Weekend Update – August 2, 2015

Like many people I know who have seen the coming attractions for “Vacation,” I’m anxious to see the film having laughed out loud on the two occasions that I saw the coming attractions.

That’s one of the benefits of diminishing short term memory and ever lower standards for what I find entertaining.

My wife and I usually rotate over who gets to select the next movie we see, although it usually works out to a 3 to 1 ratio in her favor. We tend to like different genres. But on this one, we’re both in agreement.

I’m under no illusions that the upcoming “vacation” being taken by the Federal Reserve and its members will have anywhere near the hijinks that the scripted “Vacation” will likely have.

For a short while the usually very visible and very eager to share their opinion members of that august institution will not garner too much attention and the stock market will be left to its own devices to try and interpret the meaning of incoming economic data in a vacuum.

The greatest likelihood is that the Federal Reserve Governors and the members of the FOMC will also be busily evaluating the economic data that will continue to accrue during the remainder of the summer, even as they have a much abridged speaking schedule in August.

I count only 3 scheduled appearances for August, which means less opportunity to go off script or less opportunity to speak one’s own mind, regardless of how that mind may lack influence where it really matters.

That then translates into less opportunity to move markets through casual comments, observations or expressions of personal opinion, even when that opinion may carry little to no weight.

While FOMC members may be taking a vacation from their public appearances for a short while, they’ll be able to give some thought to the most recent economic data which isn’t painting a picture of an economy that is expanding to the point of worry or perhaps not even to the point of justifying action.

The GDP data reported this week came in below estimates and further there was no indication of wage growth. For an FOMC that continually stresses that it will be “data driven” one has to wonder where the justification would arise to consider an interest rate increase even as early as September.

This coming week’s Employment Situation Report could alter the landscape as could the upcoming earnings reports from retailers that will begin in about 2 weeks.

With less attention being paid to when an interest rate hike may or may not occur, perhaps more attention will be paid to the details that would trigger such an increase and interpret those details on their surface, such that good news is greeted as good news and bad news as bad. That would mean a greater consideration of fundamental criteria rather than interpretation of the first or second order changes that those fundamentals might trigger.

Meanwhile, the market continues to be very deceiving.

While the S&P 500 is only about 1.5% below its all time high and the DJIA is about 3.5% below its high, it’s hard to overlook the fact that 40% of the latter’s component companies are in bear market correction.

That seems to be such an incongruous condition and the failure to break out beyond resistance levels after successfully testing support could be pointing to a developing dynamic of higher lows, but lower highs. That’s something that technicians believe may be a precursor to a breakout, but of indeterminate direction.

A lot of good that is.

The fact remains that the market has been extremely unpredictable from week to week, exhibiting something resembling a 5 steps forward and almost 5 steps backward kind of pattern throughout 2015.

With this past week being one that moved higher and bringing markets closer to its resistance level, the coming week could be an interesting one if China remains under control and fundamentals coming from earnings and economic data paint a picture of good news.

Given my low volume of trading over the past few weeks I feel that I’ve been on an extended, but unplanned vacation. Unfortunately, there are no funny tales to recount and the weeks past feel like weeks lost.

Although I’ve never really understood those who complained about having “too much quality family time” and welcomed heading back to work, I think I now have a greater appreciation for their misery.

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

PEE” categories.

Last week I purchased shares of Texas Instruments (NASDAQ:TXN) with dividend capture in mind. However, on the day before the ex-dividend date shares surged beyond my strike price and I decided to roll those options over in a hope that I could either retain the dividend and get some additional premium, or, in the event of early assignment, simply retain the additional premium.

This week, despite semi-conductors still being embattled, I’m interested in adding shares of Intel (NASDAQ:INTC), also going ex-dividend during the week.

While patiently awaiting the opportunity to sell new calls on a much more expensive existing position, I’m very aware that Intel is one of those DJIA components in correction mode. However, I don’t believe Intel will be additionally price challenged unless caught in a downward spiraling market. While I’d love to see some rebound in price for my existing shares, I’d be more than satisfied with a quick turnaround of a new lot of shares and capture of dividend and option premium.

MetLife (NYSE:MET) is also ex-dividend this week. It, too, may be in the process of developing higher lows and lower highs, which may serve as an alert.

With interest rates under pressure in the latter half of the week, MetLife followed suit lower, with both peaking mid-week. Any consideration of adding shares of MetLife for a short term holding should probably be done in the context of the expectation for interest rates climbing. If you believe that interest rates are still headed lower, the prospect of dividend capture and option premium may not offset the risk associated with the share price being pulled toward its support level.

MetLife shares are currently a little higher priced than I would like, but with a couple of days of trading prior to the ex-dividend date, I would be more enticed to consider a dividend capture trade and the use of an extended weekly option if there is price weakness early in the week.

I haven’t owned shares of Capital One Financial (NYSE:COF) in a number of years, although it’s always on my watch list. I almost included it in last week’s selection list following it’s impressive earnings related plunge of about 13%, but decided to wait to see if it could show any attempt to stem the tide.

In a sector that has generally had positive earnings this past quarter the news that Capital One was setting aside 60% more for credit losses came as a stunner, as its profitability ratio also fell.

Some price stability came creeping back last week, however, although still leaving shares well off their highs from less than 2 weeks ago. Even after some price recovery, Capital One Financial joins along with those DJIA stocks that are in correction mode and may offer some opportunity after being oversold.

Despite still owning a much too expensive lot of shares of Abercrombie and Fitch (NYSE:ANF), I’m always attracted to its shares, even when I know that they are likely not to be good for me.

There’s something perverse about that facet of human nature that finds attraction with what most know is bound to be a train wreck, but it can be so hard to resist the obvious warning signals.

While having that expensive lot of shares the recent weakness in Abercrombie and Fitch shares that have taken it below the tight range within which it had been trading makes me want to consider adding shares for the fourth time in 2015.

The option premiums are generally attractive, befitting its penchant for large moves and there is nearly 4 weeks to go until it reports earnings, so there may be some time to manage a position in the event of an adverse price movement.

I might consider the sale of puts with Abercrombie, rather than a buy/write. The one caveat about doing so and it also pertains to being short calls, is that if the ensuing share price is sharply deviating from the strike price when looking to execute a rollover, the liquidity may be problematic and the bid-ask spreads may be overly large and detrimental to someone who feels pressure to make a trade.

Finally, for those that have real intestinal fortitude, both Green Mountain Keurig (NASDAQ:GMCR) and Herbalife (NYSE:HLF) have been in the cross hairs of well known activists and both report earnings this week.

The Green Mountain Keurig saga is a long one and began some years ago when questions arose regarding its accounting practices and issues of inventory. Thrown later into the equation were questions regarding the sale of stock by its founder who had also served as CEO and Chairman until he was fired.

What Green Mountain has shown is that second acts are possible, as it has, very possibly through a lifeline offered by Coca Cola (NYSE:KO), emerged from a seeming spiral into oblivion.

Somewhat ominously, at its recent earnings report and conference, Coca Cola made no mention of its investment in Green Mountain, which has seen its share price fall by more than 50% in the past 9 months. It has been down that path before, having fallen by about 65% just 4 years ago in 2 month period.

