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TheAcsManWeek in ReviewComment

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.

Sep102016

Week in Review – September 11, 2016

Sometimes you just get blindsided and even hindsight is inadequate in explaining what just happened.

There’s very little reason to ever get hit in the face, as human instinct is to protect that vulnerable piece of anatomy.

Yet, sometimes there’s a complete absence of anticipation or lack of preparation for fast, unfolding events.

Sometimes you just get lulled into a sense of security and take your eye off events surrounding you.

Granted, sometimes your inattention helps you to avoid doing the logical thing and missing out on something wonderful, but more often than not, there is a price to be paid for inattention.

When I first started writing a blog. there was a 417 point decline in the DJIA on the third day of that blog.

That was in 2007 when 417 points actually stood for something.

This past Friday’s nearly 400 point decline was minimal, by comparison.

Back in 2007, the culprit for the decline was a nearly 9% drop in the Chinese stock market. It was easy to connect the dots and honestly, you had to see some collapse coming in that market, at that time, as most everyone was beginning to openly question the veracity, validity and credibility of economic and corporate reports coming from China.

I suppose that there was some kind of identifiable culprit this past Friday, as well, but after a very quiet and protracted period following the recovery from the “Brexit” sell-off, there was little reason to suspect that it would happen on Friday.

Sure, there were the fears of an interest rate increase being now more likely to come in just 2 weeks, but there has already been plenty of indication that investors have already accepted an increase is likely in December. Why would those few months make such a big difference in confidence?

The answers are pre-programmed.

“The market doesn’t like uncertainty,” or “investors took the opportunity for some profit taking.”

Of course, there will always be someone who can squint enough and stare at chart formations long enough to see the “obvious” warning signs in hindsight, but there was really very little reason to have seen the sell-off coming.

The march higher by the market after “Brexit” fears disappeared was orderly and we’ve gone though a nice period of stability.

Boring, perhaps, but when is stability exciting?

Perhaps it’s when you’re defenses are down and you get lulled into a state of comfort, that you’re at greatest risk for being smacked in the face.

I certainly didn’t see Friday’s decline coming, but if you do look at the recent back and forth large movements in energy and precious metals, you have to believe that there are some tectonic plates shifting, as investors see and the flee perceived opportunities in other complexes.

Living and playing near a fault line, people are still shocked when the earth rumbles and are often unprepared for the suddenness.

They also often go back to their old way of doing things after the dust settles. After all, if you believe that you live in paradise, why would you turn your back on that just because of a rumble or two?

How do you resist the ongoing reward so f a paradise that has treated you so well in the past?

The market shook on Friday and there will undoubtedly be more of those rumbles, but it’s hard to not want to go back and take your eye off the obvious.

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

Among the things that no one could possibly have seen as coming would have been the news surrounding Wells Fargo (WFC) this past week.

We do expect banks to sometimes take on strategies that walk a fine line, as there is often great reward when you walk the edge.

We also expect that there may be an occasional employee with larceny in his heart who takes advantage of whatever exists to be exploited. Sometimes, there are even small groups of employees working toward illicit ends, such as in the cult film “Office Space.”

But what we don’t expect is that there may be 5,000 employees working toward such illicit ends, opening credit accounts on behalf of unknowing consumers and certainly without their consent and only to their detriment.

We also don’t expect that such an undertaking could possibly have flown under the radar at any company. People being people, you might expect that one of those 5,000 would have made an inopportune comment that would have been overheard by a supervisor, or at least a co-worker who was not sympathetic to such a violation of trust.

Wells Fargo, for its part fired 5,000 people.

They paid a $185 million fine on a profit of about $23 billion.

That’s the rough equivalent of a miserly tip at an “Early Bird Special” and is probably less than the personnel savings over the course of a year.

Of course, there may still be another shoe to drop.

In the meantime, shares fell on Friday. However, while they fell more than others in the financial sector, the decline was right in line with the S&P 500.

If most past egregious corporate errors are any indication, the fines paid are irrelevant and recovery is ahead. Of course, if the market decides to “sell on the news” when the FOMC finally does increase interest rates, there may be yet another shoe.

In the meantime, the sell-off on Friday may offer a near term opportunity, as options premiums are reflecting increased risk, even as the financial sector may be in line to finally realize the potential that has been pegged to a rising interest rate environment.

There is no doubt that retail is challenged right now and even a vaunted retailer like Macy’s (M) is hurting and shuttering scores of stores in response to the challenges coming from the wall-less retailer behemoth.

I already own 2 lots of Macy’s and with its continued recent weakness and an upcoming ex-dividend date, see the opportunity to add even more shares.

Just as Wells Fargo and others are bound to benefit from an increasing interest rate environment, Macy’s should start benefiting from a more engaged consumer, assuming that the FOMC’s decision to raise interest rates is partially based upon evidence of that occurring.

As with banks, the retail hypothesis has been incubating for a long, long time. The expectations that both would thrive as the economy started heating up, is making many grow weary.

Still, Macy’s is making some hard choices and there should be some reward accruing to its bottom line, even as revenues will fall.

What we have seen during the most recent earnings season is that the investor is willing to over-react to any retail news, but were especially eager to reward anything resembling news that wasn’t as bad as expected or anything resembling positive guidance.

At the first hint of such positive guidance or a better than expected bottom line, a smaller and leaner Macy’s will surge.

What will probably not surge, even if a buyer comes forward, is Twitter (TWTR).

It appears as if a ceiling exists for this company that has a product that many use, but many more do not, because of a lack of understanding of its utility.

If that utility could be understood, perhaps the C-suite at Twitter could then understand how to really monetize the platform, but I’m not entirely certain they would know how to do it if the opportunity stared them in the face.

The near term question about Twitter is just how low the stock can go, as there may be a developing sense of urgency regarding its prospects under its current leadership team.

After having had a great year with Twitter in 2014, both professionally and personally, I use it far less often and trade it far less often.

I still have a very expensive lot of Twitter shares have provided no premium income for far too long, but that I am now likely to put back on the block, even at the risk of losing shares to an assignment price far below the purchase price.

However, with Twitter in sharp focus and with the possibility of a ticking clock, I am interested in adding shares and selling calls or simply selling puts.

If doing so, my intention would be to keep the trade alive and serially selling calls or puts, even if having to roll over to a longer term strike, in the event of another adverse price move.

As with just about every investment, there has to be consideration of the risk – reward proposition. Twitter, for as far into the future as I can see, will represent significant risk, but I like the idea that there may be a finite time period before desperation really hits the leadership or the Board of Directors.

During that time, there may be multiple opportunities to capitalize on the enhanced option premiums, as long as there is still a belief that Twitter will be an appealing property for someone to own at a price not terribly far below its all time lows.

Finally, if only I could somehow erase a $28 lot of Marathon Oil (MRO) that I still own and that hasn’t produced any income for me lately, Marathon Oil would be may favorite stock.

At least for 2016, as with the assignment of some shares this past week, I’ve now owned it on 7 occasions this year.

At mid-week, even as shares were in the money, I was hoping to be able to roll the shares over, as the premium is still reflective of its volatility, but the risk-reward proposition when it is in the money can be compelling.

How often can you find a situation that even a 3-4% decline in share price could still deliver a 1% ROI for a week, during a week when there is no particular news or company related events, such as earnings, scheduled?

As the week wore on and Marathon Oil went well above my $15 strike, the reward for the rollover could no longer keep up with the opportunity costs of passing up a chance to take the assignment proceeds and plow them into something else.

But with Friday’s plunge the opportunity costs were erased. It was just that I couldn’t get the trade made, not that I didn’t want to get it made.

That, though, leads to Monday morning and I would be eager to add Marathon Oil, in some form, back into my portfolio in the event of any additional weakness.

Even if that weakness is subdued and even if there is continued downside as energy prices may continue their volatility and propensity for short term spikes and plunges, there is nice liquidity in the options and lots of opportunity to tailor a strategy using extended weekly options, if necessary.

In the event of some weakness, I may be inclined to consider the sale of puts, rather than a traditional buy/write, but that decision could be altered by a penny or two difference in the net costs.

While I still bemoan that $28 lot and still hold out some hopes of getting it to again become a contributing member of my income producing portfolio, these cheaper lots of Marathon Oil have helped to soften the pain.

While some think of the process of adding shares when they have plunged, as “throwing good money after bad,” I still think of it as “having a child to save a life.”

Traditional Stocks: Wells Fargo

Momentum Stocks: Marathon Oil, Twitter

Double-Dip Dividend: Macy’s (9/13 $0.38)

Aug272016

Weekend Update – August 28, 2016

I’m not entirely certain I understood what happened on Friday.

While it’s easy to understand the “one – two” punch, such as memorialized in Tennessee Ernie Ford’s song “Sixteen Tons,” it’s less easy to understand what has happened when a gift is so suddenly snatched away.

After not having attended the previous year’s Kansas City Federal Reserve Bank hosted soiree in Jackson Hole, this year Janet Yellen was there.

She was scheduled to speak on Friday morning and the market seemed to be biding its time all through the week hoping that Friday would bring some ultimate clarity.

Most expected that she would strike a more hawkish tone, but would do so in a way as to offer some comfort, rather than to instill fear, but instead of demonstrating that anticipation by buying stocks earlier in the week, traders needed the news and not the rumor.

The week was shaping up like another in a string of weeks with little to no net movement. Despite the usual series of economic reports and despite having gone through another earnings season, there was little to send markets anywhere.

Most recently, the only thing that has had any kind of an impact has been the return of the association between oil prices and the stock market and we all know that the current association can’t be one that’s sustainable.

So we waited for Friday morning.

After having sifted through that morning’s GDP release, which revealed another quarter of soft numbers, showing the economy may not have been growing very strongly, it was time to listen to what Janet Yellen was prepared to say after nearly 2 months of silence.

But first, buried within those GDP numbers was an indication that the consumer may have finally started participating in the economy by spending their money on actual consumer goods. Since 70% of the GDP is based upon consumer activity, that has to be a good sign and one that many have been waiting to see evidenced for far more than a year.

That consumer participation may have come as some news to Macy’s (M)., Kohls (KSS) and others that had little good to say about the past quarter and nothing good to say about the one upcoming.

But as with most things, messages are mixed.

In this case, though, Janet Yellen didn’t really offer a mixed message.

More precisely, however, what she said wasn’t interpreted as being a mixed message.

Investors moved the market nicely higher on hearing Yellen say that “the case for an increase in the federal funds rate has strengthened in recent months,”

She didn’t really offer any guidance as to what else the FOMC had to see before finally raising rates, but most investors interpreted her comments as indicating that there was an even chance of that occurring at the FOMC’s December policy meeting.

They liked that.

That meant that there was still another 3 months of cheap money to play with and stock investors love cheap money as much as bond investors do not.

What stock investors apparently didn’t like was when Stanley Fischer suggested that there could still be more than one rate hike between now and the end of 2016.

In what could only be interpreted as “too much of a good thing,” the very idea of what we were all set up to expect a year ago, that is an upcoming year of small, multiple interest rate increases, began to bring sellers up front.

And so as the day and the week came to their ends, it was Stanley Fischer who ruled and demonstrated that whatever embrace investors had made of the idea of raising interest rates, it was pretty half hearted and a highly qualified endorsement.

The order of things often makes a difference.

If I knew that I was being faced with one hand that would give and the other hand that would take away, I would much prefer that the giving hand closed the show.

You can only appreciate loss if you’ve actually had something to lose and you can only really appreciate receiving a gift after having had nothing.

Unfortunately, the order of giving and taking left us with nothing but questions and uncertainty.

