GME | Option to Profit

Nov192016

Weekend Update – November 20, 2016

You might be able to easily understand any reluctance that the FOMC has had in the past year or maybe even in the year ahead to raise interest rates.

To understand why those decision makers could be scarred, all you have to do is glance back to nearly a year ago.

At that time, after a 9 year period of not having had a single increase in interest rates, the FOMC did increase interest rates.

The data compelled them to do so, as the FOMC has professed to be data driven.

Presumably, they did more than just look in the rear view mirror, casting forward projections and interpreting what are sometimes conflicting pieces of the puzzle.

At the time, the conventional wisdom, no doubt guided somewhat by the FOMC’s own suggestions, was that the small increase was going to be the first and that we were likely to see a series of such increases in 2016.

Funny thing about that, though.

Data is not the same as a crystal ball. Data is backward looking and trends can stop on a dime, or if I were to factor in the future value of money based upon the increase in the 10 Year Treasury note ever since Election Day, considerably more than a dime.

With the gift of hindsight, 2016 didn’t work out quite the way we all thought it might, but here we are, nearly a year later and with interest rates right where they were when they were last raised and the near certainty that they will be raised once again in just a few weeks.

Looking at the chart above and recalling the subsequent nose dive that the stock market took in the aftermath of the FOMC decision, you can begin to understand why there might be a sense of “once burned,” even as the FOMC should not include the stock market’s health in its own mandate.

But while there may still be a sense of doubt by those spending every waking moment in a darkened study pouring over economic data, when not participating in a speaking engagement, a quick look outside the window would have shown that the FOMC’s work was being done for it.

That’s because natural economic forces have now done the heavy lifting.

Just look at the nearly 28% increase in the interest rate on that 10 Year Treasury Note since its close on Election Day. That had to be music to the ears of even the doves on the FOMC, regardless of their political inclinations.

Who wants to be the bad guy or who wants to be the one responsible and have fingers pointed in their direction when things don’t work out as planned?

“The dog did it” is always a convenient excuse, but the resurgence of the consumer is now taking a dog of an economy and translating into the kind of economic growth that even a backward looking FOMC can embrace as being the handwriting on the wall.

While specialty retailers may not be feeling the glow, the larger national retailers are reporting good top and bottom lines and, more importantly, see a better near term future.

The consumer may be doing more heavy lifting at the check out line and energy prices remain low as more people are going to work and getting better wages to do so.

Check, check and check.

So while those natural forces have already driven up interest rates making it so easy for the FOMC to do so for only the first time in 2017, a small piece of me believes that the FOMC doesn’t want anyone to do its heavy lifting, but they may appreciate a little bit of a hand.

Especially, if they are of the mind to continue to present themselves as relevant in the face of an unexpected Presidential election.

That leaves me wondering whether the FOMC may still have a surprise in store for all of us and come in with a pre-emptory 0.50% interest rate hike instead of what we have been expecting.

Too much good news and too large of an increase in interest rates secondary to market forces may awaken those with memories of inflation past and the role of interest rates as a brake.

I don’t expect that to be the case, but when has predictability of the economy or the FOMC ever been assured?

Tradition would have you believe that the FOMC would not do such a thing before the start of a new administration, even as they are supposed to be blind as to the political scene, but there is not likely to be too much love lost after the moving trucks pull into the White House.

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

I don’t expect to be doing too much trading in this coming week, but that has been pretty much my story for 216, anyway.

The Thanksgiving holiday shortened week makes already low volatility induced option premiums even lower and we may be in a holding pattern until December’s FOMC meeting.

While there’s always concern about exaggerated market moves during periods of low trading volume, such as the coming week is expected to be, the possibility of a holding pattern can be a covered option writer’s best friend.

Dow Chemical (DOW) has been in a holding pattern for a while as we await some regulatory decision regarding its deal with DuPont (DD). It’s stock price has also been in a holding pattern, but the premiums may be bolstered a little bit by the uncertainty that still hangs over that deal.

Most best guesses would be that under a Trump Administration there could be a more wide embrace of such mergers and buyouts, but as I have long believed, there isn’t too much downside in the event the deal comes apart.

Maybe upside, actually.

What I do see is that there is a nice dividend coming up as 2016 comes to its end. However, I would likely try to take this on a week by week basis, also being mindful of the FOMC and its potential impact on markets.

Even with some adverse market news, I think that Dow Chemical’s downside is restrained and it may offer an attractive serial rollover opportunity allowing premiums and return to accumulate.

Although in an ear of electronic gaming, no one really rolls the dice anymore, but if you like rolling the dice, GameStop (GME) reports earnings this week. It has been everyone’s favorite short position for years and has been the least favorite of many as it has consistently refused to fade away.

The fact that the short sellers have also been on the line for a very generous dividend hasn’t helped to endear the company to them, although there is no doubt that if you had timed this stock properly, there have also been many short term shorting opportunities over the years.

The options market is implying only a 7.1% move this week, which is relatively small by past standards and GameStop has certainly shown that it can surprise stock investors and option speculators on both sides of the proposition.

I generally consider the sale of puts at a strike price that is outside of the range implied by the options market, if it can deliver a 1% ROI for the week.

It looks as if GameStop will be able to meet my criteria, but my concern in doing so is that its shares are right near an almost 4 year low and the trend in the past year hasn’t been very good.

As a specialty retailer, I don’t know if GameStop will follow the pattern of some others having recently reported earnings, but if it does, those lows are in danger of being wiped out.

For that reason, I would likely wait until after earnings are announced and would consider the purchase of shares and sale of calls if shares do anything other than moving sharply higher.

I would also want to hear some words that soothe fears regarding the dividend.

Finally, while broken records can really be annoying for those who actually remember what a record is, I’m going to look at 2016 fondly for the Marathon Oil (MRO) broken record it has given me.