Are there third and fourth acts?

The options market is implying a price move of about 10.7%. Meanwhile, one can potentially obtain a 1% ROI for the week if selling a put contract at a strike as much as 14% below this past Friday’s close.

In light of how this current earnings season has punished those disappointing with their earnings, even that fairly large cushion between the implied move and the strike that could deliver a 1% ROI still leads to some discomfort. However, I would very much consider the sale of puts after the earnings report if shares do plunge.

Herbalife has had its own ongoing and long saga, as well, that may be coming toward some sort of a resolution as the FTC probe is nearly 18 months old and follows allegations of illegality made nearly 3 years ago.

Following a fall to below $30 just 6 months ago, a series of court victories by Herbalife have helped to see it realize its own second act, as shares have jumped by 65% since that time.

The options market is implying a share price move of about 16%.

Considering that any day could bring great peril to Herbalife shareholders in the event of an adverse FTC decision, that implied move isn’t unduly exaggerated, as more than business results are in play at any given moment.

However, if that intestinal fortitude does exist, especially if also venturing a trade on Green Mountain, a 1% ROI may possibly be obtained by selling puts at a strike nearly 29% below Friday’s closing price.

Now that’s a cushion, but it may be a necessary one.

If the news is doubly bad, combining disappointing earnings and the coincidental release of an FTC ruling the same week that Bill Ackman would immensely enjoy, I might recommend a vacation, if you can still afford one.

Traditional Stocks: Capital One Finance

Momentum Stocks: Abercrombie and Fitch

Double-Dip Dividend: Intel (8/5), MetLife (8/5)

Premiums Enhanced by Earnings: Green Mountain Keurig (8/5 PM), Herbalife (8/5 PM)

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

Weekend Update – 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.

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.

Weekend Update – January 25, 2015

About 2 years after he began trying to convince the world that he was the biggest and baddest central banker around, unafraid to whip out any part of his arsenal to fight a slumping European economy, Mario Draghi finally has decided to let actions speak for themselves.

With only a single mandate as a master, although hampered by many national masters in the European Union, a European version of Quantitative Easing will be introduced a mere 5 years after it was begun in the United States.

While in the past the bravado of Draghi’s words have spurred our markets higher and the lack of action have led to disappointment, this week’s details of the planned intervention were more than the previous day’s rumor had suggested and after a very short period of second guessing the good news delivered, the market decided that the ECB move would be very positive for stocks and had another one of those strong moves higher that you tend to see during bear markets.

We’ve had a lot of those, lately.

Whether an ECB quantitative easing will be good for US stock markets in the longer term may be questionable, much like the FOMC’s period of QE did little to promote European equity markets, but almost certainly gave home markets an advantage.

While US markets greatly out-performed their European counter-parts from the time QE was initially announced, they were virtually identical in performance for the preceding 10 year period.

If you are among those who believe that the great returns seen by the US markets since 2009 were the result of FOMC actions, then you probably should believe that European markets may now be relatively more attractive for investors. Besides, add the current strength of the US dollar into the mix and the thoughts of bringing money back to European shores and putting it to work in local markets may be very enticing if that puts you on the right side of currency headwinds.

The only real argument against that logic is that the FOMC’s actions helped to drive interest rates lower, making equities more appealing, by contrast. However, how much lower can European rates go at this point?

Meanwhile, although there is now a tangible commitment and the initial market action was to embrace the plan with open arms and emptied wallets in a knee jerk buying spree, there’s not too much reason to believe that it will offer anything tangible for markets immediately, or at all.

In the US experience we have seen that the need for and size of the intervention and the need for its continuation or taper begins the process of wondering whether bad news is good or good news is bad and introduces more paradoxical kinds of reactions to events, as professional traders become amateur reverse psychologists.

As markets may now take some time to digest the implications of an ECB intervention for at least the next 18 months, the question at hand is what will propel US markets forward?

Thus far, expectations that the benefit of lower energy prices will be that catalysts hasn’t been validated by earnings or forward guidance, although key reports, especially in the consumer sector are still to come. One one expect that the significant upward revisions of GDP would eventually make their way into at least the top line of earnings reports by the next quarter and might find their way into guidance during this quarter’s releases.

In addition to guidance from the consumer sector, earnings news and guidance from the energy sector, if pointing to bottom lines that aren’t as bad as the stock sell-offs would have indicated, could go a long way toward pushing the broader market higher. Some early results from Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL) are encouraging, however, the coming two weeks may supply much more information as a number of major oil companies report earnings.

Of course, next week we could also return to an entirely US-centric news cycle and completely forget about European solutions to European woes. First comes an FOMC Statement release on Wednesday and then GDP statistics on Friday, either of which could cast some doubt on last week’s Retail Sales statistics that took many by surprise by not reflecting the increased consumer spending most believed would be inevitable.

The real test may be whether earnings can continue to meet our expectations as buybacks that had been inflating EPS data may be slowing.

Still, focusing on earnings is so much better than having to think about fiscal cliffs and sequestration.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum or “PEE” categories. Additional earnings related trades may be seen in an accompanying article.

Dow Chemical (NYSE:DOW) reports earnings this week, but I’m not looking at it as an earnings related trade in the manner that I typically do, through the sale of out of the money puts.

In this case, I’m interested in adding shares to my existing holdings in the belief that Dow Chemical shares have been unduly punished as energy prices have plunged. While it does have some oil producing partnerships with Kuwait, as its CEO Andrew Liveris recently pointed out during the quiet period before upcoming earnings, Dow Chemical is a much larger user of oil and energy than it is a producer and it is benefiting greatly from reduced energy costs.

The market, however, hasn’t been seeing it the same way that Liveris does, so there may be some positive surprises coming this week, either for investors or for Liveris, who is already doing battle with activist investors.

While I generally like to sell near the money options on new positions, in this case I’m more interested in the potential of securing some capital gains on shares and would take advantage of the earnings related enhanced option premiums by selling out of the money calls and putting some faith in Liveris’ contention.

I can’t begin to understand the management genius of Richard Kinder and his various strategic initiatives over the years, nor could I keep track of his various companies. News of his decision to step down as CEO of Kinder Morgan (NYSE:KMI) seems well timed, considering the successful consolidation of the various companies bearing his name. In what may be the last such transaction under his leadership, a very non-distressed Kinder Morgan made an acquisition of a likely more distressed privately held Harold Hamm company with interests in the Bakken Formation.

What I do understand, though, is that shares of Kinder Morgan are ex-dividend this week and despite it being in that portion of the energy sector that has been largely shielded from the price pressures seen in the sector, it is still benefiting from option premiums that reflect risk and uncertainty. Getting more reward than you deserve seems like a good alternative to the more frequently occurring situation.

In a world where “old tech” has regained respect, not many are older than Texas Instruments (NASDAQ:TXN). It, too, goes ex-dividend this week, but does so two days after its earnings are released.

With shares less than 2% below its 52 week high, I’m reluctant to buy shares when the market itself has been so tentative and prone to large and sometimes unforeseen moves in either direction. However, in the event of a sizable decline after Texas Instruments reports earnings I may be interested in purchasing shares prior to the ex-dividend date.