I’m not sure that’s what anyone intended, but if you look at the past year’s worth of statements and speeches from the various members of the FOMC, you might believe that a third mandate has been added to the Federal Reserve’s short list.

If so, they’ve been wildly successful in sowing confusion and giving and taking hope and confidence away from anyone paying attention.

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

Bristol Myers Squibb (BMY) may be a recent good example of the market’s buyers giving and the market’s sellers taking away.

It may also be a poster child for the old “you live by the sword, you die by the sword” expression, as it shares plummeted following some poorer than expected results from its late stage trials for an advanced non-small cell ling cancer drug.

That plummet took it to its yearly lows and while not too much time has passed, it may be stabilizing and ready fro participation again.

The option market, for whatever it may know, isn’t predicting too much movement in the upcoming week, but my sights are set a little longer term for this trade.

Bristol Myers Squibb is ex-dividend on October 5th, at a current 2.6% yield. It also reports earnings on October 27th.

That leaves consideration of the sale of an October 21st monthly contract in an effort to capture the dividend, capture nearly 2 months of premium and perhaps hold the stock long enough for some price recovery.

It also avoids the risk of earnings, as long as shares are assigned.

If not, I would consider rolling the expiring options over to either the November or December monthly contracts, or perhaps one of the extended weekly expiration dates.

Sinclair Broadcasting (SBGI) isn’t a terribly exciting stock, but it is one that i like to own and I’m especially drawn to it if it’s about to be ex-dividend and trading at or below the mid-point of its most recent range.

Those are all the case for Sinclair Broadcasting at the moment and I’m considering either the sale of an in the money call, with the intent of a quick exit from the position due to early assignment or a near the money strike, with the hopes of capturing the dividend and some small gains on the shares, as well.

Among the things I like about Sinclair Broadcasting is that it is relatively immune form many of those things that can weigh down stocks and that are completely unpredictable and out of anyone’s control.

Currency exchange rates, the price of oil and natural disasters come to mind. Where Sinclair broadcasting may be vulnerable, albeit along with most everyone else, is in an increasing interest rate environment, as assembling the broadcasting portfolio that it has in an expensive undertaking.

Even though my preference would be for a short term exposure, I’ve held shares before for longer time periods, partly because only monthly options are available. Additionally, if in a position to see short calls expire, I generally do not roll them over, due to their cost and reduced liquidity., unless shares are trading very close to the strike price as expiration nears.

Finally, as it always does, whenever I talk about the possibility of considering a position in Abercrombie and Fitch (ANF), it comes with advisories.

Those shares are ex-dividend this week and even as I still sit on a much more expensive lot of shares, I welcome the dividend and consider testing the waters even further to capture more of that dividend.

The problem is that the dividend is always closely associated with earnings and that’s the case this week, as well.

On a good day, Abercrombie and Fitch stock is prone to price spasms, but all bets are off when earnings are involved. Having already badly trailed the S&P 500 for the year and having fallen by about 25% from its 2016 high, there could be more downside pain, unless they know something that Macy’s doesn’t.

The option market is implying a price move of about 12% next week.

Ordinarily, I would consider the sale of puts if I thought that a 1% or more ROI for that sale could be realized at a strike price below the lower boundary predicted by options traders.

That is the case this week, but because of the dividend, my interest would be in considering a traditional buy/write, but only after earnings and only if shares fall sharply once earnings are announced on the morning before the ex-dividend date.

In that event, I might consider the sale of a deep in the money call, depending on the net premium available, in the event that deep in the money call is exercised by the buyer.

I might even consider looking at an extended weekly option, again being driven by the premium available and the resultant ROI, with or without the dividend capture being part of the calculation.

If it isn’t there may then be an opportunity to get the dividend and an option premium, with some significant downside protection.

That might be the equivalent on both hands giving.

Traditional Stocks: Bristol Myers Squibb

Momentum Stocks: none

Double-Dip Dividend: Abercrombie and Fitch (8/31 $0.20), Sinclair Broadcasting ((8/30 $0.18)

Jul232016

Weekend Update – July 24, 2016

“When you’re a hammer, everything looks like a nail.”

That old saying has some truth to it.

Maybe a lot of truth.

When you think about stocks all day long everything seems to be some sort of an indicator as I look for a rational explanation to what is often a prelude to an irrational outcome.

Reducing the intricate character of what is found in nature to a mathematical sequence is both uplifting and deflating.

When the very thought of uplifting and deflating conjures up an image of a stock chart it may be time to re-evaluate things.

When you start seeing the beauty in nature as a series of peaks and troughs and start thinking about Fibonacci Retracements, it is definitely time to step back.

Sometimes stepping back is the healthy thing to do, but as the market has been climbing it’s most recent mountain that has repeatedly taken the S&P 500 to new closing highs, it hasn’t taken very many breaks in its ascent.

You don’t have to be a technician, nor a mountain climber to know that every now and then you have to regroup and re-energize.

You also don’t have to be a mountain climber to know that standing on the edge of a cliff is fraught with danger, just as each step higher adds to risk, unless there’s a place to rest.

Some mountains may not even be meant to be climbed except by the very best of the best.

I’m certainly very, very far from that, but even if I was not, I would still be very, very leery.

For all of the fears that surfaced after the “Brexit” vote and all of the speculation regarding its impact on earnings guidance, those fears have been quickly dismissed and the guidance delivered, thus far, has ignored the conventional wisdom.

Whether JP Morgan (JPM) or eBay (EBAY), among those that were on the top of the Brexit hit list, there has been nary a mention of the impact of divorce on their future earnings and the broader market has taken note, as have investors in those individual stocks.

And so, as earnings have been coming in, and as they accelerate in the coming week, the mountain continues to be scaled as no one really knows where the peak happens to be.

As that peak gets higher and higher, it probably draws in two kinds of people.

The best of the best generally got that way because they are nimble in their trading and may recognize a breakout in the making when they see one.

The other kind that gets in are the ones afraid of missing out or are of the belief that what’s going on will keep on going and maybe they can finally make up for their lost opportunities over the past 7 years.

For my part, I’m going to remain circumspect and have done very, very little trading, other than rolling over positions and the occasional opening of a new position or two in any given week.

I don’t anticipate that changing too much this week as the S&P 500 has now climbed nearly 9% after its Brexit low of less than a month ago.

That’s a little too steep for me and it has been almost a straight line higher.

Being nearly fully invested, although preferring to have more cash, I’m happy to go passively along for the ride, but am not terribly interested in adding to my commitment.

Sometimes it really is better to be safe than sorry about missing out.

While a fall from a top a mountain may be a terminal event, there’s always another opportunity after a fall from a market peak and I would rather wait for that opportunity.

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

Although I my be of a mind to not commit any cash this week, I’ve been of that mind before and it is sometimes difficult to resist a trade.

For me, with a frequent focus on trades that include a short position on weekly options, the character of the market as the week begins is often the invitation to participate or the closing of the door.

I’m unlikely to ignore my reticence to participate if the market continues its climb on Monday morning. However, if there is some weakness, especially if there is some real pronounced weakness, I may change my mind.

With earnings season really getting into full gear this week, earnings or impending earnings has to be part of any equation that has a short term time frame.

Macy’s (M), which was battered following its last earnings report and is a company in transition and likely facing greater transition in the near future, doesn’t report earnings until August 11, 2016.

While earnings met the whisper numbers last quarter, revenues were down. More ominously, though, Macy’s revised its yearly guidance significantly lower at that time.

My expectation is for an “under promise and over deliver” scenario in a few weeks, but my focus is in the coming week.

I think that the downside risk is low, unless the broader market is hit with a substantive decline. For the risk, there is ample reward and Macy’s is also an imminently liquid options position, if faced with the need to rollover the short call position.

I wouldn’t mind that opportunity and with an optimistic outlook for its shares as earnings are around the corner, I’d been inclined, if faced with an option expiration, to take advantage of the earnings enhanced premiums to consider a longer time frame rollover and increasing the strike price at that time.

With the Brazil Summer Olympics ready to begin, I still think about the controversy during the last Olympics regarding Under Armour’s (UA) swimsuits, which many blamed for the poor performances by United States swimmers.

CEO Kevin Plank handled the controversy as well as any CEO could ever have done and the story disappeared from the headlines faster than anyone could have predicted.

Under Armour does lots of things very well in a very competitive industry, but what it hasn’t done well in the past 3 months, following its last earnings report, has been to keep pace with the S&P 500.

That’s a little ironic for a company that has been a pace leader and that has been unaccustomed to falling behind.

Under Armour, unlike Macy’s, increased its annual guidance last quarter, so there is always that opportunity for disappointment, but Kevin Plank likely knows his business well enough to not stick his neck out too far, nor to sully his own reputation and credibility.

In the meantime, the option market is implying an 8.1% price move next week. There isn’t too much enhancement to the option premium that you can derive by selling out of the money puts, as you can potentially receive a 1% ROI, but at a strike price that is only 9.3% lower.

That’s not too much of a cushion, but Under Armour shares are ones that I wouldn’t mind owning heading into the Olympics, particularly if there is a ban on some athletes from Russia.

Fastenal (FAST) just reported earnings and just had its ex-dividend date, so there’s nothing terribly exciting on the horizon.

Then again, there’s never anything terribly exciting about Fastenal.

It just reported a miss on earnings and shares have lagged the S&P 500 by almost 9% since then.

That decline left shares at a price below the mid-point of the high and low of 2016.

If you believe that there is some chance of a pick up in the kind of economic activity that’s usually among the first to improve after people go back to work, then Fastenal may be a good place to park some money.

Blackstone Group (BX) just reported its earnings and they came in at the mid-point between consensus and whisper, although on a decline on top line revenues.

So how do investors respond?

In the 2 days remaining on the week following the earnings announcement, Blackstone shares climbed almost 5%, while the S&P 500 fell 0.2%

Normally, I wouldn’t have too much interest in considering a stock that had just gone up 5% on non-exceptional news, but those shares are ex-dividend this week and even after a dividend reduction, the yield is very attractive, as is the option premium.

One consideration that I have for this stock is to sell in the money calls with an expiration date the following week.

By example, using Friday’s closing bid – ask prices, if purchasing shares at $27.42 and selling August 5, 2016 $27 calls, you would receive a $0.64 premium.

With the ex-dividend date on July 28, 2016, if shares close the previous evening above $27.36, there is a chance of early assignment. The deeper in the money at that time, the greater is the likelihood of assignment.

If assigned, the 3 day ROI would be 0.8% and the opportunity to then re-invest the assignment proceeds.

On the other hand, if those shares are assigned the following week and you get to retain the dividend, your 2 week ROI would be 2.1%

To put that into some relative context as provided by Eddy Elfenbein, the market has only risen 2% or more on 3 occasions after hitting a record closing high.

If you don’t follow Eddy Elfenbein on Twitter, you should consider it more than any of this week’s selections. He is the funniest, most gracious and offers the best factual information that can be found on Twitter.

Finally, it’s only appropriate to consider an earnings related gamble with Las Vegas Sands (LVS).

For a number of years, Las Vegas Sands was a stock that I had some really good fortune with in buying shares and then selling calls and then doing it over and over again as shares were assigned and subsequently the share price fell, putting it back into my portfolio.

That seems like an eternity ago, as I still sit on two very expensive lots of shares that are both uncovered.

The only saving grace has been the generous dividend, which would likely continue to be safe as long as Sheldon Adelson, the Chairman and CEO is in charge and has a vested interest in the dividend.

Did I mention that Adelson was also the Treasurer?

