Category: Daily Market Update

Daily Market Update – March 27, 2014 (Close)

Interesting day today that ended up being much busier than I would have expected and in a good way, despite a market that basically did nothing all day.

With the day starting off with the discovery that my Walter Energy puts were assigned to me early. it wasn’t exactly a good start to the day, but I was still focused on news from the day before.

It’s not often that I end the day and then begin the new one being upset about things, but I’m still seething about yesterday afternoon’s news that Citigroup failed its banking stress test.

It’s not that I have a large position in Citigroup. It’s just a position, really no different from others in terms of overall proportion. I usually have either one, two or three lots of any stock and generally fairly well balanced, other than for speculative kind of positions, which are under-represented.

In this case, I have two lots of shares and was expecting that one would be assigned this Friday.

That seems much less likely right now.

That wasn’t supposed to happen and  I doubt that any apologists will step forward with anything to say other than it was pretty inexcusable, given that they had the precise guidelines of what needed to be done.

It was bad enough that nearly everybody else passed the test and started to immediately announce share buy backs and raised dividends. But what was really bad was that this stress test was the equivalent of an open book test.

How do you fail one of those?

While unwritten, there was a sort of social contract between investors that these “too big too fail banks” would pass their imposed stress tests and get back to their usual dividends and efforts to keep stock prices higher, through buy backs. In turn, investors bought shares.

Vikram Pandit, the previous CEO of CItigroup, was said to have been fired after not passing the previous stress test and criticized for not having been a “banking guy,” as he came from the hedge fund world.

His replacement, Michael Corbat, was known as a no nonsense guy with a reputation of delivering troubled banks to health.

Maybe not so much this time, although there’s still 30 days to appeal the decision.

Or, there’s always next time.

I probably wouldn’t advise using that in their next ad campaign.

This morning doesn’t hold much promise for moving the market higher and Citigroup isn’t helping things.

With less positions looking as if they may be assigned this week keeping some of the cash back may have been an unintended positive thing, as there is also suddenly less of a positive aura around the market.

It seems to simply be looking for direction.

I’m content to let it try and find its way and sit back while it goes through those efforts. At least in a couple of weeks an entirely new earnings season will be ready to begin and then we’ll have something a little more tangible to be basing decisions upon, rather than the vacuum of the past few days.

As it would turn out there really wasn’t much in the way of self-discovery today, but at least there were plenty of opportunities to generate some revenue through rollovers and outright call sales. That also makes for a less hectic day tomorrow and provides more opportunity to think about next week and the week after.

Hopefully, some of you have been following along and making the DOH trades and the less adevnturous, “mini-DOH” version trades. Sometimes they are a little bit of a nail biter kind of trade, because you really don’t want to see positions get assigned at a strike lower than the entry level, but bya and large, those premiums will and do add up. For me, at least, it’s worth the added anxiety.

Besides, I could use a few more gray hairs.

Daily Market Update – March 27, 2014 (9:30 AM)

It’s not often that I end the day being upset about things, but I’m still seething about yesterday afternoon’s news that Citigroup failed its banking stress test.

It’s not that I have a large position in Citigroup. It’s just a position, really no different from others in terms of overall proportion. I usually have either one, two or three lots of any stock and generally fairly well balanced, other than for speculative kind of positions, which are under-represented.

In this case, I have two lots of shares and was expecting that one would be assigned this Friday.

That seems much less likely right now.

That wasn’t supposed to happen and  I doubt that any apologists will step forward with anything to say other than it was pretty inexcusable, given that they had the precise guidelines of what needed to be done.

It was bad enough that nearly everybody else passed the test and started to immediately announce share buy backs and raised dividends. But what was really bad was that this stress test was the equivalent of an open book test.

How do you fail one of those?

While unwritten, there was a sort of social contract between investors that these “too big too fail banks” would pass their imposed stress tests and get back to their usual dividends and efforts to keep stock prices higher, through buy backs. In turn, investors bought shares.

Vikram Pandit, the previous CEO of CItigroup, was said to have been fired after not passing the previous stress test and criticized for not having been a “banking guy,” as he came from the hedge fund world.

His replacement, Michael Corbat, was known as a no nonsense guy with a reputation of delivering troubled banks to health.