Fastenal (NASDAQ:FAST) is also ex-dividend this week. While I generally don’t like to add shares at a higher price, having just bought Fastenal immediately before earnings and in replacement of shares assigned the previous month at a higher price, that upcoming dividend makes it hard to resist.

Fastenal, despite everything that may be going on in the world, is very much protected from the issues of the day. Low oil prices and a strong dollar mean little to its business, although low interest rates do have meaning, insofar as they’re conducive to commercial and personal construction projects. As long as those rates remain low, I would expect those Fastenal parking lots to be busy.

While there’s nothing terribly exciting about this company it has become one of my favorite stocks, while trading in a fairly narrow range. Although priced higher than my current lot of shares, it’s priced at the average entry point of my previous 10 positions over the past 18 months

While Facebook (NASDAQ:FB) doesn’t go ex-dividend this week, it does report earnings. In its nearly 3 years as a publicly traded company Facebook hasn’t had many earnings disappointments since it learned very quickly how to monetize its mobile platforms much more quickly than even its greatest protagonists believed possible.

The option market is implying a 6.2% price move, which is low compared to recent quarters, however, that is a theme for this week for a number of other companies reporting earnings this week.

Additionally, the cushion between the lower range strike price determined by the option market and the strike level that would return my desired 1% ROI isn’t as wide as it has been in the past for Facebook. That strike is 6.8% below Friday’s closing price.

For that reason, while I’ve liked Facebook in the past as an earnings related trade and still do, the likelihood is that if executing this trade I would only do so if shares show some weakness in advance of earnings or if they do so after earnings. In those instances I’d consider the sale of out of the money put contracts. Due to the high volume of trading in Facebook options it is a relatively easy position to rollover if necessary due to a larger than expected move lower, although I wouldn’t be adverse to taking possession of shares and then managing the position with the sale of calls.

American Express (NYSE:AXP) was another casualty within the financial services sector following its earnings report this past week, missing on both analyst’s estimates and its own projections for revenue growth. That disappointment added to the decline its shares had started at the end of 2014.

Since that time, while the S&P 500 has fallen 1.5%, American Express shares had dropped nearly 11%, exacerbated by disappointing earnings, with analysts concerned about future costs, despite plans to cut 4000 employees.

The good news is that American Express has recovered from these kind of earnings drops in he past year as they’ve presented buying opportunities. Along with the price drops comes an increase in option premiums as a little bit more uncertainty about share value is introduced. That uncertainty, together with its resiliency in the face of earnings challenges may make this a good time to consider a new position.

Finally, I wasn’t expecting to be holding any shares of MetLife (NYSE:MET) as Friday’s trading came to its close, having purchased shares last week and expecting them to be assigned on Friday, until shares followed the steep decline in interest rates to require that their option contracts be rolled over.

What I did expect, seeing the price head toward $49 in the final hour of trading was to be prepared to buy shares again this week and that expectation hasn’t changed.

What is making MetLife a little more intriguing, in addition to many others in the financial sector, is the wild ride that interest rates have been on over the past 2 weeks, taking MetLife and others along. With those rides comes enhanced option premiums as the near term holds uncertainty with the direction of rates, although in the longer term it seems hard to believe that they will stay so low as more signs of the economy heating up may be revealed this week.

With shares going ex-dividend on February 4, 2015 and earnings the following week, I may consider a longer term option contract to attempt to capture the dividend, some enhanced premiums, while offering some protection from earnings

surprises through the luxury of additional time for shares to recover, if necessary.

Somewhere along the line a decision will be made regarding the designation of MetLife as a “systemically important” financial institution that is “too big to fail.” While re-affirming that designation, despite MetLife’s protests that has negative consequences, I think that has already been factored into its share price, although it may result in some more dour guidance at some point that will still come as a surprise to some.

Traditional Stocks: American Express, Dow Chemical, MetLife

Momentum Stocks: none

Double Dip Dividend: Fastenal (1/28), Kinder Morgan (1/29), Texas Instruments (1/28)

Premiums Enhanced by Earnings: Facebook (1/28 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.

Weekend Update – October 5, 2014

This week’s markets didn’t respond so positively when Mario Draghi, the head of the European Central Bank failed to deliver on what many had been expecting for quite some time.

The financial markets wanted to hear Draghi follow through on his previous market moving rhetoric with an ECB version of Quantitative Easing, but it didn’t happen. After two years of waiting for some meaningful follow through to his assertion that “we will do whatever it takes” Draghi’s appearance as simply an empty suit becomes increasingly apparent and increasingly worrisome.

On a positive note, as befitting European styling, that suit is exquisitely tailored, but still hasn’t shown that it can stand up to pressure.

It also wasn’t the first time our expectations were dashed and no one was particularly pleased to hear Draghi place blame for the state of the various economies in the European Union at the feet of its politicians as John Chambers, the head of Standard and Poor’s Sovereign Debt Committee did some years earlier when lowering the debt rating of the United States.

Placing the blame on politicians also sends a message that the remedy must also come from politicians and that is something that tends to only occur at the precipice.

While the Biblical text referring to a young child leading a pack of wild animals is a forward looking assessment of an optimistic future, believing that an empty suit can lead a pack of self-interested politicians is an optimism perhaps less realistic than the original passage.

At least that’s what the markets believed.

Befitting the previous week’s volatility that was marked by triple digit moves in alternating fashion, Draghi’s induced 238 point decline was offset by Friday’s 208 point gain following the encouraging Employment Situation Report. Whereas the previous week’s DJIA saw a net decline of only 166 points on absolute daily moves of 810 points, this past week was more subdued. The DJIA lost only 103 points while the absolute daily changes were 519 points.

The end result of Friday’s advance was to return volatility to where it had ended last week, which was a disappointment, as you would like to see volatility rise if there has been a net decline in the broader market. Still, if you’re selling options, that level is better than it was two weeks ago.

While Friday’s gain was encouraging it is a little less so when realizing that such memorable gains are very often found during market downtrends. There is at least very little doubt that the market behavior during the past two weeks represents some qualitative difference in its behavior and an isolated move higher may not be very reflective of any developing trend, but rather reactive to a different developing trend.

As with Draghi, falling for the rhetoric of such a positive response to the Employment Situation Report, may lead to some disappointment.

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

Many of the positions being considered this week are recently highlighted positions made more appealing following recent price pullbacks rather than on any company specific factors. Of course, when looking at stocks whose price has recently fallen at some point the question regarding value versus “value trap” has to be entertained.

With some increase in volatility, despite the rollback this week, I’ve taken opportunity to rollover existing positions to forward weeks when expanded option contracts have been available. As those premiums have increased a bit being able to do so helps to reduce the risk of having so many positions expire concurrently and being all exposed to a short term and sudden price decline.

Just imagine how different the outcome for the week may have been if Thursday’s and Friday’s results were reversed if you were relying on the ability to rollover positions or have them assigned.

However, with the start of earnings season this week there’s reason to be a little more attentive when selecting positions and their contract expiration dates as earnings may play a role in the premiums. While certainly making those premiums more enticing it also increases the risk of ownership at a time when the relative market risk may outweigh the reward.