The option market is implying a 6.2% price move next week. That seems a little low to me, but what I find appealing is that even with a 9.3% decline in share price, it can be possible to generate a 1% ROI by selling out of the money puts.

With the next ex-dividend nearly 2 months away, this might be a position that I would welcome an opportunity to rollover in the event of an adverse price move this week.

Somewhere deep down, I’m of the belief that the peak of the bad news coming from its operations in Macau are about to be reached and expect to hear some hint of that as guidance is provided.

I’m also prepared, however, to fall off the cliff, but still live another day in that event.

Traditional Stocks: Fastenal, Macy’s

Momentum Stocks: none

Double-Dip Dividend: Blackstone Group (7/28 $0.36)

Premiums Enhanced by Earnings: Las Vegas Sands (7/25 AM), Under Armour (7/26 AM)

Jun112016

Weekend Update – June 12, 2016

Sometimes you just have nowhere to go.

One thing that was fairly certain last week was that there wasn’t too much of a trend and there wasn’t any clear path to follow.

As markets began testing the 18000 level on the DJIA and 2100 on the S&P 500, the chorus was loud and clear.

There is no place to go but up.

The alternating chorus was that there was no place to go but down.

The market instead went sideways, but not very far as all roads seemed to be closed off.

After the previous week, which ended precisely unchanged, this past week managed to move 0.1%,

Granted, the first three days of the week did seem to benefit from Chairman Janet Yellen’s superb demonstration of how hedging your words works to allow people to hear whatever it is that they want to hear.

Following Monday afternoon’s talk, Dr. Yellen essentially said something to the effect of “It’s not good out there, but it’s all good. You know what I mean?”

Years ago I heard a fairly odd individual present a lecture on the pharmacological management of children requiring sedation. He referred to the well known age and weight based rules regarding dosages, but said they were inadequate. Not surprisingly, after listening to him for a brief while, it was only his eponymous rule that could determine the correct amount of sedative agents to administer to a child.

He referred to his rule by example and these were his precise words, that I still remember 30 years later.

“You take the kid’s weight and then you take a day like today. It’s hot, but it’s not hot. You know what I mean?”

Like Janet Yellen, he was from Brooklyn.

The old Brooklyn. Not modern day Brooklyn. In fact, both were from the same Bay Ridge Brooklyn neighborhood.

While I still remember those words 30 years later, they had no influence on me other than to believe that sometimes a monkey can have more credibility than someone with a degree.

The strength of Dr. Yellen’s words, however, starting already growing dim as the latter half of the week approached and traders were left wondering what was going to be the driver for anything between now and the July 2016 FOMC meeting.

Of course, even though most everyone discounts any action at next week’s FOMC meeting, there’s always the chance of a reaction to any change in the wording of the statement as it’s released.

In that event the subsequent press conference may carry even more weight than usual, although you would have to wonder what Yellen could say that would be substantively different from the non-committal tone she struck this week.

With earnings season nearly at its end the catalysts appear to be few between now and that July 2016 FOMC Statement release. Some upcoming and compelling GDP and Employment Situation Report numbers, particularly if there are strong upward revisions, could be all the catalysts necessary, but after this past Friday’s performance, oil prices may be relevant once again.

That’s after a couple of weeks of the stock market not tethering itself too tightly to oil prices. But with interest rates possibly taking a back seat for a short while, there may be a void to fill and oil seems the logical driver.

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 traded much in the past few weeks, nor for 2016, for that matter, but oil has gotten more of my attention than anything else.

Although Marathon Oil (MRO) has gone significantly higher in the past 10 weeks, following Friday’s decline, I wouldn’t mind owning shares for a third time during that time period.

Following oil’s run higher and seeing it break the $50 level, that level may be under assault and those oil company shares that had moved nicely higher in 2016 may also be under assault.

Friday was an example of the risk that may lie ahead of some oil companies, but the option premiums are reflective of those risks, just as they were when I first added Marathon Oil and Holly Frontier (HFC) in the past 2 months, to keep company with my uncovered lots of shares in those companies.

Even with Marathon Oil’s decline on Friday, those shares are still somewhat higher than I would like if considering re-establishing a position. However, with any further weakness on Monday, despite the near term risk, this is probably my most likely trade for the week.

While I’m anxious to open some new positions, that doesn’t include the need to be reckless. Despite the downside risk to opening a new position in Marathon Oil, the liquidity in the options market is fairly good in the event of a need to rollover the position following a large adverse price move.

With the availability of extended weekly options if there is such an adverse price move, there would be opportunity to extend the time frame of the expiration and collect some premium while waiting for the inevitable volatility to take the price higher and then lower and then higher again.

Both Gilead Sciences (GILD) and Tiffany & Company (TIF) are ex-dividend this week.

I have some subscribers for whom Gilead has been a long time favorite and I often wished that I had followed their path. There were certainly no signs preventing me from doing so.

At almost all price points over the past 2 years, a position in Gilead, if either buying shares and selling calls or simply selling puts, would have been a good place to be, if rolling over calls or puts and having some patience.

That is the case even at most of the various high points thanks to the option premiums and the dividends and the ease of rolling over positions owing to the options liquidity offered.

With eyes only on the dividend and a short term holding, I don’t think very much about its drug pipeline or pricing pressures or opportunities that may come following the Presidential election. Having a short term horizon makes all of those sentinel events new opportunities and the latter uncertainty is still very far off.

With Tiffany shares just barely above their 2 year lows, it has been more than 3 years since I’ve owned shares.

Perhaps coincidentally, that last time was at the current price.

Back then, when only monthly options were available, my preference was to consider a purchase of shares during the final week of the monthly option cycle or when an ex-dividend date was upcoming.

This week happens to offer both, but Tiffany now offers extended weekly options.

With a much higher dividend per share than when I last owned it and a yield that is enhanced by its current price, Tiffany is back on my radar screen.

As challenged as retail has been since Macy’s (M) started off a string of disappointing earnings reports and as flat as the world’s economies have been, particularly those important for Tiffany’s sales, I think that this is both a good time and a good opportunity to consider a new position, but as with Gilead, it may require some patience.

If while exercising that patience there is opportunity to continue collecting option premiums, patience is well rewarded. With earnings more than 2 months away, I wouldn’t mind the opportunity to serially roll over calls, but also wouldn’t mind being able to exit the position prior to earnings.

Finally, I haven’t had much reason to think about buying shares of Oracle (ORCL) lately. The last time I owned shares was nearly 3 years ago and at that time I owned them on 3 separate occasions over the course of a few months.

In my ideal world, that would be the case with most stocks when opening a new position, but that hasn’t been the case for me of late. Maybe Marathon Oil will change that this week, but I think that Oracle could now be positioned to do the same.

Oracle reports earnings this week and its current price is somewhat above the mid-way point between its recent high and recent low.

I generally like to consider a purchase when a stock is at or slightly below that mid-way point. However, even with the risk of earnings approaching and without a really compelling premium despite the added risk of upcoming earnings, I’m considering a position.

However, with the chart in mind and seeing the climb that Oracle shares had taken since February, as well as the precipitous declines it has been known to take, I have no interest in establishing a position prior to earnings.

I would, however, very strongly consider opening a position if shares decline by anything approaching the 5% implied move that the options market is predicting. In that event, I would likely sell puts to open a position, but would be mindful of an upcoming ex-dividend date either late in the July 2016 option cycle or early in the August cycle.

Things have been quiet at Oracle for a while as Larry Ellison has stepped back and replaced a form of autocratic rule with muddled lines of leadership. In the past when Oracle disappointed on earnings, Ellison was always quick to point fingers.

Since I don’t currently own shares and have nothing to lose, I welcome a sharp decline in Oracle, only in the hope that it might re-animate Ellison and perhaps re-create a leadership structure that will move forward even if all signs say there is nowhere to go.

Traditional Stocks: none

Momentum Stocks: Marathon Oil

Double-Dip Dividend: Gilead Sciences (6/14 $0.47), Tiffany & Co (6/16 $0.45)

Premiums Enhanced by Earnings: Oracle (6/16 PM)

Jun42016

Weekend Update – June 5, 2016

While so many people are still confused over the “Transgender Bathroom” issue, the real confusion came from this week’s Employment Situation Report.

With the odds of an interest rate hike by the FOMC’s June meeting seemingly increasing every day, you would really have to believe that the FOMC knew what was going to be in the economic news cards.

The increasing hawkish talk all seemed to be preparing us for a rate hike in just 2 weeks. Judging by the previous week’s market performance you would certainly have been of the belief that traders were finally at personal peace with the certainty of that increase.

The concept of being at personal peace is confusing to some.

I’m personally confused as to how it could have taken so long to see the obvious, unless we’re talking about stocks, interest rates and investor’s reactions.

What I find ironic is that the proposal for all inclusive bathrooms is really age old, at least at the NYSE, when there was a recent time that there was only a need for a single sex bathroom, anyway.

Just like many of us know, what a great degree of certainty, which camp we belong to when nature beckons, the lines seemed to be increasingly drawn with regard to interest rates.

Even as the talk heated up there were still clear interest rate doves, albeit in diminished numbers compared to their hawkish brethren, sistren and “transgendren.”

Now, though, the certainty is muddled.

Since I don’t use public restrooms, I don’t really understand all of the controversy, nor do I understand the angst over a suspected 0.25% interest rate increase.

Nor do I understand why grown and highly educated men, women and others could be so engaged in their spreading their convictions, which even under the close scrutiny of historical hindsight, could never be validated.

With this past Friday’s Employment Situation Report most everyone was taken by surprise. Not only were current job creation numbers lower than expected, but downward revisions to previous months didn’t help to paint an optimistic picture, even as the unemployment rate continued to decline.

So what about that June interest rate hike that had been increasingly suggested by those in a position to decide?

You do have to wonder whether the Federal Reserve members are testing the waters among the investing community and gauging responses.

I hope not.

I don’t think that they really need a triple mandate or need to have their focus sullied. It’s enough that we’ve already seen an FOMC that expresses concern over China and may be further influenced by EU interest rates and even the possibility of Britain’s exit from the European Union.

No doubt that everything going on in the world just adds to the confusion. While the FOMC continually avers that it is “data driven,” perhaps it would be helpful to know what data is under the microscope and how it is weighted.

It might even be instructive to know what the data considered had been when the December 2015 interest rate increase was announced.

Nearly 6 months later it may still be difficult to see what the FOMC had seen based on the existing data and projections.

The market, in its confusion, finished the past week absolutely flat, although it did recover from some significant losses during three of the shortened trading week’s sessions.

That included a recovery following Friday’s early morning confusion. Those recoveries, though, may only lead us to a week or so of perpetuating the confusion as we wonder whether the FOMC has been setting up the market for a summer rate hike or whether the FOMC has just been completely misreading the economy.

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

I didn’t open any new positions last week and there doesn’t really seem to be much indication as to what the coming week holds, so I’m not overly certain about my activity level.

That extends to stocks, too.

But with some of its recent weakness and a healthy dividend, I think that it may end up being a relatively easy decision to add to my General Motors (GM) holdings.

It is now at a price approximately mid-way between recent highs and lows and that is often one of my preferred entry points. I also often prefer an entry point right in advance of an ex-dividend date, so the stars may be aligning for General Motors.

Already owning shares of both General Motors and Ford (F), the current lots that I own aren’t generating any premium income and they are only made tolerable by their premiums.

While I expect that each will someday make contributions beyond those dividends, I look at each lot of shares as a standalone entity and see an upcoming lot of General Motors as a vehicle for a premium, a dividend and perhaps some small capital appreciation, as well.