Maybe not so much this time, although there’s still 30 days to appeal the decision.

Or, there’s always next time.

I probably wouldn’t advise using that in their next ad campaign.

This morning doesn’t hold much promise for moving the market higher and Citigroup isn’t helping things.

With less positions looking as if they may be assigned this week ke
eping some of the cash back may have been an unintended positive thing, as there is also suddenly less of a positive aura around the market.

It seems to simply be looking for direction.

I’m content to let it try and find its way and sit back while it goes through those efforts. At least in a couple of weeks an entirely new earnings season will be ready to begin and then we’ll have something a little more tangible to be basing decisions upon, rather than the vacuum of the past few days.

Daily Market Update – March 26, 2014 (Close)

Another day of no news and another day of an upward pointing market to get us started. Who knew that the market would later decide otherwise in the absence of any reason to have reversed direction?

With little in store for the rest of the week there wasn’t too much reason to think that this pattern of upward movement wouldn’t just continue, particularly since next week is another Employment Situation Report and that has had a long standing record of being the conclusion to positive market weeks.

It’s that kind of confidence and certainty that can get you into trouble.

This week has so far been a mildly positive one on all counts, but I would take “mildly positive” week after week, as opposed to some of the alternating and unpredictable big moves that can come our way.It certainly hasn’t been a very exciting week, but excitement can be over-rated. While I like to trade, all of that excitement is long in the past and forgotten once I look at the changing bottom line at the end of each day and especially at the end of each week.

The bottom line trumps everything. I can always use that bottom line to help get the excitement I crave in other ways.

The manner in which the market behaved today didn’t do much to bring a solution to the lack of market related excitement, but it did help erase some bottom line related excitement.

At the mid-way point for the week I wasn’t actively looking for or expecting any new purchases, although as next week’s expiring options become available for more positions starting tomorrow and still having cash to spend, the story may have been expected to shift a bit, but it never really did, as I just couldn’t get much of a level of comfort with today’s trading.

In the meantime any opportunities to find additional cover would have been appreciated, but they never really materialized. While I continue to want to create additional streams, even at the expense of greater maintenance need for positions, such as Cisco, which was the object of a “mini-DOH” trade, yesterday, thre market just didn’t offer the opportunity. Those come best when shares are trading into price strength, rather than retreating from strength..

Fortunately, there’s still a couple of more days for traders to come to their senses and try to understand why they drove up those shares by about 3.5% on a day when there was no news for a stock that tends to trade with very low volatility except in the absence of news, such as earnings.

As with the DOH trade of Target about a month ago which suddenly shot up beyond the strike and is now looking as if it is coming to an end after some rollovers, the extra maintenance may turn out to be worth an additional 1.5% or so, while waiting for its return to its original strike price.

Today, as has been the case for the past week or two, most of the attention was focused on today’s IPO, this time of the maker of the fad game, Candy Crush. With mos
t of its revenues based on a single game and a valuation in excess of $7 billion, it’s hard to keep a straight face as the market is set to embrace the debut.

In what can’t be a good sign, despite the vain and pitiful attempt to spin it as good news, trading opened at almost 10% below the IPO price.

That valuation is one thing, but the announcement of Facebook’s purchase of “Oculus” the maker of a virtual reality head piece for $2 billion, just a couple of months after a second round of funding valued it at about $250 million, is an attention getter.

Maybe, just maybe, that was partly responsible for Facebook’s terrible day today and helped spread it through to other momentum stocks, as there may be people wondering whether the market is getting a little too ahead of itself and reminding some of an ear of sock puppets.

For some reason, and I may not be justified in thinking this, I’m reminded of the movie line “Be afraid. Be very afraid.”

Daily Market Update – March 26, 2014 (9:15 AM)

Another day of no news and another day of an upward pointing market to get us started.

With little in store for the rest of the week there’s not too much reason to think that this pattern won’t continue, particularly since next week is another Employment Situation Report and that has had a long standing record of being the conclusion to positive market weeks.

It’s that kind of confidence and certainty that can get you into trouble.

This week has so far been a mildly positive one on all counts, but I would take “mildly positive” week after week, as opposed to some of the alternating and unpredictable big moves that can come our way.It certainly hasn’t been a very exciting week, but excitement can be over-rated. While I like to trade, all of that excitement is long in the past and forgotten once I look at the changing bottom line at the end of each day and especially at the end of each week.

