Author: TheAcsMan

Daily Market Update – October 24, 2014 (8:30 AM)

The Week in Review will be posted by 6 PM and the Weekend Update will be posted by noon on Sunday.

The following outcomes are possible today:

Assignments:  none

Rollovers:  CHK

Expirations:  ANF, EBAY, GDX, JOY, LVS

In general, DOH Trades are preferred to expire, with the least preferable outcome being assignment. This past week had 3 DOH Trades and 2 early in the week rollovers, all trades that were made as volatility was somewhat higher than during the latter half of the week.

The past week’s ex-dividend positions were Fastenal (10/22 $0.25) and Blackstone (10/23 $0.44)

There are no ex-dividend positions next week.

Trades, if any, will be attempted to be made prior to 3:30 PM EDT

Daily Market Update – October 23, 2014 (Close)

Since we always look for answers to everything, it’s most likely that the events in Canada influenced the market’s unexpected downturn yesterday, but it’s also not likely that was the case.

While it was unusually slow in being reported and events developed slowly, the market really didn’t have too much of a reaction until early in the afternoon.That reaction may have also been influenced by the continuing slide in oil prices.

This morning the futures are acting as if yesterday was an aberration.

On the other hand it may be possible that once again earnings are taking center stage as a number of good earnings were reported this morning, with the industrial side of things continuing to look good.

One of those companies reporting this morning, Caterpillar, may be a little like the kind of market leader that IBM used to be. These days when Caterpillar does well, it’s also taken as an indicator that China is doing well and increasingly China is where so much of our focus needs to be.

Those earnings, as well as for 3M, are as good of a reason as you can find to explain why today offset all of yesterday’s loss and then some, bringing this week, so far to a 3.4% gain.

Yesterday was a disappointing one as I was hoping for some chance to sell covered calls in a rising price environment. .

That didn’t happen, but with today’s early indication, perhaps today could have been that kind of day, although the volatility that had continued to fall as the market shoots higher served to make it less appealing to either take DOH related risks or less appealing to look at extended weekly trades.

Today wasn’t much better, at least in that regard.

The morning began with the S&P 500 about 4% below it’s September highs and while it was nice seeing the early morning indication higher, it did remove some of the inclination that I found myself with as yesterday’s market was coming to a close. I now felt less inclined to add positions as the increase just added another layer of uncertainty.

While the net result of the week thus far has been decidedly positive, the ease of the reversal lower, as seen yesterday is a reminder that the climb back from 9% lower may have some unsteadiness in it.

Although I certainly don’t mind watching net asset value increase as the market moves higher it’s really not the same if you’re not deriving some real and tangible benefit from the market’s actions.

So far this week there have been scant few trades and so there has been scant little income derived. While I would love to see that change during the remainder of the week, I just
don’t know if that will be the case and with little to no assignments for the week the coming week may be one that continues the recent trend of little to no activity, especially on the new position purchase end of things.

That puts more reliance on the ability to rollover and sell new option positions.

Sooner or later we’ll get some more clear idea of what is really going on right now.

Are we climbing back from a 9% correction or is this just a trap?

Other than in hindsight there is just no way to know. Other than looking at data points from the past that strongly suggest that very large moves higher are illusory, there’s little to give an indication of what days like today mean. Certainly the previous 200 and 300 point gains over the past few weeks haven’t had the kind of short term impact that we would have expected or liked.

But maybe today was different? Tomorrow may give some clue to that question.

.

Daily Market Update – October 23, 2014 (9:15 AM)

Since we always look for answers to everything, it’s most likely that the events in Canada influenced the market’s unexpected downturn yesterday, but it’s also not likely that was the case.

While it was unusually slow in being reported and events developed slowly, the market really didn’t have too much of a reaction until early in the afternoon.That reaction may have also been influenced by the continuing slide in oil prices.

This morning the futures are acting as if yesterday was an aberration.

On the other hand it may be possible that once again earnings are taking center stage as a number of good earnings were reported this morning, with the industrial side of things continuing to look good.

One of those companies reporting this morning, Caterpillar, may be a little like the kind of market leader that IBM used to be. These days when Caterpillar does well, it’s also taken as an indicator that China is doing well and increasingly China is where so much of our focus needs to be.

