Daily Market Update – June 9, 2014 (Close)

Daily Market Update – June 9, 2014 (Close)

Well this was a strange day.

Vexed by server problems on and off for much of the morning, Trading Alerts sent to Comcast accounts (only those beginning with the letter “R”) getting sent back as spam and a leaking hot tub.

Good thing there was very little planned for this week in the market. I already had my hands full..

As far as planned news, data releases or earnings there won’t be too much going on. Lots of eyes will simply be trained on shares of Apple which begin trading on a post-split basis today.

Following its run much higher after the announcement of the split and increased dividend, it’s hard to argue that substantive product releases or product news were responsible for that climb, so it will be interesting to see how those post-split shares respond to their new affordability, particularly since so many have expected that the actual split will lead to further price appreciation.

Great theories always meet their match in reality.

The week began at yet another new high, although the pre-open is almost at the flat line with absolutely nothing to react to other than some merger and buyout news. But that didn’t matter, because there was enough in the pipeline to make another new high by the time it was all over.

However, as opposed to the gains of last Thursday and Friday, this was back to the earlier pattern of a timid gain.

After a week that saw more assignments than new positions opened for the first time in a little while my cash reserves have risen above where they opened the previous week and despite the increasing highs, I am willing to spend some of that down but I think it’s time to be also increasingly selective.

Over the past month it has been clear that the advancing market isn’t taking everything along as the number of new highs isn’t keeping up with the overall market, as is usually the case when there is broad market strength.

In what is becoming a broken record, my preference again this week would be to find opportunities to sell calls on existing, yet uncovered positions and roll over as much as possible if assignments aren’t likely.. Again, with a fair number of positions set to expire this week I would like to diversify by date of contract expiration, but with volatility so low it’s hard to justify the additional time for the low additional premiums that result.

Ideally, with also a number of positions set to expire next week as the monthly contract ends, it would be nice to begin finding contracts for June 27, 2014 and beyond, but those opportunities are sparse, all falling victim to the low volatility environment.

With stock prices still so high and premiums so low there is a skew of the risk-reward proposition such that the risk attenuation offered by selling calls is decreased relative
to the risk associated with buying shares at or near their highs.

The response to that challenge is to either look for positions that haven’t participated as much in the market rally and by extension don’t have as much to fall or give back or look for those that have participated and may have higher premiums in reflection of the increased risk below.

Tough call, but like most everything going an all or none route is probably not a good idea, so there may be reason to look at the extremes when thinking about how to redeploy some cash until the market makes a real statement and does something more than just tentative moves higher.

Stocks to watch this week include Family Dollar Stores, following news after Friday’s close that Carl Icahn had taken a large stake.

Fortunately, the DOH traded shares were rolled over on Friday, but with the low volatility it was difficult getting a trade with a net credit without going out quite a bit in time. Even then the net credit was not because of the additional time, but because earnings were to be released that week. With the announcement on Friday there was likely to be greater volatility built into the premium so it wasn’t unusual to discover there were some be greater rollover opportunities than there were this past Friday.

What I had hoped to do and what became possible was to rollover the $60 lot that expires next week, specifically to try and either capture the dividend or to get some additional premium in the event of early assignment and then move on with some new found and unexpected cash. Then came the opportunity to do the same with the $65 call that was created last Friday as part of a rollover.

In the first case by rolling up from $60 to $65 there was the need to take on a $4.10 debit, but iof shares are assigned early after tomorrow’s clse, which is likely if FDO stays welss above the strike, there will be an additional $0.90 squeezed out of the trade, although the $0.39 dividend won’t be captured.

For the re-rollover of the $65 contract that additional premium squeezed out was $0.50 in return for likely giving up the dividend, although with a $66.50 strike it may be a little less likely to be assigned early at the current levels.

All in all, it was an unusual trading day to go along with the rest of the day’s events, but at least now I can soak away, because the hot tub repair guy has got it all under control.