The bottom line trumps everything. I can always use that bottom line to help get the excitement I crave in other ways.

At the mid-way point for the week I’m not actively looking for or expecting any new purchases, although as next week’s expiring options become available for more positions starting tomorrow and still having cash to spend, the story may shift a bit.

In the meantime any opportunities to find additional cover would be appreciated as I continue to want to create additional streams, even at the expense of greater maintenance need for positions, such as Cisco, which was the object of a “mini-DOH” trade, yesterday.

Fortunately, there’s still three more days for traders to come to their senses and try to understand why they drove up those shares by about 3.5% on a day when there was no news for a stock that tends to trade with very low volatility except in the absence of news, such as earnings.

As with the DOH trade of Target about a month ago which suddenly shot up beyond the strike and is now looking as if it is coming to an end after some rollovers, the extra maintenance may turn out to be worth an additional 1.5% or so, while waiting for its return to its original strike price.

Today, as has been the case for the past week or two, most of the attention will be focused on today’s IPO, this time of the maker of the fad game, Candy Crush. With most of its revenues based on a single game and a valuation in excess of $7 billion, it’s hard to keep a straight face as the market is set to embrace the debut.

That valuation is one thing, but the announcement of Facebook’s purchase of “Oculus” the maker of a virtual reality head piece for $2 billion, just a couple of months after a second round of funding valued it at about $250 million, is an attention getter.

For some reason, and I may not be justified in thinking this, I’m reminded of the movie line “Be
afraid. Be very afraid.”

Daily Market Update – March 25, 2014 (Close)

Following a pretty flat day to start the week the pre-opening futures were pointing toward another in a long series of steps that have taken this market higher.

And that’s just what it did. Despite faltering a bit during the session, somehow the market pulled it back together and finished with a surprising near triple point gain.

As with most things in life it may not make sense to try and understand what is behind reality or to try and dissect out the component pieces in order to better understand or predict the future. Sometimes it’s just better to go along with the flow of things and just take credit for what would have happened without you.

With a handful of purchases yesterday I would have liked to see some more happen today, especially since there was still a little bit of volatility built into premiums for next week that may make it worthwhile to try and populate the coming week with contracts. The volatility, however, didn’t last for long.

Looking into a sea of green in the 30 minutes before trading, however, it didn’t seem too likely that today would be a day of picking up bargains, at least at the open. I don’t like following strength and chasing after stocks, so seeing the green usually means sitting back and watching, with the knowledge that the ones that get away rarely get away for good. They almost always coming back.

If anything, I like making a purchase as weakness is developing or at least shares are lagging behind on a strong market day.

If you’ve ever gone to a high school reunion or elementary school reunion the phenomenon of “catch up” is clear, as so often the goofiest of kids becomes like everyone else at some point in their adult lives. By the same token, so often the most fit and able in childhood and in the teens  become the most paunchy and tired as adults.

With too much cash still sitting on the sidelines I’d like to add to this week’s positions, but would be happy to simply continue finding cover for under-performing and non-performing shares. My bank account doesn’t really distinguish between the income that comes as a result of having purchased new shares and sold calls or simply sold calls on existing shares.

Following up on some discussion yesterday and in this past week’s “Week in Review”  of seeking to generate some income from those laggards, the best time is when stocks are in an uptrend. There’s no better time to sell calls than into strength and there’s no better time to sell puts than into weakness.

Both of those scenarios are really enhanced when the volatility is, as well.

For those that didn’t see it, I wrote an article last night on margin accounts.

Before anyone gets too excited or rushes out to bury themselves in margin debt, don’t do that.

But if you already have a margin account or are considering getting one, the article contains some ideas of how such an account can be a benefit to a covered option trader, without the level of risk that it conveys upon typical individual investors.

Daily Market Update – March 25, 2014 (9:30 AM)

Following a pretty flat day to start the week the pre-opening futures were pointing toward another in a long series of steps that have taken this market higher.

As with most things in life it may not make sense to try and understand what is behind reality or to try and dissect out the component pieces in order to better understand or predict the future. Sometimes it’s just better to go along with the flow of things and just take credit for what would have happened without you.