Yesterday was a disappointing one as I was hoping for some chance to sell covered calls in a rising price environment.

That didn’t happen, but with today’s early indication, perhaps today will be the day, although the volatility continues to fall as the market shoots higher and makes it less appealing to either take DOH related risks or less appealing to look at extended weekly trades.

The morning begins with the S&P 500 about 4% below it’s September highs and while it’s nice seeing the early morning indication higher, it does remove some of the inclination that I found myself with as yesterday’s market was coming to a close. I now feel less inclined to add positions as the increase just adds another layer of uncertainty.

While the net result of the week thus far has been decidedly positive, the ease of the reversal lower, as seen yesterday is a reminder that the climb back from 9% lower may have some unsteadiness in it.

Although I certainly don’t mind watching net asset value increase as the market moves higher it’s really not the same if you’re not deriving some real and tangible benefit from the market’s actions.

So far this week there have been scant few trades and so there has been scant little income derived. While I would love to see that change during the remainder of the week, I just don’t know if that will be the case and with little to no assignments for the week the coming week may be one that continues the recent trend of little to no activity, especially on the new position purchase end of things.

That puts more reliance on the ability to rollover and sell new option positions.

Sooner or later w
e’ll get some more clear idea of what is really going on right now.

Are we climbing back from a 9% correction or is this just a trap?

Other than in hindsight there is just no way to know. Other than looking at data points from the past that strongly suggest that very large moves higher are illusory, there’s little to give an indication of what days like today mean. Certainly the previous 200 and 300 point gains over the past few weeks haven’t had the kind of short term impact that we would have expected or liked.

But maybe today will be different?

.

Daily Market Update – October 22, 2014 (Close)

Earnings continue this week and next and with the exception of some high profile names in the DJIA, thus far earnings have been reasonably good.

They have also likely been the reason for the market reversing its downtrend, although the very factors that may have sent the market lower may now be the ones sending it higher as they all have taken a break.

Ebola, ISIS, dropping energy prices, you name it. There’s really nothing going on right now and that allows for attention to be placed to where it rightfully belongs.

In an ideal world all we would really need to focus upon would be fundamentals and prospects for growth. We wouldn’t have to have our attentions diverted by so many extraneous factors, especially the ones that cause us to worry or panic.

This morning the futures were indicating a calm opening, although that was the situation yesterday as well, but yesterday and on Monday, there was undue influence from earnings related declines in some big names that obscured the building strength in the rest of the market.

This morning there was none of that fog from bad numbers to confuse the situation and the S&P 500 and the DJIA may actually perform in line with one another, as opposed to the DJIA lagging by about 0.8% over the past two days.

A little bit of stability would have been a nice thing right about now. While the market had reached a low point of about a 9% decline from its September peak, it is still about 4% below that level. Committing funds to new positions is rarely a good idea when markets are heading straight in one direction or another, nor is it really a good idea when they wildly alternate between drops and climbs.

Over the past month, however, there haven’t been many alternatives. What we haven’t seen are many days of little to no movement.

And today was no different.

It was a triple digit loss, closer to 200 points than to 100 points, because the calm was broken in Canada and possibly because the briefly seen stability in oil prices was disrupted.

Normally that would have meant oil prices went higher, but these days it means that they are going lower.

With yesterday’s move higher, I was content seeing asset appreciation on paper but would have been much happier if able to convert some of those moves higher into opportunities to sell calls. What you may have noticed, though, is that the sharp climb higher yesterday and the stealth climb on Monday that was otherwise obscured by IBM, saw large drops in volatility and along with it, drops in premiums.

That drop in premium has made the DOH trades that I was hoping to execute look less appealing from a risk – reward perspective.

That may change tomorrow as volatility recaptured some of what was lost earlier in the week, as suddenly even volatility has volatility.

This morning I didn’t expect to be buying anything and this now may end up being the second consecutive week of refraining from adding any new positions. I could get used to that as long as there is some other source of recurring income, so that would require some consistency in rollovers  or sales of new covered positions. Ideally, both of those would be occurring, but so far this week has been slow in the latter, although there were already some early rollovers that took advantage of some price moves higher while still being out of the money.

