Daily Market Update – August 19, 2015 (8:15 AM)
Yesterday was a pretty boring day as far as markets go, despite having two DJIA component companies report their earnings.
If those two had gone in the same direction it might have become more interesting, but they basically offset one another both in the price weighted DJIA and market capitalization weighted S&P 500, sothe day was pretty much a draw every where you looked.
Although the market was boring, there was some opportunity to get some trading done. Some of it was of a preventive nature, trying to get some more premium out of a position that had a large fall yesterday, a week before reporting earnings. Abercrombia nd Fitch’s announcement that they were bringing in 6 outside executives in a re-structuring was basically sending the message to the market that next week’s earnings are going to reflect a need to restructure and the market interpretd it just that way, forcing a big sell-off before next week’s stampede.
Another rollover, Holly Frontier, was to try and still get the dividend on a stock that’s very likely to get assigned early for its dividend, by rolling it over, collecting the premium, while still being in decent position to have shares get assigned early.
The final trade, was the one that I was hoping to make on Monday, in order to capture a nice premium in exchange for giving up the dividend. That was Cablevision, and I thought that selling the well in the money call would result in shares being assigned. But this morning those shares are still in the account, although, as usual, I’ll do the tally to see if that was the general experience.
With all of that happening on an otherwise boring day, now I’d be happt to see the rest of the week just coast until the end, trying to keep a few positions in contention for either rollover or assignment.
ALthough there are some major retailers reporting earnings today, Lowes and Target, as well as a specialty retier, L Brands, it should be a relatively quiet day. The day also includes a release of last month’s FOMC minutes, which could give some insight into what is going on in the minds of its members.
Although not an FOMC member and soon to be departing as a Federal Reserve Governor, Narayana Kocherlakota came out this morning saying that it would be a mistake to raise interest rates in September. That’s not too much of a surprise, since he has generally been dovish, although a few months ago he gave some indication that the time for a rate increase was nearing.
While we may have been on the path to see those rates get increased in September, it’s very possible that the FOMC members didn’t believe that anyhting so substantial would be happening in China while they were on their vacations, so they may have some second thoughts.
That might be good for the markets, although I’m still of the belief that a small increase would be welcome. Not only would it offer a chance for a relief gasp, but it could also make it easier to have a smooth series of small increases, rather than having to take quantum leaps, which could be more unsettling.
For today, the market appears as if it’s going to get off to a negative start. Hopefully those futures will continue having a fairly poor record of predicting what the market will do during the course of the regular trading day and the market can reach deep down to find something good to celebrate, maybe coming from the aisles of Lowes and Target.
Note: I had a couple of people ask today why the rollover of Holly Frontier, which has September 18, 2015 $50 calls written on both outstanding lots. Since Holly Frontier is now about $3.25 above the strike and shares go ex-dividend on August 31st, for $0.33, I expect early assignment if shares stay at this level.
So in a pre-emptive move in an effort to get the equivalent of the dividend if assigned early, I decided to rollover an got a $0.35 premium. If shares are assigned early on August 30th, then you still have that extra premium which is a tiny bit more than the dividend itself. Better yet, you then get the proceeds from the assignment and the opportunity to re-invest or add to cash reserves, without having to wait an additional 3 weeks for asignment.