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Weekend Update – October 23, 2016

This past week was the first full week of earnings for this most recent earnings season and you could be excused for wondering just how to interpret the data coming in.

The financial sector had fared well, but if you were looking for a pattern of revenue and earnings beats, or even looking for a shared sense of optimism going forward from a more diverse group of companies, you’ve been disappointed to date.

For the most part, this past week was one of mixed messages and the market really rewarded the messages that it wanted to hear and really punished when the messages didn’t hit the right notes.

With so much attention being placed on the expectation that the FOMC would have sufficient data to warrant an interest rate increase in December, you might have thought that companies would start painting a slightly more optimistic image of what awaited their businesses, perhaps based upon a building trend from the past quarter.

That optimistic guidance has yet to prevail even as some have been reporting better than expected revenues.

But no one should be surprised with the mixed messages that the market hasn’t been able to interpret and then use as a foothold to move in a sustained direction.

The mixed messages coming from those reporting just follows the wonderful example of streaming mixed messages that have been coming at us all year long from members of the Federal Reserve.

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Weekend Update – May 3, 2015

For all the talk about how April was one of the best months of the year, that ship sailed on April 30th when the DJIA lost 192 points, to finish the month just 0.2% higher.

It will take complete Magellan-like circumnavigation to have that opportunity once again and who knows how much the world will have changed by then?

Higher Interest rates, a disintegrating EU, renewed political stalemate heading into a Presidential election, rising oil prices and expanding world conflict are just some of the destinations that may await, once having set sail.

Not quite the Western Caribbean venue I had signed up for.

With the market getting increasingly difficult to understand or predict, I’m not even certain that there will be an April in 2016, but I can’t figure out how to hedge against that possibility.

But then again, for all the talk about “Sell in May and go away,” the DJIA recovered all but 9 of those points to begin the new month. With only a single trading day in the month, if there are more gains ahead, that ship certainly hasn’t sailed yet, but getting on board may be a little more precarious when within just 0.4% of an all time closing high on the S&P 500.

The potential lesson is that for every ship that sails a new berth is created.

What really may have sailed is the coming of any consumer led expansion that was supposed to lead the economy into its next phase of growth. With the release of this month’s GDP figures, the disappointment continued as the expected dividend from lower energy prices hasn’t yet materialized, many months after optimistic projections.

How so many esteemed and knowledgeable experts could have been universally wrong, at least in the time frame, thus far, as fascinating. Government economists, private sector economists, CEOs of retail giants and talking heads near and far, all have gotten it wrong. The anticipated expansion of the economy that was going to lead to higher interest rates just hasn’t fulfilled the logical conclusions that were etched in stone.

Interestingly, just as it seems to be coming clear that there isn’t much reason for the FOMC to begin a rise in interest rates, the 10 Year Treasury Note’s interest rate climbed by 5%. It did so as the FOMC removed all reference from a ticking clock to determine when those hikes would begin, in favor of data alone.

I don’t know what those bond traders are thinking. Perhaps they are just getting well ahead of the curve, but as this earnings season has progressed there isn’t too much reason to see any near term impetus for anything other than risk. No one can see over the horizon, but if you’re sailing it helps to know what may be ahead.

What started out as an earnings season that was understanding of the currency related constraints facing companies and even gave a pass on pessimistic guidance, has turned into a brutally punishin
g market for companies that don’t have the free pass of currency.

All you have to do is look at the reactions to LinkedIn (NYSE:LNKD), Twitter (NYSE:TWTR) and Yelp (NYSE:YELP) this week, as they all reported earnings. Some of those would have gladly seen their stocks tumble by only 20% instead of the deep abyss that awaited.

Before anyone comes to the conclusion that the ship has sailed on those and similar names, I have 4 words for you: Green Mountain Coffee Roasters, now simply known as Keurig Green Mountain (NASDAQ:GMCR).

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum or “PEE” categories.

Coach (NYSE:COH) reported earnings last week and in 2015, up until that point, had quietly diverged from the S&P 500 in a positive way, if you had owned shares. As the luster of some of its competitors was beginning to fade and in the process of implementing a new global strategy, it appeared that Coach was ready to finally recover from a devastating earnings plunge a year ago.

It was at that time that everyone had firmly shifted their favor to competitor Michael Kors (NYSE:KORS) and had started writing Coach off, as another example of a company sailing off into oblivion as it grew out of touch with its consumers.

Who knew at that time that Kors itself would so quickly run out of steam? At least the COach ride had been a sustained one and was beginning to show some signs of renewed life.

I’ve owned shares of Coach many times over the years and have frequently purchased shares after earnings or sold puts before or after earnings, always in the expectation that any earnings plunge would be short lived. That used to be true, but not for that last decline and I am still suffering with a lot that I optimistically sold $50 August 2015 calls upon, the day before earnings were released.

Unlike many stocks that have suffered declines and that then prompts me to add more shares, I haven’t done so with Coach, but am ready to do so now as shares are back to where they started the year.

With a dividend payout that appears to be safe, an acceptable option premium and the prospects of shares re-testing its recently higher levels, this seems like an opportune time to again establish a position, although I might consider doing so through the sale of puts. If taking that route and faced with an assignment, I would attempt to rollover the puts until that time in early June 2015 when shares are expected to go ex-dividend, at which point I would prefer to be long shares.

As far as fashion and popularity go, Abercrombie and Fitch (NYSE:ANF) may have seen its ship sail and so far, any attempt to right the ship by changing leadership hasn’t played out, so clearly there’s more at play.

What has happened, though, is that shares are no longer on a downward only incline, threatening to fall off the edge. It’s already fallen off, on more than one occasion, but like Coach, this most recent recovery has been much slower than those in the past.

But it’s in that period of quiescence for a stock that has a history of volatility that a covered option strategy, especially short term oriented, may be best suited.

Just 2 weeks ago I created a covered call position on new shares and saw them assigned that same week. They were volatile within a very narrow range that week, just as they were last week. That volatility creates great option premiums, even when the net change in share price is small.

With earnings still 3 weeks away, as is the dividend, the Abercrombie and Fitch trade may also potentially be considered as a put sale, and as with Coach, might consider share ownership if faced with the prospect of assignment approaching that ex-dividend date.

T-Mobile (NYSE:TMUS), at least if you listen to its always opinionated CEO, John Legere, definitely has the wind blowing at its back. Some of that wind may be coming from Legere himself. There isn’t too much doubt that the bigger players in the cellphone industry are beginning to respond to some of T-Mobile’s innovations and will increasingly feel the squeeze on margins.

So far, though, that hasn’t been the case. as quarterly revenues for Verizon (NYSE:VZ) and AT&T (NYSE:T) are at or near all time highs, as are profits. T-Mobile, on the other hand, while seeing some growth in revenues on a much smaller denominator, isn’t consistently seeing profits.

