts may offer precisely the kind of prognostic indicator that many have been looking for, as being a perfectly contrarian signal and indication that the time to buy had come once again.

But what caused the sudden change that created the “V shape?”

Technicians and chart watchers will point to the sudden reversal seen on October 15th in the early afternoon as the DJIA had fallen more than 400 points. However, that 260 point mid-day reversal was lost, almost in its entirety at the following morning’s opening bell.

However, we may also want to thank serendipity that IBM (IBM) and Coca Cola (KO) didn’t report their earnings last week, and that reports of a New York City Ebola patient didn’t surface until market and contagion fears had abated.

It wasn’t until the afternoon following that 400 point drop that St. Louis Federal Reserve Governor James Bullard suggested that the Federal Reserve should consider delaying its ending of Quantitative Easing.

If you were looking for a turning point, that was it.

Even those that are critical of the Federal Reserve for its QE policies have been happy to profit from those very same policies. The suggestion that QE might continue would be a definite reason to abandon fear and buy what appear to be bargain priced stocks, especially as the fixed income side’s sudden 15% increase in rates made bonds less of a bargain..

I was either flatfooted or disbelieving in the sudden climb higher, not having made any new purchases for the second consecutive week. I was almost ready to make some purchases last Thursday, following what Wednesday’s decline, but that was followed by a 120 point gap up the following morning. Instead of adding positions I remained content to watch fallen asset values recapture what had been lost, still in the belief that there was another shoe to drop while en-route perhaps to a “W-shape”

That other shoe may come on Wednesday as the FOMC releases its monthly statement. Lately, that has been a time when the FOMC has given a boost to markets. This time, however, as we continue so consumed by the nuances or changes in the wording contained in the statement, there could be some disappointment if it doesn’t give some indication that there will be a continuing injection of liquidity by the Federal Reserve into markets.

If Bullard was just giving a personal opinion rather than a glimpse into the majority of opinion by the voting members of the FOMC there may be some price to be paid.

While there will be many waiting for such a word confirming Bullard’s comments to come there also has to be a sizable faction that would wonder just how bad things are if the Federal Reserve can’t leave the stage as planned.

Welcome back to the days of is good news bad news.

As usual, the week’s potential stock selections ar

e classified as being in Traditional, Double Dip Dividend, Momentum or “PEE” categories.

While the move higher this week was more than impressive, there’s still no denying that these large moves higher only happen in downturns. The question that will remain to be answered is whether the very rapid climb higher from recent lows will have any kind of sustainability.

For the coming week I expect another quiet one, at least personally. The markets may be anything but quiet, as they certainly haven’t been so for the past few weeks, but trying to guess where things may go is always a dicey prospect, just seemingly more so, right now.

Despite what may be continuing uncertainty I have increased interest in earnings related and momentum stocks in the coming week.

Among those is Joy Global (JOY) a stock whose fortunes are closely aligned with Chinese economic growth. Those prospects got somewhat of a boost as Caterpillar (CAT) delivered better than expected earnings during a week that was a cavalcade of good earnings, despite some high profile disappointments. While the S&P 500 advanced 4.1% for the week and Caterpillar rose 4.6%, Joy Global may just be warming up following only a 2.1% climb higher, but still trading well below its mean for the past year.

In that year it has generally done well in recovering from any downward moves in price and after two months in that kind of trajectory may be ready to finally make that recovery.

With “old technology” continuing to do well, EMC Corp (EMC) held up surprisingly well after its majority owned VMWare (VMW) fell sharply after its own earnings were announced. EMC typically announces its earnings the morning after VMWare announces and while showing some impact from VMWare’s disappointment, rapidly corrected itself after its own earnings were released.

EMC has simply been a very steady performer and stands to do well whether staying as an independent company, being bought out pr merged, or spinning off the large remainder of its stake in VMWare. Neither its dividend nor option premium is stunning, but there is a sense of comfort in its stability and future prospects.