With the expiration of short puts and the assignment of long calls, my self-imposed rule of never having more than 3 lots of any position is no longer a hindrance in considering a new Marathon Oil position this week.

With those two closed positions this past week, 2016 has now seen 11 Marathon Oil lots closed and it remains in a price range that I find appealing.

It is, however, at the top of that range, so I don’t expect to run head first into ownership of either shares or the sale of puts, but would absolutely consider doing so on the first downdraft in shares that again brings it near the $15 level.

Marathon Oil in 2016 has been the poster child for serial buy/writes or short put sales and then rollovers of those short option positions, sometimes even when in the money.

Of course, just like all trends, there can be a departure at any time, just as was the case for Morgan Stanley (MS), whose final lot of shares was assigned from me this past week, as it was my serial darling of 2015, until it wasn’t.

Traditional Stocks: Dow Chemical

Momentum Stocks: Marathon Oil

Double-Dip Dividend: none

Premiums Enhanced by Earnings: GameStop (11/22 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.

Sep32016

Weekend Update – September 4, 2016

TheAcsManWeekend UpdateComment

These are sensitive times.

For the longest time the FOMC and investors were the closest of allies.

The FOMC gave investors what they craved.

With cheap money increasingly made available investors could do what they want to do the most.

Invest.

In return, if you believe in trickle down economics, the great wealth created by investors would then get re-invested into the economy, helping to fund the creation of jobs, which in turn would fuel increasing demand for consumer products.

That would result in a virtuous cycle that would grow the economy, with the FOMC carefully controlling growth to keep the 40 years’ worth of inflation fears soothed.

Surely that was a win – win scenario, in theory, at least.

Then came the rumors.

Those rumors were started, fueled and spread by the very FOMC that created good times for most everyone that had a discretionary dollar to invest.

The fear that those rumors of an interest rate increase coming soon, perhaps a series of them in 2016, would become reality, periodically sowed selling waves into the blackened hearts of investors.

With even the doves among the FOMC members beginning to utter tones spoken by hawks, investors knew that their glory days were numbered and began expressing some slow acceptance of an interest rate increase.

It’s not as if they really had any choice, although it was also clear that any evidence of consumers slowing down or not living up to their expectations would send the FOMC into a bit of a retreat, which in turn would send investors into a subdued celebratory mode.

What had become clear, however, over the past few months is that the acceptance is begrudging at best, as it is more accepted in theory rather than in reality.

Investors have shown an uneasy acceptance of an interest rate hike, as long as it comes later and not sooner.

That was abundantly clear this past week as the disappointing Employment Situation Report data was initially interpreted by investors as meaning that the probability of an interest rate increase announcement coming at this month’s FOMC meeting was less likely.

Markets moved nicely higher on the notion that there was going to be another few months of cheap money to fuel the party.

But then came word from among the top leaders of the FOMC and Federal Reserve that conditions were still being met for an interest rate increase in September and investors did what they usually do when fear or loathing is part of the equation.

The FOMC and investors simply continued playing the game that they’ve been playing for much of 2016, having established an uneasy truce, while awaiting for the other side to blink.

At some point, this truce will either fall apart or the sides will embrace one another.

For all of their obfuscation and for all of the confusing economic data, there is still little sign that retailers are ready to tell us that stores are crowded and inventories are being depleted.

The FOMC seems to have erred once when raising interest rates almost a year ago. The market’s decline in the period afterward wasn’t with foresight of the lack of economic growth to come.

It was due to disappointment that the party was slowing down.

The subsequent recovery has all come as thoughts of extending the party have taken hold.

Now, though, I think we are ready to move forward, even if taking a short term step backward upon the reality of another interest rate increase, in anticipation of the FOMC not making the same mistake twice.

But, I wouldn’t mind waiting until December. It might not be a bad idea for the FOMC to be behind the curve this time, to allow the current uneasy truce to give way to renewed investor confidence based upon an expanding economy and a return to investing based upon fundamental factors.

Nothing spells peace better than two independent and healthy entities going about their own businesses side by side.

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

Volatility is painfully low and there are only 4 trading days in the current week, so weekly option premiums are going to be even less appealing.

On top of that, with earnings season essentially having come to its end, all that remains is an FOMC watch and then the reaction to its action or inaction.

For me, that just leaves more uncertainty, but without the reward.

Because of that, my predominant focus is on securing more dividends, if possible.

For the week, that leaves me in consideration of adding shares of Coach (COH), General Motors (GM) and the recently added GameStop (GME).

I currently own all three of those and see opportunity in all three, not just for the upcoming dividends, but also for their option premiums and some chance for capital appreciation, as well.

Generally, when I do consider positions going ex-dividend, I try to exploit any possibility of a pricing inefficiency that would have some of the decrease in the share price coming as a result of the dividend, being borne by the option buyer.

As a result, I usually try to sell in the money call options generally being happy with either early assignment or receiving the dividend.

This week, however, I’m more inclined to consider the sale of slightly out of the money calls or may consider longer term expirations.

I purchased GameStop following its fairly muted decline, by its historical standards, following recent earnings, specifically with the dividend in mind.

Shares have been trading fairly well on the heels of its bad news and have shown some stability. While GameStop has had “another shoe to drop” in the past, I think that the near term opportunity is to exploit both its price decline and generous dividend.

There’s no question that its business model has challenges, but those challenges have been constant and evolving over the years, while GameStop has adapted, evolved and persisted.

I don’t look at GameStop as a long term holding, but it is a stock that may also be amenable to serial rollover, which has been my primary activity in 2016, as my overall trading activity has taken a dive even from 2015, which itself was a low trading volume year.

Coach and General Motors appeal to me at the moment for different reasons.