I also own some shares of Macy’s (M) and they were the first retail earnings disappoi8ntment of this recent earnings season. One of my current lots is uncovered and like General Motors, the dividend makes it tolerable, as do previously accumulated option premiums.

Macy’s is ex-dividend on Monday of the following week. I especially like those kind of situations where there may be an unity to purchase shares and then sell in the money calls with an expiration date of the week of the ex-dividend.

In such cases, if the shares are assigned early, they must be called away at the end of the current week. In that case, the call seller effectively receives an enhanced weekly premium. That enhancement, which comes from the time portion of the premium, in essence is like getting a portion of the dividend.

However, in this instance, I may consider an extended weekly option, but perhaps using a near the money strike price, anticipating some continued capital appreciation in shares, as well.

If that capital appreciation materializes before the ex-dividend date, the chance for early assignment may still exist, but the loss of the dividend could easily be offset by the combination of option premium and capital appreciation, along with the opportunity to take assignment proceeds and put them back to work the very next week.

Finally, sometimes in the midst of confusion, there is opportunity.

I don’t know of anyone who believes that interest rates are going to continue staying where they are and they certainly can’t get much lower.

Of course, that kind of confidence is bound to get slapped down and reminds me of the same belief when it came to the price of oil.

But the reality is that Friday’s Employment Situation Report shock probably won’t last too long insofar as the interest rate sensitive financial sector is concerned. The rates on the 10 Year Treasury have gone up and down in fits and starts and following Friday’s decline is at a fairly well established level of support.

With that in mind, I have a hard time deciding between MetLife (MET) and Morgan Stanley (MS) and may consider both as the week is ready to begin.

While neither should be considered as harboring undue risk, their option premiums are reflective of undue risk.

However, as opposed to stocks that truly do reflect significant risk and are typically best suited for shorter term holding periods, both MetLife and Morgan STanley could easily be held for the longer term and offer attractive dividends, as well, in the event of a longer term holding period.

As I’ve done recently with some energy holdings, which have certainly been volatile, I would embrace the enhanced premium and even consider rolling over positions if they were likely to be assigned, as well.

As long as those premiums are enriched, the lure of holding onto those positions, particularly in light of a real risk that may be less than the perceived risk, is strong.

There isn’t too much confusion about that in my mind.

Traditional Stocks: MetLife, Morgan Stanley

Momentum Stocks: none

Double-Dip Dividend: General Motors (6/8 $0.38), Macy’s (6/13 $0.38)

May212016

Weekend Update – May 22, 2016

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)

Dec52015

Weekend Update – December 6, 2015

I don’t know if little kids still pick the petals off from daisies to the alternating refrain “She loves me, she loves me not.”

There was really no way to game that exercise, as there was with the other old refrain “Eenie meenie miney moe,” as you never knew whether there was an even or odd number of petals.

As much as one daisy looked like the next and as much as they shared the same pedigree, you really couldn’t stake much on what you saw.

Forget about trying to analyze the situation. If your romantic fortunes were tied to that daisy, that itself seemed to be a product of such intricate organization and detail, you could have arrived at your destination much more quickly by flipping a coin.

As much as you may have thought that the particular daisy you hadpicked out from among others in the field was talking directly to you, it was a mistake to believe that what you thought it was saying was really what was being said.

But most of us want to be optimistic and most of us want to believe in what we see on the surface.

Somewhat predictably, disappointment was as likely as elation as the last petal was about to hit the ground. That disappointment, though, was often preceded by a sense of hope as the petals were dwindling down to their final numbers. Everytime you heard “she loves me” and saw that you were getting closer to that very last petal, you felt a sense of confidence only to find that the odds of that confidence being rewarded were illusory.

On the other hand, it was easy to be on the winning side of “Eenie, meenie, miney, moe,” especially if the people you were with didn’t recognize the constancy of the refrain and didn’t understand the application of basic division or modular arithmetic. You also had to be adaptable and willing to subtly change your position, but the process was conquerable.

“Eenie meenie miney moe,” if played to your advantage, was a good example of a data driven action. You could stake it all on what you saw if you analyzed and then processed the changing information around you.

Most of all, you could believe the information.

For much of the past few months we’ve been lead to believe that action from the FOMC would be data driven. However, increasingly during that time, as data often seemed conflicting and not supportive of action, members of the Federal Reserve spoke in concrete terms that had to make reasonable people wonder whether data really was going to have a major role.

What we were hearing, particularly the shift toward more hawkish tones, wasn’t what we were seeing. If the data wasn’t there, why the change in tone? How do you prepare when those who are dispassionately analytical begin to sound less so?

What that has created over the past year has been an environment in which “Eenie meenies” have been replaced by daisies. What Federal Reserve Governors and FOMC members often said were at odds with what was observed and then subsequently with what they did.

Or in the case of interest rates, didn’t do.

The ability to reasonably assess and position oneself has been deteriorating as the disconnect between words and actions and words and intentions have become more commonplace.

Understandably, perhaps, this has also been a year in which the market has gone back and forth in paroxysms of buying and selling.

Those paroxysms have simply been efforts to get better positioning as the two faces of those charged with making the decision that we’ve been awaiting ever since Janet Yellen assumed the reigns of the Federal Reserve, have continually confounded everyone.

Meanwhile, while traders may have believed that an “Eenie meenie” strategy was indicated, it really has been a case of a coin flip as may have been best demonstrated by this past week. Positioning yourself is worthless when the currency is a petal.

With lots of gyrations and lots of interesting comments this past week from Janet Yellen, numerous Federal Reserve Governors and Mario Draghi, of the ECB, the messages alternated between creating big disappointment and enormous hope.

With all of that, the market was virtually unchanged for the week, as has been the tale for all of 2015.

Friday’s strong Employment Situation Report may have finally put an end to the disconnect between words and actions. The market seemed to have embraced what it viewed as the last petal that could now lead to a period of more fundamental analysis ahead, rather than guessing what the FOMC will or won’t do.

Hopefully, when the FOMC meets in about 10 days, words and actions will finally be aligned and two faces will become one.

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

It’s always difficult to look at a coming week with an eye on trying to identify bargains for a potential short term trade when the market closed the previous week with a large gain.

Friday’s nearly 400 DJIA point gain and that seen in the S&P 500 bringing that index within about 2% of its all time high, makes you wonder just what was wrong with those companies that lagged behind.

WIth the FOMC meeting still a week away there may still be some opportunity this coming week, as the buying on the rumor kind of activity seen this past Friday could still have some time to run, as the news is still a bit away.

Of course, I’m not certain if I would want to be around if the expected news doesn’t materialize, but it seems almost impossible to imagine that being the case. By the same token, I’m not certain that I want to be around when the expected news does materialize if that leads to the typical “sell on the news” kind of activity.

With that in mind, I don’t expect to be very active this week, as I will be reluctant to add positions after Friday’s surge that could then be at risk for a typical profit taking binge when expectations for an interest rate hike become realized.

Best Buy (BBY) was one of those companies that lagged on Friday and is well below its recent highs, which of course finds it in the company of so many others, despite the market being within easy striking distance of creating more new highs.

I thought about adding shares of Best Buy last week, but as it is ex-dividend this week, the rationale for finally relinquishing some cash in return for its option premium and dividend feels stronger as the potential return is very appealing, even if shares just tread water this week.

Historically, Best Buy has lagged during the final month of the year, even as other retailers have fared well. I don’t have much interest in adding to my existing Best Buy position with a longer term holding in mind, but I think a short term venture could be justified.

Macy’s (M) is another that lagged last week and had a 5 day performance similar to that of Best Buy. More importantly, it still hasn’t recovered from its earnings plunge last month and is an astonishing 46% lower in the past 5 months.

I purchased shares shortly after the earnings decline and am ready to add some more this week as those shares will also be ex-dividend. While my existing shares have calls written against them with a December 24th expiration, any additional shares purchased will most likely use a weekly expiration and may also be more likely to look at an out of the money strike, rather than the typical “Double Dip Dividend” approach that I prefer to use, in anticipation of some short term price appreciation.

Additionally, since the ex-dividend date is on a Friday, if the shares are likely to be assigned because their closing price on Thursday exceeds the strike price plus the amount of the dividend, I would consider rolling those shares over to the following week or beyond, in an effort to wring some additional premium out of the position in the event that there will then be an early assignment of the newly sold call options.

I was thinking about re-purchasing shares of Pfizer (PFE) last week in the hopes of an early week decline.

That decline came mid-week instead and I wasn’t very interested in adding any additional new positions for the week. Ultimately, Pfizer did as the market did for the week and ended unchanged.

My thinking hasn’t changed, though.

I would very strongly consider a re-purchase of recently assigned Pfizer shares on any weakness, particularly at the beginning of the week, as its premiums are still enhanced over the uncertainty surrounding the proposed tax inversion motivated merger with Ireland’s Allergan (AGN).

That process may be one that takes a while to play out and I don’t believe that there’s very much downside for Pfizer in the event that the deal can’t get done due to government rulings.

I wouldn’t mind collecting those premiums on a serial basis and would even consider rolling over positions that might otherwise be assigned if I was satisfied with my cash reserve position.

I’m not a huge fan of T-Mobile’s (TMUS) CEO, but you do have to admire someone who advocates for his company, even as he may be presiding over a company that he desperately wants to become part of a larger family, preferably one with very deep pockets or the right kind of assets.

Thanks to not paying a dividend, T-Mobile has been able to aggressively fund its activities to lure customers from others, while still leavingsufficent net earnings per share that are the envy of its competitors.

When your competitors have deeper pockets, though, that makes it hard to compete for very long, so I do wonder what additional surprises John Legere may have planned before those earnings begin to feel some pressure.

Shares have fallen about 17% in the past 10 weeks. While T-Mobile actually out-performed the market this past Friday, it did trail for the full week.

I’d be very interested in considering the sale of put options on shares if it gives up a meaningful portion of last Friday’s gain and actually wouldn’t mind the prospects of having to actively maintain that position by having to roll it over in sequential weeks in an effort to avoid assignment, while collecting premiums that are reflective of the risk.

Occasionally that can be a rewarding approach, although you sometimes have to be prepared for a longer term adverse price move.

Finally, that has exactly been the case with my favorite put sale of 2014, Twitter (TWTR), which has instead become a pariah in 2015.

With the experience of 2015 still needing to bring itself to a conclusion, I think that I am finally ready to add to the existing short put position.

At least with Twitter, the product, there isn’t enough space to speak out of both sides of your mouth, but there may be some hope that the companies executives, with a little more shell shocked experience under their belts may be better prepared to deal with investor expectations and won’t do so much to unnecessarily challenge those expectations as it gets prepared for earnings in January.

With those earnings being reported on January 26t, 2016, but the last extended weekly option expiration date on January 22, 2016, I would take an uncharacteristic position by going longer term and drawing a line in the sand at selling the $24 put. That premium is very attractive as many believe that the next stop for Twitter is $20.

With earnings the week after expiration of that contract, if selling that contract, you do have to be prepared to rollover before earnings and attempting to then take advantage of the earnings enhanced premiums in the hope that the brakes are finally applied and more carefully chosen words and messages are delivered during the ensuing conference call.

Hopefully, CEO Jack Dorsey will speak clearly and paint a vision that is more confident, but based on some kind of reality that we can all believe.

Traditional Stocks: Pfizer

Momentum Stocks: T-Mobile, Twitter

Double-Dip Dividend: Best Buy (12/8 $0.23), Macy’s (12/11 $0.36)

Premiums Enhanced by Earnings: None

Nov72015

Weekend Update – November 8, 2015

For a very brief period of time before October’s release of the Employment Situation Report and for about 90 minutes afterward, the stock market had started doing something we hadn’t seen for quite a while.

