Category: Daily Market Update

Daily Market Update – July 30, 2014 (Close)

When did the FOMC become such a yawner?

Actually, today was a disappointing one. Given the strong GDP number you might have expected a strong reaction, but just as when the market didn’t give a strong reaction to the significant downward revision last month, you really can’t expect to have it both ways.

The market did seem to react to some more news of sanctions against Russia and then generally moved higher after the FOMC release, despite an initial move lower.

The real story of the day was Twitter.

The reaction to Twitter’s earnings released yesterday afternoon was pretty implausible and makes you wonder who exactly runs in to purchase shares after hours when a buying frenzy is going on. You have to have lots and lots of confidence to commit to a stock when its shares jump about 30% in the blink of an eye, especially when they’ve shown that they can also do the same in the opposite direction.

I have enough trouble running in and doing so after a 1% climb, but there’s something unnerving about buying into something when there’s a big price gap, just as there’s something unnerving about being on the wrong side of a gap lower.

For me, the good news is that if the price holds until Friday I will finally be out of shares that started as a put sale at $47, then an assignment at $43.50 and a large number of rollovers of both puts and calls in an effort to stay ahead of assignment, including the sale of even more puts at lower prices to generate offsetting revenues. 

First the fear was that of assignment of puts and then the fear was that of assignment of calls when executing DOH trades.

Fear can be a good motivator, but it’s a lot easier to take than stress, because somewhere along the line I believed that somehow everything would work out, or at least not be as bad as things may appear.

What the process, now that it’s coming to an end demonstrates is that it is possible to make proverbial lemonade even when things aren’t looking very good. Unfortunately, there are plenty of lemons to deal with sometimes.

In the case of Twitter it was easier because the shares have some volatility. That’s the secret sauce that makes some things more likely.It is what enhances premiums, even when they’re deep in the money. It is what is
lacking in most other positions and that makes it difficult to maneuver in the event of an adverse price movement.

That adverse price movement can be higher, just as easily as it can be lower.

I mention that because of one subscriber who had sold August 16, 2014 calls on his Family Dollar Store holdings. With shares being now deep in the money after the buyout bid the likelihood of being able to roll those shares over into the future at a higher strike price in order to gain some benefit from the buyout isn’t very high as long as the volatility is low.

When the original stake by Icahn was announced we were able to rollover shares to a higher strike and participate in the share’s appreciation due to  having selected an option expiration that coincided with earnings. That alone caused the enhanced volatility that allowed a trade to be made, and to live to see another day.

In the current case the next earnings date is in October. While that may give some opportunity, there is another difference between the Family Dollar of old and the Family Dollar of today.

Back then there was still an unlimited potential for the share price to climb, as Icahn had just entered the picture. Now, there is a defined offer that prices shares at about $74.50. While that can change if some other player comes in, the volatility won’t appear again unless that  happens. That immediately limits potential trade opportunities.

But, like today’s FOMC statement release, you just never know if a surprise is just around the corner. You really can’t take anything for granted.

As long as a company still has some breath in it there’s always the chance, in fact, the probability that it will show some recovery. The key is whether that recovery is enough to start instituting some measures, such as DOH trades, to start resurrecting the position’s ability to support itself and justify its existence in a portfolio.

That requires a lot of patience sometimes, but that patience, as it grows, also comes with a remarkable reduction in stress.

Of course, nothing reduces that stress more than profits.

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

The reaction to Twitter’s earnings released yesterday afternoon was pretty implausible and makes you wonder who exactly runs in to purchase shares after hours when a buying frenzy is going on. You have to have lots and lots of confidence to commit to a stock when its shares jump about 30% in the blink of an eye, especially when they’ve shown that they can also do the same in the opposite direction.

I have enough trouble running in and doing so after a 1% climb, but there’s something unnerving about buying into something when there’s a big price gap, just as there’s something unnerving about being on the wrong side of a gap lower.

For me, the good news is that if the price holds until Friday I will finally be out of shares that started as a put sale at $47, then an assignment at $43.50 and a large number of rollovers of both puts and calls in an effort to stay ahead of assignment, including the sale of even more puts at lower prices to generate offsetting revenues. 

First the fear was that of assignment of puts and then the fear was that of assignment of calls when executing DOH trades.

Fear can be a good motivator, but it’s a lot easier to take than stress, because somewhere along the line I believed that somehow everything would work out, or at least not be as bad as things may appear.

What the process, now that it’s coming to an end demonstrates is that it is possible to make proverbial lemonade even when things aren’t looking very good. Unfortunately, there are plenty of lemons to deal with sometimes.

In the case of Twitter it was easier because the shares have some volatility. That’s the secret sauce that makes some things more likely.It is what enhances premiums, even when they’re deep in the money. It is what is lacking in most other positions and that makes it difficult to maneuver in the event of an adverse price movement.