One stock not reporting earnings this week, but still having an enriched option premium is The Gap (GPS). It opens the week for trading on its ex-dividend date and later in the week is expected to announce its monthly same store sales, being one of the few remaining companies to do so. Those results are inexplicably confusing month to month and shares tend to make strong price movements, frequently in alternating directions from month to month. For that uncertainty comes a very attractive option premium for shares that despite that event driven volatility tend to trade in a fairly well defined range over the longer term.

When it comes to their fashion offerings you may be ambivalent, but when it comes to that kind of price movement and predictability, what’s not to like?

If you’re waiting for a traditional correction, one that requires a 10% pullback, look no farther than Mosaic (MOS). While it had been valiantly struggling to surpass the $50 level on its long road to recovery from the shock of the break-up of the potash cartel, it has now fallen about 13% in 5 weeks. Most recently Mosaic announced a cutback in phosphate production and lowered its guidance and when a market is already on edge it doesn’t need successive blows like those offered by Mosaic as it approaches its 52 week low.

Can shares offer further disappointment when it reports earnings at the end of this month? Perhaps, but for those with a longer term outlook, at this level shares may be repeating the opportunity they offered upon hitting their lows on the cartel’s dissolution for serial purchase and assignment, while offering a premium enhanced by uncertainty.

Seagate Technology (STX) is also officially in that correctio

n camp, having dropped 10% in that same 5 week period. It has done so in the absence of any meaningful news other than perhaps the weight of its own share price, with its decline having come directly from its 52 week high point.

For a company that has become fairly staid, Pfizer (PFE) has been moving about quite a bit lately. Whether in the news for having sought a tax inversion opportunity or other acquisitions, it is clearly a company that is in need of some sort of catalyst. That continuing kind of movement back and forth has been pronounced very recently and should begin making its option premium increasingly enticing. With shares seemingly seeking a $30 home, regardless of which side it is currently on and an always attractive dividend, Pfizer may start getting more and more interesting, particularly in an otherwise labile market.

Dow Chemical (DOW) is one of those stocks that used to be a main stay of my investing. It’s price climb from the $40 to $50 range made it less so, but with the realization that the $50 level may be the new normal, especially with activist investor pressure, it is again on the radar screen, That’s especially true after this week’s price drop. I had been targeting the $52.50 level having been most recently assigned at $53.50, but now it appears to be gift priced. Unfortunately, it may be a perfect example of that age old dilemma regarding value, having already greatly under-performed the market since its recent high the “value trap” part may have already been played out.

While MasterCard (MA) is ex-dividend this week, it is certainly not one to chase in order to capture its dividend. With a payout ratio far below its competitors it would seem that an increase might be warranted. However, what makes MasterCard attractive is that it has seemingly found a trading range and is now situated at about the mid-point of that range. While there is some recent tumult in the world of payments and with some continuing uncertainty regarding its presence in Russia, MasterCard continues to be worth consideration, particularly as it too has significantly under-performed the S&P 500 in the past two weeks.

Equal in its under-performance to MasterCard during that period has been Texas Instruments (TXN). I’ve been eager to add some technology sector positions for a while and haven’t done so as often as necessary to develop some better diversification. Along with Intel (INTC) which I considered last week, as well, Texas Instruments is back to a price level that has my attention. Like Intel, it reports earnings soon and also goes ex-dividend during the October 2014 option cycle. Unlike Intel, however, Texas Instruments doesn’t have a couple of gap ups in price over the past three months that may represent some additional earnings related risk.

When it comes to under-performance it is possible that Coach (COH) may soon qualify as being synonymous with that designation. Not too surprisingly its past performance in the past two weeks, while below that of the S&P 500 may be more directly tied to an improved price performance seen in its competitor for investor interest, Michael Kors (KORS). However, Coach seems to have established support at its current level and may offer a similar opportunity for serial purchase and assignment as had been previously offered by Mosaic shares.

Finally, with the exception of YUM Brands (YUM) all of the other stocks highlighted this week have under-performed the S&P 500 since hitting its recent high on September 18, 2014. YUM Brands reports earnings this week and is often very volatile when it does so. This time, hover, the options market doesn’t seem to be expecting a very large move, only about 4.5%. Neither is there an opportunity to achieve a 1% ROI through the sale of a put option at a strike outside of the range implied. However, YUM Brands is one of those stocks, that if I had sold puts upon, I wouldn’t mind owning if there was a likelihood of assignment.

So often YUM Brands share price is held hostage to food safety issues in China and so often it successfully is able to  see its share price regain sudden losses. That, however, hasn’t been the case thus far since it’s summertime loss. There are probably little expectations for an upside surprise upon release of earnings and as such there may be some limited downside, perhaps explaining the option market’s subdued pricing.

If facing assignment of puts being sold with an upcoming ex-dividend date the following week, I would be inclined to accept assignment and proceed from the point of ownership rather than trying to continue avoiding ownership of shares. However, with the slightest indication of political unrest spreading from Hong Kong to the Chinese mainland that may be a decision destined for regret, just like the purchase of an ill-fitting and overly priced suit.

Traditional Stocks: Dow Chemical, Pfizer, Texas Instruments, The Gap

Momentum: Coach, Mosaic, Seagate Technology

Double Dip Dividend:  MasterCard (10/7)

Premiums Enhanced by Earnings: YUM Brands (10/7 PM)

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

Weekend Update – 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.

Weekend Update – October 27, 2013

Watching Congressional testimony being given earlier this week by representatives of the various companies who were charged with the responsibility of assembling a functioning web site to coordinate enrollment in the Affordable Care Act it was clear that no one understood the concept of responsibility.

They did, however, understand the concept of blame and they all looked to the same place to assign that blame.

As a result there are increased calls for the firing or resignation of Kathleen Sebelius, Secretary of Health and Human Services. After all, she, in essence, is the CEO.

On the other hand, it was also a week that saw one billionaire, Bill Gross, the “Bond King” of PIMCO deign to give unsolicited advice to another billionaire, Carl Icahn, in how he should use his talents more responsibly. But then again, the latter made a big splash last week by trying to convince a future billionaire, Tim Cook, of the responsible way to deal with his $150 billion of cash on hand. Going hand in hand with a general desire to impart responsibility is the tendency to wag a finger.

Taking blame and accepting responsibility are essentially the same but both are in rare supply through all aspects of life.

This was an incredibly boring week, almost entirely devoid of news, other than for earnings reports and an outdated Employment Situation Report. The torrent of earnings reports were notable for some big misses, lots of lowered guidance and a range of excuses that made me wonder about the issue of corporate responsibility and how rarely there are cries for firings or resignations by the leaders of companies that fail to deliver as expected.

For me, corporate responsibility isn’t necessarily the touchy-feely kind or the environmentalist kind, but rather the responsibility to know how to grow revenues in a cost-efficient manner and then make business forecasts that reflect operations and the challenges faced externally. It is upon an implied sense of trust that individuals feel a certain degree of comfort or security investing assets in a company abiding by those tenets.

During earnings season it sometimes becomes clear that living up to that responsibility isn’t always the case. For many wishing to escape the blame the recent government shutdown has been a godsend and has already been cited as the reason for lowered guidance even when the business related connection is tenuous. Instead of cleaning up one’s own mess it’s far easier to lay blame.