Surprisingly, traders had been interpreting economic news in a rational sort of way. Normally, you wouldn’t have to use the word "surprisingly" to describe that kind of behavior, but for the preceding few years the market was focused on just how great the Federal Reserve’s monetary policy was for equity investors and expressed fear at anything that would take away their easy access to cheap money or would make alternative investments more competitive.

The greatest increment of growth in our stock market over the past few years occurred when bad news was considered good and good news was considered good.

To be more precise, however, that greatest increment of growth occurred when there was the absence of good economic news in the United States and the presence of good economic news in China.

What that meant was that good economic news in the United States was most often greeted as being a threat. Meanwhile back in the good old days when China was reporting one unbelievable quarter after another, their good economic news fueled the fortunes of many US companies doing business there.

Then the news from China began to falter and we were at a very odd intersection when the market was achieving new highs even as so many companies were in correction mode as a Chinese slowdown and supremacy of American currency conspired to offset the continuing gift from the FOMC.

At the time of the release of October’s Employment Situation Report the market initially took the stunningly low number and downward revisions to previous months as reflecting a sputtering economy and added to the losses that started some 6 weeks earlier and that had finally taken the market into a long overdue correction.

90 minutes later came an end to rational behavior and the market rallied in the belief that the bad news on employment could only mean a continuation of low interest rates.

In other words, stock market investors, particularly the institutions that drive the trends were of the belief that fewer people going back to work was something that was good for those in a position to put money to work in the stock market.

Of course, they would never come right out and say that. Instead, there was surely some proprietary algorithm at work that set up a cascading avalanche of buy orders or some technical factors that conveniently removed all human emotion and empathy from the equation.

As bad as the employment numbers seemed, the real surprise came a few weeks later as the FOMC emerged from its meeting and despite not raising rates indicated that employment gains at barely above the same level everyone had taken to be disappointing would actually be sufficient to justify an interest rate increase.

The same kind of reversal that had been seen earlier in the month after the Employment Situation Report was digested was also seen after the most recent FOMC Statement release had started settling into the minds of traders. However, instead of taking the market off in an inappropriate direction, there came the realization that an increase in interest rates can only mean that the economy is improving and that can only be a good thing.

Fast forward a couple of weeks to this past week and with the uncertainty of the week ending release of the Employment Situation Report the market went nicely higher to open the first 2 days of trading.

There seemed to be a message being sent that the market was ready to once again accept an imminent interest rate increase, just as it had done a few months prior.

That seemed like a very adult-like sort of thing to do.

The real surprise came when the number of new jobs was reported to be nearly double that of the previous month and was coupled with reports of the lowest unemployment rate in almost 8 years and with a large increase in wages.

Most any other day over the past few years and that combination of news would have sent the market swooning enough to make even the fattest finger proud.

With all of those people now heading back to work and being in a position to begin spending their money in a long overdue return to conspicuous consumption, this coming week’s slew of national retailers reporting earnings may provide some real insight into the true health of the economy.

While the results of the past quarter may not yet fully reflect the improving fortunes of the workforce, I’m more inclined to listen closely to the forecasting abilities of Terry Lundgren, CEO of Macy’s (M) and his fellow retail chieftains than to most any nation’s official data set.

Hopefully, the good employment news of last week will be one of many more good pieces to come and will continue to be accepted for what they truly represent.

While the cycle of increasing workforce participation, rising wages and increased discretionary spending may stop being a virtuous one at some point, that point appears to be far off into the future and for now, I would trade off the high volatility that I usually crave for some sustained move higher that reflects some real heat in the economy.

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

What better paired trade could there be than Aetna (AET) and Altria (MO)?

I don’t mean that in terms of making the concurrent trades by taking a long position in one and a short position in the other, but rather on the basis of their respective businesses.

In the long term, Altria products will likely hasten your death while still making lots of money in the process and Aetna’s products will begrudgingly try to delay your death, being now forced to do so even when the costs of doing so will exceed the premiums being paid.

Either way, you lose, although there may be some room for a winner or two in either or both of these positions as they both had bad weeks even as the broader market finished higher for the 6th consecutive week.

Both have, in fact, badly trailed the S&P 500 since it started its rally after the October Employment Situation Report.

Aetna, although still sporting a low "beta," a measure of volatility, has been quite volatile of late and its option premium is reflecting that recent volatility even as overall volatility has returned to its historically low levels for the broader market.

With Aetna having recently reported earnings and doing what so many have done, that is beating on earnings, but missing on revenues, it had suffered a nearly 8% decline from its spike upon earnings.

That seems like a reasonable place to consider wading in, particularly with optimistic forward guidance projections and a very nice selection of option premiums.

Walgreens Boots Alliance (WBA) is ex-dividend this week. Although its dividend is well below that of dividend paying stocks in the S&P 500 its recent proposal to buy competitor Rite Aid (RAD) has increased its volatility and made it more appealing of a dividend related trade.

With some displeasure already being expressed over the buyout, Walgreens Boots Alliance will surely do the expected and sell or close some existing stores of both brands and move on with things. But until then, the premiums will likely continue somewhat elevated as Walgreens seeks to further spread its footprint across the globe.

With about a 10% drop since reporting earnings at the end of October there isn’t too much reason to suspect that it will be single out from the broader market to go much lower, unless some very significant and loud opposition to its expansion plans surfaces. With the Thanksgiving holiday rapidly approaching, I don’t think that those objections are going to be voiced in the next week or two.

International Paper (IP) is also ex-dividend this coming week and I think that I’m ready to finally add some shares to an existing lot. Like many other stocks in the past year, it’s road to recovery has been unusually slow and it is a stock that has been among those falling on hard times even as the market rallied to its highs.

While it has recovered quite a bit from its recent low, International Paper has given back some of that gain since reporting earnings last week.

Its price is now near, although still lower than the range at which I like to consider buying or adding shares. The impending dividend is often a catalyst for considering a purchase and that is definitely the case as it goes ex-dividend in a few days.

Its premium is not overly generous, as the option market isn’t perceiving too much uncertainty in the coming week, but the stock does offer a very nice dividend and I may consider using an extended option to try and make it easier to recoup the share price drop due to its dividend distribution.

Macy’s reports earnings this week and it has had a rough ride after each of its last two earnings reports. When Macy’s is the one reporting store closures, you know that something is a miss in retail or at least some real sea change is occurring.

The fact that the sea change is now showing profits at Amazon (AMZN) for a second consecutive quarter may spell bad things for Macy’s.

The options market must see things precisely that way, because it is implying a 9.2% move in Macy’s next week, which is unusually large for it, although no doubt having taken those past two quarters into account.

Normally, I look for opportunities to sell puts on those companies reporting earnings when I can achieve a 1% ROI on that sale by selecting a strike price outside of the range implied by the option market.

In this case that’s possible, although utilizing a strike that’s 10% below Friday’s close doesn’t offer too large of a margin for error.

However, I think that CEO Lundgren is going to breathe some life into shares with his guidance. I think he understands the consumer as well as anyone, just as he had some keen insight long before anyone else, when explaining why the energy and gas price dividend being received by consumers wasn’t finding its way to retailers, nearly a year ago.

Finally, the most interesting trade of the week may be Target (TGT).

Actually, it may be a trade that takes 2 weeks to play out as the stock is ex-dividend on Monday of the following week and then reports earnings two days later.

Being ex-dividend on a Monday means that if assigned early it would have to occur by Friday of this coming week. However, due to earnings being released the following week the option premiums are significantly enhanced.

What that offers is the opportunity to consider buying shares and selling an extended weekly, deep in the money call with the aim of seeing the shares assigned early.

For example, at Friday’s close of $77.21, the sale of a November 20, 2015 $75.50 call would provide a premium of $2.60.

That would leave a net of $0.89 if shares were assigned early, or an ROI of 1.15% for the 5 day holding, with shares more likely to be assigned early the more Target closes above $76.06 by the close of Friday’s trading.

However, if not assigned early that ROI could climb to 1.9% for the 2 week holding period even if Target shares fall by as much as 2.2% upon earnings.

So maybe it’s not always a misplaced sense of logic to consider bad news as being a source for good things to come.

Traditional Stocks: Aetna, Altria

Momentum Stocks: none

Double-Dip Dividend: International Paper (11/12 $0.44), Target (11/16 $0.56), Walgreens Boots Alliance (11/12 $0.36)

Premiums Enhanced by Earnings: Macy’s (11/11 AM)

May92015

Weekend Update – May 10, 2015

Many years ago people were fascinated by the movie “The Three Faces of Eve.”

It was the story of a woman afflicted with what was known at the time as “Multiple Personality Disorder,” although many incorrectly believed that the story was one characteristic of an individual with schizophrenia.

For her performance of all 3 characters, none of whom was aware of any of the others, Joanne Woodward won an Oscar for “Best Actress.” Yet 30 years later, in a sign of an unjust society, neither Eddie Murphy nor Arsenio Hall received any notice whatsoever from The Academy for each portraying 4 distinct characters.

While there’s still hope that such acting genius may someday be rewarded, there’s very little hope of being able to understand just what face the market will be showing from day to day.

Doug Kass, a well known hedge fund manager is fond of Tweeting that the market has no memory from day to day and that observation, while not seeming to be offering a diagnosis, has it well characterized.

Lack of memory for important information not explained by ordinary forgetfulness is one of the cardinal signs of Dissociative Identity Disorder and this market, however one wishes to characterize it, may have the same affliction as was suffered by Eve. But as long as it keeps reaching new record highs, it too will keep winning awards for its performance.

While some may say that the market is “acting schizophrenic,” they neither know the distinction between that malady and Dissociative Identity Disorder, nor understand the use of adverbs. While volatility may also be a hallmark of the disorder the rapid alternations between market plunges and surges are doing nothing to enhance volatility. In fact, for all of the uncertainty, volatility remains within easy striking distance of its 52 week low and was virtually unchanged last week.

In a week with very little economic news scheduled until this past Friday’s Employment Situation Report and with most key companies having already reported earnings, there was little reason to expect many large moves. However, as has been the case in recent weeks, there hasn’t always been the requirement of an identifiable reason for the market making a large move. What has also been the case is that so often the very next day brought about a reversal of fortune or mis-fortune of the previous day and another subsequent Doug Kass Tweet.

Those Kass market memory Tweets are fairly common and I do believe that he recalls having sent them on many previous occasions. While I offer him no diagnosis based on those Tweets, they do perfectly sum up the market that we’ve come to know.

The problem is that which just don’t know which market will be showing up from day to day and sometimes from hour to hour.

I wonder if Eve had that same problem?

Compounding the inherent uncertainty occurs when an otherwise dependable and reliable source seems to turn on you.

Mid-week we got to see a Janet Yellen face that we had only seen once previously. It was the face that unlike its more commonly visible counter-part, wasn’t the one that sought directly or indirectly to calm and prop up stock markets.

During her tenure, especially during her post-FOMC Statement release press conferences, most of us have come to appreciate the boost of confidence Janet Yellen has supplied markets, as well as having an appreciation for the manner in which she balances pragmatic and social concerns with monetary policy.

But this week instead it was that Yellen character that questions stock market value, almost in the same way as a predecessor pointed a finger at “frothy exuberance.”

While not quite as bad as the racy and wild side of Eve that tried to murder her child, the value questioning side of Janet Yellen sent markets for a tumble. But just as after her 2014 comments about “substantially stretched” valuation metrics in bio-technology companies, the impact may be short lived, as it was this week.