The end game for T-Mobile can’t be predicated on an endless supply of wind, no matter how much John Legere talks or Tweets. The end game has to include being acquired by someone that has more wind in their pockets.

But in the meantime, there is still an appealing option premium and the chance of price appreciation while waiting for T-Mobile to find a place to dock.

Keurig Green Mountain was the topic of the second article I everpublished on Seeking Alpha 3 years ago this week. It seems only fitting to re-visit it as it gets to report earnings. Whenever it does, it causes me to remember the night that I appeared on Matt Miller’s one time show, Bloomberg Rewind, having earlier learned that Green Mountain shares plunged about 30% on earnings.

Given the heights at which the old Green Mountain Coffee Roasters once traded, you would have been justified in believing that on that November 2011 night, the ship had sailed on Green Mountain Coffee and it was going to be left in the heap of other momentum stocks that had run into potential accounting irregularities.

But Green Mountain had a second act and surpassed even those lofty highs, with a little help from a new CEO with great ties to a deep pocketed company that was in need of diversifying its own beverage portfolio.

Always an exciting earnings related trade, the options market is implying a 10.2% price move upon earnings. In a week that saw 20% moves in Yelp, LinkedIn and Twitter, 10% seems like child’s play.

My threshold objective of receiving a 1% ROI on the sale of a put option on a stock that is about to report earnings appears to be achievable even if shares fall by as much as 12.1%.

It will likely be a long time before anyone believes that the ship has sailed on Intel (NASDAQ:INTC), but there was no shortage of comments about how the wind had been taken out of Intel’s sales as it missed the mobile explosion.

As far as Intel’s performance goes, it looks as if that ship sailed at the end of 2014, but with recent rumors of a hook-up with Altera (NASDAQ:ALTR) and the upcoming expiration of a standstill agreement, Intel is again picking up some momentum, as the market initially seemed pleased at the prospects of the union, which now may go the hostile route.

In the meantime, with that agreement expiring in 4 weeks, Intel is ex-dividend this week. The anticipation of events to come may explain why the premium on the weekly options are relatively high during a week that shares go ex-dividend.

Finally, perhaps one of the best examples of a company whose ship had sailed and was left to sink as a withered company was Apple (NASDAQ:AAPL).

Funny how a single product can turn it all around.

it was an odd week for Apple , though. Despite a nearly $4 gain to close the week, it finished the week virtually unchanged from where it started, even though it reported earnings after Monday’s close.

While it’s always possible to put a negative spin on the various components of the Apple sales story, and that’s done quarter after quarter, they continue to amaze, as they beat analyst’s consensus for the 10th consecutive quarter. While others may moan about currency exchange, Apple is just too occupied with execution.

Still, despite beating expectations yet again, after a quick opening pop on Tuesday morning shares finished the week $4 below that peak level when the week came to its end.

None of that is odd, though, unless you’ve grown accustomed to Apple moving higher after earnings are released. What was really odd was that the news about Apple as the week progressed was mostly negative as it focused on its latest product, the Apple Watch.

Reports of a tepid reception to the product; jokes like “how do you recognize the nerd in the crowd;” reports of tattoos interfering with the full functioning of the product; criticizing the sales strategy; and complaints about how complicated the Apple Watch was to use, all seemed so un-Apple-like.

Shares are ex-dividend this week and in the very short history of Apple having paid a dividend, the shares are very likely to move higher during the immediate period following the dividend distribution.

With the announcement this past week of an additional $50 billion being allocated to stock buybacks over the next 23 months, the ship may not sail on Apple shares for quite some time.

Traditional Stocks: Coach

Momentum Stocks: Abercrombie and Fitch, T-Mobile

Double Dip Dividend: Intel (5/5), Apple (5/7)

Premiums Enhanced by Earnings: Keurig Green Mountain (5/6 PM)

Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.

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Weekend Update – April 5, 2015

It was a little odd having the Employment Situation Report released on a day that stock markets were closed yet bond markets and equity futures were trading on an abbreviated schedule.

It reminds me of the frustrations that I sometimes experience when being unable to react to news that moves a stock’s price after the market has closed on the Friday of option expiration. The option holder has the advantage of being able to exercise or not until nearly 90 minutes after the market has closed while as the seller of an option I can do nothing to respond to the news.

In trading circles that is something referred to as “a case of the blue calls.”

Not that I would know, but I would imagine that’s something like being in the old Times Square, before Mayor Rudy Giuliani cleaned it up and chased all of the adult entertainment away. Those glass walls between the patrons pumping quarters into the booth and the paid entertainment must have been frustrating for those watching events unfold but being incapable of taking appropriate action. That’s especially the case if knowing that a more genteel, moneyed and privileged clientele was in the back room and had less restricted access.

Or so I’ve heard. I believe that there was an expression describing that situation, as well.

While analysts are going to be spending time trying to find something good to say about the data released, the number of new jobs created was the smallest in more than a year and included downward revisions of the past 2 months. In fact, the 126,000 new jobs created in March was about half of what the consensus had been expecting. The 69,000 jobs downward revisions makes you wonder whether the decidedly negative reaction to what was perceived as a heating up jobs market previously was warranted.

The smaller than expected job creation number caused an immediate and large decline in interest rates and a meaningful decline in stock futures, although on very light volume.

Still, there was a net increase in jobs, and there is no specter of unmanageable and unruly lines queuing up as in scenes from 75 years ago. Yet we will begin trading on Monday on the far end of a 3 day vacuum having been unable to respond to the immediate reactions to Friday morning’s news.

After a few days to mull it over we may learn whether the disappointing employment news is ultimately interpreted as being good or bad for the stock market and more specifically for the likelihood of interest rates being increased sooner rather than later.

After all, lately that seems to be all that markets have cared about and the speculation has gone back and forth as the data has done the same.

As far as the Treasury market is concerned their bet is on lower interest rates after the Employment Situation Report was released and they’re said to be smarter than the average investor.

When rates go
back up just as quickly, as they have volleyed back and forth over the past few weeks, we can remind ourselves that the back and forth of rates simply reflects how smart those bond traders really are.

One might think that any further decline in rates would be good for stocks particularly as an alternative to bonds, unless it is interpreted as being bad news that the tepid economic expansion was actually beginning a deceleration phase.

Couple that thought with the worry that the upcoming earnings season is going to highlight currency woes more than costs savings from lower energy and you do have the makings of continued uncertainty about where the next catalyst to move stocks higher will be coming from.

Normally, I like uncertainty, but unfortunately, the uncertainty that we’ve seen over the past few weeks as markets have regularly alternated between triple digit gains and losses hasn’t really moved volatility as much as it would seem to have been logical. That’s because most days have actually traded with great certainty, showing little variance from where the day’s trading started and then giving way to an all new kind of certainty the very next day.

We’ll see how that certainty shows itself on Monday.

It’s anyone’s guess.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum or “PEE” categories.