I like Coach following having given back some recent gains, which returns it to a support level that appears to have some holding ability. With few people now questioning its long term strategy or ability to compete, Coach continues to build its base and make itself more accessible to more consumers.

Unlike GameStop, I would consider any new positions in Coach as a potential longer term holding and would also consider it a serial rollover vehicle that also happens to have an appealing dividend.

I like General Motors at the moment, not because of its recent price decline, but rather for its recent price stability.

It doesn’t have the same kind of price supports that Coach has, however, it too, may be considered as a longer term holding with a very attractive dividend and option premiums, as long as the share price remains in its current neighborhood.

With volatility continuing so low and the longer term trend continuing higher, it’s difficult to buck the trend, so a longer term perspective with positions such as Coach and General Motors may be appropriate under current market conditions.

Finally, with so many now believing that the financial sector may finally awaken as interest rate increases seem likely, I think that I may finally be ready to secure my first position in PayPal (PYPL).

There is no dividend, but what really appeals to me since its spin off from eBay (EBAY) is the well defined trading range and liquidity of its options.

The availability of extended weekly options makes it also a candidate for serial rollovers as it continues to offer an attractive premium, despite having traded in a fairly narrow range.

Ultimately, the ideal application of a covered option strategy, in my opinion, is when that combination of price stability and attractive option premium exists alongside liquidity.

If that kind of co-existence is possible, surely investors and the FOMC can figure out a way to move forward as 2017 approaches.

Traditional Stocks: none

Momentum Stocks: PayPal

Double-Dip Dividend: Coach (9/8 $0.34), GameStop (9/7 $0.37), General Motors (9/7 $0.38)

Premiums Enhanced by Earnings: none

Aug202016

Weekend Update – August 21, 2016

TheAcsManWeekend UpdateComment

We are pretty much done with the most systemically important earnings reports for this most current earnings season.

To say that it has been a confusing mix of results and projections would be an understatement.

By the end of the week, we had our fourth consecutive week of almost no net change. Yet the market remained within easy striking distance of its all time closing highs.

Why it’s at those all time closing highs is another question, but for the past 2 months the climb higher, while confounding, hasn’t disappointed too many people even as it’s given no reason to really be hopeful for more to come.

However, technicians might say that the lack of large moves at these levels is a healthy thing as markets may be creating a sustainable support level.

That is an expression of hope.

Others may say that the clear lack of clarity gives no signal for committed movement in any direction.

That is an expression of avoidance, so as to preclude disappointment with whatever happens next. If you have no great hopes, you can’t really have great disappointment.

I buy into both of those outlooks, but have had an extraordinarily difficult time in believing that there is anything at immediate hand to use whatever support level is being created as a springboard to even more new highs.

My hope is also tempered by the knowledge that there have been very few instances in which a market has been able to exceed its previous closing highs by more than 2% and while this has been one of those rare times, that “support” level identified by technicians could just as easily be a barrier.

The disappointments of the past 2 weeks that reflect consumer participation in the economy make it hard for me to understand where the justification for a near term interest rate increase will come from.

Ordinarily, I wouldn’t care, except that with the recently strong Employment Situation Report it seemed as if traders were happier with the idea that it was finally time to raise those rates.

What at one time would have been disappointment over the raising of rates has more recently become an expression of hope that higher rates would be a reflection of a growing economy and presumably improved earnings and eventually leading to expanded price multiples.

To hear the stream of Federal Reserve Presidents willing to share their opinions, and there is no shortage of those, you would think that there was plenty of reason to suspect that a rate hike was at hand. The release of the FOMC minutes this week did nothing to dispel that notion either and markets reacted quickly and positively to the suggestions of that increase.

But, then there’s that nagging confusion.

The previous week saw some of the major national retailers start the stream of earnings from that important sector and the initial reaction to uninspiring news and disappointing guidance was hope for better things to come.

How else could you explain the surging prices of those retailers amidst a sea of news that had little of redeeming value?

So often it’s said that “hope is not a strategy,” but as long as axioms are in vogue, traders were “putting their money” where their hopes were and sent those retailers sharply higher.

That wasn’t the case this week.

Well, some of it was the case. Earnings and guidance from retailers was still fairly anemic and guidance was still as disappointing. This time around, however, no one seemed eager to double down and make “lemonade out of lemons.”

It’s hard to fault a sense of caution when disappointment has been at hand, however, I do see the possibility of yet another force at play when we begin to ready ourselves for the next round of earnings.

That starts in October and while there was increased belief that the FOMC would find reason to announce their need for an interest rate increase at the time of their September meeting, I think it will not come at that time.

Instead, the widespread disappointment in retail earnings and the lack of even a shred of optimism leaves us in a position to react to an “under-promise, but over-deliver” scenario that could be the perfect storm of increasing consumer led revenues, profits and stock price.

At least I hope that’s the case.

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

This is yet another week that I have difficulty in identifying anything that captures my interest and more importantly, anything that can capture my money.

For me, 2016 has thus far been a very good year, but most of that has been on paper. It hasn’t been a year of generating consistent option premium revenue, even as dividend revenue has continued playing more of an important role in my thinking.

It has been a year of very little trading and very few newly closed positions that could either be used to build up cash positions or used to fund the opening of other new positions. Not only has my trading been very limited, but it has also been limited to a very narrow range of stocks.

I don’t mind the former, because it requires much less of a thought process when you simply do the same thing over and over and become a serial purchaser of the same stock or serial seller of the same calls or puts.

Ironically, all of the positions that I’m considering this week are reporting earnings and despite the uncertainty that’s always associated with earnings, these may offer a reasonable level of reward for the risk, with a very specific caveat.

In addition to all reporting their quarterly earnings this week, Best Buy (BBY), GameStop (GME) and Hewlett Packard (HPQ) all have other things in common.