Halliburton (HAL) has been trading wildly of late and is well below the cost of my most recent lot of shares. WHile the entire energy sector has fallen on some hard times of late, there’s little reason to believe that will continue, even if unusually warm weather continues. Halliburton, as have others, have been down this path before and generally investors do well with some patience.

That will be what I practice with my more expensive lot. However, at its current price and volatility, Halliburton, with its just announced dividend increase offers an exceptional option premium that is worthy of consideration, as long as patience isn’t in short supply.

Another stock having required more patience than usual has been Coach (COH). It reports earnings this week and as has been the case over the past 3 years it wouldn’t be unusual to see a large price move in shares.

The options market is expecting a 7% move in shares, although in the past the moves have been larger than that and very frequently to the downside. Lately, however, Coach seems to have stabilized as it has gotten a reorganization underway and as its competitor in the hearts and minds of investors, Michael Kors (KORS) has also fallen from its highs and stagnated.

The current lot of shares of Coach that I purchased were done so after it took a large earnings related decline and I didn’t believe that it would continue doing so. This time around, I’m likely to wait until earnings are announced and if shares suffer a decline I may be tempted to sell puts, with the objective of rolling over those puts into the future if assignment appears to be likely.

For those that like dabbling in excitement, both Facebook (FB) and Twitter (TWTR) announce their earnings this week.

< span style="font-size: medium;">I recently came off an 8 month odyssey that began with the sale of a Twitter put, another and another, but that ultimately saw assignment as shares dropped about $14. During that period of time, until shares were assigned, the ROI was just shy of 25%. I wouldn’t mind doing that again, despite the high degree of maintenance that was required in the process.

The options market’s pricing of weekly options is implying a price movement of about 13% next week. However, at current premiums, a drop of anywhere less than 18% could still deliver a weekly ROI of about 1.2%. I look at that as a good return relative to the risk undertaken, albeit being aware that another long ride may be in store. Since Twitter is, to a large degree, a black box filled with so many unknowns, especially regarding earnings and growth prospects, even that 18% level below could conceivably be breached.

Facebook seems to have long ago quieted its critics with regard to its strategy and ability to monetize mobile platforms. In the 2 years that it has been a publicly traded company Facebook has almost always beaten earnings estimates and it very much looks like a stock that wants to get to $100.

The option market is implying a much more sedate 7.5% in price movement upon earnings release and the decline cushion is only about 9.5% if one is seeking a 1% ROI.

Both Facebook and Twitter are potentially enticing plays this coming week and the opportunities may be available before and after earnings, particularly in the event of a subsequent share decline. If trying to decide between one or the other, my preference is Twitter, as it hasn’t had the same upside move, as Facebook has had and I generally prefer selling puts into price weakness rather than strength.

After some disappointing earnings Ford Motor (F) goes ex-dividend this week. Everyone from a recent Seeking Alpha reader who commented on his Ford covered call trade to just about every talking head on television is now touting Ford shares.

Normally, the latter would be a sign to turn around and head the other way. However, despite still being saddled with shares of a very beleaguered General Motors (GM), I do like the prospects of Ford going forward and after a respite of a few years it may be time to buy shares again. The dividend is appealing and more importantly, appears to be safe and the option premiums are enough to garner some interest as shares are just slightly above their yearly low.

Finally, I don’t know of anyone that has anything good to say about Abercrombie and FItch (ANF), regardless of what the perspective happens to be. It, along with some other teen retailers received some downgrades this past Friday and its shares plummeted.

I have lost count of how often that’s been the case with Abercrombie and FItch shares and I’ve come to expect them to rise and plunge on a very regular basis. If history is any guide Abercrombie and Fitch will be derided for being out of touch with consumers and then will surprise everyone with better than expected earnings and growth in one sector or another.

I’ve generally liked to jump on any Abercrombie post-plunge opportunity with the sale of puts and while I’d be inclined to roll those over in the event of likely assignment, I wouldn’t be adverse to taking possession of shares in advance of its earnings and ex-dividend date, which are usually nearly concurrent, with earnings scheduled for November 20t, 2014.