Perhaps some thanks for that should go to the auspiciously timed release of the Employment Situation Report that avoided creating either a “bad news is good news” or “good news is bad news” by delivering numbers that were right in line with expectations.

Of course, when considering how much contra-distinction there has been in recent monthly Employment Situation Reports one might be excused for believing that they too suffer from Dissociative Identity Disorder and it may be injurious to one’s portfolio health to base too many actions on any given month’s data.

This coming week is another very slow one for economic news. While earnings season is now winding down the catalyst or the retardant for the market to get to the next new set of highs may be the slew of national retailers reporting earnings this week.

Some 6 months ago those retailers were among those optimistically talking about how they would benefit from increased consumer spending as a result of lower energy prices.

About that….

Those same retailers may be putting on a different face when reporting this week if those gains haven’t materialized, as there are no indications that the GDP has grown as expected.

To the contrary, actually.

Only one of the major retailers will report before this Wednesday’s Retail Sales Report, but it was the CEO of that company, Terry Lundgren, who was initially among the most optimistic regarding the prospects for Macys (NYSE:M) and who months later made the very astute observation that the energy savings experienced by consumers hadn’t accumulated sufficiently to create the feeling of actually having more discretionary cash to spend.

Sooner or later the projections for significant growth in GDP will have to be written off as just the rants of economists who had surrendered their better judgment to their racy and wild alternate egos and who can’t be blamed for their actions.

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

After the last two weeks, I think, that even after a previous lifetime of toiling away for a paycheck and not really appreciating its significance, I finally understand the meaning of “TGIF.”

The strong recoveries seen in each of the past two Fridays helped to rescue some weeks that were turning out to be fairly dour.

The downside, however, is that when the coming week is about to begin, so many of the stocks that you had been eying for a purchase were up sharply to end the previous week.

There are probably worse problems to have in life, so I won’t dwell too long on that one, but that is where this past Friday’s 267 point gain in the DJIA has us beginning the new week.

Sinclair Broadcasting (NASDAQ:SBGI) has quietly become the largest television station operators in the United States. While seemingly the only topics discussed these days are about streaming signals, satellites and cable there’s still life left in terrestrial television. The family controlled company certainly believes in the future of traditional television broadcasting as over the past several years the company has actively amassed new stations around the country.

Following an initial move higher after it reporting earnings shares gave up some ground and are now about 9% below its recent high from last month, at which time I had my previous shares assigned.

I purchased shares on 5 occasions in 2014 and have been waiting for a chance to do so in 2015. With its recent decline and with this being the final week of a monthly option cycle, I would consider once again adding shares in the hopes of a quick assignment. However, if not assigned, shares are then ex-dividend May 28th and I would consider selling either June or the July 2015 options on those shares.

Mattel (NASDAQ:MAT) has suffered of late.

It literally started 2015 off by being named one of the worst run companies of 2014 on New Years Day. Its shares continued to stumble even after its CEO unexpectedly resigned a few weeks later as the lure of its Barbie was waning in a world of electronic toys more welcomingly embraced by some of its competitors.

More recently some of the negativity that characterized 2015 had abated as the market actually embraced the smaller than expected loss at the most recent earnings report. While some of the gains have been since digested, Mattel may have now seen what the near term bottom looks like.

With earnings now out of the way for a short while and an upcoming ex-dividend date the following week, I am considering adding shares, but bypassing the week remaining on the monthly May 2015 contract and going directly to the June contract and banking on some share gains and not just option premiums and dividends for the effort.

Fastenal (NASDAQ:FAST) is one of those stocks that I always like to own, as it is an assuming kind of company that tends to reflect what is going on in the economy and is relatively immune from currency exchange issues.

Most recently, after having positively reacted to earnings it failed to climb back toward where it had been at the time of its January earnings report. However, it does appear as if it is building a base to make that assault. As with Sinclair Broadcasting and Mattel, Fastenal only offers monthly options, so any potential purchase this week paired with an option sale could look at the May 15, 2015 contracts, effectively making it a weekly contract, or go directly to the June 2015 expirations, especially if believing that there is some capital appreciation in store for shares.

DuPont (NYSE:DD) and Teva Pharmaceuticals (NYSE:TEVA) have both spent a lot of time in the news lately and both are ex-dividend this week.

DuPont is one stock that came to mind when bemoaning the strong gains seen this past Friday, as it was definitely a beneficiary of broad market strength. It continues to be embroiled in a fight with activists which may have profound ramifications with how investors look at and value a company’s intellectual and research pursuits.

The question of how valuable research activities are to a company if they are part of a separate company is one that pits short term and long term outlooks against one another. Although I tend to trade for the short term, and while I believe that Nelson Peltz is generally a positive influence on the companies in which he has taken a significant financial stake, I disagree with the idea of splitting off assets that are at the core of developing intellectual property.

However, as long as the fighting continues, there is opportunity to see shares climb even higher. It is precisely because of the uncertainty that comes along with the ongoing conflict that DuPont is offering an exceptionally high option premium, particularly in a week that it is ex-dividend.

The world of pharmaceutical companies was once so staid. Every self respecting portfolio was required to own shares in a high dividend paying blue chip pharmaceutical company, many of whom have been swallowed up over the years in the process of creating even larger and less responsive behemoths.

From nothingness, generic drug companies and bio-pharmaceutical companies are becoming their own behemoths and are recently at center stage with seemingly daily merger and acquisition activity.

Teva has joined the crowd seeking to grow through acquisition and may be willing to fight for the opportunity to grow. Of course, its target may have some other ideas, including possibly seeking to purchase Teva itself.

Like DuPont, the uncertainty in the air has it offering a very appealing option premium even in a week that shares are ex-dividend. With shares having recently declined by about 10% in the past month, it’s possible that some of the downside risk that may be associated with a fight or a failed conquest attempt has already been discounted.

Zillow (NASDAQ:Z) reports earnings this week having declined about 25% since its last earnings report. Its CEO, a darling of cable business news blamed the prolonged regulatory process encountered during its proposed purchase of its competitor Trulia, for leaving the company “trending a couple quarters behind where we’d like to be.”

But that comment was from last month, so the expectation would be that the market is prepared for whatever may come their way as earnings are reported this week.

That kind of logic is fine until faced with counter-examples, such as SanDisk (NASDAQ:SNDK) which despite warning upon warning, still managed to surprise everyone. Of course, the same could be said for early 2014 when markets seemed to be surprised by how bad weather impacted earnings after having heard nothing but how weather was effecting sales for months.

In this case the option market is implying an 8.1% move for Zillow after earnings are reported. That’s fairly mild after the past 2 weeks of having seen declines on the order of 25% coming from companies that couldn’t place many excuses for its performance at the feet of currency exchange woes.

Finally, it takes a lot for me to consider a new stock and to think about putting it into portfolio rotation. It’s even more difficult to do that with a company that has less than 6 months of public trading behind it.

I recently found my second ever blog article, one from 8 years ago, which was about peer lending re-posted on an aggregator site. At the time, I looked at peer lending as a potential means of diversifying one’s portfolio, especially with the aim of generating income streams.

While the early leader of the concept is still around, it was LendingClub (NYSE:LC) that finally brought it to the equity markets.

Its earnings last week, despite being slightly better than the consensus, did nothing to stem the downward price spiral since the IPO. The stock’s close tracking of the 10 Year Treasury Note broke down in March, but I believe that with the stock approaching its IPO price that concordance with interest rates will soon be re-established.

If that proves to be the case and there is a suggestion that the bond market may now be on the right path in predicting the inevitable rise in rates, the LendingClub and its shares are likely to prosper.

Like an unusual number of stocks presented this week, LendingClub also offers only monthly options. However, without a dividend to consider, I would look at any potential purchase of shares as a short term trade and would sell the May 2015 options, which are offering a very attractive premium as the possibility of further share price declines are being factored in by the options market.

Traditional Stocks: Fastenal, Mattel, Sinclair Broadcasting

Momentum Stocks: LendingClub

Double Dip Dividend: DuPont (5/13), Teva Pharmaceuticals (5/15)

Premiums Enhanced by Earnings: Zillow (5/12 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.

Feb222014

Profiting From Good Fortune Or Bad

TheAcsManArticles

While most of the more meaningful companies in the S&P 500 have already reported earnings and new earnings season is barely 7 weeks away, there’s still time to profit from remaining earnings reports coming this week.

Whether a company’s shares respond to earnings by going lower or higher there is often opportunity to profit from either the good or the bad fortunes that they may endure as a result of their past performance and outlook for future fortunes.

As always, whenever I consider whether an earnings related trade is worth consideration I let the option market’s measure of “implied volatility” serve as a threshold in determining whether there is a satisfactory risk-reward proposition. That simple calculation provides an upper and lower price range in which any anticipated price movements will be contained.

Occasionally, for those selling options, whether as part of a covered call strategy or simply through the sale of puts, there may be an opportunity to achieve an acceptable premium even though it represents a share price that is outside of those bounds set by the option market.

This week there appear to be a number of stocks preparing to release their quarterly earnings that may warrant some attention as the reward may be well suited to the risk for some.

A number of the companies that I’ve highlighted are volatile in their own rights, but even more so when event driven, such as before earnings. While the implied volatilities may sometimes appear to be high, they are frequently borne out by past history and it would be injudicious to simply believe that such implied moves are outside the realm of probability.

While individuals can certainly set their own risk-reward parameters, I tend to look at a weekly 1% ROI as meeting my threshold on the reward side of the equation. I measure the degree of risk as whether I need to look above or below the implied volatility to achieve that desired return for what is anticipated to be a week’s investment.

Satisfactory risk exists when the strike price necessary to achieve the ROI is outside of the range predicted by the option market.

The coming week is replete with earnings reports and presents more companies than I usually find that satisfy the above criteria and are in companies that I usually already follow. Among the companies that I am considering this coming week are Abercrombie and Fitch (ANF), Best Buy (BBY), Deckers (DECK), JC Penney (JCP), Macys (M), salesforce.com (CRM), SolarCity (SCTY), Soda Stream (SODA) and T-Mobile (TMUS).

Since the basis of these trades is purely upon what may be considered an inefficiency between the option premiums and the implied volatility, I give no consideration to fundamental nor technical issues. However, my preference, when selling put contracts is to do so when shares have already been falling in price in advance of earnings. As the current week came to its end that included JC Penney, SolarCity, Deckers and Best Buy, although the coming week may define other possibilities.

For those not having sold put contracts in the past, one caveat when considering such trades, is that the investor must be prepared to own the shares if assigned or to manage the options contract, such as rolling it forward, if assignment appears inevitable.

The table may be used as a guide for determining which of these selected companies meet the risk-reward parameters that an individual sets, understanding that re-assessments need to be made as prices and, therefore, strike prices and their premiums may change.

While the list can be used on a prospective basis in anticipation of an earnings related move there may also be occasion to consider the sale of puts following earnings in those cases where shares have reacted in a decidedly negative fashion to earnings or to guidance.

While some believe in hitting someone when they’re already down, there can be much more satisfaction gained in giving them support in their effort to rise again. Inherently the sale of a put is a statement of bullish sentiment and there may be opportunity to make that expression a profitable one as the response of many when knocked down is to get back up again.

Whether prospective or reactive, there is always opportunity when big movements are anticipated, but not fully realized.

And if they are realized? Think of it as simply more opportunity for opportunity.

Jan122014

Weekend Update – January 12, 2014

Confusion Reigns.