For one, they have all been written off as becoming increasingly irrelevant and unable to compete in a changing marketplace.

That may still turn out to be the case for any or all of those names, but they have all gone on to see another day.

Best Buy has been in the news lately as it celebrates its 50th anniversary. The “Black Friday” like prices promised may bring customers into its stores, but it’s probably a question for a future quarter as to whether there is a net positive impact from steep price cutting, especially when comparisons are made.

Even as it’s chief rival Amazon (AMZN) grows and grows, Best Buy continues to have relevance and is no longer purely a brick and mortar showcase for its rival.

I currently have a 16 month old share lot and despite its anemic 7% ROI to date, that still puts it 2% ahead of the S&P 500 for the comparable period.

Disappointing?

Yes, especially if I were more precise and also factored in the S&P 500 dividends for that time period.

But I still have hope, because that 7% return comes as the shares are still about 11% below their purchase price.

Hewlett Packard, has certainly been a disappointment the past few years to just about everyone. I still own shares following the spin-off of its more energetic self, Hewlett Packard Enterprises (HPE).

While Meg Whitman jumped ship and left the commodity based business behind in favor of the spin-off, I saw my shares of the latter assigned as one of those very few 2016 closed positions. But, as anemic as Hewlett Packard has been, the accumulation of premiums and dividends has made mediocrity the new black.

While the technology sector has performed admirably during this earnings period I would be reluctant to bet that the same would necessarily extend to Hewlett Packard, particularly if the market has a stutter step or two this week.

GameStop may be the poster child for a company that has been written off on so many levels and so many times.

Whether it’s the business model that’s called into question, the changing face of gaming or the entry of muscled competitors, GameStop has persisted, much to the disappointment of that short selling community.

Always a favorite of the short selling community, except when it surges on unexpectedly strong earnings, it has neither gone to “zero” nor willingly given up its fight for relevance.

What these three weekly choices also have in common is that all three will be going ex-dividend in the next 2 to 3 weeks.

I generally like to consider earnings related trades in terms of the sale of puts, but am wary of doing so when there isn’t very much time to recover from a larger than expected price decline with an impending ex-dividend date to also consider.

Normally, I would consider rolling over the short puts in the event of that kind of an adverse price movement, but I generally would prefer to have outright ownership of shares with an ex-dividend date rapidly approaching.

The final thing that all three have in common, at least from my perspective, is that I’m not interested in establishing any kind of position other than after earnings and then, only in the event of a reasonably sized decline.

That’s because the options market is not implying the kind of moves that those stocks have made in recent years when earnings have been released.

That is the essence of the caveat.

For me, that means that there is insufficient reward relative to the risk if trying to enter into a position before earnings are announced.

While the opportunity to generate some revenue from the sale of puts may vanish if waiting until after earnings and the earnings surprise to the upside, the reward could be magnified in the event of a large downside move as volatility driven premiums typically increase and entry price may be considerably lower.

In such an instance, I would probably prefer to buy shares and sell calls. In doing so, I’d be mindful of the upcoming ex-dividend dates and would likely look at the opportunity to sell longer term dated options and rather than utilizing in the money or near the money strike levels, would consider going for some capital gains on the underlying shares that may just need a little time for a price rebound.

Or at least I will hope if in that position to be disappointed.

Traditional Stocks: none

Momentum Stocks: none

Double-Dip Dividend: none

Premiums Enhanced by Earnings: Best Buy (8/23 AM), Hewlett Packard (8/23 PM), GameStop (8/24 PM)

May212016

Weekend Update – May 22, 2016

TheAcsManWeekend UpdateComment

If you could really dodge a bullet, magicians from Harry Houdini to Penn and Teller would never have had to perfect the ability to catch them in their teeth.

Yet, we may have dodged a bullet this past week.

Forget about the fact that the stock market still seems to like the idea of higher oil prices. We’ve been dodging the impact of increasing oil prices through most of 2016. At some point, however, that will change. That bullet has been an incredibly slow moving one.

What we dodged was a second week of terrible retail earnings and continued over-reaction to the thought that a June 2016 interest rate hike was back on the table, as Federal Reserve Governors are sounding increasingly hawkish.

Not that there wasn’t a reaction to the sense that such an increase was becoming more likely, but some decent earnings data coupled with increased inflation projections could have really fueled an exit for the doors.

Normally, those bits of news could have been construed positively, as reflections of an early phase of an economic recovery. However, the market has spent much of the past year wavering back and forth trying to decide whether to interpret good news and bad news for what they really were, rather than exercising intermittent bouts of reverse psychology.

Instead, the market closed the week on a high note, even ending 3 consecutive weeks of declines and with a gain large enough to keep 2016 in positive territory.

But only by the skin of its teeth.

My guess, as a licensed professional, is that the skin of your teeth gets increasingly thin the more you catch those bullets, though.

There’s not too much economic news ahead in the coming week, although the week does end with the GDP release, preceded by a withering stream of corporate earnings.

For those who bet on the odds of a June 2016 FOMC interest rate increase announcement, the GDP may be an important bit of data, even as many retailers, arguably with a better finger on the pulse of the consumer, have only seen their own revenues and earnings wither.

What the FOMC sees may be entirely different from what the boots on the ground, those spending their paychecks and those happy to trade goods for cash, are seeing. That may have also been the case back at the end of 2015 when the FOMC did raise interest rates as those boots were marching nowhere fast.

It takes fast moves to dodge those bullets, but the pace of economic growth still seems so slow, even as there may be some signs of it quickening.

Perhaps, from the FOMC’s perspective, the interest rate hike of 2015 prevented the initiation of overheating and the current state calls for another dose of that kind of prevention. That mat be especially true if the goal is to continue to dodge the kind of uncontrolled inflation increases seen more than a generation ago.

