Month: April 2014

Daily Market Update – April 3, 2014 (Close)

This morning the only story was the press conference being given by the head of the European Central Bank, Mario Draghi. He is the counterpart of Janet Yellen and in the past when he has had something dovish to say his words had buoyed our markets.

A couple of years ago he was adamant about how the ECB would be an aggressive player and not allow the kind of fiscal crises within the EU that many of us thought might cascade through the EU as Greece and Spain and other stories were unfolding.

That was a day when our markets skyrocketed.

Not so today, at least not in the pre-open trading, which is as flat as markets can come, as the DJIA is knocking on the door to set its first new record of the year, having been left behind by the S&P 500.

And not so the rest of the day either, as we just traded in a narrow range all day with a slightly negative bias. The broader market was worse than the DJIA and the NASDAQ was absolutely abysmal today, way out of proportion to the rest of the market.

As with most Thursdays my thoughts were predominantly on how to extricate and escape positions so that the coming week is one that has new opportunity.

One position that won’t need extrication is Anadarko. After a series of DOH trades, it looks like it will be assigned tomorrow at $87, despite a purchase price of $89.42. Yet it will end up with an ROI of about 2.2%.

While I knew that Anadarko was going to appear in court tomorrow regarding its Tronox environmental damages case, the gap between the government and Anadarko was so great, nearly $24 billion, that it was hard to imagine that there would be word of an agreement, especially since there was more than money involved. There was also the idea of being able to run from responsibility through the bankruptcy courts, as GM may be in a position to do, as well.

I guess the government preferred not to test that in the courts.

With a huge surge in the mid-afternoon on the rumor now it’s time to see if there is a “sell on the news” kind of wave ready to hit. If so, there may be reason to roll that position over in an attempt to add to the gains. But even what any reasonable person may consider to be a huge fine after any agreement may simply be looked upon as an incredible savings, not to mention the costs involved in the ongoing litigation.Reportedly, the agreement is for a payment of $5 billion.

If the goal is some combination of generating cash and growing assets it’s important to keep rolling over existing positions and having assignment of others. Thursdays and especially Fridays are the days when those things are hoped to happen.

Unfortunately, due to the low volatility the expirations aren’t as staggered as I would have liked them to be. The premiums for forward weeks are often so low that there is some risk with tying down assets for those time frames.

Instead, this week, for example, feels more like a monthly cycle ending week, while the actual cycle ending week has only two positions currently set to expire.

Even though I’ve started each of the past few weeks looking to diversify more on the basis of time that hasn’t always been the case in practice as some of those low forward week premiums have done a good job of sending me elsewhere.

With tomorrow’s Employment Situation Report at hand, the unveiling of news is always a risk factor to keep in mind. That’s even though that particular report has found itself to have a strong association with an advancing market, but you just can’t take anything for granted.

Where possible, I’ll try to look for rollover opportunities today, although I tend not to do too many on Thursdays, with last week being an outlier kind of week.

The factor most involved is price, in that with forward week volatility being lower than current week volatility, it can be relatively expensive to close some option positions and therefore, relatively unrewarding to open new ones.

That balance usually changes as time value begins to run out the closer and closer we get to the closing bell on Friday.

With so many positions set to expire tomorrow it has the makings of a hectic day unless some of that load can be shifted to today.

All in all, these are good problems to have.

Daily Market Update – April 3, 2014 (9:15 AM)

This morning the only story was the press conference being given by the head of the European Central Bank, Mario Draghi. He is the counterpart of Janet Yellen and in the past when he has had something dovish to say his words had buoyed our markets.

A couple of years ago he was adamant about how the ECB would be an aggressive player and not allow the kind of fiscal crises within the EU that many of us thought might cascade through the EU as Greece and Spain and other stories were unfolding.

That was a day when our markets skyrocketed.

Not so today, at least not in the pre-open trading, which is as flat as markets can come, as the DJIA is knocking on the door to set its first new record of the year, having been left behind by the S&P 500.

As with most Thursdays my thoughts are predominantly on how to extricate and escape positions so that the coming week is one that has new opportunity.

If the goal is some combination of generating cash and growing assets it’s important to keep rolling over existing positions and having assignment of others. Thursdays and especially Fridays are the days when those things are hoped to happen.