Whole Foods (NASDAQ:WFM) is one of many stocks that I currently own that are not earning their keep because they’re too far below their purchase price to warrant writing calls and generating premium income. While shares do go ex-dividend this week, the dividend is too small to justify chasing or to make a trade simply in the hopes of capturing that dividend.

However, I’ve been happy to see some of the share gains seen after earnings in February get digested, notwithstanding this past Thursday’ strong gain. The slow and methodical retracement of those gains is providing an opportunity to add shares of Whole Foods again with the goal of using new shares to help offset some of the losses on the non-performing lot, as was done 5 times in 2014.

However, following the previous share increase after earnings those shares just seemed too expensive to use as an offset to paper losses. However, now they appear to be more reasonably priced and ready to stabilize at that lower level.

Having add my General Motors (NYSE:GM) shares assigned last month I’ve wanted to repurchase shares since then. At the time the entry of an activist into the picture was unexpected and poor timing for me, but I’m glad to see shares come down from that activist induced high.

Through several bouts of share ownership during the Mary Barra era I’ve continued to be amazed at how well share price has persever
ed against a barrage of bad news. The toll on share price has generally been small and short lived, while being able to roll over option contracts helped to increase yield while awaiting assignment.

Shares offer attractive premiums, an increasingly attractive dividend and the watchful eyes of activists. That can be a good combination particularly since earnings are still a month away, giving some opportunity to collect those premiums before contending with the challenge of currency.

Bed Bath and Beyond (NASDAQ:BBBY) reports earnings this week and used to be one of those traditionally being among the last of S&P 500 members to report earnings. Now it’s either still among the last or possibly among the first, as earnings seasons now just tend to flow one into the next.

While Bed bath and Beyond isn’t likely to suffer much due to the strengthening dollar, in fact it may benefit from increased buying power, it may report some detriment from the west coast port disruptions.

Bed Bath and Beyond is no stranger to large moves when announcing its earnings, but this time the options market is implying a move of 6.5%. A 1% ROI may be possible by selling put options as much as 7.1% below the week’s closing price. That’s not as large of a cushion as I would prefer seeing, but if selling puts and faced with the possibility of assignment, I wouldn’t mind taking ownership of shares rather than attempting to roll the put options over.

Being booted from the DJIA isn’t necessarily a bad thing, just as being added isn’t always a good thing as far as stock prices go.

Few have done as well as Alcoa (NYSE:AA), which despite a nearly 50% decline since reaching it’s peak post-DJIA share price is still about 65% higher and has well out-performed the S&P 500 and the DJIA.

Alcoa, which reports earnings this week, and while perhaps no longer considered to be the kick-off to a new earnings season still remains the first to get much attention.

Shares have been in a considerable decline for the past 2 months after having recovered from most of the decline that preceded the market’s decline in early December 2014. The subsequent recovery in share price at that time was in lock step with the S&P 500 from mid-December to mid-January when earnings intervened.

Unlike most earnings related trades that I consider, for this one I’m not looking at the sale of puts, but rather a buy/write and am further considering the use of a slightly out of the money option, rather than an in the money strike price, in the belief that there’s reason to suspect both on a technical basis and a fundamental basis that there is room to move higher.

While it’s too soon to tell how its continuing performance will be, AT&T (NYSE:T) has joined Alcoa as an ex-member of the DJIA. During the two week period of its exile, shares have out-performed the S&P 500, just as its replacement has t
railed.

While 2 weeks doesn’t make for a trend, as AT&T shares are ex-dividend this week, I think there may be enough past history with other ex-members in the immediate period of their expulsion to create a tiny additional increment of confidence. WHile that confidence doesn’t necessarily extend to believing that shares will move higher in the very near term, it does make me feel better about the prospects of it continuing to out-perform the broader market.

With it’s very generous dividend the option premium isn’t very large, but at the very least will offset some of the decline in price that will occur as the dividend is taken into account. With much of the competitive hoopla and pressure now in the past and with less of a concern about currency fluctuations, this may be a good time to consider a position as shares may be a bit more immune to some of the pressures that may face many other multi-national companies as earnings are soon to be released.

Finally, being added to the DJIA isn’t necessarily a golden ticket, either, as some more recently added members may attest.

In exchange for AT&T’s departure Apple (NASDAQ:AAPL) was added and has since trailed the narrow index as excitement mounts over the prospects for its latest product entry.

I’m not as excited about that as I am about the prospects of Apple announcing a dividend increase most likely concurrent with its next earnings release in 3 weeks. Between now and then I think there are going to be many opportunities for Tim Cook and others to increasingly whip up excitement and demand for a product that has a fairly low bar being set.

In the meantime Apple continues to offer an attractive option premium and can easily be considered as either a buy/write or put sale, as there is considerable liquidity on either side of the options aisle.

Traditional Stocks: Apple, General Motors

Momentum Stocks: none

Double Dip Dividend: AT&T (4/8), Whole Foods (4/8 $0.13)

Premiums Enhanced by Earnings: Alcoa (4/8 PM), Bed Bath and Beyond (4/8 PM)

Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.

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Weekend Update – December 28, 2014

A week ago, it seemed as perhaps the President of Russia, Vladimir Putin was the cause for the sudden turnaround in market fortunes and was the giver of the gift that we had all been expecting this December.

His relative calm demeanor and reasonable words surrounding the sudden collapse of the Ruble and surging interest rates helped to put an equally sudden stop to market fears.

Thank you, Vladimir, but what have you done for us lately?

At least, even with his finger pointing, there hasn’t been any saber rattling and no new obligatory face saving demonstrable shows of bravado on the international front. At least, not yet, but it can get awfully cold in Russia this time of the year. Luckily for them, heating fuel is unusually inexpensive right now, although maybe not so much in Ruble terms.

Fortunately, it seems that there may be others willing to take up the mantle of prodding our markets forward when challenges appear, although it’s not very likely that they would want to do anything to lend us a helping hand or be part of the gift giving.

For the purists, there are still a steady stream of economic reports that can move markets depending on what kind of lens is used to interpret the data. Global personalities playing global games are just ephemeral distractions, even though a day old key economic report is also just as quickly forgotten when the next day’s, often contradictory report, is released.

Then it’s just a question of “what report have you delivered to me lately?”

Everyone should have expected good news coming from this week’s GDP report as the first glimpses of the impact of lower energy prices were revealed. That’s especially the case as 70% of GDP is said to be comprised of consumer spending and most everyone you know feels more wealthy. That’s not because of any great stock market rally but because of falling energy prices. Despite hitting a new record high an average of once each week in 2014 for most people that’s not where the feeling of wealth has come from this year.

The market still rallied in surprise. It was a case of good news being interpreted as good news, the way most normal people would have interpreted it.