As the afternoon wore on, however, I found myself beginning to get ready to possibly add some new positions, but given the uncertainty regarding today’s terrible events in Canada, it might be a good idea to wait until there is some clarity.

With a number of DOH Trades set to expire this week that means a need to roll them over in the event that assignment seems likely. Ideally, DOH trades are allowed to expire, unless the volatility is still very high, in which case the cost of the transaction could be easily offset by the transaction. With those DOH trades and the objective of not seeing them get assigned, I don’t anticipate too many assignments, if any, this week.

Otherwise, today, at the mid-week point, it looked like a day for watching for any selective opportunities on an individual basis.

Of course, those really didn’t come along, so that wait is delayed until tomorrow.

Daily Market Update – October 22, 2014 (9:00 AM)

Earnings continue this week and next and with the exception of some high profile names in the DJIA, thus far earnings have been reasonably good.

They have also likely been the reason for the market reversing its downtrend, although the very factors that may have sent the market lower may now be the ones sending it higher as they all have taken a break.

Ebola, ISIS, dropping energy prices, you name it. There’s really nothing going on right now and that allows for attention to be placed to where it rightfully belongs.

In an ideal world all we would really need to focus upon would be fundamentals and prospects for growth. We wouldn’t have to have our attentions diverted by so many extraneous factors, especially the ones that cause us to worry or panic.

This morning the futures are indicating a calm opening, although that was the situation yesterday as well, but yesterday and on Monday, there was undue influence from earnings related declines in some big names that obscured the building strength in the rest of the market.

This morning there’s none of that fog from bad numbers to confuse the situation and the S&P 500 and the DJIA may actually perform in line with one another, as opposed to the DJIA lagging by about 0.8% over the past two days.

A little bit of stability would be a nice thing right about now. While the market had reached a low point of about a 9% decline from its September peak, it is still about 4% below that level. Committing funds to new positions is rarely a good idea when markets are heading straight in one direction or another, nor is it really a good idea when they wildly alternate between drops and climbs.

Over the past month, however, there haven’t been many alternatives. WHat we haven’t seen are many days of little to no movement.

With yesterday’s move higher, I was content seeing asset appreciation on paper but would have been much happier if able to convert some of those moves higher into opportunities to sell calls. What you may have noticed, though, is that the sharp climb higher yesterday and the stealth climb on Monday that was otherwise obscured by IBM, saw large drops in volatility and along with it, drops in premiums.

That drop in premium has made the DOH trades that I was hoping to execute look less appealing from a risk – reward perspective.

This morning I don’t expect to be buying anything and this may end up being the second consecutive week of refraining from adding any new positions. I could get used to that as long as there is some other source of recurring income, so that would require some consistency in rollovers  or sales of new covered positions. Ideally, both of th
ose would be occurring, but so far this week has been slow in the latter, although there were already some early rollovers that took advantage of some price moves higher while still being out of the money.

With a number of DOH Trades set to expire this week that means a need to roll them over in the event that assignment seems likely. Ideally, DOH trades are allowed to expire, unless the volatility is still very high, in which case the cost of the transaction could be easily offset by the transaction. With those DOH trades and the objective of not seeing them get assigned, I don’t anticipate too many assignments, if any, this week.

Otherwise, today, at the mid-week point, it looks like a day of watching for any selective opportunities on an individual basis. As opposed to the past two days when most everything was lifted higher, today may be one of those more normal times when individual stocks or sectors fall in or out of favor as earnings receive attention.

Daily Market Update – October 21, 2014 (Close)

Yesterday was certainly a tale of two different indexes as for most of the day the DJIA was trading in negative territory while the S&P 500 actually had a very nice advance.

IBM’s really bad earnings and forward guidance that scuttled its famed “5 Year Plan” was enough to take as much as 105 points off of the DJIA at IBM’s lowest share price of the day. While it had some impact on the S&P 500, you’d never know it, because it is a relative speck in that index.

As a general rule every point move by a DJIA component is worth about 7 points in the index.

This morning there are 5 such components reporting and those results are mixed, but the early indication is for a mildly higher opening.