That bullet has been particularly slow in moving, but maybe once it gets too close it may be hard to dodge, as a toothless FOMC has little other in the way of alternatives.

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

I haven’t had many assignments in 2016, even as I’m pleased with the year to date. I’d be much more pleased, though, if I had more cash coming from more assignments of positions.

This coming week, with no positions set to expire and only a couple of ex-dividend positions, I’d like to find a reason to spend some of what little cash I have to generate some additional income for the week.

The allure of dividends is higher for me when I don’t have other immediate prospects of sufficient weekly income and that is the case this week.

That brings Corning (GLW), Dunkin Brands (DNKN) and Sinclair Broadcasting (SBGI) to mind. All have now gotten earnings out of the way, so have at least one less complication whenever considering a new position and having a relatively short time frame in mind.

The latter two only have monthly options available, but as I look at my sales for much of the past year, there has been more and more emphasis on the use of monthly or even longer expiration dates. Of course, while not necessarily embracing the idea of facing another earnings report, the use of monthly options means that the potential need to roll the short call position over brings you closer and closer to the risk of earnings.

Both Dunkin Brands and Sinclair Broadcasting have similar 2016 charts. Both are approximately at the mid-points between their recent highs and recent lows, as they both have been heading lower

That’s often a point that I like to consider as an entry.

While for those that live in the Northeast and increasingly elsewhere think of Dunkin Brands as ubiquitous, Sinclair Broadcasting is very much the same, just much less obviously.

It’s terrestrial broadcast properties are everywhere and it is increasingly venturing into original content and cable properties, as it has a long history of acquisition and strategic media market shifting.

I just like owning it because it trades in a fairly predictable range, has a nice premium and a good dividend, although earnings do sometimes present a challenge, or an opportunity, depending on your perspective.

Dunkin Brands strategy hasn’t included acquisition of late, but it is definitely a strategy of expansion, both in the number of locations and in the number of offerings, seeking to rid its locations of excess capacity.

Like Sinclair Broadcasting, its range is fairly predictable and it has the nice combination of premium and dividend. That’s a non-caloric sweet combination.

Corning, unlike Dunkin Brands and Sinclair Broadcasting is now moving a bit higher after having sustained a more than 10% decline after its earnings were announced last month.

It offers weekly options and I’m not terribly interested in doing much more than a week. However, while likely selling an in the money option in the hope of having some of the price decline from the dividend get offset by premium pricing, I would probably rollover the position if I believed that it was likely to get assigned early.

At the same time, at its current price, I might also consider rolling the position over, even if likely to be assigned upon expiration, in an effort to continue collecting a premium.

That brings me to retail and more retail.

Macy’s (M) started the sectors bad news off just 2 weeks ago and has been brutalized, even as Wal-Mart (WMT) finished the 2 weeks of major retailer earnings on a very positive note.

I already own 2 lots of Macy’s and am ready to add another, at what I believe is truly a bargain price among a sea of bargain priced appearing stocks.

While I normally do prefer weekly options, I may start off that way if making a purchase of shares, but would consider rolling over for a longer term, if only for the pursuit of its upcoming dividend.

With its very recent sharp decline, Macy’s call option premiums are more attractive than is usually the case. For those more interested in the sale of put options as a back door means toward ownership, that is a reasonable approach. I would, however, if faced with assignment roll those puts over until the point of ownership becomes more favorable as the week of the ex-dividend date approaches.

I may be the last guy to be seen wearing anything by Under Armour (UA) and don’t believe that I’ll be needing any of its wonderful wicking action, but I think that it is one of those true bargains amongst that sea of “posers.”

With weekly options and decent liquidity, I think that the generous premium offsets the near term risk.

Finally, where there may be more risk would be in the consideration of either Best Buy (GME) or GameStop (GME) as they both report earnings this week.

GameStop has had its epitaph written and re-written many times. It has both rewarded and punished short sellers over the years as it has had consistently large fluctuations in price, but has confounded those who have believed that its near term was extinction due to its inability to dodge the bullet of a changing landscape.

AS with most earnings related trades, my preference is to sell puts at a strike level outside of the range implied by the option market, as long as the weekly ROI is 1% or greater.

Based upon Friday’s closing price the lower boundary determined by the option market is the $26 strike level, while a 1.1% ROI could potentially be obtained at the $25.50 level.

That’s not too much of a cushion.

As an aside, the weekly open interest for GameStop is quite a bit heavier on the call side, which makes me think that the other side should at least be recognized. If you are a contrarian, that may speak to a decline at hand.

So while I do prefer selling puts into earnings when shares have already been in a declining mode, as they have been with GameStop, that small safety cushion has me more likely sitting on the sidelines, hoping to dodge a bullet, until earnings are announced at the close of trading on Thursday. At that point, I would pay attention to more than the price and where it might open and trade on Friday. I would also look for any dividend related news as it is expected to be ex-dividend as early as the following week.

Dividend news may be as significant as anything else, as GameStop has a very generous dividend and you always have to have some concern about its safety if cash flow is strangled. Heading into earnings, though, GameStop does seem to have a low enough payout ratio to at least withstand another quarter of dividend obligations.

If shares do decline after earnings and the dividend is left intact and an ex-dividend date for the following week is announced, I would strongly consider a buy and write approach. However, if the ex-dividend date will be the following week, I might instead consider the sale of puts.

Best Buy has also had its epitaph written and has somehow survived as more than just Amazon’s (AMZN) showroom.

Like GameStop there is a dividend in the near future.

However, the option market is giving a little bit bigger of a cushion if selling puts in advance of earnings.

Based upon Friday’s closing price, the option market is predicting a price range of about $29.50 – $35.50.