That adverse price movement can be higher, just as easily as it can be lower.

I mention that because of one subscriber who had sold August 16, 2014 calls on his Family Dollar Store holdings. With shares being now deep in the money after the buyout bid the likelihood of being able to roll those shares over into the future at a higher strike price in order to gain some benefit from the buyout isn’t very high as long as the volatility is low.

When the original stake by Icahn was announced we were able to rollover shares to a higher strike and participate in the share’s appreciation due to  having selected an option expiration that coincided with earnings. Tha
t alone caused the enhanced volatility that allowed a trade to be made, and to live to see another day.

In the current case the next earnings date is in October. While that may give some opportunity, there is another difference between the Family Dollar of old and the Family Dollar of today.

Back then there was still an unlimited potential for the share price to climb, as Icahn had just entered the picture. Now, there is a defined offer that prices shares at about $74.50. While that can change if some other player comes in, the volatility won’t appear again unless that  happens. That immediately limits potential trade opportunities.

But, like today’s FOMC statement release, you just never know if a surprise is just around the corner. You really can’t take anything for granted.

As long as a company still has some breath in it there’s always the chance, in fact, the probability that it will show some recovery. The key is whether that recovery is enough to start instituting some measures, such as DOH trades, to start resurrecting the position’s ability to support itself and justify its existence in a portfolio.

That requires a lot of patience sometimes, but that patience, as it grows, also comes with a remarkable reduction in stress.

Of course, nothing reduces that stress more than profits.

Daily Market Update – July 29, 2014 (Close)

While today will be another busy earnings day, having already gotten underway with Pfizer and others, it’s likely to be relatively quiet as it usually is once the FOMC meeting gets underway.

While some additional sanctions on Russia did have some mildly negative impact on the market, ringing it down from an equally mild gain, it was really a quiet day and no surprises were in store, other than from a possible gift from the IRS to companies with significant land holdings used to bury cables, such as for land telephone lines and cable television.

However, the real surprise would be if at 2 PM tomorrow there is some surprise coming from the statement released after the two day meeting. However, increasingly the words are being parsed for the slightest hint of nuance or the appearance of a new word or deletion of an old one, in order to ascertain what is really going on in the minds of those in control of the economy. That could mean some reaction beyond the usual knee-jerk response, which itself was actually missing at least month’s release.

Following a nice recovery from yesterday’s early sell-off there’s reason to believe that records could easily be assaulted again, especially if some of the bigger names come out with earnings. It doesn’t take too much to move the DJIA and this morning both Merck and Pfizer seem to be contributing to the pre-open advance, as they have released their earnings. Verizon and AT&T are also both up strongly, helping to give the DJIA an early lead over the broader S&P 500.

Pfizer, itself, later gave up a nice gain, not because of earnings, but almost the instant it mentioned that it wasn’t giving up on the idea of a blockbuster kind of acquisition, perhaps even another run at Astra Zeneca. Apparently the market didn’t like that kind of aggressiveness particularly with the flurry of concern around so called “inversions” which could include being ineligible for any kind of federal contracting, which could be a huge blow to a company like Pfizer. 

Otherwise, with the early assignment of Texas Instruments in order to capture the dividend that pesky problem of having cash is even greater now. I would still have liked the opportunity to spend some down and would have liked to have to seen another day of some downward moves or at least some flatness while awaiting something that looks appealing.

That downward move didn’t come until the end of the day, but hopefully the day’s earlier purchases in International Paper and Blackstone will still turn out to have been a relative bargain prices.

As with other times that problem of having cash has been the case, I’m not too likely to want to compound that problem by spending it down
just for the sake of spending it down. Last Friday seemed to bring some relative bargains, but the key word is “relative.” Many stocks still look and feel expensive so there has to be a nagging voice somewhere questioning every potential new purchase as being without value.

By the same token everything that looks like a bargain may get the same scrutiny as a 45 year old bachelor. People want validation for their biases. Why in the world hasn’t he never been married? Why would it be so “cheap” when everything else is going higher?

While one may certainly be a lifestyle choice, it would be hard to find anyone other than a short seller who wouldn’t want to see shares higher, so wondering why something hasn’t been participating may be a justified question.

Whereas yesterday I felt willing to jump in without waiting for much validation, in the hopes of picking up some of those seeming bargains, I don’t have that same confidence this morning. With the very strong early moves in some of the DJIA components there may be some early skew to the perception of how the market will actually trade. Those gains just seem to be illusory, very much based on some financial engineering ideas put forth by a tiny player in the communications sector that may have big implications for the likes of the behemoths, Verizon and AT&T.

So while I thought I would revert back to recent style and watch and see how the market’s trend, if any, would develop this morning, sometimes those plans gets scuttled as the opportunities seem to appear.