That mild opening took on a completely different character for no really obvious reason and ended 215 points higher.

Had IBM traded flat yesterday we would have been talking about yet another in a series of triple digit moves. It’s not everyday that you see a DJIA component move 7%. However, whenever you see any stock move that much, regardless of the direction, you really have to wonder how so many smart people, analysts and investors, could have gotten things so wrong.

Yet that happens all of the time. Maybe understandable with smaller and more speculative companies that aren’t followed by many, but IBM? Coca Cola?

If you would have excluded McDonalds, Coca Cola  and IBM, which had another abysmal dayfrom today’s DJIA, the climb would have been about another 70 points.

It’s funny how first IBM and now McDonalds and Coca Cola are all struggling as they lose market share in a changing world. Those were all once licenses to print money and aren’t going away in my lifetime, but they’re facing challenges that they never would have anticipated as one time market leaders.

What’s also worth realizing is how fortunate it was that IBM’s earnings were released yesterday morning to begin the week, rather than early last week.

While IBM is no longer the single stock that is able to change market tone and direction, it would have been really bad if it had come at a time that pessimism and selling was already the predominant sentiment and action. As bad as the early part of last week was, that IBM news would have greatly compounded the selling.

Pure luck, but that will never get recorded anywhere. IBM’s news, if having come last week, could easily have been the straw that broke the camel’s back a
nd taken us beyond that 10% threshold and made that correction become official.

Apple reported earnings yesterday afternoon and the spin is placing heavy emphasis on iPhone sales and what futures quarters will bring, although there may be quite a bit of uncertainty coming in those future quarters as they not only roll out Apple Pay, but also introduce that much awaited Apple Watch.

Apple’s post-earnings move was really muted as iPad and iTunes sales are dropping, with the increase in the Mac line of computers and laptops seemingly coming at the expense of tablets.

Not that you can project from a single quarter’s earnings, but the lessons from icons like IBM, McDonalds and Coca Cola is that the world moves on, with or without you and no one is ultimately immune to that basic reality.

This morning’s pre-open futures pointed to a mildly higher opening. While, I liked the idea of seeing another pop higher so that perhaps there might be a chance to sell more call contracts on uncovered positions, I really would have preferred a narrow trading range session. While that would lower volatility, it might offer some confidence that it may be the time to buy something.

That confidence comes from either seeing a runaway train or the building of qa base. Today’s gains were nice, but they still aren’t the real confidence builder needed. It’s still hard to lose sight of the reality that these moves occur in a big picture and that big picture is one of a declining market.

That kind of confidence may still take a little while to build so in the meantime I would love to have the opportunity to generate some returns from more of the call sales. As has been the case over the past few weeks while volatility was rising I’ll keep looking at forward week or even forward month contract expirations, as long as the volatility can keep those premiums appealing enough.

However, today’s gains really drained volatility and there were decreasing opportunities to find good trades in forward weeks. Instead it was a good day to just wash net asset value grow.

Hopefully the growth won’t get washed away anytime soon.

Daily Market Update – October 21, 2014 (9:00 AM)

Yesterday was certainly a tale of two different indexes as for most of the day the DJIA was trading in negative territory while the S&P 500 actually had a very nice advance.

IBM’s really bad earnings and forward guidance that scuttled its famed “5 Year Plan” was enough to take as much as 105 points off of the DJIA at IBM’s lowest share price of the day. While it had some impact on the S&P 500, you’d never know it, because it is a relative speck in that index.

As a general rule every point move by a DJIA component is worth about 7 points in the index.

This morning there are 5 such components reporting and those results are mixed, but the early indication is for a mildly higher opening.

Had IBM traded flat yesterday we would have been talking about yet another in a series of triple digit moves. It’s not everyday that you see a DJIA component move 7%. However, whenever you see any stock move that much, regardless of the direction, you really have to wonder how so many smart peoplle, analysts and investors, could have gotten things so wrong.

Yet that happens all of the time. Maybe understandable with smaller and more speculative companies that aren’t followed by many, but IBM? Coca Cola?

It’s funny how first IBM and now McDonalds and Coca Cola are all struggling as they lose market share in a changing world. Those were all once licenses to print money and aren’t going away in my lifetime, but they’re facing challenges that they never would have anticipated as one time market leaders.