A 1% ROI may be potentially achieved even with a 13.4% decline in share price. I find that cushion far more appealing than for GameStop and would consider the sale of puts before earnings.

As with GameStop I would use the news of the upcoming ex-dividend date to determine what to do, but this time with regard as to what to do if faced with assignment. With good liquidity, I’d try to rollover those puts, but if faced with considering another rollover heading into the ex-dividend week, I would much rather own the shares and collect the dividend rather than partially subsidizing that dividend for the put buyer.

Traditional Stocks: Macy’s

Momentum Stocks: Under Armour

Double-Dip Dividend: Dunkin Brands (5/25 $0.30), Corning (5/26 $0.13), SBGI (5/27 $0.18)

Premiums Enhanced by Earnings: Best Buy (5/24 AM), GameStop (5/26 PM)

Mar122016

Weekend Update – March 13, 2016

TheAcsManWeek in ReviewComment

While most see virtually no chance of an interest rate increase announcement at this week’s FOMC meeting, it is expected that a June or July rate hike has a 50% chance of occurrence.

Stock market investors may like certainty, but traders often like the volatility that arises from uncertainty.

In this case, however, as there may be increasing certainty of a rate hike, time may be running out for traders who have generally reveled in a low rate environment and lashed out when threatened with rate increases.

For one group time may be running out, but for another their time may be coming. That could make the next 3 months interesting as positioning one’s self for advantage in anticipation of events may be a reasonable idea.

That’s not to say, though, that the past 3 months haven’t been interesting and haven’t offered opportunities for re-positioning. So far, 2016 has been a tale of two markets, with a sharp dividing line at February 11th.

The week’s spike in the 10 Year Treasury Note still leaves market determined interest rates far from where they were as 2016 got started. The same is true for 30 Year Daily Mortgage Rates rates as such arcane issues as “supply and demand” can end up doing the FOMC’s work and by the time June rolls around we may all be wondering what they had been waiting for.

Of course, the same was appearing to be the case just a few months ago, but then the lack of strong evidence of an environment that might have warranted the FOMC’s interest rate increase decision may have given traders new life.

That may explain the nearly 10% market jump in the past month that has almost erased the 2016 loss up until that point.

Or for those technicians who may be agnostic as to events going on around them, they may point at Bollinger Bands and the 50 Day Moving Average. For them, February 11th and 29th may have been the key moments in defining the market’s next move, regardless of what headlines may have been appearing,

Either of those explanations for the market’s sudden rise is far easier to understand than it simply following the price of oil higher.

One has to wonder how much time is left for that association to continue to play out. While there had been some disagreement over what relative roles supply and demand may have played in oil’s price descent, there’s increasing agreement that decreasing demand was not the driver in the dynamic.

Yet markets have reacted as if the price of oil was being predicated purely by demand. While it made little sense for a broad stock market decline as supply driven oil price decreases were unfolding, it doesn’t get any better by stocks moving higher in tandem with oil.

Time may also be running out for the illogical response to the changes in the price of oil, particularly if its ascent continues. At some point, maybe that surfeit of energy will cause a light bulb to get powered someplace and to finally go on in someone’s head long enough to ask an obvious question or two.

Why the demand for stocks should rise as the price of oil does the same, whether supply or demand driven, is curious as that price increase only serves to sap profits and the consumer’s discretionary cash pile.

I’ve been happy to see the stock market’s recovery in the past 30 days, but as supply and demand may be somewhat arcane, there is another general law that may have some application.

What goes up must come down.

Unless your own personal time is really running out, we’re all destined to see gravity return sooner or later, even as it has been suspended for the past few weeks.

If you have more time remaining than most then you’ll be chagrined to see the same over and over again only to come to the realization that from an investing point of view, time never really runs out.

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

As so much attention is placed on oil and interest rates, it was actually nice to see a stock like Pfizer (PFE), discussed last week, actually move up on pertinent news.

However, it wasn’t the specter of pertinent news that put some focus on Pfizer. Instead it was more of a case of looking at stocks and sectors that had been left behind in the market’s move higher.

Add Astra Zeneca (AZN) to that list.

Astra Zeneca isn’t a stranger to being left out of the limelight and its less than desirable liquidity in the options market is one reflection of that relative anonymity and one reason that I don’t consider its purchase very often.

However, it appears as if it is developing some reasonable support at the $29 level and with an equally reasonable premium it is a stock that I wouldn’t mind holding for a longer period of time, particularly if that came as a result of frequent rollovers of the weekly options.

Given the low volume of options trading in Astra Zeneca, it was noticeable that a relatively large out of the money position traded with a 4 month time frame, which would encompass next month’s earnings, but not that of the subsequent quarter.

The expectation, given the expanded open interest of the $32.50 and $35 calls and in a volume far greater than those of July 2016 put contracts, is that some significant move higher awaits.

If Astra Zeneca can trade at the $29-$30 level for some time until July, I would be more than happy to serially collect the option premiums, even if to see shares ultimately assigned following the anticipated price surge.

GameStop (GME) is a company that has spent years fighting the conviction of so many, particularly those making it one of the most popular stocks to short, that it’s time was running out.

Somehow, GameStop has consistently been able to prove the long term thesis to be wrong, even as it has periodically gone through some downward paroxysms that may have regarded well time short sales of the stock.

The most recent strategic challenge came about 2 years ago when Wal-Mart (WMT) announced that it would start buying back used games for store credits.

In the “Where Are They Now?” department, Wal-Mart is still buying back games, but price sensitive gamers may still find that GameStop is the place to take their business.

GameStop is usually a company that I prefer to explore through the sale of puts. Its premium always reflects the chance that the bottom could fall out anytime soon and earnings will be reported on March 24th, with expectations of $2.25/share earnings on what I consider a staggering $3.6 Billion on the quarterly top line.