For my money, the ideal CEO is Jamie Dimon, of JP Morgan Chase (JPM). Burdened with the legacy liabilities of Bear Stearns and others, in addition to rogue trading overseas, he just continues to run operations that generate increasing revenues and profits and still has the time to accept responsibility and blame for things never remotely under his watch. Of course, the feeling of being doubly punished as an investor, first by the losses and then by the fines may overwhelm any feelings of respect.

Even in cases of widely perceived mismanagement or lack of vision, the ultimate price is rarely borne by the one ultimately responsible. Instead, those good earnings in the absence of revenues came at the expense of those who generally shouldered little responsibility but assumed much of the blame. While Carl Icahn may not be able to make such a case with regard to Apple, the coziness of the boardroom is a perfect place to abdicate responsibility and shift blame.

Imagine how convenient it would be if the individual investor could pass blame and its attendant burdens to those wreaking havoc in management rather than having to shoulder that burden of someone else’s doing as they watch share prices fall.

Instead, I aspire to “Be Like Jamie,” and just move on, whether it is a recent plunge by Caterpillar (CAT) or any others endured over the years.

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).

Andrew Liveris, CEO of Dow Chemical (DOW) was everyone’s favorite prior to the banking meltdown and was a perennial guest on financial news shows. His star faded quickly when Dow Chemical fell to its lows during the financial crisis and calls for his ouster were rampant. Coincidentally, you didn’t see his ever-present face for quite a while. Those calls have halted, as Liveris has steadily delivered, having seen shares appreciate over 450% from the market lows, as compared to 157% for the S&P 500. Shares recently fell after earnings and is closing in to the level that I would consider a re-entry point. Now offering weekly option contracts, always appealing premiums and a good dividend, Dow Chemical has been a reliable stock for a covered option strategy portfolio and Andrew Liveris has had a reliable appearance schedule to match.

A company about to change leadership, Coach (COH) has been criticized and just about left for dead by most everyone. Coach reported earnings last week and for a short while I thought that the puts I had sold might get assigned or be poised for rollover. While shares recovered from their large drop, I was a little disappointed at the week ending rally, as I liked the idea of a $48 entry level. However, given its price history and response to the current level, I think that ownership is still warranted, even with that bounce. Like Dow Chemical, the introduction of weekly options and its premiums and dividend make it a very attractive stock in a covered call strategy. Unlike Dow Chemical, I believe its current price is much more attractive.

I’m not certain how to categorize the CEO of Herbalife (HLF). If allegations regarding the products and the business model prove to be true, he has been a pure genius in guiding share price so much higher. Of course, then there’s that nasty fact that the allegations turned out to be true.

Herbalife reports earnings this week and if you have the capacity for potential ownership the sale of out of the money puts can provide a 1.2% return even of shares fall 17%. The option market is implying a 10% move. That is the kind of differential that gets my attention and may warrant an investment, even if the jury is still out on some of the societal issues.

In the world of coffee, Dunkin Brands (DNKN) blamed K-Cups and guided toward the lower end of estimates. Investors didn’t care for that news, but they soon got over it. The category leader, Starbucks (SBUX) reports earnings this week. I still consider Howard Schultz’s post-disappointing earnings interview of 2012 one of the very best in addressing the issues at hand. But it’s not Starbucks that interests me this week. It’s Green Mountain Coffee Roasters (GMCR). Itself having had some questionable leadership, it restored some credibility with the appointment of its new CEO and strengthening its relationships with Starbucks. Shares have fallen about 25% in the past 6 weeks and while not reporting its own earnings this week may feel some of the reaction to those from Starbucks, particularly as Howard Schultz may characterize the nature of ongoing alliances. Green Mountain shares have returned to a level that I think the adventurous can begin expressing interest. I will most likely do so through the sale of puts, with a strike almost 5% out of the money being able to provide a 1.2% ROI. The caveat is that CEO Brian Kelley may soon have his own credibility tested as David Einhorn has added to his short position and has again claimed that there are K-cup sales discrepancies. Kelley did little to clear up the issue at a recent investor day meeting.

Baxter International (BAX) has held up reasonably well through all of the drama revolving around the medical device tax and the potential for competition in the hemophilia market by Biogen Idec (BIIB). WIth earnings out of the way and having approached its yearly low point I think that it is ready to resume a return to the $70 range and catching up to the S&P 500, which it began to trail in the past month when the issues of concern to investors began to take root.

MetLife (MET) has settled into a trading range over the past three months. For covered calls that is an ideal condition. It is one of those stocks that I had owned earlier at a much lower price and had assigned. Waiting for a return to what turned out to be irrationally low levels was itself irrational, so I capitulated and purchased shares at the higher level. In fact, four times in the past two months, yielding a far better return than if shares had simply been bought and held. Like a number of the companies covered this week it has that nice combination of weekly option contracts, appealing premiums and good dividends.

Riverbed Technology (RVBD) reports earnings this week, along with Seagate Technology (STX). Riverbed is a long time favorite of mine and has probably generated the greatest amount of premium income of all of my past holdings. However, it does require some excess stomach lining, especially as earnings are being released. I currently own two higher cost lots and uncharacteristically used a longer term call option on those shares locking in premium in the face of an earnings report. However, with recent price weakness I’m re-attracted to shares, particularly when a 3 week 1.7% ROI can be obtained even if shares fall by an additional 13%. In general, I especially like seeing price declines going into earnings, especially when considering the sale of puts just in advance of earnings. Riverbed Technology tends to have a history of large earnings moves, usually due to providing pessimistic guidance, as they typically report results very closely aligned with expectations.

Seagate Technology reports earnings fresh off the Western Digital (WDC) report. In a competitive world you might think that Western Digital’s good fortunes would come at the expense of Seagate, but in the past that hasn’t been the case, as the companies have traveled the same paths. With what may be some of the surprise removed from the equation, you can still derive a 1% ROI if Seagate shares fall less than 10% in the earnings aftermath through the sale of out of the money put contracts.

ConAgra (CAG) and Texas Instruments (TXN) both go ex-dividend this week. I think of them both as boring stocks, although Texas Instruments has performed nicely this year, while ConAgra has recently floundered. On the other hand, Texas Instruments is one of those companies that has fallen into the category of meeting earnings forecasts in the face of declining revenues by slashing worker numbers.

Other than the prospect of capturing their dividends I don’t have deeply rooted interest in their ownership, particularly if looking to limit my new purchases for the week. However, any opportunity to get a position of a dividend payment subsidized by an option buyer is always a situation that I’m w
illing to consider.

Finally, as this week’s allegation that NQ Mobile (NQ), a Chinese telecommunications company was engaged in “massive fraud” reminds us, there is always reason to still be circumspect of Chinese companies. While the short selling firm Muddy Waters has been both on and off the mark in the past with similar allegations against other companies they still get people’s attention. The risk of investing in companies with reliance on China carries its own risk. YUM Brands (YUM) has navigated that risk as well as any. With concern that avian flu may be an issue this year, that would certainly represent a justifiable shifting of blame in the event of reduced revenues. At its recent lower price levels YUM Brands appears inviting again, but may carry a little more risk than usual.