What’s also worth realizing is how fortunate it was that IBM’s earnings were released yesterday morning to begin the week, rather than early last week.

While IBM is no longer the single stock that is able to change market tone and direction, it would have been really bad if it had come at a time that pessimism and selling was already the predominant sentiment and action. As bad as the early part of last week was, that IBM news would have greatly compounded the selling.

Pure luck, but that will never get recorded anywhere. IBM’s news, if having come last week, could easily have been the straw that broke the camel’s back and taken us beyond that 10% threshold and made that correction become official.

Apple reported earnings yesterday afternoon and the spin is placing heavy emphasis on iPhone sales and what futures quarters will bring, although there may be quite a bit of uncertainty coming in those future quarters as they not only roll out Apple Pay, but also introduce that much awaited Apple Watch.

Apple’s post-earnings move was really muted as iPad and iTunes sales are dropping, with the increase in the Mac line of computers and laptops seemingly coming at the expense of tablets.

Not that you can project from a single quarter’s earnings, but the lessons from icons like IBM, McDonalds and Coca Cola is that the world moves on, with or without you and no one is ultimately immune to that basic reality.

This morning’s pre-open futures point to a mildly higher opening. While, I’d like to see another pop higher so that perhaps there might be a chance to sell more call contracts on uncovered positions, I wouldn’t mind that kind of narrow trading range session. While that would lower volatility, it might offer some confidence that it may be the time to buy something.

That kind of confidence may still take a little while to build so in the meantime I would love to have the opportunity to generate some returns from more of the call sales. As has been the case over the past few weeks while volatility was rising I’ll keep looking at forward week or even forward month contract expirations, as long as the volatility can keep those premiums appealing enough.

Daily Market Update – October 20, 2014 (Close)

There was a time when earnings reports like this morning’s delivered by IBM would have cast a pall on the market, especially coming before the opening bell on a Monday.

Luckily, it’s not your father’s IBM, anymore and it doesn’t have the same impact as it once did.

But still, we’re probably lucky these disappointing earnings weren’t unveiled last week, because they could easily have caused some harm, especially if in the earlier part of the week. At least by coming today we had the continuing good feelings left over from Friday, instead of coming on the heels of a few hundred points loss. 

You do have to wonder how the  company has seemed to lose its way and there certainly can be a new and better era ahead of it, but more importantly you have to wonder in this day and age how any company can ever maintain its predominance for very long.

With the DJIA being price weighted, IBM plays a big role in its calculation, although no quite as much at the moment. Still a lot, though, as it accounts for the entirety of the pre-open futures decline that at least temporarily puts a damper on Friday’s strong rally.

As a rule, each point of a DJIA component stock has a weighting of 7 times on the index, so when IBM was $15 lower, that was about 105 points. That fully explains the huge dichotomy between today’s closes on the DJIA and S&P 500 of about 0.8%.

Hopefully the week will see some kind of price stability in net terms, although I would love to see lots of intra-day movements. In an ideal market there’s minimal net movement but lots of activity. That inefficiency in net movement is great for premiums.

If you would have taken IBM out of today’s DJIA it would have closed the day with a gain of nearly 110 points.

Coming off last week and having finally gone a week without any new purchases, it may be easier to resist spending any money this week again. Certainly easier than the first time, as there’s still no reason to believe that any given day’s strength is the antidote to the past 4 weeks of declines.

I did the resisting today, but there really wasn’t anything that compelling today anyway, so the resisting was pretty easy.

As tempting as so many stock prices look right now there have been so many reasons to avoid those temptations, but like most everything in life, it takes a good degree of hindsight to have some certainty about  that conclusion. Without a doubt, at some point in the future, hindsight will also question why those purchases weren’t made sooner, forgetting all that transpired before.

Last week, other than a f
ew new sales of option contracts on existing positions, was so devoid of activity. I don’t really want to repeat it, but at least there was an overall out-performance in a market that is still trending downward.

Imagine where that market would be if those explosively higher moves hadn’t occurred?