Not too bad for a dinosaur whose time has repeatedly run out.

Another whose time may be running out is Williams Companies (WMB) in its merger with Energy Transfer Equity LP (ETE). In what has already been a very rocky road, the pock marks became more clear as an SEC filing indicated that Energy Transfer Equity had carried out a private offering of convertible shares to a select group of investors, in order to finance the merger.

Williams Companies was reportedly not satisfied with the transaction which it believed was too costly wand would dilute shares.

The arbitrage community took note of the increasing divergence between Williams’ market price and that which was being offered in the merger, as an increasing likelihood of the deal not being consummated.

If you can bear some significant drama and maybe some significant trauma in a sector that already has plenty of its own, without the need for a side show, this is the place to be.

With a weekly ROI of approximately 5% if an at the money call option is sold a few weeks of continued clashing between Williams and Energy Transfer Partners could result in significant accumulation of premium.

Interestingly, the options market seems to be more optimistic, at least for the coming week, at least not believing that a complete breakdown is in the near future.

With a beta of 3.5, there’s not too much doubt that establishing any kind of position in Williams Companies might just be the very definition of insanity.

Finally, there are actually various definitions of what may constitute insanity.

After having owned shares of Las Vegas Sands (LVS) on many occasions over the past few years, I’m still sitting on two lots of shares at much higher prices and am looking forward to being extricated. At the same time, though, I’m thinking of adding shares.

Insane?

On the one hand, you might define insanity as having funded the Newt Gingrich effort for pre-eminence in the 2012 Republican primaries to the tune of $100 million or more.

On yet another hand, given the volatility in Macao and the ability of the Chinese government to create or destroy opportunity by simple edict, along with the ability to present economic reports to suit the needs of the moment, insanity may be the decision to purchase more shares of Las Vegas Sands.

Or perhaps insanity may be deciding to increase your dividend by 30% after your shares had fallen by almost 40%.

Still, no one has called Sheldon Adelson insane, as there is undoubtedly lots and lots of method behind his decisions, particularly the use of the dividend to support his own interests. That makes me suspect that the current 119% payout ration doesn’t require a red flag to be raised.

With a $0.72 dividend representing a 5.6% yield, I might be willing to cede that dividend and accept early assignment of shares if selling calls, simply to get the premium, which represents some reward for the insanity of purchasing shares.

At the age of 82, Adelson gives no suggestion of time running out, even as a man who knows the odds as well as anyone.

For now, I think that dividend is safe and even with a significant decline in price from here, perhaps to the $45 level, the premiums still offer enough opportunity to offset that risk, but in such an event, it may be nice to let someone pay you for the time it could take for the share price to recover.

Luckily, with options, time never really has to run out if you’re doing the selling.

Traditional Stocks: Astra Zeneca

Momentum Stocks: GameStop, Williams Companies

Double-Dip Dividend: Las Vegas Sands (3/18 $0.72)

Premiums Enhanced by Earnings: none

Jan232016

Weekend Update – January 24, 2016

TheAcsManWeekend UpdateComment

With the early part of the Republican primaries having focused on one candidate’s hair, it reminded me of that old complaint that people sometimes made that their hair had a mind of its own.

For better or worse the political hair jokes have pretty much finally run their course as the days tick down to a more substantive measure of a candidate’s character and positions on more weighty matters.

While it was nice seeing some gains for the week and finally having some reason to not curse 2016, there’s no mistaking the reality that the stock market hasn’t had much of a mind of its own after the first 14 trading days of the new year.

Bad hair days would have been a lot easier to take than the bad market days that have characterized much of the past 6 weeks.

The combination of China and the price of oil have led the market down and up on a daily basis and sometimes made it do flips during the course of a single trading day.

With the price of oil having climbed about 23% during the week from its multi-year lows, the market did what it hadn’t been able to do in 2016 and actually put together back to back daily gains. Maybe it was entirely coincidental that the 48 hours that saw the resurgence in the price of crude oil were the same 48 hours that saw the market string consecutive gains, but if so, that coincidence is inescapable.

While that’s encouraging there’s not too much reason to believe that the spike in the price of oil was anything more than brave investors believing that oil was in a severely over-sold position and that its recent descent had been too fast and too deep.

That pretty much describes the stock market, as well, but what you haven’t seen in 2016 is the presence of those brave souls rushing in to pick up shares in the same belief.

Of the many “factoids” that were spun this week was that neither the DJIA nor the NASDAQ 100 had even a single stock that had been higher in 2016. That may have changed by Friday’s closing bell, but then the factoid would be far less fun to share.

Instead, oil has taken the fun out of things and has dictated the direction for stocks and the behavior of investors. If anything, stocks have been a trailing indicator instead of one that discounts the future as conventional wisdom still credits it for doing, despite having put that quality on hiatus for years.

That was back when the stock market actually did have a mind of its own. Now it’s more likely to hear the familiar refrain that many of us probably heard growing up as we discovered the concept of peer pressure.

“So, if your best friend is going to jump out of the window, is that what you’re going to do, too?”

With earnings not doing much yet to give buyers a reason to come out from hiding, the coming week has two very important upcoming events, but it’s really anyone’s guess how investors could react to the forthcoming news.

There is an FOMC announcement scheduled for Wednesday, assuming that the nation’s capital is able to dig out from under the blizzard’s drifts and then the week ends with a GDP release.

With a sudden shift in the belief that the economy was heading in one and only one direction following the FOMC’s decision to increase interest rates, uncertainty is again in the air.

What next week’s events may indicate is whether we are back to the bad news is bad news or the bad news is good news mindset.

It’s hard to even make a guess as to what the FOMC might say next week.

