Daily Market Update – July 28, 2014




Daily Market Update – July 28, 2014 (Close)

This has the potential to be a busy week.

For the first time in a little while there’s some market moving news that may be at hand as both the FOMC statement is released and the Employment Situation Report ends the week.

In-between are about 140 of the S&P 500 companies reporting earnings.

So far, though, as far as the morning that is set to begin the week’s trading goes, it appears to be a relatively quiet start to the week and that’s exactly what today ended up being.

Unless you owned shares of Family Dollar Stores.

I recently spoke about “serendipity” as a factor in outcomes. The Family Dollar Story is a perfect example, as it received an unexpected buyout offer this morning.

For those that remember, just about two months ago a DOH trade was made on a lot of FDO and a regular call sale made on another lot. At the time I felt good about making those trades on that Friday, but at the close of trading came word that Carl Icahn had taken a position and shares shot up higher in the after hours.

Then, just as suddenly, I didn’t feel very good about those trades.

After some manipulation that took advantage of some enhanced premiums associated with earnings, we were able to prevent those positions from being assigned at such a low price, only to watch shares subsequently fall and then see their most recent calls expire this Friday, without being rolled over.

I usually am not terribly happy when I can’t get a rollover trade, but in the case of FDO the premiums were just so low that the costs of closing out the option positions in order to open new ones on Friday were really just too high to have made it worthwhile.


This morning came word of a buyout from a different suitor.

While there may be some more value to be wrung out of shares, as the original suitor may still be in the mix, I was ready to close the position without concern for whatever more may be on the table and did so in the pre-opening hours.

Little events, such as the sale of calls or the inability to sell calls and such varied outcomes.

Unless you have the ultimate in inside information, you can only ascribe being on the right side of those events as “luck.”

When a gift like this appears and you think about the luck involved to still be in a position to profit from that luck, it seems greedy to want to press for even more luck, or try to engage in some kind of passive arbitrage as third parties may or may not battle it out.

Hopefully there will be more of that luck to go around this week, with or without Family Dollar.

With some assignments last week and the Family Dollar surprise added to it, cash reserves are way up and the market closed on the downside last Friday.

That’s a combination that I tend to like. Better yet, there’s no indication of a bounce higher this morning, so if inclined to pick up shares there may still be some prices in line with Friday’s close.

With some positions set to expire this week, but not too many, there isn’t the same kind of reluctance as last week, to pick up new positions with contracts expiring the same week. Even though that’s what was done last week, it wasn’t really a preference, it was just that forward week premiums were so low.

This week volatility is very slightly elevated so we’ll see how those forward week premiums look once the option markets open for trading.

With cash in hand I don’t mind making some purchases to bring those levels down. The past few weeks have been very quiet on that end, but luckily the combination of new cover, rollovers and the occasional purchase here and there have done reasonably well at a time that the market has been moving higher in a halting fashion.

As opposed to the past couple of months where I’ve waited to see how trading would go during the first 30 minutes or so, this week I may be inspired to pick up any relative bargains on the early side of the day.

Other than FDO, today was a fairly sedate day, just another with little to no movement and little to no insight into where the market may be going or into what may be leading the market to whatever direction it will be heading.

With money still in hand after only two purchases today, I wouldn’t mind some more opportunities presenting themselves tomorrow or later in the week.

With the two large events scheduled to begin at the week’s mid-point, where feasible, as was done just a few weeks ago, again in a serendipitous fashion, I will look for opportunities to execute early rollovers.