Unfortunately, due to the low volatility the expirations aren’t as staggered as I would have liked them to be. The premiums for forward weeks are often so low that there is some risk with tying down assets for those time frames.

Instead, this week, for example, feels more like a monthly cycle ending week, while the actual cycle ending week has only two positions currently set to expire.

Even though I’ve started each of the past few weeks looking to diversify more on the basis of time that hasn’t always been the case in practice as some of those low forward week premiums have done a good job of sending me elsewhere.

With tomorrow’s Employment Situation Report at hand, the unveiling of news is always a risk factor to keep in mind. That’s even though that particular report has found itself to have a strong association with an advancing market, but you just can’t take anything for granted.

Where possible, I’ll try to look for rollover opportunities today, although I tend not to do too many on Thursdays, with last week being an outlier kind of week.

The factor most involved is price, in that with forward week volatility being lower than current week volatility, it can be relatively expensive to close some option positions and therefore, relatively unrewarding to open new ones.

That balance usually changes as time value begins to run out the closer and closer we get to the closing bell on Friday.

With so many positions set to expire tomorrow it has the makings of a hectic day unless some of that load can be shifted to today.

All in all, these are good problems to have.

Note: If you haven’t seen it, I posted an article that looked at the rollover trade executed in Bristol Myers Squibb yesterday, dissecting out the rationale for having done so in an effort to retain the dividend.

Daily Market Update – April 2, 2014 (Close)

This morning the futures gave up some of their early gain, which was very muted, to begin with, as ADP released its jobs report.

After years of the report being held back because it wasn’t ready for prime time, it’s still not entirely clear how much the ADP report portends for the Employment Situation Report that comes later in the week.

Lately that hasn’t mattered because the market has almost always gone higher with the release of the Employment Situation Report and has gone higher for the entire week of the report, as well. So far, this week the market is already up 1.5% after just two days, so there’s lots of cushion to keep the latter pattern continuing by the time the week is ready to close its books.

The statistical case, however, is stronger for the Friday outcome than for the weekly outcome, although it’s not something that I plan to test this week.

Expectations for Friday’s report are pretty high and this morning’s ADP report was nothing terribly exciting, but it did suggest that weather was no longer at play in the economy, although that may not be the case once earnings season re-starts in just a week, as the quarter being reported is certain to show the influence of unusually bad weather everywhere.

As with so many things when expectations are high it’s so easy to set yourself up for disappointment. But as far as those employment numbers have gone in the past 20 months, even disappointment has largely been met with a higher moving market.

To a large degree that’s because of the perverse mindset that had become established where bad news was good. In this case bad news about employment was interpreted as meaning continued Quantitative Easing, which itself was widely believed to be the root cause for the market’s appreciation.

With Janet Yellen’s confirmed dovish tone this week it’s likely that disappointment in this week’s report won’t find a mate in a market decline.

If the report had been issued just two week’s ago after Yellen’s words were interpreted by some to have been hawkish, any disappointment would likely have been met by a significant market decline. But this time around the fears just aren’t there and instead there’s the belief that any disappointment may be met with less tapering and by consequence, more easing.

So what to do?

For now, despite only 3 new positions this week, I’m content to watch shares go higher, if that’s what they need to do. It would be even better if they would take my shares, especially those uncovered, along for the ride. But, I’m still not ready to chase. When the market gets to a point that it climbs 1.5% or more for the week it’s pretty hard to keep up if using a covered call strategy.

The good thing is that the market doesn’t usually do that week in and week out, although 2013 seemed that way.

This year has been different, despite closing at another new high yesterday. The path higher has been very different and a much better one for the sale of covered options.

Of course, after having said that this morning the day ended with yet another new high in the S&P 500 and the DJIA just missed posting its first new high for 2014.

While I expected today to be a slow trading day, I don’t think that will be the case for the final two days of the week and am hopeful of having a good combination of rollovers and assignments. While I would love to see another week such as last week when a fair number of rollovers could be done on Thursday, thereby making Friday less hectic, I don’t think that will be the case this week.

Still, if I had to choose, I’d take hectic over boring and especially over sitting in desperation and unable to make trades because of a sinking market on expiration Friday.