With a handful of purchases yesterday I would like to see some more happen today, especially since there is still a little bit of volatility built into premiums for next week that may make it worthwhile to try and populate the coming week with contracts.

Looking into a sea of green in the 30 minutes before trading, however, that doesn’t seem too likely, at least at the open, as I don’t like following strength and chasing after stocks. They rarely get away for good, almost always coming back.

If anything, I like making a purchase as weakness is developing or at least shares are lagging behind on a strong market day.

If you’ve ever gone to a high school reunion or elementary school reunion the phenomenon of “catch up” is clear, as so often the goofiest of kids becomes like everyone else at some point in their adult lives. By the same token, so often the most fit and able in childhood and in the teens  become the most paunchy and tired as adults.

With too much cash still sitting on the sidelines I’d like to add to this week’s positions, but would be happy to simply continue finding cover for under-performing and non-performing shares. My bank account doesn’t really distinguish between the income that comes as a result of having purchased new shares and sold calls or simply sold calls on existing shares.

Following up on some discussion yesterday and in this past week’s “Week in Review”  of seeking to generate some income from those laggards, the best time is when stocks are in an uptrend. There’s no better time to sell calls than into strength and there’s no better time to sell puts than into weakness.

Both of those scenarios are really enhanced when the volatility is, as well.

For those that didn’t see it, I wrote an article last night on margin accounts.

Before anyone gets too excited or rushes out to bury themselves in margin debt, don’t do that.

But if you already have a margin account or are considering getting one, the article contains some ideas of how such an account can be a benefit to a covered option trader, without the level of risk that it conveys upon typical individual investors.

&nb
sp;

Daily Market Update – March 24, 2014 (Close)

It’s another week that seems to be getting ready to start off with a calm opening, although the past three weeks have been anything but calm when it comes to cumulative activity. After the previous few weeks have been done, all after the initial news of trouble in Crimea, markets have ended strongly lower and strongly higher, despite what appeared to be calm beginnings.

My preference, if there’s going to be some tumult, tends to be a down Monday to start the week, especially after lots of assignments.

All in all, despite a little bit of indecision it did turn out to be a pretty calm day without the slightest shred of  real news coming from any source.

With all of that cash now sitting and waiting to be re-deployed the challenge, as always, is not giving into the temptation to do so all at once. There’s nothing worse than catching the top of a single stock, much less the top of a basket of stocks or an entire market, especially when it can be avoided with just a little bit of self-discipline.

A cash reserve of almost 50% creates lots of opportunity, but not all opportunity is good. It’s been a long time since I’ve gone on a spending spree after a week of lots of assignments and I don’t think I’ll be going on one this week either, but I am willing to get down to a 30% cash level. That would be about 10 new positions, although lately the number has been far less. Today’s four new positions was a start, at least and did create some additional cash flow without too much added risk.

As mentioned at last week’s close I will be increasingly looking at the opportunity to  squeeze premiums out of as many positions as possible that are currently uncovered, through the use of strike levels below cost basis. That means a need for greater maintenance of positions, including the possibility of rollovers at a net debit, as may be appropriate to help work a position back toward an acceptable ROI. Doing so is simply a modification of the DOH strategy. Maybe I’ll call it a “mini-DOH.”

As with the DOH strategy it helps to have volatility showing some increasing level in order to make the premium more closely offset the risk of assignment or rollover at a net debit, so not all positions may be created equally in being candidates, although that could change from week to week. As today wore on volatility decreased, so as it turned out the early in the session trades utilizing the April 4, 2014 expiration were better suited than they would have been at the end of the day.

This week I’m not terribly interested in risk other than possibly taking advantage of any position that takes a sudden hit to price that may appear to be overdone or some potential earnings related trades. Otherwise, I think this may be a week to go with reasonably boring stocks, although even those are often at or near their price peaks.

The market’s pre-open trading seemed to indicate that little of market moving potential outside of the markets themselves are knocking on the door. For know, Crimea is quiet, there’s no additional disappointing news coming from China and the coming week has little in the way of important economic reports.

With earnings season near its end and the
new one still a few weeks away it’s almost like being in limbo, but we all know that won’t last. Despite the appearances of quiet and calm the market frequently finds its own reasons for dysfunction and over-reaction.