“My bad” may be an appropriate start with the economy not seeming to be showing any real signs of going anywhere. With corporate revenues and unadulterated earnings not being terribly impressive, the oil dividend still not materializing and retail sales weak, the suggestion by Blackrock’s (BLK) Larry Fink last week that there could be layoffs ahead would seem to be the kind of bad news that would be overwhelmingly greeted for what it would assuredly represent.

When the FOMC raised interest rates the market had finally come around to believing that a rise in rates was good news, as it had to reflect an improving economic situation. If the next realization is that the improving situation would last for only a month, you might think the reception would be less than effusive.

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

Last week was the first week since 2008 or 2009 that I made no trades at all and had no ex-dividend positions. No new positions were opened, nor were any call or put rollovers executed.

Other than a few ex-dividend positions this week, I’m not certain that it will be any different from last week. I haven’t opened very many new positions of late, having to go back nearly 2 months for a week with more than a single new position having been opened.

Unlike much of the past 6 years when market pullbacks just seemed like good times to get good stocks at better prices, the past few months have been offering good prices that just kept getting better and better.

If you had been a buyer, those better and better prices were only seen that way by the next series of prospective buyers, who themselves probably came to bemoan how less they could have paid if only they waited another day or two.

The gains of the final two days of last week make me want to continue the passivity. Anyone having chased any of those precious few days higher lately has ended up as disappointed as those believing they had picked up a bargain.

At some point it will pay to chase stocks higher and at some point it will pay to run after value.

I’m just not convinced that two days of gains are enough to signal that value is evaporating.

The biggest interests that I have for the week are both earnings related trades. Both Apple (AAPL) and Facebook (FB) report earnings this week.

If you’re looking for a stock in bear market correction over the past 6 months, you don’t have to go much further then Apple (AAPL). Along with some of his other holdings, Apple has punished Carl Icahn in the same manner as has been occurring to mere mortals.

Of course, that 21% decline is far better than the 27% decline fro just a few days ago before Apple joined the rest of the market in rally mode.

Interestingly, the option market doesn’t appear to be pricing in very much uncertainty with earnings upcoming this week, with an implied move of only 6.2%

Since a 1% ROI can only be achieved at a strike level that’s within that range, I wouldn’t be very excited in the sale of out of the money puts prior to earnings. The risk – reward proposition just isn’t compelling enough for me. However, if Apple does drop significantly after earnings then there may be reason to consider the sale of puts.

There is some support at $90 and then a few additional support levels down to $84, but then it does get precarious all the way down to $75.

Apple hasn’t been on everyone’s lips for quite a while and we may not get to find out just how little it has also been on people’s wrists. Regardless, if the support levels between $84 and $90 are tested after earnings the put premiums should still remain fairly high. If trying this strategy and then faced with possible assignment of shares, an eye has to be kept on the announcement of the ex-dividend date, which could be as early as the following week.

While Apple is almost 20% lower over the past 6 months, Facebook has been virtually unchanged, although it was almost 30% higher over the past year.

It;s implied move is 6.8% next week, but the risk – reward is somewhat better than with Apple, if considering the sale of puts prior to earnings, as a 1% ROI for the sale of a weekly option could be obtained outside of the range defined by the option market. As with Apple, however, the slide could be more precarious as the support levels reflect some quick and sharp gains over the past 2 years.

For those that have been pushing a short strategy for GameStop (GME), and it has long been one of the most heavily of shorted stocks for quite some time, the company has consistently befuddled those who have had very logical reasons for why GameStop was going to fall off the face of the earth.

Lately, though, they’ve had reason to smile as shares are 45% lower, although on a more positive note for others, it’s only trailing the S&P 500 by 2% in 2016. They’ve had some reasons to smile in the past, as well, as the most recent plunge mirrors one from 2 years ago.

As with Apple and Facebook, perhaps the way to think about any dalliance at this moment, as the trend is lower and as volatility is higher, is through the sale of put options and perhaps considering a longer time outlook.

A 4 week contract, for example, at a strike level 4.6% below this past Friday’s close, could still offer a 3% ROI. If going that route, it would be helpful to have strategies at hand to potentially deal with an ex-dividend date in the March 2016 cycle and earnings in the April 2016 cycle.

One of the companies that I own that is going ex-dividend this week is Fastenal (FAST). I’ve long liked this company, although I’m not enamored with my last purchase, which I still own and was purchased a year ago. As often as is the case, I consider adding shares of Fastenal right before the ex-dividend date and this week is no different.

What is different is its price and with a 2 day market rally that helped it successfully test its lows, I would be interested in considering adding an additional position.

With only monthly options available, Fastenal is among the earliest of earnings reporters each quarter, so there is some time until the next challenge. Fastenal does, however, occasionally pre-announce or alter its guidance shortly before earnings, so surprises do happen, which is one of the reasons I’m still holding shares after a full year has passed.

In the past 6 months Fastenal has started very closely tracking the performance of Home Depot (HD). While generally Fastenal has lagged, in the past 2 months it has out-performed Home Depot, which was one of a handful of meaningfully winning stocks in 2015.

Finally, Morgan Stanley (MS) is also ex-dividend this week.

Along with the rest of the financials, Morgan Stanley’s share price shows the disappointment over the concern that those interest rate hikes over the rest of the year that had been expected may never see the light of day.

This week’s FOMC and GDP news can be another blow to the hopes of banks, but if I was intent upon looking for a bargain this week among many depressed stocks, I may as well get the relationship started with a dividend and a company that I can at least identify the factors that may make it move higher or lower.

Not everything should be about oil and China.

Traditional Stocks: none

Momentum Stocks: GameStop

Double-Dip Dividend: Fastenal (1/27 $0.30), Morgan Stanley ($0.15)

Premiums Enhanced by Earnings: Apple (1/26 PM), Facebook (1/27 PM)