Daily Market Update – August 25, 2014




Daily Market Update – August 25, 2014 (8:30 AM)

Looking back, last week was an odd one.

I don’t really recall the last time that not a single new position was from the Weekend Update playlist, but last Monday’s strong weekly opening saw immediate jumps in the playlist components and made them less desirable.

Couple that with another week of just a few scant new position purchases and there was little opportunity to follow the script.

This week appears to be ready to get off to a moderately positive start as there was no substantive geo-political news over the weekend, no blockbuster comments coming from Jackson Hole and little on the scheduled economic news front to act as a potential challenge.

That all sounds good, especially if your sights are set on a very short term horizon.

With a lot of assignments last week there is cash to take advantage of any opportunities that may appear, but as the week gets ready to open I find myself not particularly interested in too much risk and may be focused more on blue chips, with the possible exception of some earnings related trades, that as usual have elevated risk.

However, because there are so few rollover opportunities as we enter this week and also so few opportunities for assignment to help offset some of the funding necessary for next week, there is reason to try and establish some new weekly positions, as it is true that it takes money to make money.

But as with most of those weekly scripts there has to be room for re-writes that take a measure of what appears before you. At the week’s outset I would love the idea of accumulating more dividends and focusing on blue chips, but that could easily change.

With relatively few positions already in place that are set to expire this Friday, I will probably not spend too much time looking at expanded weekly contracts, whose premiums are severely challenged by the continuing low volatility environment. By the same token, with a number of positions already having contracts expiring at the cycle’s end, I’m not anxious to add to those with four weeks still left to go. However, some of the potential trades for this week, such as McDonalds, which is also ex-dividend, may be better as a monthly trade, to also attempt to capitalize on the possibility for capital appreciation as well.

That’s part of the theme of this week’s playlist, as the majority of the positions have under-performed the S&P 500 over the past two months and may have some capability of making up for those losses, at least in relative terms.

Since it really is a fool’s game to try and time markets or even individual stocks, some of those depressed positions may still need some time to acquit themselves and the monthly contracts may be better suited, despite the low premiums.

It’s always nice to have a plan, it’s just too bad that there is no shortage of factors to alter the plan and no shortage of conflicting considerations in its implementation.


P.S. On a bookkeeping note, if you have shares of Holly Frontier and had sold calls on that position, your contracts have been adjusted by $0.50 to reflect the special $0.50 dividend, that is made on a quarterly regular basis, yet is somehow still “special.” Because of that nature the strike levels are all adjusted to reflect the distribution of that additional dividend, as long as it’s more than $0.125/share..

Holly Frontier will also go ex-dividend on August 28th for its regular $0.32 quarterly dividend, so the threshold price target is $50.82, before any rational person would consider making an early exercise in order to capture the dividend. However, the use of the September 20 option means that a truly rational person would likely want to see a price somewhat greater than $50.82, due to the additional time value remaining in the option, that may make its trading more valuable than capturing a dividend.