While those higher moves may have sucked people back into the market chasing new positions, even if they represent false promises, at least they have tempered the decline. Without those 200 and 300 point like moves higher we would have been looking at a 10% correction level from the wrong side of 10%.

So this week is another in which I don’t anticipate much in the way of new position additions.

Unlike last week, which was also the monthly cycle ending with the smallest number of expiring positions that I can recall in years, this week already has double the number of last week. I would just love to see some assignments from among that group, but would really be content if at least the opportunity to execute rollovers and make those new call contract sales came to being.

While volatility took a little decline on Friday’s straight climb higher, there may still be reasons to consider some longer term option sales if the forward week premiums show some evidence of that volatility. The two solitary trades for the day both looked to the November 2014 cycle, although Campbell Soup only offered a monthly option, anyway, but I did consider the December cycle.

The diversification by time that was re-initiated a few weeks ago as those premiums started to climb has already had some benefit by being able to lock in some of those premiums and to not be entirely at risk on any single day.

Given the kind of price movements that we’ve seen in the past month, any single day could fall on just the wrong day as it comes to risk of a contract going unassigned, so it is nice not to have all of those contracts subject to the whims of an irrationally adverse price decline.

For the week there may also continue to be opportunity and reason to pursue DOH Trades and attempt to squeeze whatever income is possible out of beaten down stocks, especially if receiving what may be a temporary bump higher.

Any little bit helps.

Daily Market Update – October 20, 2014 (9:00 AM)

There was a time when earnings reports like this morning’s delivered by IBM would have cast a pall on the market, especially coming before the opening bell on a Monday.

Luckily, it’s not your father’s IBM, anymore.

You do have to wonder how the  company has seemed to lose its way and there certainly can be a new and better era ahead of it, but more importantly you have to wonder in this day and age how any company can ever maintain its predominance.

With the DJIA being price weighted, IBM plays a big role in its calculation, although no quite as much at the moment. Still a lot, though, as it accounts for the entirety of the pre-open futures decline that at least temporarily puts a damper on Friday’s strong rally.

Hopefully the week will see some kind of price stability in net terms, although I would love to see lots of intra-day movements. In an ideal market there’s minimal net movement but lots of activity. That inefficiency in net movement is great for premiums.

Coming off last week and having finally gone a week without any new purchases, it may be easier to resist spending any money this week again. Certainly easier than the first time, as there’s still no reason to believe that any given day’s strength is the antidote to the past 4 weeks of declines.

As tempting as so many stock prices look right now there have been so many reasons to avoid those temptations, but like most everything in life, it takes a good degree of hindsight to have some certainty about  that conclusion. Without a doubt, at some point in the future, hindsight will also question why those purchases weren’t made sooner, forgetting all that transpired before.

Last week, other than a few new sales of option contracts on existing positions, was so devoid of activity. I don’t really want to repeat it, but at least there was an overall out-performance in a market that is still trending downward.

Imagine where that market would be if those explosively higher moves hadn’t occurred?

While those higher moves may have sucked people back into the market chasing new positions, even if they represent false promises, at least they have tempered the decline. Without those 200 and 300 point like moves higher we would have been looking at a 10% correction level from the wrong side of 10%.

So this week is another in which I don’t anticipate much in the way of new position additions.

Unlike last week, which was also the monthly cycle ending with the smallest number of expiring psotions that I can recall in years, this week already has double the number of last week. I would just love to see some assignments from among that group, but would really be content if at least the opportunity to execute rollovers and mak
e those new call contract sales came to being.

While volatility took a little decline on Friday’s straight climb higher, there may still be reasons to consider some longer term option sales if the forward week premiums show some evidence of that volatility.

The diversification by time that was re-initiated a few weeks ago as those premiums started to climb has already had some benefit by being able to lock in some of those premiums and to not be entirely at risk on any single day.

Given the kind of price movements that we’ve seen in the past month, any single day could fall on just the wrong day as it comes to risk of a contract going unassigned, so it is nice not to have all of those contracts subject to the whims of an irrationally adverse price decline.

For the week there may also continue to be opportunity and reason to pursue DOH Trades and attempt to squeeze whatever income is possible out of beaten down stocks, especially if receiving what may be a temporary bump higher.

Any little bit helps.