January is supposed to be a very straightforward month. Everyone knows how it’s all supposed to go.

The market moves higher and the rest of the year simply follows. Some even believe it’s as simple as the first five trading days of the year setting the tone for the remainder still to come.

Since the market loves certainty, the antithesis of confusion, the idea of a few days or even a month ordaining the outcome of an entire year is the kind of certainty that has broad appeal.

But with the fifth trading day having come to its end on January 8th, the S&P 500 had gone down 11 points. Now what? Where do we turn for certainty?

To our institutions, of course, especially our central banking system which has steadfastly guided us through the challenges of the past 6 years. The year started with some certainty as Federal Reserve Chairman nominee Janet Yellen was approved by a vote that saw fewer negative votes cast than when her predecessor Ben Bernanke last stood for Senate approval, although there were far fewer total votes, too. On a positive note, while there was voting confusion among political lines, there was only certainty among gender lines.

While Dr. Yellen’s confirmation was a sign to many that a relatively dovish voice would predominate the FOMC, even as some more hawkish governors become voting members this year, the announcement that Dr. Stanley Fischer was being nominated as Vice-Chair sends a somewhat different message and may embolden the more hawkish elements of the committee.

That seems confusing. Why would you want to do that? But then again, why would you have pulled the welcome mat out from under Ben Bernanke?

Then on Friday morning came the first Employment Situation Report of the new year and no one was remotely close in their guesses. Nobody was so pessimistic as to believe that the fewest new jobs created in 14 months would be the result.

But the real confusion was whether that was good news or bad news. Did we want disappointing employment statistics? How would the “new” Federal Reserve react? Would they step way from the taper or embrace it as hawks exert their philosophical position?

More importantly, how is a January Rally supposed to take root in the remaining 14 trading days in this kind of muddled environment?

Personally, I like the way the year has begun, there’s not too much confusion about that being the case, despite my first week having been mediocre. While the evidence is scant that the first five days has great predictive value, there is evidence to suggest that there is no great predictive value for the remainder of the year if January ends the month lower. I like that because my preference is alternating periods of certainty and confusion, as long as the net result remains near the baseline. That is a perfect scenario for a covered option strategy and also tends to increase premiums as volatility is enhanced.

I prefer to think of it as counter-intuitive rather than confusing.

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).

There’s not much confusion when it comes to designating the best in large retail of late. Most everyone agrees that Macys (M) has been the best among a sorry bunch, yet even the best of breed needed to announce large layoffs in order to get a share price boost after being range bound. However, this week the embattled retail sector seems very inviting despite earnings disappointments and the specter of lower employment statistics and spending power.

Finding disappointments among retailers isn’t terribly difficult, as even Bed Bath and Beyond (BBBY), which could essentially do nothing wrong in 2013 more than made up for that by reporting its earnings report. While earnings themselves were improved, it was the reduced guidance that seems to have sent the buyers fleeing. There was no confusion regarding how to respond to the disappointment, yet its plummet brings it back toward levels where it can once again be considered as a source of option premium income, in addition to some opportunity for share appreciation.

L Brands (LB) shares are now down approximately 12% in the past 6 weeks. It is one of those stocks that I’ve owned, but have been waiting far too long to re-own while waiting for its price to return to reasonable levels. Like Bed Bath and Beyond it offered lower guidance for the coming quarter after heavy promotions that are likely to reduce margins.

Target (TGT) has had enough bad news to last it for the rest of the year. While it recently reported that it sales had been better than expected prior to the computer card data hack, it also acknowledged that there was a tangible decline in shopping activity in its aftermath. Its divulging that as many as 70 million accounts may have been compromised, it seemed to throw all bad news into the mix, as often incoming CEOs do with write-downs, so as to make the following quarter look good in comparison. For its part, Target, recovered nicely on Friday from its initial price decline and has been defending the $62.50 line that I believe will be a staging point higher.

Sears Holdings (SHLD) on the other hand doesn’t even pretend to be a retailer. The promise of great riches in its real estate holdings is falling on deaf ears and its biggest proponent and share holder, Eddie Lampert, has seen his personal stake reduced amid hedge fund redemptions. Shares plummeted after reporting disappointing holiday sales. What’s confusing about Sears Holding is how there is even room for disappointment and how the Sears retail business continues, as it has recently been referred to as a “national tragedy.”

But I have a soft spot in my heart for companies that suffer large event driven price drops. Not that I believe there is sustainable life after such events, but rather that there are opportunities to profit from other people like me who smell an opportunity and add support to the share price. However, my time frame is short and I don’t necessarily expect investor largesse to continue.

I did sell puts on Sears Holding on Friday, but would not have done so if the event and subsequent share plunge had been earlier in the option cycle. Sears Holdings, only offers monthly options and in this case there is just one week left in that cycle. If faced with the possibility of assignment I would hope to be able to roll the puts options forward, but do have some concerns about a month long exposure, despite what would likely be an attractive premium.

While there’s no confusion about the nature of its products, Lorillard’s (LO) recent share decline, while not offering certainty of its end, does offer a more reasonable entry point for a company that offers attractive option premiums even when its very healthy dividend is coming due. Like Sears Holdings, Lorillard only offers monthly option contracts, but in this case I have no reservations about holding shares for a longer time period if not assigned.

Conoco Phillips (COP) has been eclipsed in my investing attention by the enormous success of its spin-off Phillips 66 (PSX), but had never fallen off my radar screen. While waiting for evidence that the same will occur to Phillips 66 through its own subsequent spin-off of Phillips 66 Partners (PSXP), my focus has returned to the proud parent, whose shares appear to be ready for some recovery. However, with a dividend likely during the February 2014 option cycle, I don’t mind the idea of shares continuing to run in place and generate option income in a serial manner.

Perhaps not all retailers are in the same abysmal category. Lowes (LOW), while not selling much in the way of fashions or accessories and perennially being considered an also ran to Home Depot, goes ex-dividend this week and has traded reliably at its current level, making it a continuing target for a covered option strategy. I’ve owned in 5 times in 2013, usually for a week or two, and wonder why I hadn’t owned it more often. Following its strong close to end the week I would like to see a little giveback before making a purchase. Additionally, since the ex-dividend date is on a Friday, I’m more likely to consider selling an option expiring the following week or even February, so as to have a greater chance of avoiding early assignment of having sold an in the money option.

Whole Foods (WFM) also goes ex-dividend this week, but its paltry dividend alone is a poor reason to consider share ownership. However, its inexplicable price drop after having already suffered an earnings related drop makes it especially worthy of consideration. While I already own more expensively priced shares and often use lesser priced additional lots in a sacrificial manner to garner option premiums to offset paper losses, I’m inclined to shift the emphasis on share gain over premium at this price level. Reportedly Whole Foods sales suffered during the nation wide cold snap and that may be something to keep in mind at the next earnings report when guidance for the next quarter is offered.

Although earnings season will be in focus this week, especially with big money center banks all reporting, I have no earnings selections this week. Instead, I’m thinking of adding shares of Alcoa (AA) which had fared very nicely after being dis-invited from membership in the DJIA and not so well after leading off earnings season on Thursday.

While I typically am niot overly interested in longer term oiutlooks, CEO Klaus Kleinfeld’s suggestion that demand is expected to increase strongly in 2014 could help to raise Alcoa’s margins. Even a small increase would be large on a percentage basis and could easily be the fuel for shares to continue their post DJIA-explusion climb.

Finally, I was a bit confused as Verizon’s (VZ) shares took off mid-day last week and took it beyond the range that I thought my shares wouldn’t be assigned early in order to capture the dividend. In the absence of news the same didn’t occur with shares of AT&T which was also going ex-dividend the next day and other cell carriers saw their shares drop. In hindsight, the drop in shares the next day, well beyond the impact of dividends, was just as confusing. Where there is certainty, however, is that shares are now more reasonably priced and despite their recent two day gyrations trade with low volatility compared to the market, making them a good place to park money for the defensive portion of a portfolio.

Traditional Stocks: Bed Bath and Beyond, Conoco Phillips, L Brands, Lorillard, Target, Verizon

Momentum Stocks: Alcoa, Sears Holdings

Double Dip Dividend: Lowes (ex-div 1/17), Whole Foods (ex-div 1/14)

Premiums Enhanced by Earnings: none

Dec82013

Weekend Update – December 8, 2013

Sometimes good things can go good.

Anyone who remembers the abysmal state of television during the turn of this century recalls the spate of shows that sought to shock our natural order and expectations by illustrating good things gone bad. There were dogs, girls, police officers and others. They appealed to viewers because human nature had expectations and somehow enjoyed having those expectations upended.

That aspect of human nature can be summed up as “it’s fun when it happens to other people.”

For those that loved that genre of television show, they would have loved the stock markets of the last few years, particularly since the introduction of Quantitative Easing. That’s when good news became bad and bad news became good. Our ways of looking at the world around us and all of our expectations became upended.

Like everyone else, I blame or credit Quantitative Easing for everything that has happened in the past few years, maybe even the continued death of Disco. Who knew that pumping so much money into anything could possibly be looked at in a negative way despite having possibly saved the free world’s economies? While many decried the policy, they loved the result, in a reflection of the purest of all human qualities – the ability to hate the sinner, but love the sin.

Then again, I suppose that stopping such a thing could only subsequently be considered to be good, but rational thought isn’t a hallmark of event and data driven investing.

With so many believing that all of the most recent gains in the market could only have occurred with Federal Reserve intervention, anything that threatens to reduce that intervention has been considered as adverse to the market’s short term performance. That means good news, such as job growth, has been interpreted as having negative consequences for markets, because it would slow the flow. Bad news simply meant that the punch bowl would continue to be replenished.

For the very briefest of periods, basically lasting during the time that it wasn’t clear who would be the successor to Ben Bernanke, the market treated news on its face value, perhaps believing that in a state of leadership limbo nothing would change to upset the party.

It had been a long time since good news resulted in a market responding appropriately and celebrating the good fortune by creating more fortunes. This past week started with that annoying habit of taking news and believing that only a child’s version of reverse psychology was appropriate in interpreting information, but the week ended with a more adult-like response, perhaps a signal that the market has come to peace with idea that tapering is going to occur and is ready to move forward on the merits of news rather than conjecture of mass behavior.

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).

Coming off a nearly 200 point advance on Friday what had initially looked like relative bargains were now pricey in comparison and at risk to retrace their advances.

While last week was one in which dividends were a primary source of my happiness, unfortunately this week is not likely to be the same. As in life where I just have to get by on my looks, this week I’ll have to get by on new purchases that hopefully don’t do anything stupid and have a reasonable likelihood of being assigned or having their calls rolled over to another point in the near future. The principle reason for that is that most of the stocks going ex-dividend this week that have some appeal for me only have monthly options available. Since I’m already overloaded on options expiring at the end of the this monthly cycle my interests are limited to those that have weekly options. With volatility and subsequently premiums so low, as much as I’d like to diversify by using expanded options, they don’t offer much solace in their forward week premiums.

While the energy sector may be a little bit of a mine field these days, particularly with Iran coming back on line, Williams Companies (WMB) fits the profile that I’ve been looking for and is especially appealing this week as it goes ex-dividend. Williams has been able to trade in a range, but takes regular visits to the limits of the range and often enough to keep its option premium respectable. With no real interest in longer term or macro-economic issues, I see Williams for what it has reliably been over the course of the past 16 months and 9 trades. Despite its current price being barely 6% higher than my average cost of shares, it has generated about 35% in premiums, dividends and share appreciation.