What we can now await is the next GDP report which comes the morning after the next FOMC Statement release in January. Being data driven, it may be reasonable to expect that the FOMC may look at the initial data streams reflecting increasing consumer activity and GDP growth and throw “patience” out the window.

Then, we will simply be at the mercy of the lenses that decide whether that news is good or bad for markets as interest rate increases may seem to be warranted sooner than the last FOMC Statement led us to believe.

But this past week, it became clear that
if a Santa Claus Rally does await us these final days of 2014 as the DJIA closed at another record high, the real benefactor may be the diminutive leader of a nation that mandates haircut style and prohibits the personal use of “Dear Leader’s” actual name by anyone other than “Dear Leader” himself.

I don’t want to mention him by name, however, as I don’t deal well with threats or cyber-attacks of any kind, so we’ll just say that we may be able to thank Kim Jong Doe for this week’s establishment of more new closing record highs and setting the stage for the year end rally.

The lunacy surrounding the release of an otherwise inconsequential movie displaced most of our thoughts about the price of oil. While “Dear Leader” said nothing in a calming manner, offering threats rather than constructive strategies, the change of topic was a welcome relief, as oil continued to be a drag on the overall market, but no longer holds it in hostage, at least as long as it can continue to trade in the $54-60 range.

The alleged antics of a nation and a leader so far away was far better to focus upon than anything of substantive value, or anything that could have had us put on one of those lenses that interprets good news as being bad.

As a nation witnessed markets pass the 18000 level for the very first time, en route to setting its 51st record close of the year, more interest was directed at the outrage associated with a self-imposed censorship that appeared to be an acquiescence to external threats from someone with a funny haircut.

When the very idea of seeing a movie, that may turn out to be sophomorically delightful, is construed by reasonable and educated people as the patriotic thing to do, you know that no one is really paying attention to much else going on around them.

This week that was a good thing and I hope the final few trading days of the year are equally vacuous and that the market will continue rising in a vacuum.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum or “PEE” categories.

I’m generally not a big user of ETF vehicles, although they do lend themselves to a covered option strategy, this week may be a little different.

While each of the past two weeks has offered an opportunity to dip a toe back into the energy sector, this week, rather than using individual names there may be reason to think about the most beaten down among the beaten down.

If you own anything in the oil services sector, as I already do, you know which sub-section of the energy sector that happens to be. The oil services sector has been absolutely abysmal, but like the rest of the sector has shown some ability to respond to anything resembling good news. At this point, however, simply being able to tread water would be a major victory for components of that sector.

The Market Vectors Oil Services ETF (NYSEARCA:OIH) can give you either the best or the worst way to establish a position or hedge existing positions. While some components may still be at risk of eliminating or reducing a dividend, there’s not too much doubt that at the first sign of oil prices creeping higher there will be some increase in drilling activity and the reward, at these low price levels, may now finally be greater than the risk.

While not an ETF, the United States Brent Oil Fund (NYSEARCA:BNO) tracks the price of its namesake very closely and offers a way to take a position on the direction and magnitude of future pricing. While I don’t believe that oil prices will be turning higher in the near term, the opportunity doers exist, however, to use a covered call strategy and elect to sell a longer term out of the money strike, if you believe that prices will be heading higher. At the moment, with shares trading at $23.26, for example, selling a $28 April 17, 2014 call option would deliver a premium of $0.80 while awaiting shares to return to a closing price last seen on December 1, 2014.

Pharmaceutical companies, long considered a conservative kind of investment, have been anything but that in recent months. Between the flurry of merger and inversion activity and the very recent across the board drops as a cheaper alternative to the management of Hepatitis C may become the drug of choice by those paying for coverage, the entire sector has responded poorly.

Merck (NYSE:MRK) was one of those companies that appeared to be simply caught in the crosswinds between battling insurance companies and those who play in role in delivering health care and want to be paid for their services. A quick 6% drop in Merck shares isn’t something that happens with any regularity and it can be a suitable longer term covered option position, particularly with its dividend in mind.

In addition the Healthcare Select SPDR (NYSEARCA:XLV) is off of its recent highs in response to the same assault, although not to the degree of some individual names. It offers a reasonable option premium with greater diversification of risk, but without sacrificing inordinately on the reward side of the equation. Like so many surprises, in this case, the decision of a pharmacy benefit management company to squeeze profits, the initial response by investors is swift and often in over-reaction to events. The Healthcare Select SPDR may be a good vehicle to capitalize on some of the immediate reaction as some of the recovery has already begun to take form.

EMC Corp (NYSE:EMC) and VMWare (NYSE:VMW) continue to have the kind of relationship that is too close for many, particularly those who believe that EMC should capitalize by selling its large remaining holding in VMWare.

EMC shares are ex-dividend this week and despite having considered adding shares over the past few weeks, instead, I’ve just watched its price climb higher from the brief drop it took along with the rest of the market, as falling oil prices indiscriminately took most everything lower.

Whether on the basis of its own businesses, its appeal to other larger technology companies or because of its stake in VMWare, EMC remains a steadfast company that has offered moderate share appreciation, a marginally acceptable dividend and competitive option premiums. Individually, none of those is spectacular, but that reflects the kind of company that EMC is in a universe of higher profile and higher risk companies.

VMWare, on the other hand offers no dividend, but does offer some more excitement, and therefore, higher option premiums, than does EMC. I haven’t owned shares in a
while, but might consider entering into a position by first selling puts and rolling over, if necessary, if assignment is trying to be avoided. With earnings being reported in a month, the evening before EMC reports its earnings, there may be additional opportunities to leverage the put premium in advance of earnings, particularly as VMWare is prone to large earnings moves.

There’s nothing terribly exciting about considering adding either Apple (NASDAQ:AAPL) or AT&T (NYSE:T) to a portfolio. With cellphone companies under some pressure, in part due to the popularity of Apple’s offerings, share price is attractive, although there may be some additional surprises as earnings season begins next month and may reflect not only on the competitive pressures, but also on the costs of having Apple as a partner.

AT&T, despite a nice recovery in the past week is still nearly 5% lower than just a month ago. With its generous dividend up for distribution the following week and earnings still nearly 3 weeks after that date, there may be opportunity to create a short term position to collect the dividend and some option premiums in the interim.

There aren’t very many insights that can be offered on Apple. It continues to be on most everyone’s wish list and continues to command premium pricing, even when there may be reasons to believe that competitors may have reasonable alternatives to offer.

Despite having gone more than 20% higher since its stock split, the climb has been reasonably orderly over the past 6 months. However, in the past month, despite the 2% climb to end last week, it has significantly under-performed the S&P 500 during December. I think that if the Santa Claus Rally is for real, Apple shares are bound to atone for some of that drop, just as there is likelihood that all of those consumers feeling more wealthy from the nice surprise of lower oil prices may have treated themselves or a loved one to a new iPhone.

Finally, this will likely be just another week where someone finds reason to either extol or criticize the leadership skills of Marissa Mayer, the CEO of Yahoo (NASDAQ:YHOO).