Traditional Stocks: Baxter International, Dow Chemical, MetLife

Momentum Stocks: Coach, Green Mountain Coffee Roasters, YUM Brands

Double Dip Dividend: ConAgra (ex-div 10/29), Texas Instruments (ex-div 10/29)

Premiums Enhanced by Earnings: Herbalife (10/28 PM), Riverbed Technology (10/28 PM), Seagate Technology (10/28 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.

Weekend Update – June 30, 2013

The hard part about looking for new positions this week is that memories are still fresh of barely a week ago when we got a glimpse of where prices could be.

When it comes to short term memory the part that specializes in stock prices is still functioning and it doesn’t allow me to forget that the concept of lower does still exist.

The salivating that I recall doing a week ago was not related to the maladies that accompany my short term memory deficits. Instead it was due to the significantly lower share prices.

For the briefest of moments the market was down about 6% from its May 2013 high, but just as quickly those bargains disappeared.

I continue to beat a dead horse, that is that the behavior of our current market is eerily reminiscent of 2012. Certainly we saw the same kind of quick recovery from a quick, but relatively small drop last year.

What would be much more eerie is if following the recovery the market replicated the one meaningful correction for that year which came fresh off the hooves of the recovery.

I promise to make no more horse references.

Although, there is always that possibility that we are seeing a market reminiscent of 1982, except that a similar stimulus as seen in 1982 is either lacking or has neigh been identified yet. In that case the market just keeps going higher.

I listened to a trader today or was foaming at the mouth stating how our markets can only go higher from here. He based his opinion on “multiples” saying that our current market multiple is well below the 25 times we saw back when Soviet missiles were being pointed at us.

I’ll bet you that he misses “The Gipper,” but I’ll also bet that he didn’t consider the possibility that perhaps the 25 multiple was the irrational one and that perhaps our current market multiple is appropriate, maybe even over-valued.

But even if I continue to harbor thoughts of a lower moving market, there’s always got to be some life to be found. Maybe it’s just an involuntary twitch, but it doesn’t take much to raise hope.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend or Momentum categories. With earnings season set to begin July 8, 0213, there are only a handful of laggards reporting this coming week, none of which appear risk worthy (see details).

I wrote an article last week, Wintel for the Win, focusing on Intel (INTC) and Microsoft (MSFT). This week I’m again in a position to add more shares of Intel, as my most recent lots were assigned last week. Despite its price having gone up during the past week, I think that there is still more upside potential and even in a declining market it will continue to out-perform. While I rarely like to repurchase at higher prices, this is one position that warrants a little bit of chasing.

While Intel is finally positioning itself to make a move into mobile and tablets and ready to vanquish an entire new list of competitors, Texas Instruments (TXN) is a consistent performer. My only hesitancy would be related to earnings, which are scheduled to be announced on the first day of the August 2013 cycle. Texas Instruments has a habit of making large downward moves on earnings, as the market always seems to be disappointed. With the return of the availability of weekly options I may be more inclined to consider that route, although I may also consider the August options in order to capitalize somewhat on premiums enhanced by earnings anticipation.

Already owning shares of Pfizer (PFE) and Merck (MRK), I don’t often own more than one pharmaceutical company at a time. However, this week both Eli Lilly (LLY) and Abbott Labs (ABT) may join the portfolio. Their recent charts are similar, having shown some weakness, particularly in the case of Lilly. While Abbott carries some additional risk during the July 2013 option cycle because it will report earnings, it also will go ex-dividend during the cycle. However, Lilly’s larger share drop makes it more appealing to me if only considering a single purchase, although I might also consider selling an August 2013 option even though weekly contracts are available.

I always seem to find myself somewhat apologetic when considering a purchase of shares like Phillip Morris (PM). I learned to segregate business from personal considerations a long time ago, but I still have occasional qualms. But it is the continued ability of people to disregard that which is harmful that allows companies like Phillip Morris and Lorillard (LO), which I also currently own, to be the cockroaches of the market. They will survive any k
ind of calamity. It’s recent under-performance makes it an attractive addition to a portfolio, particularly if the market loses some ground, thereby encouraging all of those nervous smokers to sadly rekindle their habits.

The last time I purchased Walgreens (WAG) was one of the very few times in the past year or two that I didn’t immediately sell a call to cover the shares. Then, as now, shares took, what I believed to be an unwarranted large drop following the release of earnings, which I believed offered an opportunity to capture both capital gains and option premiums during a short course of share ownership. It looks as if that kind of opportunity has replicated itself after the most recent earnings release.

Among the sectors that took a little bit of a beating last week were the financials. The opportunity that I had been looking for to re-purchase shares of JP Morgan Chase (JPM) disappeared quickly and did so before I was ready to commit additional cash reserves stored up just for the occasion. While shares have recovered they are still below their recent highs. If JP Morgan was not going ex-dividend this trade shortened week, I don’t believe that I would be considering purchasing shares. However, it may offer an excellent opportunity to take advantage of some option pricing discrepancies.

I rarely use anecdotal experience as a reason to consider purchasing shares, but an upcoming ex-dividend date on Darden Restaurants (DRI) has me taking another look. I was recently in a “Seasons 52” restaurant, which was packed on a Saturday evening. I was surprised when I learned that it was owned by Darden. It was no Red Lobster. It was subsequently packed again on a Sunday evening. WHile clearly a small portion of Darden’s chains the volume of cars in their parking lots near my home is always impressive. While my channel check isn’t terribly scientific it’s recent share drop following earnings gives me reason to believe that much of the excess has already been removed from shares and that the downside risk is minimized enough for an entry at this level.

While I did consider purchasing shares of Conoco Phillips (COP) last week, I didn’t make that purchase. Instead, this week I’ve turned my attention back to its more volatile namesake, Phillips 66 (PSX) which it had spun off just a bit more than a year ago. It has been a stellar performer in that time, despite having fallen nearly 15% since its March high and 10% since the market’s own high. It fulfills my need to find those companies that have fared more poorly than the overall market but that have a demonstrated ability to withstand some short term adverse price movements.

Finally, I haven’t recommended the highly volatile silver ETN products for quite a while, even though I continue to trade them for my personal accounts. However, with the sustained movement of silver downward, I think it is time for the cycle to reverse, much as it had done earlier this year. The divergence between the performance of the two leveraged funds, ProShares UltraShort Silver ETN (ZSL) and the ProShares Ultra Silver ETN (AGQ) are as great as I have seen in recent years. I don’t think that divergence is sustainable an would consider either the sale of puts on AGQ or outright purchase of the shares and the sale of calls, but only for the very adventurous.

Traditional Stocks: Abbott Labs, Eli Lilly, Intel, Mosaic, Phillip Morris, Texas Instruments, Walgreens

Momentum Stocks: Phillips 66, ProShares UltraSilver ETN

Double Dip Dividend: Darden Restaurants (ex-div 7/8), JP Morgan (ex-div 7/2)

Premiums Enhanced by Earnings: none

Remember, these are just guidelines for the coming week. Some of the above selections may be sent to Option to Profit subscribers as actionable Trading Alerts, most often coupling a share purchase with call option sales or the sale of covered put contracts. Alerts are sent in adjustment to and consideration of market movements, in an attempt to create a healthy income stream for the week with reduction of trading risk.