Sit would turn out, whether due to the new sanctions or not, much of the early rise fueled by the IRS decision died down as investors may have come to the realization that what matters for Verizon and others may have little to no relevance for anyone else and still may have some regulatory and even some further IRS hurdles ahead.

Daily Market Update – July 29, 2014 (9:30 AM)

While today will be another busy earnings day, having already gotten underway with Pfizer and others, it’s likely to be relatively quiet as it usually is once the FOMC meeting gets underway.

The real surprise would be if at 2 PM tomorrow there is some surprise coming from the statement released after the two day meeting. However, increasingly the words are being parsed for the slightest hit of nuance or the appearance of a new word or deletion of an old one, in order to ascertain what is really going on in the minds of those in control of the economy. That could mean some reaction beyond the usual knee-jerk response, which itself was actually missing at least month’s release.

Following a nice recovery from yesterday’s early sell-off there’s reason to believe that records could easily be assaulted again, especially if some of the bigger names come out with earnings. It doesn’t take too much to move the DJIA and this morning both Merck and Pfizer seem to be contributing to the pre-open advance, as they have released their earnings. Verizon and AT&T are also both up strongly, helping to give the DJIA an early lead over the broader S&P 500.

With the early assignment of Texas Instruments in order to capture the dividend that pesky problem of having cash is even greater now. I would still like the opportunity to spend some down and would like to see another day of some downward moves or at least some flatness while awaiting something that looks appealing.

As with other times that problem of having cash has been the case, I’m not too likely to want to compound that problem by spending it down just for the sake of spending it down. Last Friday seemed to bring some relative bargains, but the key word is “relative.” Many stocks still look and feel expensive so there has to be a nagging voice somewhere questioning every potential new purchase as being without value.

By the same token everything that looks like a bargain may get the same scrutiny as a 45 year old bachelor. People want validation for their biases. Why in the world hasn’t he never been married? Why would it be so “cheap” when everything else is going higher?

While one may certainly be a lifestyle choice, it would be hard to find anyone other than a short seller who wouldn’t want to see shares higher, so wondering why something hasn’t been participating may be a justified question.

Whereas yesterday I felt willing to jump in without waiting for much validation, in the hopes of picking up some of those seeming bargains, I don’t have that same confidence this morning. With the very strong early moves in some of the DJIA components there may be some early skew to the perception of how the market will actually trade. Those gains just seem to be illusory, very much based on some financia
l engineering ideas put forth by a tiny player in the communications sector that may have big implications for the likes of the behemoths, Verizon and AT&T.

So I think that I want to revert back to recent style and watch and see how the market’s trend, if any, will develop this morning, as they may come to the realization that what matters for Verizon may have little to no relevance for anyone else and still may have some regualtory and IRS hurdles ahead.

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.

Serendipity.

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.

MONDAY:  A potentially busy week ahead with still lots of earnings, an FOMC release and the Employment Situation Report to close the week. The morning, however, appears to be off to a quiet start

TUESDAY:     More earnings today and FOMC begins their meeting. Market usually doesn’t commit or make big moves prior to meeting, but there’s little reason to believe that there will be anything earth shattering coming tomorrow

WEDNESDAY:  Will Twitter propel the market? Not likely, as most will likely be waiting for FOMC statement release before commiting too much. No surprises are expected this afternoon, but since when does reality get a say in decisions?

THURSDAY:    What a difference a day and the day can make. The market appears to be ready to open on a large down note. How much better that generally is on a Monday rather than a Thursday becomes pretty clear as assessing rollover and assignment probabilities.

FRIDAY:  Some follow-up to yesterday’s plunge looks likely, at least before the looming Employment Situation Report which is more likely to exacerbate than to help things, if there is any reaction in store







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

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

The possible outcomes for today include:

Assignments:  BBY, EBAY, HFC ($44.50), JPM, LVS

Rollovers: DOW, GPS ($40), RIG

Expirations: FDO ($64.50), FDO ($66), GPS ($42), HFC (46.50), LO

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

Daily Market Update – July 24, 2014 (Close)

Along the lines of yesterday’s thoughts about the absence of market leaders, it’s too bad that advertising revenues aren’t the sort of thing that pick up everyone’s confidence and floats all sectors higher.

If that was the case then Facebook would be this generation’s IBM.

Facebook’s continuing ability to generate ad revenue, especially from mobile devices, is really incredible.

Yesterday was the company’s ninth earnings report since going public and investors have only once not rewarded existing shareholders after the very first time someone expressed negativity about the lack of a mobile strategy way back when.

While good news for Facebook it’s not really clear what their fortunes mean for anyone else.

It’s tempting to believe that increased ad revenues reflect increased optimism by retailers and increased interest by consumers. That could be good news for retailers.