Like EMC, at least some of Yahoo’s fortunes are tied up in the performance of another company. However, that other company hasn’t yet been tested in any meaningful manner since its recent IPO.

For that matter neither has Marissa Mayer since her ascension, but shares have done nicely during her tenure, perhaps due to a very fortunate situation that she inherited

In the meantime as all of the speculation mounts as to what Yahoo will do with all of its cash, the shares have settled into a narrow range over the past month, having significantly trailed the S&P 500. However, in that time, it has also significantly out-performed shares of Ali Baba (NYSE:BABA), the company to which most believe its fortunes are intimately tied.

Yahoo will report earnings a week before Ali Baba and if considering a position I would probably want to consider one, perhaps the sale of puts, that might allow some reasonable ability to be out of the position before Yahoo’s earnings. If not, I’d especially want to be
out before those of Ali Baba, amid reports that it spent more than $160 million in the past year countering fake listings on its websites.

While I trust that Santa Claus exists, Jack Ma’s request of “trust” may need a little more time to be earned, as apparently trustworthiness may not be a core quality extending very deeply into those who fuel the money making enterprise that took Wall Street by storm just a few months ago.

Traditional Stocks: Apple, AT&T, Healthcare Select SPDR, Merck

Momentum Stocks: United States Brent Oil Fund, Market Vectors Oil Services ETF, VMWare, Yahoo

Double Dip Dividend: EMC Corp (12/30)

Premiums Enhanced by Earnings: none

Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in AAPL, BNO, EMC, MRK, OIH, T, VMW, XLV, YHOO over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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Weekend Update – March 16, 2014

Most of us have, at one time or another believed that we were carrying the weight of the world on our shoulders. The reality will always be that unless we are the President of the United States with a decision to be made regarding pressing that red button, those feelings are somewhat exaggerated and unlikely to be borne out in fact.

It’s probably not an exaggeration, however, to suggest that in the past week the burden of the world weighed down heavily on the U.S. stock markets.

Slowing growth and questionable economic statistics from China and an unfolding crisis in Crimea were the culprits identified this week that sapped the momentum out of our markets. The complete list of “reasons” for last week’s performance was compiled by Josh Brown, but ultimately it all came down to our shoulders. Perhaps like a regressive tax the individual investor may feel an exaggerated impact as well when the market behaves badly and may also take longer to recover from the heavy load of losses.

In addition to the global issues then there were also issues of regulation, seeing the SEC and FTC weigh in on Herbalife (HLF), dueling words of umbrage from billionaires over eBay (EBAY) and litigation from the New York State Attorney General’s Office over General Motor’s (GM) role in potentially avoidable vehicular deaths.

What there wasn’t was anything positive or optimistic to be said during the week, other than sooner or later Spring will arrive. For the first time since the last real attempt at a correction nearly two years ago the market closed lower in each trading session of the past week.

While the weekend may change my opinion, as additional news may be forthcoming as Russian war games on Ukraine’s borders play themselves out and a Crimean referendum is held, I find myself optimistic for the coming week.

I usually try to find ten potential trades for each coming week. Last week I struggled to find just nine. This week my preliminary list was nearly twenty and I had a difficult time narrowing down to ten stocks.

That hasn’t happened in a while.

Certainly, as has been discussed in previous weeks following a downward moving market, the challenge is discerning between value and value traps. In that regard this past week is no different, but for inspiration, I look to the option seller’s best friend.

That would be volatility. It creates the kind of premiums that can make me salivate and it is the lack of volatility that makes me wonder whether anyone really cares anymore about the need for stock markets to react appropriately to fundamental factors, as opposed to simply moving higher under all circumstances.  

Since late 2011 we’ve been used to seeing historically low levels of volatility with occasional spikes representing market downturns. For those following along you know that there haven’t been many of those downturns in the past 20 months, although we did just recently quickly recover from an equally quick 7% loss. Those downturns saw spikes in volatility.

Suddenly there has been a lot of discussion about increasing volatility and for those that get excited about technical analysis, much is made of the significance of Volatility Index breaking above the 200 Day Moving Average.

What you don’t hear, however, are the video playbacks of all of the times the Volatility Index has surpassed that 200 Day Moving Average and it did not lead to a market breakdown, as suggested by many.

Instead, a quick look at the past year seems to indicate an alternating current of spikes in volatility between larger spikes and smaller ones. Simply put, I think we’re experiencing a regularly scheduled smaller spike in volatility.

I could be wrong, but that’s what hedging is all about.

As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend and Momentum categories, with no “PEE” selections this week (see details).

As with last week, despite the uncertainty that may usher in the coming week I see some possibilities even with some higher beta positions, on a selective basis.

While I’ve been trying to emphasize dividend paying positions for the past three months, the only potential such trades that had any appeal for me this week fell into the higher beta category.

While Best Buy (BBY) is probably immune to any direct impact from an overseas crisis, it has had no difficulty in creating its own and has certainly created a crisis of faith before regaining some respectability under new leadership. But for those that have held shares that all seems so long ago after some disappointing earnings reports. Hit especially hard this most recent earnings season, Best Buy has two months left to acquit itself and another two weeks to have their cash registers ring loudly to offset any weather related disappointments. In the meantime shares do go ex-dividend this week and have been trading in a narrow range of late. In the absence of any news it may be expected to keep doing so long enough to capture a dividend and perhaps a premium or two.

Las Vegas Sands (LVS) also goes ex-dividend this week and is also a higher beta stock. While I have traded this stock w
ith some frequency, it’s been a while since doing so as it resists going much lower. While it is at a relative low to its recent high after a 7% decline, it has still had a fairly uninterrupted trajectory. Like Best Buy, there’s not too much reason to suspect that events in Crimea will serve as a direct contagion, the higher beta may be its own heavy weight in the event of a market decline, but like cockroaches, gambling will survive even nuclear holocaust, as may Sheldon Adelson, the Chairman. It may also survive some weakness in China, as there’s no better place to bury your misery than in their Maxao casinos.

It’s usually a fallacy in the making when you use logic to convince yourself of the rationale to buy a stock. That includes the belief that if you liked a stock at one price it must certainly be even more likeable at a lower price. Yet that’s where I find myself with General Electric (GE), whose shares were just assigned from me a week ago and now find themselves priced below that earlier strike price. However, in the case of General Electric, unless there are some horrific surprises around the corner or a complete market meltdown, it’s hard to imagine that it could be classified as being a value trap at this new lower price. Down 4% in the past week and 10% YTD, if the market is heading lower, GE will have been ahead of the curve. While it’s option premium doesn’t reflect much in the way of volatility it does represent a reasonable means to surpass the performance of a flat market.