I expected yesterday to be a slow day, as well, and was a little surprised by the activity that ensued, so who knew what today may have had in store? With money still in hand any respite in the move higher, especially in positions that I can get a week and a half premium by using April 11 expirations may be very enticing.

I’m only human, so will see if they can be resisted if they happen to pop up.

As it would turn out most of that money is still right where it belongs and will now likely stay safe until next week as preperations for a busy couple of days ahead will begin.

Note: If you haven’t seen it, I posted an article that looked at the rollover trade executed in Bristol Myers Squibb yesterday, dissecting out the rationale for having done so in an effort to retain the dividend.

Daily Market Update – April 2, 2014 (9:00 AM)

This morning the futures gave up some of their early gain, which was very muted, to begin with, as ADP released its jobs report.

After years of the report being held back because it wasn’t ready for prime time, it’s still not entirely clear how much the ADP report portends for the Employment Situation Report that comes later in the week.

Lately that hasn’t mattered because the market has almost always gone higher with the release of the Employment Situation Report and has gone higher for the entire week of the report, as well. So far, this week the market is already up 1.5% after just two days, so there’s lots of cushion to keep the latter pattern continuing by the time the week is ready to close its books.

The statistical case, however, is stronger for the Friday outcome than for the weekly outcome, although it’s not something that I plan to test this week.

Expectations for Friday’s report are pretty high and this morning’s ADP report was nothing terribly exciting, but it did suggest that weather was no longer at play in the economy, although that may not be the case once earnings season re-starts in just a week, as the quarter being reported is certain to show the influence of unusually bad weather everywhere.

As with so many things when expectations are high it’s so easy to set yourself up for disappointment. Bit as far as those employment numbers have gone in the past 20 months, even disappointment has largely been met with a higher moving market.

To a large degree that’s because of the perverse mindset that had become established where bad news was good. In this case bad news about employment was interpreted as meaning continued Quantitative Easing, which itself was widely believed to be the root cause for the market’s appreciation.

With Janet Yellen’s confirmed dovish tone this week it’s likely that disappointment in this week’s report won’t find a mate in a market decline.

If the report had been issued just two week’s ago after Yellen’s words were interpreted by some to have been hawkish, any disappointment would likely have been met by a significant market decline. But this time around the fears just aren’t there and instead there’s the belief that any disappointment may be met with less tapering and by consequence, more easing.

So what to do?

For now, despite only 3 new positions this week, I’m content to watch shares go higher, if that’s what they need to do. It would be even better if they would take my shares, especially those uncovered, along for the ride. But, I’m still not ready to chase. When the market gets to a point that it climbs 1.5% or more for the week it’s pretty hard to keep up if using a covered call strategy.

The good thing is that the market doesn’t usually do that week in and week out, although 2013 seemed that way.

This year has been different, despite closing at another new high yesterday. The path higher has been very different and a much better one for the sale of covered options.

While I expect today to be a slow trading day, I don’t think that will be the case for the final two days of the week and am hopeful of having a good combination of rollovers and assignments.

I expected yesterday to be a slow day, as well, and was a little surprised by the activity that ensued, so who knows what today may yet bring? With money still in hand any respite in the move higher, especially in positions that I can get a week and a half premium by using April 11 expirations may be very enticing.

I’m only human, so will see if they can be resisted if they happen to pop up.

Daily Market Update – April 1, 2014 (Close)

This morning the futures are off to the same kind of start that we had yesterday.

Trading was pointing slightly higher and suggested a mildly stronger opening. That alone would have been nice except for the fact that lately these kind of positive openings have had a hard time maintaining themselves.

What no one expected, however, was that during some prepared comments and appearances later in the day Janet Yellen would remove any question about whether she is dovish or not.

With a long body of work and official positions, when she was initially considered as a possible successor to Ben Bernanke, she couldn’t escape the moniker “dove.” Given that long and documented history, it’s surprising that anyone would have any doubts about where her heart and intellect stood.

But somehow markets still found a reason to get worried when she may have mis-spoken during her first press conference as Federal Reserve Chairperson and the whispers were that she wasn’t anywhere near as dovish as we all thought. If you believe that our market rally has been closely tied to an accommodative Federal Reserve than you had good reason to worry, but still not good reason to be worried.