While I do like to complain about that, it’s that very lack of predictability which creates the volatility that I don’t complain about when it’s developing.

With already eleven positions set to expire this week and having added another two, there is almost nothing thereafter, I would like to populate some of those out weeks with contracts, if only the volatility would make those premiums a little more inviting as the week goes on.

Based on the past year the periodicity between the “mini-VIX” peaks that I pointed out last week to the “maxi peaks” has been about 6 weeks and we just passed a “mini-peak.” If that stays true to form then better premiums may be on the way, but as often is the case, that comes at the expense of better stock prices.

That may re-inforce some caution when looking to spend all of that cash that’s now on the sidelines, although there still may be some time to party between peaks.

It’s those kinds of discussions and analyses that makes me glad I don’t spend more time looking at charts. I couldn’t imagine always talking and thinking like that.

Daily Market Update – March 24, 2014 (9:00 AM)

It’s another week that seems to be getting ready to start off with a calm opening, although the past three weeks have been anything but calm when it comes to cumulative activity. After the previous few weeks have been done, all after the initial news of trouble in Crimea, markets have ended strongly lower and strongly higher, despite what appeared to be calm beginnings.

My preference, if there’s going to be some tumult, tends to be a down Monday to start the week, especially after lots of assignments.

With all of that cash now sitting and waiting to be re-deployed the challenge is not giving in to the temptation to do so all at once. There’s nothing worse than catching the top of a single stock, much less the top of a basket of stocks or an entire market, especially when it can be avoided with just a little bit of self-discipline.

A cash reserve of almost 50% creates lots of opportunity, but not all opportunity is good. It’s been a long time since I’ve gone on a spending spree after a week of lots of assignments and I don’t think I’ll be going on one this week either, but I am willing to get down to a 30% cash level. That would be about 10 new positions, although lately the number has been far less.

As mentioned at last week’s close I will be increasingly looking at the opportunity to  squeeze premiums out of as many positions as possible that are currently uncovered, through the use of strike levels below cost basis. That means a need for greater maintenance of positions, including the possibility of rollovers at a net debit, as may be appropriate to help work a position back toward an acceptable ROI. Doing so is simply a modification of the DOH strategy. Maybe I’ll call it a “mini-DOH.”

As with the DOH strategy it helps to have volatility showing some increasing level in order to make the premium more closely offset the risk of assignment or rollover at a net debit, so not all positions may be created equally in being candidates, although that could change from week to week.

This week I’m not terribly interested in risk other than possibly taking advantage of any position that takes a sudden hit to price that may appear to be overdone or some potential earnings related trades. Otherwise, I think this may be a week to go with reasonably boring stocks, although even those are often at or near their price peaks.

The market’s pre-open trading seems to indicate that little of market moving potential outside of the markets themselves are knocking on the door. For know, Crimea is quiet, there’s no additional disappointing news coming from China and the coming week has little in the way of important economic reports.

With earnings season near its end and the new one still a few weeks away it’s almost like being inlimbo, but we all know that won’t last. Despite the appearances of quiet and calm the market frequently finds its own reasons for dysfunction and over-reaction.

While I do like to complain about that, it’s that very lack of predictability which creates the volatility that I don’t complain about when it’s developing.

With already eleven positions set to expire this week and almost nothing thereafter, I would like to populate some of those out weeks with contracts, if only the volatility would make those premiums a little more inviting.

Based on the past year the periodicity between the “mini-VIX” peaks that I pointed out last week to the “maxi peaks” has been about 6 weeks and we just passed a “mini-peak.” If that stays true to form then better premiums may be on the way, but as often is the case, that comes at the expense of better stock prices.

That may re-inforce some caution when looking to spend all of that cash that’s now on the sidelines, although there still may be some time to party between peaks.

It’s those kinds of discussions and analyses that makes me glad I don’t spoend more time looking at charts.

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

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

Today’s possible outcomes include:

Assignment:  ANF, COH, FAST, HFC, INTC, LB ($44), MSFT, TMUS

Rollover:  APC, BBY, LB ($47.40), TWTR (put)

Expiration:  CHK, FDO, GM, LULU, RIG, WFM

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