 

Weekend Update – April 21, 2013

I’m finally feeling bullish. Sort of.

Two months ago I started getting a very uneasy feeling.

Normally, money burns a hole in my pocket. Sadly for the economy, that’s not the case when it comes to consumer goods, but it’s definitely the case when it comes to stocks.

Selling options, and predominantly of the weekly variety, I often have had the pleasure of awaking Monday morning to see freshly deposited cash in my account as shares upon which I had written weekly call contracts were assigned.

But that has changed recently, ever since that uneasy feeling hit.

The principal change was not immediately going out on shopping sprees on Monday mornings and instead building up cash caches. Among the changes were also the use of longer option contract periods because of the realization that so often market downturns happen suddenly and I would prefer not to be caught flat-footed or in-between contracts when and if it does occur.

But now, after what is the worst week of 2013, it may be time for yet another transition, of sorts.

As the April 2013 cycle has come to an end and many of those contracts have been assigned or rolled over to May 2013, being flush with cash at a time that some stocks have had some meaningful declines introduces temptation.

Jim Cramer used to say “there’s always a bull market somewhere.” I may still harbor the belief that the market is poised to mime the same period of 2012, but within that bearish sentiment I do see some glimmers of hope and opportunity as there is a universe of beaten down stocks that may have deserved better.

The week’s selections are categorized as either Traditional, Momentum, or “PEE” (see details). Although my preference, during this period of pessimism is to continue seeking high quality, dividend paying stocks as a defensive position, there aren’t many of those to consider this week. Instead, earnings and injured shares predominate.

Anadarko (APC) is one of those stocks that has seen a relatively large drop recently, but has been showing some strength at $79. It does report earnings on May 6, 2013, but the weekly option premium is unusually high for the period two weeks before earnings. While the monthly premiums are also attractive, this may be one of the situations where I would still consider the use of a weekly contract.

eBay (EBAY) also had a rough week. it is among those stocks that have had some significant drops that may have been overdone. Down about 7% following earnings its share price is approaching the $52.50 level where it has had some reasonable strength. It too may warrant a look at the weekly option contracts, especially if it appears as if there may be some market stability early next week.

In a similar situation, General Electric (GE) suffered a 4% earnings related loss on Friday and is down about 8% over the past 2 months. It too is approaching a price level where it has been pretty comfortable and when GE is comfortable, so am I. Flush with cash itself, GE may continue its own spending spree which is sometimes a short term share price depressant. If its current share price is maintained or goes a bit lower on Monday, it may be one of those few positions that I do not immediately cover by selling call options, but rather await some price rebound and then sell options.

I was disappointed when it was decided that Texas Instruments (TXN) would no longer have weekly options offered. However, the concern is now on hold as the monthly contracts look better and better every day, especially as volatility and premiums are increasing. Texas Instruments goes ex-dividend this week and that is a significant repository of its appeal to me. However, before it does so, it reports earnings. I don’t particularly see a compelling trade based on that event on Monday afternoon, so I would likely wait until after that occurs to decide whether the premium offered is still appealing enough to purchase shares.

Although I’m overweight in the Technology Sector, and despite the fact that its performance hasn’t been spectacular, sometimes I do find it hard to resist after price pullbacks. That was certainly the case after re-purchasing shares of Cypress Semiconductor (CY) after its deep fall upon earnings and disappointing guidance. Although IBM’s (IBM) earnings report on Friday cast a little bit of a pall over the sector some values appear to available. For the coming week, both Cisco (CSCO) and Oracle (ORCL), which I owned just a week ago prior to its assignment are again in a price range that works for me, Even as I hold uncovered shares of sector mate Riverbed Technology (RVBD) which reports earnings this week and often follows Oracle’s pattern, I believe that there are opportunities at these levels even in a weak overall market.

I always like MetLife (MET). So often, however, it seems just as I want to purchase shares the rest of the world has had the same idea and I’m reluctant to chase the stock. This past week, it along with the market settled down a bit. It always offers a fair option premium and it is a resilient performer even in the face of overall market adversity.

Although I also always like YUM Brands (YUM) that, unfortunately, doesn’t give me freedom to extend that to its products, as I’m now sworn to keeping my cholesterol within survivable levels. However, perhaps increasing my use of MetLife products might offset the use of YUM’s goods. After a fairly significant price fall, YUM Brands is back to the range that offers me as much comfort as their foods. I think that it is immune from near term Chinese economic concerns, the market having digested that along with its drumsticks.

With Apple (AAPL) sinking below $400/share and earnings set to be announced this week it’s not a far stretch of the imagination to believe that there may be significant price movement upon their release. Always a volatile holding upon earnings and guidance, there isn’t much pent up frustration any longer. Following more than a 40% drop in share price most shareholders and long time advocates have had ample opportunity to vent. Although Steve Jobs was notorious for his strategy of under-promising and over-delivering, it’s hard to imagine that expectations could get any lower. I think Apple is a good earnings play, factoring in a 10% price drop in return for nearly a 1% ROI. Relative to the market, i expect Apple to trade higher in the aftermath of its eagerly awaited news, which makes the sale of out of the money put options particularly appealing.

Netflix (NFLX) certainly would qualify as a finalist in any “comeback stock of the year” competition. I haven’t owned shares in almost 90 points. Like the other earnings related selections this week, it is certainly capable of a dramatic move when earnings and guidance are released. In this case, there may be opportunity to still derive a 1% ROI even if share price falls by as much as 25%. Risky? Yes, but Green Mountain (GMCR) has shown that momentum stocks can come back more than once. Even a significant price drop can no longer be counted upon as being a conclusion to the Netflix story. What was once considered the end of its run, Netflix has successfully gone on to its second life and could easily have a third.

Finally, Amazon (AMZN) is actually my least compelling earnings related trade in that the price drop cushion in order to achieve a 1% ROI is only about 8%. With a universal chorus deriding the razor thin margins and the P/E one has to wonder when that point will arrive that the market decides to treat Amazon as it does many other companies that spend time in rarefied environments. Still, if the cash in my pocket gets too hot this may be its final resting place.

Traditional Stocks: Anadarko, Cisco, eBay, General Electric, MetLife, Oracle

Momentum Stocks: YUM Brands

Double Dip Dividend: Texas Instruments (4/26)

Premiums Enhanced by Earnings: Amazon (4/25 PM), Apple (4/23 PM), Netflix (4/22 PM)

Remember, these are just guidelines for the coming week. Some of the above selections may be sent to Option to Profit subscribers as actionable Trading Alerts, most often coupling a share purchase with call option sales or the sale of covered put contracts. Alerts are sent in adjustment to and consideration of market movements, in an attempt to create a healthy income stream for the week with reduction of trading risk.

Some of the stocks mentioned in this article may be viewed for their past performance utilizing the Option to Profit strategy.

 

Weekend Update – January 27, 2013

By Thursday evening I had already lost track of how many records and new highs had been set as trading was getting ready to enter the final week of January. Depending on the parameters and definitions it seems as if every minute someone was referring to one new market high of one sort or another.

Sometimes I think that the Wilshire 5000 doesn’t get its due recognition, but if the trend continues it will join the party, even if only to have set a record for intra-day trading level on a Tuesday following inauguration.