As a result the market plunged and then quickly reversed when someone must have realized that it would be unlikely if she suddenly changed a lifetime of opinions.

She seemingly finally put those fears to rest yesterday as she did what Federal Reserve Chairs before her had never done. She acted like a politician, photo opportunities and all, during a highly visible and orchestrated visit that was supposed to reflect the need to maintain and create jobs. 

You couldn’t possibly have been more direct in getting a message across and it really was unlike anything her predecessors had done or said before, preferring to cloak their thoughts in various layers of obfuscation.

What was nice was that the boost given to the market that now is comforted to know that they won’t be abandoned by the Federal Reserve, even while tapering is proceeding, is that the gain lasted throughout the entire trading session and didn’t fade after the first hour of trading.

I don’t know if there will be another unexpected catalyst this morning, but I hope not, as I would like to get at least a few more new purchases done without wondering whether something has gone up too much and would I be chasing the shares if I bought them.

Yesterday, much of what was on the drawing board would have required chasing and that’s usually a certain formula for disappointment. Since there’s never a shortage of unexpected disappointment, there’s probably little need to add some expected disappointment to the mix.

While yesterday would have turned out to have been a good day to buy early, as the opening gain was mild before Yellen’s comments, I think that this morning will continue the strategy of sitting back and just seeing what kind of legs the morning’s open will have.

Hopefully some of those opportunities will appear and perhaps will be in positions with expanded options choices.

Ultimately, today would turn out to be very different from so many recent days that have preceded it in that the market simply had a nice modest gain at the open and just marched in place all through the day.

While the expectation is that this week will be a net positive, since it is an Employment Situation Report week, a little diversification in expirations would still be nice, in the event that the week falls short and leaves expired contracts behind.

As usually is the case, the reality may end up being very different from the theory. Ultimately, whatever looks good is good enough for me.

Daily Market Update – April 1, 2014 (9:00 AM)

This morning the futures are off to the same kind of start that we had yesterday.

Trading was pointing slightly higher and suggested a mildly stronger opening. That alone would have been nice except for the fact that lately these kind of positive openings have had a hard time maintaining themselves.

What no one expected, however, was that during some prepared comments and appearances later in the day Janet Yellen would remove any question about whether she is dovish or not.

With a long body of work and official positions, when she was initially considered as a possible successor to Ben Bernanke, she couldn’t escape the moniker “dove.” Given that long and documented history, it’s surprising that anyone would have any doubts about where her heart and intellect stood.

But somehow markets still found a reason to get worried when she may have mis-spoken during her first press conference as Federal Reserve Chairperson and the whispers were that she wasn’t anywhere near as dovish as we all thought. If you believe that our market rally has been closely tied to an accommodative Federal Reserve than you had good reason to worry, but still not good reason to be worried.

As a result the market plunged and then quickly reversed when someone must have realized that it would be unlikely if she suddenly changed a lifetime of opinions.

She seemingly finally put those fears to rest yesterday as she did what Federal Reserve Chairs before her had never done. She acted like a politician, photo opportunities and all, during a highly visible and orchestrated visit that was supposed to reflect the need to maintain and create jobs. 

You couldn’t possibly have been more direct in getting a message across and it really was unlike anything her predecessors had done or said before, preferring to cloak their thoughts in various layers of obfuscation.

What was nice was that the boost given to the market that now is comforted to know that they won’t be abandoned by the Federal Reserve, even while tapering is proceeding, is that the gain lasted throughout the entire trading session and didn’t fade after the first hour of trading.

I don’t know if there will be another unexpected catalyst this morning, but I hope not, as I would like to get at least a few more new purchases done without wondering whether something has gone up too much and would I be chasing the shares if I bought them.

Yesterday, much of what was on the drawing board would have required chasing and that’s usually a certain formula for disappointment. Since there’s never a shortage of unexpected disappointment, there’s probably little need to add some expected disappointment to the mix.

While yesterday would have turned out to have been a good day to buy early, as the opening gain was mild before Yellen’s comments, I think that this morning will continue the strategy of sitting back and just seeing what kind of legs the morning’s open will have.