Traditional Stocks: EMC, Halliburton

Momentum: Abercrombie and Fitch, Joy Global

Double Dip Dividend: Ford (10/29)

Premiums Enhanced by Earnings: Coach (10/28 AM), Facebook (10/28 PM), Twitter (10/27 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 – 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

Posted on

Weekend Update – June 15, 2014

It’s hard to believe that there was ever a period of a few hundred years with relative peace and little military expansion.

It’s not too hard to believe that almost 2000 years have passed, but given that the Pax Romana was followed by the Middle Ages we may want to re-think the idyllic and beneficial nature of peace.

The “Pax Romana” sounds so quaint in an era when even a week without new conflict seems like a gift from the heavens, but the markets need some kind of conflict, physical or otherwise, to keep it functioning in a rationale manner. Otherwise it gets left to its own self and that could have consequences.

This past week was one in which there was no real scheduled news and very little was expected to be happening to shake markets. It was a week when I thought the real challenge would be balancing new market highs achieved in very tentative fashion with the vacuum that can generate largely uncatalyzed moves.

In that vacuum too much quietude can lead to lots of introspection, and over-analysis, not to mention those voices that start telling you what you really should be doing. In that vacuum it’s not too unusual to see over-exaggerated responses to otherwise benign factors.

Who knew that the vacuum could be so easily magnify the results of a primary election in a small congressional district?

For some reason that was the conventional wisdom explaining the first of two triple digit losses mid-week, despite little rationale reason to believe that the political landscape could get any less accommodating. Why in the world a roadblock toward achieving immigration reform could jeopardize stock health is a difficult thesis to weave, but that was the story and everyone stuck to it, while ignoring the fact that the World Bank had cut its forecasts for global growth.

However, the following day there really was something to be concerned about and that was the disruption of a week’s worth of world peace as news came of a mostly unknown army beginning to conquer Iraq and marching toward its capital with Patton-like speed.

Its name “ISIS,” an acronym for “The Islamic State in Iraq and Syria” is an unfortunate situation for Isis Pharmaceuticals (ISIS). It reminds me a bit of the early 1980s and the one time popular diet suppressant, AYDS. Hopeful Isis Pharmaceuticals will respond better than the decision to rename a product as “Diet Ayds.”

But with tensions rising as this past week came to its close the market once again did the unexpected, just as it had done through much of 2011, 2012 and 2013.

If the lessons of the Crimean and Ukraine crises have taught us anything it’s that Friday crises tend to be good for whatever it is that’s ailing the markets.

Going into a weekend of uncertainty the market again failed to sell off and abide by the age old wisdom of not staying long going into a weekend of uncertainty.

Lately, it seems that the market thrives most when peace, whether that of political compromise necessary for a budgetary agreement or that of a cease fire, is itself at risk. With all of the recent talk about complacency, while the Volatility Index may reflect the level of past complacent behavior, the decision to ignore the unknown that may come from a marauding army marching into a nation’s capital is a true measure.

While we all want peace in every aspect of our lives there is a sense of “schadenfreude” that may exist when realizing that it is ongoing tension that may serve to keep markets thriving rather than focusing upon itself and realizing that sometimes heights are untenable.

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

In  addition to the certainty of conflict that seems to occur on a very predictable basis, so too is there certainty lately that General Motors (GM) will be in the news and not for a good reason. With even more recalls announced last week there really hasn’t been much good news for quite a while, but as we saw last week, that didn’t seem to have any impact on sales.

To its credit despite all of the adverse news General Motors has defended the $35 level very nicely, as long as you’ve had a little bit of faith and patience while others either took profits or panicked.

Following a little bit of weakness and demonstrating that shares can absorb incredible amounts of bad news, General Motors offers some good opportunities for use in a covered option strategy, as it offers an attractive dividend that results from its frequent price gyrations. With it’s equally attractive dividend it is easier to be patient while watching shares move up and down. The availability of expanded weekly options adds considerable latitude in how shares are managed while awaiting those price movements.