While retail has been a place that money has gone to die of late, you get a feeling that things may be reversing, at least in the minds of analysts when even Coach (COH), a literal punching leather bag for all, receives an upgrade. While my shares of Coach were assigned this week, as were my shares of Kohls (KSS), I’m ready to repurchase both in their current range, as the long fall down deserves at least a short climb higher.

Coach has shown itself to be able to faithfully defend the $46 level despite so many assaults over the past two years. That ability to consistently bounce back has made it a great covered option position, whether through outright purchase or the sale of puts.

Kohls represents exactly what I like in my stocks. That is a non-descript existence and just happily going along its way without making too much fuss, other than an occasional earnings related outburst. Dependable is far more important than being flashy and as a stock and as a company, Kohls hugs that middle lane reliably, but still provides a competitive premium thanks to those occasional outbursts.

If the thesis that retail is ready for a comeback has more of a basis than just as reflected in share price, but also reflects pent up spending from a harsh winter, MasterCard (MA) is a prime beneficiary. While already somewhat protected from the ravages of weather by virtue of being able to spend your money with just a simple mouse click, there are just some things that need to be done in the real world. Trading well below its pre-split price until recently I had not owned shares in years. Now more readily purchased in scale, I look forward to the opportunity to purchase and re-purchase these shares with some degree of regularity, WHile its dividend is paltry, there is certainly room for growth to rise to the levels of Visa (V) and Discover Financial Services (DFS). However, notwithstanding any potential bump in share price along with a dividend hike, the option premiums can make the wait worthwhile.

In a week of no industry specific news, following a flurry of changes in industry dynamics initiated by T-Mobile (TMUS), Verizon (VZ) fell 3% bringing it down to a level from which it has found significant strength. While General Electric may face some potential liability with events in Crimea or a deteriorating economy in China, I don’t see quite the same liability for Verizon. Instead, whatever burdens it has to carry will come from an increasingly competitive landscape as it and AT&T (T) are continually pushed by T-Mobile and perhaps Sprint (S). In the meantime, while trading in a range and finding support at $46, there’s always the additional lure of a 4.5% dividend.

While Verizon isn’t terribly exciting it meets its match in Intel (INTC). However, the excitement that comes from growth isn’t absolutely necessary to generate predictable profits. Intel is especially well suited when it’s share price is very close to a strike level. If volatility continues to rise the opportunity to purchase Intel expands as the price range at which it may be purchased increases, while still offering an attractive option premium which can be further enhanced by an attractive dividend.

While it was only a matter of time until retail would begin to dig its way out from under the piles of snow, no sector has brutalized me more this past year than the one that requires digging. Freeport McMoRan (FCX) is among that group that hasn’t been terribly kind to me, despite my belief that it would be the “stock of the year” for 2013.

With copper itself being brutalized this past week, despite gold’s relative strength, Freeport McMoRan has itself had the weight of the market’s response to the less than robust Chinese economy to shoulder. But the one thing that you can always count on is that data from China can easily correct reality and that explains the seemingly recurrent see-saw ride that we have been on in those sectors that are tied to their data. The true plunge in copper prices, if sustained, will not be good news for Freeport McMoRan, whose generous dividend payout could conceivably be jeopardized.

On the other hand, shares are now at a level that has repeatedly created substantial returns for those willing to test the waters.

Finally, not many companies, especially those with a newly appointed CEO had as bad a week as General Motors. You might think that having paid its first dividend in years this past Friday there would be reasons to rejoice, but finding yourself at the top of the headlines related to customer deaths isn’t an enviable place, nor one conducive to a thriving share price. When the Attorney General of any state piles on that doesn’t help.

However, with a chorus of those clamoring for General Motors to re-test the $30 level purely on a technical basis there may be reason enough to believe that won’t be the case. Having timed a purchase of shares as inopportunely as possible, I’d like nothing more than to see that position restored to some respect.

As with the recent news that the FTC will b
e investigating allegations that Herbalife was engaged in a Ponzi scheme, the bad news for General Motors, while coming as an acute event, will take a long while to play out, regardless of the merits of the cases or the human tragedies caught up in what is now a story of fines, punishment andperhaps even acquittal.

Traditional Stocks: Coach, General Electric, General Motors, Intel, Kohls, MasterCard, Verizon

Momentum Stocks: Freeport McMoRan

Double Dip Dividend: Best Buy (ex-div 3/18), Las Vegas Sands (ex-div 3/18)

Premiums Enhanced by Earnings: none

Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.

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Weekend Update – January 5, 2014