Another ex-dividend stock this week is Macys (M). Retail is another minefield of late, but Macys has not only been faring better than most of the rest, it has also just hit its year’s high this past week. Ordinarily that would send me in the opposite direction, particularly given the recent rise. With the critical holiday shopping season in full gear, some will have their hopes crushed, but someone has to be a winner. Macys has the generic appeal and non-descript vibe to welcome all comers. While I wouldn’t mind a quick dividend and option premium and then exit, it is a stock that I could live with for a longer time, if necessary.

Citibank (C) is no longer quite the minefield that it had been. It may be an example of a good stock, gone bad, now gone good again. When I look at its $50 price it reminds me of well known banking analysts Dick Bove, who called for Citibank to hold onto the $50 price as the financial meltdown was just heating up. Fast forward five years and Bove was absolutely correct, give or take a 1 to 10 reverse split.

But these days Citibank is back, albeit trading with more volatility than back in the old days. I’m under-invested in the financial sector, which didn’t fare well last week. If the contention that this is a market that corrects itself through its sector rotation, then this may be a time to consider loading up on financials, particularly as there are hints of interest rate rises. Citibank’s beta inserts some more excitement into the proposition, however.

Like many others, Dow Chemical (DOW) took its knocks last week before recovering much of its loss. Also like many that I am attracted toward, it has been trading in a price range and has been thwarted by attempts to break out of that range. Mindful of a market that is pushing against its highs, this is a stock that I don’t mind owning for longer than most other holdings, if necessary. The generous dividend helps the patient investor wait on the event of a price reversal. For those a little longer term oriented, Dow Chemical may also be a good addition for a portfolio that sells LEAPs.

Like all but one of this week’s selections, I have owned shares of International Paper (IP) on a number of occasions in the past year. While shares are now well off of their undeserved recent lows there is still ample upside opportunity and shares seemed to have created support at the $45 level. My preference, as with some other stocks on this week’s list is that a little of the past week’s late gains be retraced, but that’s not a necessary condition for re-purchasing International Paper.

Baxter International (BAX) has been also in a trading range of late having been boxed in by worries related to competition in its hemophilia product lines to concerns over the impact of the Affordable Care Act’s tax on medical devices. Also having recovered some of its past week’s losses it, too, is trading at the mid-point of its recent range and doesn’t appear to have any near term catalysts to see it break below its trading range. The availability of expanded options provide some greater flexibility when holding shares.

Joy Global (JOY) had been on an upswing of late but has subsequently given back about 5% from its recent high. It reports earnings this week and its implied price move is nearly 6%. However, its option pricing doesn’t offer premiums enhanced by earnings for any strike levels beyond that are beyond the implied move. While a frequent position, including having had shares assigned this past week, the risk/reward is not sufficient to purchase shares or sell puts prior to the earnings release. However, in the event hat shares do drop, I would consider purchasing shares if it trades below $52.50, as that has been a very comfortable place to initiate positions and sell calls.

LuLuLemon Athletica (LULU) on the other hand, has an implied move of about 8% and can potentially return 1.1% even if the stock falls nearly 9%. In this jittery market a 9% drop isn’t even attention getting, but a 20% drop , such as LuLuLemon experienced in June 2013 does get noticed. Its shares are certainly able to have out-sized moves, but it has already weathered quite a few challenges, ranging from product recalls, the announced resignation of its CEO and comments from its founder that may have insulted current and potential customers. I don’t expect a drop similar to that seen in December 2012, but can justify owning shares in the event of an earnings related drop.

Riverbed Technology (RVBD), long a favorite of mine, is generally a fairly staid company, as far as staying out of the news for items not related to its core business. It can often trade with some volatility, especially as it has a habit of providing less than sanguine guidance and the street hasn’t yet learned to ignore the pessimistic outlook, as RIverbed tends to report very much in line with expectations. Recently the world of activist investors knocked on Riverbed’s doors and they responded by enacting a “poison pill.” While I wouldn’t suggest considering adding shares solely on the basis of the prompting from activist investors, Riverbed has long offered a very enticing risk/reward proposition when selling covered calls or puts. It is one of the few positions that I sometimes consider a longer term option sale when purchasing shares or rolling over option contracts.

Finally, and this is certainly getting to be a broken record, but eBay (EBAY) has once again fulfilled prophecy by trading within the range that was used as an indictment of owning shares. For yet another week I had two differently priced lots of eBay shares assigned and am anxious to have the opportunity to re-purchase if they approach $52, or don’t get higher than $52.50. While there may be many reasons to not have much confidence in eBay to lead the market or to believe that its long term strategy is destined to crumble, sometimes it’s worthwhile having your vision restricted to the tip of your nose.

Traditional Stocks: Baxter International, Dow Chemical, eBay, International Paper

Momentum Stocks: Citibank, Riverbed Technology

Double Dip Dividend: Macys (ex-div 12/11), Williams Co (ex-div 12/11)

Premiums Enhanced by Earnings: Joy Global (12/11 AM), LuLuLemon Athletica (12/12 AM)

Sep62013

Weekend Update – September 8, 2013

Employment Situation Report, Taper, new Yahoo! (YHOO) logo, Syria.

Not a line from a new, less catchy Billy Joel song, but a transition week going from the quietude of summer, which was mostly focused on fundamentals to the event driven and emotional rest of the year when the world seems to be perennially on fire, jumping from crisis to crisis.

In a few days traffic in my part of the country returns back to its normal heinous condition as our nation’s elected officials return from a much deserved 37 day vacation that they were unable to truncate by a few days to address some outstanding issues.

Just to be clear, it’s the electorate that deserved the break, but now they’re back and we can settle into our more normal state of dysfunction, while decreasing our focus on such mundane things as earnings. For the record, I don’t get out onto the roads very much anymore, having given up gainful employment for a life of ticker watching, but it’s not as easy to escape the results of having exercised our democratic rights.

Once things get back to “normal” it will seem just like old times as we are likely to give up the relative trading calm of the past two months and re-introduce a rapidly alternating volley of ups and downs as melodrama plays out in the nation’s capital. Watching the hairpin reversal as Russian Premier Putin suggested supporting the other side of the conflict and then watching a more gradual reversal during President Obama’s somewhat somnolent press conference is more like what we have become accustomed to seeing.

This morning’s Employment Situation Report which seems perfectly timed as the gateway to next week’s return to “business as usual” neither delighted nor frightened and gave no clue as to whether the “taper” is coming sooner rather than later. The revisions to previous months gave some solace that perhaps a delay was in order.

My metric is a simple one. It was the packed parking lot of a rural Delaware Fastenal (FAST) retail outlet that I saw two weeks ago that may have been part of the announcement yesterday of improved August sales for the company that has an early and ongoing part in lots of construction and industrial applications.

With those packed parking lots at Fastenal, or at least one packed parking lot, the current conventional wisdom regarding heavy machinery may be unwarranted. I currently own shares of Caterpillar (CAT), Joy Global (JOY) and Deere (DE) and I believe that all three are fairly priced to either open new positions or add to existing ones. Their moves higher during Friday’s trading makes me less likely to take that plunge immediately, although Deere is coming off an explicable large decline on Thursday and may be most enticing.

The question may no longer be when the dreaded taper is coming but by how much and has the market already discounted its early appearance.

I think it has and the expectation is for a $10-15 Billion taper to start off the process. Any short term adverse response to the initiation of the taper would likely give way to rally mode once again if surprises are few.

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 potential military action coming against Syria as early as September 9, 2013, timing of new purchases may be critical, as you might expect a near term market decline upon action and perhaps a relief rally afterward. My preference this week would be to tread slowly with creating new positions and perhaps focusing on sectors that may be a bit more resilient to the specter of armed conflict.

Healthcare in one such sector and I will be looking to replace assigned shares of Baxter International (BAX). The fact that Merck (MRK) will be ex-dividend this week makes that a likely choice, particularly as it has been trading in a very narrow range for the past 3 months.

Although Eli Lilly (LLY) is not ex-dividend this week, it is down about 10% from its recent high level and has some price support at about the $50 level. I think that it is a good defensive position in the event of a market that begins reacting to external events.

Retail has been a very mixed bag this earnings season but suddenly laggards like JC Penney (JCP) and even Sears Holdings (SHLD) have seen some buying support. While there is suggestion that their resurgence may come at the expense of retailers such as Macys (M), it is difficult to find fault with Macys at its current price and likely relative immunity from a Syria related market decline. Besides, it goes ex-dividend this week and offers an attractive option premium all helping to reduce risk of ownership.

The Gap (GPS) is another retailer that has been said to be at risk if some of the retail laggards start to catch-up. I’ve been waiting a while for The Gap’s share price to decline, but following a 13% drop from its recent peak, I think the time may now be here.

LuLuLemon Athletica (LULU) has been in the news this year for lots of reasons, some good and some not so good. While it may offend a portion of the shopping public by not offering an expanded selection of sizes and offending another portion of the public by having removed the defective too sheer products off the shelves, it has been a retailing success story and can be an exciting stock to own if you like that sort of thing. If you do, LuLuLemon reports earnings this week and it does have a history of explosive moves and occasionally throwing in some unexpected surprises, such as the departure of a respected CEO.

Shares still haven’t quite recovered from its most recent 20% earnings related decline. However, those who have a tolerance for risk may find good opportunity in either buying shares and selling deep in the money calls or selling deep in the money puts. For me, the most appealing action at the moment is selling $62.50 strike weekly puts that would return approximately 1.3% in the event that shares fall less than 11% upon earnings. The option market itself is expecting an approximately 9% move in either direction.

Lexmark (LXK) is a great example of a company that has re-invented itself and appears to be doing well by having done so, at least in the metric that matters to most – its share price.

About a year ago Lexmark announced that they were exiting the printing business, as if anyone knew that they had any other kind of business. With printers having become a low margin commodity and widespread reports that people were using printers far less as tablets have penetrated the market, the timing seemed opportune to find more cyan pastures. Following a significant drop in share price over the past 3 weeks Lexmark appears to be fairly priced, although there is still more downside potential following an impressive rise higher over the past six months.

While the Energy sector is always a risky play, especially during the uncertainties that may arise during conflict, a company such as Williams Cos. (WMB) may have some degree of immunity from events far away, as its natural gas operations are focused in North America. It does go ex-dividend this week and although I have two pe-existing lots at the current price, it too has traded in a narrow range providing a degree of safety while still offering very attractive returns from option premiums, dividends and potentially share appreciation, as well.

Finally, Abercrombie and Fitch is an always exciting purchase. Along with the rest of the teen retailers it has been punished this earning’s season and because of its high profile it is often used as an example of their precarious market position. While many are quick to say that Abercrombie is no longer considered “cool” by their target demographic and how fickle that audience is, my interests always revolve around short term trading opportunities and not long term prospects or liabilities. Shares are really well over-sold and there are no near term head winds. Abercrombie always offers an exceptional option premium relative to the risk and its regular price gyrations offer opportunity to escape or re-enter positions with frequency, making it an ideal covered call position for the investor with some tolerance for that kind of excitement.

Traditional Stocks: Caterpillar, Deere, Eli Lilly, The Gap

Momentum Stocks: Abercrombie and Fitch, Lexmark, Joy Global

Double Dip Dividend: Macys (ex-div 9/12), Merck (ex-div 9/12), Williams Co (ex-div 9/11)

Premiums Enhanced by Earnings: LuLuLemon (9/12 AM)

Remember, these are just guidelines for the coming week. The above selections may be 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 over-riding objective is to create a healthy income stream for the week with reduction of trading risk.

May192013

Weekend Update – May 19, 2013