With the recent revision to GDP there may not be much reason to be optimistic about near term economic growth. However with continuing and steady growth in employment and perhaps bolstered by news from one time leader Intel (INTC), of increasing fortunes, I again took to my proxy for economic growth, Fastenal (FAST). 

I already own shares that may be assigned this coming week, but would not be adverse to rolling them over as they approach the purchase price after some recent weakness. I would also consider either replacing those shares, if assigned, or even adding additional shares and would further consider using some longer term options, such as the July or August 2014 contracts. The latter also adds the possibility of capturing a dividend payment.

Nike (NKE) isn’t a company that I’ve owned very often, although it is one that I look at each week when thinking of possible replacements for assigned shares. Unfortunately, this week I didn’t have any assignments and that makes me a little more guarded about adding new positions and eroding my cash position. However, it’s hard to formulate a thesis whereby Nike is disproportionately damaged by any breach of peace in the world. I also look at shares of Nike as currently being on sale after some recent losses. 

Lowes (LOW) on the other hand, is a company that I’ve owned with some frequency, as recently as a week ago. It, too, is on sale after last week’s market movements and without any real reason for its price drop.

Lowes fits the profile of companies that have been especially kind to me, in that it tends to move within a defined range, deals with an easily understandable product and happens to offer reasonable option premiums and a fair dividend.

While there’s nothing terribly exciting about the company that sits in the shadow of a larger competitor and isn’t too likely to gain from future growth nor suffer from growth disappointments, there is something exciting about booking profits at a tolerable level of risk.

With some recent concerns about its future in the Russian marketplace having been put at ease, MasterCard (MA) has rebounded from its recent lows. It is among those stocks that has seen me hoping for a drop in value and did so a bit over the past week. My comfort level with purchasing new shares is in the $76 range and it is currently just below that level, inviting some consideration. However, I may be inclined to sell puts on shares as my preference is a lower entry price. If doing so and the shares dropped below the strike I would assess whether to attempt to rollover the puts in an effort to get an even lower entry price or whether to accept assignment and position myself to sell calls and perhaps collect the trivial dividend early next month.

The week’s two potential dividend plays are very much at extremes of the spectrum. General Electric (GE) is fairly staid, moves in small doses, while Las Vegas Sands (LVS) is quite the opposite.

General Electric is a company that I don’t own often enough and am never quite certain why that is the case. It too tends to trade in a definable range, is not terribly volatile, offers a reasonable option premium and an excellent dividend. All of that sounds compelling to me, with perhaps this being the week, as the dividend serves as a lure.

Las Vegas Sands, which I purchased last week and may lose to early assignment, is still at the lower end of its recent trading range, despite the good showing last week. While I don’t particularly like chasing stocks that have risen, regardless of how much higher they may still need to go to get to recent highs, here too, the dividend may be a potent lure. While the premium is always attractive, I think that the near term lower boundary on the trading range may have been defined at about $72.

Finally, everyone who loves dysfunction would certainly be attracted to Darden Restaurants (DRI).

Not too long ago its CEO, Clarence Otis, was hailed as a genius and in touch with the casual dining needs of the nation. Now, he is castigated as caring only about his own fate and selling Darden’s assets at ridiculously low valuation in an effort to fend off activists.

Whatever.

I rarely want to consider an earnings related trade unless there are weekly and preferably expanded weekly contracts available and then usually consider the sale of puts. Sadly, in Darden’s case there are only monthly contracts, but this happens to be the final week of the monthly cycle, so in a perfectly executed strategy this could be a weekly trade.

However, despite that, I look at a potential share purchase of Darden and looking at a longer term commitment, with consideration of selling July 2014 calls in the hope of also capturing its very healthy dividend.

Dysfunction can sometimes play the same role as conflict. Sure, normalcy is far easier to deal with, but as with peace, where’s the excitement in that?

 

Traditional Stocks: Fastenal, Lowes, MasterCard, Nike

Momentum:  General Motors

Double Dip Dividend:  General Electric (6/19), Las Vegas Sands (6/18)

Premiums Enhanced by Earnings: Darden Restaurants (6/20)

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 – 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