There’s a lot to be said in support of those who practice a strategy of surrounding themselves with those that suffer by comparison of whatever attribute is under consideration.
Most of us intuitively know what needs to be done if we want to make ourselves or our actions look good when under scrutiny.
The mutual fund industry had done it for years. It’s all about what you compare yourself to, although looking good raises expectations for even more of the same and most of us also know how that often works out.
As observers it’s only natural that we make our assessments on the basis of comparison to whatever standard is available. Among our many human foibles is that we often tend to be superficial and are just as likely to forego deeper analyses when faced with pleasing circumstances. We also want to go with the perceived winners in the belief that they will always be winners. Certainly the investing experience doesn’t bear out that strategy. Yesterday’s winner isn’t necessarily tomorrow’s champion.
Fresh on the heels of a 31% gain in the S&P 500, 2014 is going to have a difficult time in comparison. While maybe hoping that 2015 is going to be an abysmal year in the meantime 2014 has to contend with the obvious stress of the obligatory comparisons.
For the individual investor 2013 has ended with so many stocks at or near their highs that it’s actually very difficult to find that lesser entity for comparison purposes. Everything just looks so good that nothing really looks good, especially going forward, which is the only direction that counts. Looking at chart after chart brings up strikingly similar patterns with very little able to stand out on the basis of its own beauty. Comparing one “super–model” to the next is likely to be an empty exercise for many reasons, but ultimately it becomes clear that there are no distinguishing factors to make anyone stand out.
Without comparisons our own minds get numb. We need differences to appreciate the reality of any situation. When so many stock charts begin to look so similar it becomes difficult to discern where to start when looking for new positions.
While another human tendency is the desire to go with winners this time of the year introduces a traditional concept that looks in the opposite direction for its rewards. This is the time of the year when the “Dogs of the Dow Theory” gets so much attention. In a year that so many stocks are higher the comparison to those that have truly under–performed is really heightened.
As usual, the week’s potential stock selections are classified as being in Traditional, Double Dip Dividend, Momentum and “PEE” categories this week (see details). With earnings season beginning once again this week attention must also be diverted into the consideration of those reports when adding new positions and when selecting the time frame for hedging options. For that reason I’m looking increasingly at option time frames that offer some buffer in time between expiration dates and earnings dates, perhaps making greater use of expanded options and forward month expirations, as well.
This week’s potential selections varied widely in performance compared to the S&P 500 during 2013. While no “Dogs of the Dow” candidates are offered, some were dogs in their own right regardless of what they were being compared to at the time. But as always, since I like to hedge my bets and play on both sides of prevailing sentiment, there may be room for both out–performers and under–performers as 2014 gets underway.
While General Electric’s (GE) 33.5% gain for 2013 was laudable it essentially mirrored the S&P 500 for the year. An analyst downgrade on Friday had virtually no impact, although shares did fall nearly 2% the previous day to start the New Year. Increasingly shedding its dependence on financial divisions that helped to bring it to $6 just 5 years ago, GE may now be wondering if this wouldn’t be a good time to emphasize that division, as interest rates are beginning to rise. But even a stagnant GE in 2014 when considered in the context of its dividend and option premiums offers a good place to invest if the aim is to out–perform the S&P 500.
Barclays (BCS) is one of those in the financial sector that had greatly lagged the S&P 500 in 2013. With significant international exposure it shouldn’t be too surprising that it might better reflect the lesser fortunes experienced by the European markets, among others. I already own shares and will consider adding more as it appears that there will be a move higher which I expect will be confirmed by improved earnings when reported during the February 2014 option cycle, which may also see a dividend payment.
Chesapeake Energy (CHK) has long been a favorite stock upon which to sell covered calls or enter ownership through the sale of puts. It out–performed the S&P 500 by nearly the amount that Barclays under–performed for the year, but after some recent weakness that reduced shares by 7% its chart has started looking less like the crowd. While certainly not in the “loser” category it’s potential looks better to me than those that haven’t taken the time for the share price to take a breather of late.
As long as in comparison mode, last January Family Dollar Store (FDO) dropped 12% upon earnings release, which followed a 9% drop the previous month. The option market isn’t expecting a repeat of that performance, perhaps because shares are already down 11% since its September high. Instead a 5.9% implied move is priced into option contracts. The sale of out of the money puts at a strike price at the lower end of the implied move could return 0.9% for the effort. That is just below my typical threshold for making such a trade, but if looking for a relative “dog,” this may be the one ready for a rebound.
Joy Global (JOY) is one of those stocks that recently broke out of its reliable trading range. Once that happens I lose interest in re–acquiring shares, having already owned it on eight occasions in 2013. What I don’t lose is interest in seeing shares return to that range. Following an earnings related share fall the price rebounded beyond where it started is descent. However, a recent downgrade has started nudging shares back toward the upper edge of the range that has proved to be a good entry point. While no one really has any good idea of what awaits the Chinese economy and by extension, Joy Global’s fortunes, it has proven to be a resilient stock and offers an option premium to go along with its frequent alternations in price direction.
It has been a long time since I had own any communications stocks until a recent T–Mobile holding. While both Verizon (VZ) and AT&T (T)were core holdings during the recovery stages in 2009, I haven’t found them very appealing for much of the recovery. However, both do go ex–dividend this week and the cellphone services sector is certainly livening up a bit. But beyond that, for the first time in a long time there were glimpses of these shares offering meaningful option premiums during their ex–dividend week that seemed to warrant their consideration once again. In fact, I didn’t wait until Monday and purchased shares of Verizon after weakness on Friday and may elect to accompany those shares with its rival’s shares, as well.
Darden Restaurants (DRI) was a selection just a few weeks ago but went unrequited as news broke regarding activist investor coercion regarding potential spin–off plans for its low growth Red Lobster chain. Shares go ex–dividend this week and earnings pressure is still two months away. Although a $55 strike would require challenging its 52 week high, this is a potential trade that I would consider using a forward month contract, such as the February 2014, in anticipation of some increasing pressure from the investment community and activists intent on re–engineering.
Finally, a study in comparative contrasts are Walter Energy (WLT) and Icahn Enterprises (IEP). While Icahn Enterprises was nearly 145% higher for the year Walter Energy dropped nearly 54%.
While Carl Icahn may get more done on the basis of brute force investing and schoolyard tactics, Walter Energy now relies on the power of redemption and grace, and maybe just a little on business cycles.
A quick look at the comparative charts shows what a difference time can make, as Walter Energy greatly out–performed Icahn Enterprises prior to this year and how Icahn Enterprises had been simply a market performer until the past year.
Interestingly in the past month Walter Energy has risen about 15% while Icahn Enterprises has fallen a similar amount.
IEP Chart
This past year no one has received more attention for his investing and activism than Carl Icahn. This week yet another company Hertz (HTZ) acknowledged that it was in the Icahn crosshairs, as it adopted a poison pill provision to keep him at bay. Icahn Enterprises, a tangled web of holding companies and investment activities shows little sign of slowing down as long as the market remains healthy. With the ability to raise stock prices with a simple Tweet, Carl Icahn may be more in control of his destiny than the market was intended to allow.
With a healthy dividend likely during the February 2014 option cycle and an attractive option premium, Icahn Enterprises may be a good choice for someone with a little daring to spare, as the ascent has been steep.
Walter Energy, on the other hand, has been slowly working its way higher, although still having a long way to go to erase its past year’s loss. While there is certainly no guarantee that last year’s loser will be this year’s darling, Walter Energy certainly is the former. It has, however, for the daring, offered excellent option premiums even for deep in the money options, that do mitigate some of the risk inherent in ownership of shares.
Traditional Stocks: Barclays, General Electric
Momentum Stocks: Chesapeake Energy, Icahn Enterprises, Joy Global, Walter Energy
Double Dip Dividend: AT&T (ex–div 1/8), Darden (ex–div 1/8), Verizon (ex–div 1/8)
Premiums Enhanced by Earnings: Family Dollar Store
Remember, these are just guidelines for the coming week. The above selections may become actionable, most often coupling a share purchase with call option sales or the sale of covered put contracts, in adjustment to and consideration of market movements. The overriding objective is to create a healthy income stream for the week with reduction of trading risk.

 

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Weekend Update – March 17, 2013

Many stock charts look similar lately. For those old enough to remember Alan Greenspan’s first year as Chairman of the Federal Reserve Bank, the upward slope was all that many new investors and stock brokers had known for 5 years.

You may or may not recall how that second year went for him. It was the year that the stock market re-discovered the concept of gravity and the more complex notion of negative numbers.

To hear the one time Federal Reserve Chairman intone yesterday that the market is greatly undervalued sends whatever message you would like to hear when you digest his words.

“Irrational exuberance is the last term I would use to characterize the performance at the moment.”

The key to escaping responsibility and a stain on your prognosticating ability is the phrase “at the moment.” I use that a lot myself, as any moment can end up being the inflection point. It’s just too bad that the television cameras aren’t rolling at that point.

There’s much speculation lately about the source of any new money coming into the markets. Whether it’s refugees from the bond market or those that have sat on the sidelines since being shaken out sometime in the past 5 years. I’m not certain why the answer seems so hard to ascertain, but with all of the smug talk about those investors who represent the “smart money,” you might believe that any new money at the margins would be somewhat less smart. After all, besides perhaps being late to the party, they were either in bonds or cash all of this time.