Of course, it could also just mean that more people are on line with Facebook and spending more time when on line on the site, as Facebook ads can generate revenue simply by being served and not always requiring a click to bring in the bucks.

Facebook was one of those companies that I thought about selling puts in advance of earnings, but I rarely want to do so when there is a large advance in share price right before earnings. More often than not that kind of pre-earnings advance is an invitation to tumble after the data is released.

Not so this time around.

While the market has a mild upward bias in the pre-opening futures, it’s not too likely that anyone has to thank Facebook, although other individual stocks, like Twitter, may be getting some benefit by their loose association or resemblance to Facebook.

For things that really matter and are better reflections of the overall economy you have to look to companies like Caterpillar, which reported this morning. Their EPS figures are improving, thanks to large buy backs, which will be increasing. However, revenues were on the light side and projections for next year are on the low side of analyst’s reports.

So what does that mean?

Who know
s? Is the economy not growing? Is Caterpillar mis-firing?

A year ago the most celebrated and successful short seller, Jim Chanos, very publicly called Caterpillar his short of the year. Since that time shares are about 25% higher.

The Chairman was called the worst CEO of the year and widely criticized for executing buy backs at high share prices.

This one company just shows that no one really knows, no matter how good their thesis.

Business is not as good as expected, financial optics improving EPS data and the stock just goes higher.

Too bad there aren’t more of those. I’d gladly trade being right on my thesis for boatloads of profits.

I was hoping that this morning’s muted strength would translate into some of those profits, maybe getting a delayed Facebook initiated rally, but that wasn’t to be, as stocks stopped alternating between gains and losses after seven straight sessions. For the broader market while the gains were as small as you could make them, that was enough for another record on the S&P 500.

With next week’s weekly options trading beginning for those companies that don’t have expanded weekly options there was a chance of adding some positions, such as Texas Instruments, which goes ex-dividend next week, but my focus will continue to be finding opportunities for rollover. ‘t many and they were also fleeting.

At the moment there looks like there is the possibility of a fair number of assignments and some rollovers in the making especially if tomorrow holds true to form. That’s because the past seven or so Friday’s have closed positively, giving me some encouragement for this week, which has otherwise been bereft of activity and more importantly, income revenue.

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

Along the lines of yesterday’s thoughts about the absence of market leaders, it’s too bad that advertising revenues aren’t the sort of thing that pick up everyone’s confidence and floats all sectors higher.

If that was the case then Facebook would be this generation’s IBM.

Facebook’s continuing ability to generate ad revenue, especially from mobile devices, is really incredible.

Yesterday was the company’s ninth earnings report since going public and investors have only once not rewarded existing shareholders after the very first time someone expressed negativity about the lack of a mobile strategy way back when.

While good news for Facebook it’s not really clear what their fortunes mean for anyone else.

It’s tempting to believe that increased ad revenues reflect increased optimism by retailers and increased interest by consumers. That could be good news for retailers.

Of course, it could also just mean that more people are on line with Facebook and spending more time when on line on the site, as Facebook ads can generate revenue simply by being served and not always requiring a click to bring in the bucks.

Facebook was one of those companies that I thought about selling puts in advance of earnings, but I rarely want to do so when there is a large advance in share price right before earnings. More often than not that kind of pre-earnings advance is an invitation to tumble after the data is released.

Not so this time around.

While the market has a mild upward bias in the pre-opening futures, it’s not too likely that anyone has to thank Facebook, although other individual stocks, like Twitter, may be getting some benefit by their loose association or resemblance to Facebook.

For things that really matter and are better reflections of the overall economy you have to look to companies like Caterpillar, which reported this morning. Their EPS figures are improving, thanks to large buy backs, which will be increasing. However, revenues were on the light side and projections for next year are on the low side of analyst’s reports.

So what does that mean?

Who kn
ows? Is the economy not growing? Is Caterpillar mis-firing?

A year ago the most celebrated and successful short seller, Jim Chanos, very publicly called Caterpillar his short of the year. Since that time shares are about 25% higher.

The Chairman was called the worst CEO of the year and widely criticized for executing buy backs at high share prices.

This one company just shows that no one really knows, no matter how good their thesis.

Business is not as good as expected, financial optics improving EPS data and the stock just goes higher.

Too bad there aren’t more of those. I’d gladly trade being right on my thesis for boatloads of profits.

Hopefully this morning’s muted strength will translate into some of those profits.

With next week’s weekly options trading beginning for those companies that don’t have expanded weekly options there is a chance of adding some positions, such as Texas Instruments, which goes ex-dividend next week, but my focus will continue to be finding opportunities for rollover.

At the moment there looks like there is the possibility of a fair number of assignments and some rollovers in the making. Since the past seven or so Friday’s have closed positively, that gives me some encouragement for this week, which has otherwise been bereft of activity and more importantly, income revenue.