If they weren’t calling new records they were hyper-focused on just how far we were from a new record. By the way, just for the record, the WIlshire 5000 is 1.3% away from its all time record high.

After a while the meaning of a record becomes less and less. I certainly didn’t feel the special nature of whatever was being watched so closely. S&P 500 at 1500? For me, the only record that counts is 14,164 for the Dow and 1565 on the S&P 500, both more than 5 years ago.

But even those records are meaningless, because all that really matters is where your own assets are residing.

I’d also lost track of how many consecutive gaining days we had other than to remember that last January seemed to be the very same. Like through a million cuts we went higher each and every day, simply setting a record for the number of slices.

You don’t have to be a short seller to bemoan a relentless upward path, but it’s a little more excruciating when there’s no apparent reason for what has caused such despair. At least Ackman knows where Loeb lies.

Alright, it hasn’t really been excruciating and it hasn’t really been a period of despair to live and die by covered option sales. That may be a bit of an exaggeration, as you do share in the market’s gains, but maybe not as much. Of course, that assumes that the next guy is actually taking their profits rather than falling prey to human nature and letting it all ride. I like taking profits on a very regular basis and moving on before the welcome is outstayed.

Records don’t mean very much. Just ask the performance enhanced athletes that are being denied recognition for their accomplishments. I don’t really know what exactly is juicing the markets right now, but I do know that there’s little reason to believe that the recent heights are deserved.

Ultimately, looking back at the record highs of October 2007, I realize that the best performance enhancer since then has been ignoring the occasional mindless melt ups and doing the conservative thing. Collecting penny by penny selling those options until the sum of the parts is greater than the whole. I continually maintain that you don’t have to be a great stock picker or market timer to have your records beat theirs.

And get there sooner.

As volatility keeps setting its own record lows it does become more challenging to get more pennies for your efforts in selling options. Although I’ve never been much of a fan of earnings season, at the very least it does its part to enhance premiums, if you don’t mind the enhanced risk, as well. As a covered call seller risk is not high on the list of favorite things, but there has no be some solace in knowing that a uni-directional move sooner or later has to come to an end. Hopefully, when it does, it won’t be quite as bruising as has been the descent of Apple (AAPL) after its one way journey higher.

As always, the week’s selections are categorized as either being Traditional, Momentum, Double Dip Dividend, or “PEE” (see details).

What strikes me this week is how I had a very difficult time identifying a “Traditional” candidate. Over the past month the least well performing sector, Utilities, has nonetheless delivered growth. The makes it difficult to spot potential targets that are also fairly priced.

That brings me to the elephant in the room. For the second week in a row Apple is back on the list. Last week it was a possible earnings related trade. Up until an hour before the close of Wednesday’s trading I thought of selling weekly $480 puts, but decided that having done the same with Mellanox (MLNX) and F5 Networks (FFIV) enough was enough. What exactly does that say when either Mellanox or F5 Networks is thought to be less risky than Apple? It probably says something about my delusional diagnostic methodology rather than the respective companies. But as Apple is now near the last price at which I owned it and closer to a $425 support level, it just seems harder to ignore. I think that once Tim Cook replaces the “WWJD” bracelet on his wrist and gets a new one from which to draw inspiration and guidance, things will get back to normal. The new bracelet would simply be inscribed “WWJD.” The difference? What Would Jobs Do?

With the “Traditional” category so quickly dispatched, it’s another week and another reason to think about adding shares of AIG (AIG). Of course, I wouldn’t have to consider doing that if my one and two week old lots hadn’t been assigned. But the reality is that the shares are always welcome back home. I look at the option premiums as being something like the rent you might collect from your adult child living in the basement.

I wanted so much to pick up shares of Baidu (BIDU) once again last week but it just didn’t get to a good price point. By that I mean that as opposed to barely a month or two ago the extraordinarily low volatility is taking its toll on intrinsic value and making the sale of in the money calls somewhat less of a slam dunk, particularly when the intrinsic value is more than half of the difference between two strike prices. I’m hoping to see Baidu trade within $2 or less of a lower strike price early in the week.

YUM Brands (YUM) should probably have the ticker symbol “YOYO.” It responds more to the conflicting daily rumors regarding the vitality of the Chinese economy than do traditional metrics of growth, such as copper and iron ore. Today’s drop was just another in the recent series of rumors regarding safety of the chicken offerings. It’s hard to imagine that YUM Brands is delivering a lower quality or unsafe product than is generally available to the growing consumer base in China.

There was a time, before Apple, that Texas Instruments (TXN) reporting earnings set the tone for the market. Those days are long gone. In fact, no one really sets that tone anymore, not even IBM (IBM), whose own great earnings and share performance did nothing more than be the sole reason for the Dow’s positive performance on Tuesday, while the S&P fell flat. In the meantime, Texas Instruments has survived its own earnings report and has a decent dividend this week in addition to income streams from its weekly option offerings.

Fastenal (FAST) is just a remarkably stable company whose products are ubiquitous yet out of view. Somehow, the fact that they have about 2600 company owned stores has escaped my view, but somehow they haven’t escaped the end user. More important than the company’s stability is the stability of shares over time. The dividend is fairly meager, but added to its option premium a reasonably safe place to leave money for a little while.

US Steel (X) is a recent and current holding. It is among a large group of high profile companies that are reporting earnings this week and may satisfy being plugged in to the equation that evaluates premiums of put sales relative to potential earnings related stock dives. For US Steel accepting the possibility of a 5% decline can still result in a 1% gain.

Lexmark (LXK) was also a recent holding. I still don’t fully understand where their earnings come from now that they are getting out of the printer business. However. it has shown resilience after the revelation that people on wireless devices just aren’t printing as much as the next guy tethered to a desk and computer. It too may offer an appealing award for accepting the possibility of a sharp earnings related decline.

VMWare (VMW), a one time high flier has settled into a good place. Although it is capable of making large moves after earnings, those moves on a percentage basis are fairly modest. Yet it does regularly offer premiums that are attractive. It’s one time parent EMC Corp (EMC) reports earnings in the morning and may offer some insights for the later reporting VMWare.

And finally, there’s Facebook. I still get a little smirk thinking about the vitriol directed toward me when making the case for buying shares following expiration of the first lock-up period. Just as with Apple, your portfolio isn’t a very good place to park your emotions. Whatever your opinion may be on Facebook the shares, Facebook the IPO, Facebook the company or Facebook the hoodie, it is an appealing trade based upon its earnings release this week.

Traditional Stocks: Apple

Momentum Stocks: AIG, Baidu, YUM Brands

Double Dip Dividend: Fastenal (ex-div 1/30), Texas Instruments (ex-div 1/29)

Premiums Enhanced by Earnings: Lexmark (1/29 AM), Facebook (1/30 PM), US Steel (1/29 AM), VMWare (1/28 PM)

Remember, these are just guidelines for the coming week. Some of the above selections may be sent to Option to Profit subscribers as actionable Trading Alerts, most often coupling a share purchase with call option sales. Alerts are sent in adjustment to and consideration of market movements, in an attempt to create a healthy income stream for the week with reduction of trading risk.