How smart is that? Well, it depends on what side of the inflection you’re on when the question is asked.

Regardless of where any new money may be coming, all such funds are faced with the same dilemma. Do you chase something that’s already left the station or do you wait for the next opportunity to come along?

In a way, if you sell calls on your positions, you’re regularly faced with those question upon assignment. If you sell lots of weekly call options the question is a frequent one.

If you believe in history repeating itself, images such as this may be of concern:

Unless of course you’re very concrete, in which case there’s still three months left to frolic in higher prices and invest with impunity.

Approaching my fourth week of negativity and seeing a decrease in option income as a result of re-investing less of the proceeds of assigned shares, something has to reach a breaking point. Since the theoretical number of consecutive days that the market could go higher is unlimited, it may make sense to temper the conviction that only negative things wait ahead, especially for those unprepared.

Granted, the “doomsday preppers” that are featured on basic cable these days may not be the best of role models, there has to be something in-between that offers a compromise.

I think that compromise is avoiding most anything that your grandfather never had to opportunity to purchase.

The week’s selections are categorized as either Traditional, Momentum, or “PEE” (see details). Although my preference is to now look for high quality, dividend paying stocks as a defensive position, sadly, there are none such going ex-dividend this week.

I don’t recall the last time I considered so many stocks at any single time from the Dow Jones Index. In a month where the first 10 trading days took us higher, of the following Dow Index stocks only one outperformed the S&P 500.

Caterpillar (CAT) is approaching one of my favorite price points for its shares. Despite no negative news, other than what may be inferred though always questionable Chinese economic data, shares have been languishing and get more appealing daily. Those other heavy machinery companies without the potential Chinese exposure have been enjoying the market climb.

Home Depot (HD) has been a favorite stock ever since I dared to compare it to Apple (AAPL) in terms of performance, at a time that Apple was hitting on all cylinders. There’s nothing terribly exciting and there’s probably very little new information that can be added about Home Depot. It simply offers safety,a decent premium and continues to hit on all cylinders even as other more flashy companies have done otherwise. Let others debate whether increased housing sales are good or bad or whether it is a better buy than Lowes (LOW). It is simply a reliable portfolio partner.

JP Morgan Chase (JPM) is no longer made of Teflon, although its share price continues to be fairly resistant. With Congressional hearings starting today and findings that JP Morgan was indifferent, at best, to the risks that it was assuming in what became known as the “London Whale Trades,” it will re-join its banking brethren who are, by and large, seeing their stocks enjoy the results of the stress tests. The
increased dividend announced is a nice little touch, as well an inducement to add shares.

I rarely look at the Communication Services or Utilities sectors unless I want safety and dividends. That was a good formula early on in the process of recovering from 2007 plunge. But it may also be a good formula to protect against downwinds. Not necessarily a very exciting approach, but sleeping at night has its own merits. AT&T (T), although not going ex-dividend this week is expected to announce its ex-dividend date sometime in the April 2013 option cycle. It will be my Ambien.

Merck (MRK) was the lone Dow component company to have out-performed the S&P 500 through March 14, 2013, purely on the big bump when it received favorable news regarding its controversial Vytorin product. Recently its option premiums have started to become more compelling. I had hoped to purchase shares last week in order to capture the dividend, however, the Vytorin news disrupted that, as I chose not to chase.

Starbucks (SBUX) is a bit more expensive than I would like in order to pick up new shares, but I always prefer to get shares when it hovers near a strike price. Although your grandfather may not have been able to ever purchase shares of this company, it definitely has a business model of which he would approve. Basic and simple, while offering an addictive product worked well for tobacco companies and is equally and consistently successful at Starbucks.

The lone Momentum stock this week is Coach (COH). Having just had shares assigned at $49 and still owning some higher priced shares at $51, I rarely like to chase stocks as their prices have gone higher than their assigned price. However, I think that the worst is over for Coach and it still carries cache, despite some equivocation regarding its status in the luxury sector of retail.

I’ve had shares of Coach come in and out of my portfolio on a consistent basis ever since the first assault on its future and subsequent 10% drop in share price. It’s sometimes a little maddening how out-sized its moves are, but it does tend to gravitate back toward its pre-assault home.

Although I do want to eschew risk, there may be some earnings related trades this week that may still offer a reasonable risk-reward scenario.

With the exception of LuLu Lemon (LULU), all of the potential earnings related stocks are ones that I’ve happily owned in the past year and would be comfortable owning again. LuLu Lemon, however, is the only one of those potential plays that would fall into the Momentum category, although all are retailers or consumer discretionary companies.

Retailing based on what may turn out to be a fad is always a risky proposition and LuLu Lemon has certainly shown that it’s capable of exhibiting large price moves, both earnings related and otherwise. Someday, it may be on the wrong side of being a fad, but there’s currently no indication of that happening and impacting this current upcoming earnings release. Although it is capable of a 15% move in either direction, those a bit more daring may find the premiums associated with a 10% move appealing.

My shares of Tiffany were assigned this Friday, having been held for 181 days, as compared to just 26 days for positions opened in 2012. It’s was an interesting run, with lots of ups and downs, but its performance beat the S&P 500 for its holding period by 4.9%. Now offering weekly options, it is even more appealing to me as a casual purchase. With earnings this week and a significant recent run-up in price, put options are aggressively priced and attractive, if you don’t mind the possibility of owning shares.

Williams Sonoma (WSM) is one of those stocks for which I wished weekly options existed, especially as it offers earning related opportunities at the very beginning of a monthly cycle. It too, is very capable of 10% moves in either direction upon earnings, but as Coach, does have a tendency to return if the market reacts negatively.

The final earnings related trade is Nike (NKE). Although it is also capable of 10% moves, it doesn’t offer premiums quite as enhanced as some of the other names. However, it certainly doesn’t carry the risk of being a fad and so, even with a precipitous drop there can be reasonable expectations for a return to health. Even in the event of assignments of puts sold to capitalize on earnings, there are worse things in the world than owning shares of Nike.

Traditional Stocks: AT&T, Caterpillar, DuPont, Home Depot, JP Morgan, Merck, Starbucks

Momentum Stocks: COH

Double Dip Dividend: none

Premiums Enhanced by Earnings: LuLu Lemon (3/21 AM), Nike (3/21 PM), Tiffany (3/22 AM), Williams Sonoma (3/19 PM)

Remember, these are just guidelines for the coming week. Some of the above selections may be sent to Option to Profit subscribers as actionable Trading Alerts, most often coupling a share purchase with call option sales or the sale of covered put contracts. Alerts are sent in adjustment to and consideration of market movements, in an attempt to create a healthy income stream for the week with reduction of trading risk.

Some of the stocks mentioned in this article may be viewed for their past performance utilizing the Option to Profit strategy.