MS | Option to Profit

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)

Premiums Enhanced by Earnings: none

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

Apr232016

Weekend Update – April 24, 2016

TheAcsManWeekend UpdateComment

Most of us can recall a time when we were embarrassed, unless you need for denial is a stronger than your memory.

It’s probably much worse when there are a lot of people around as witnesses.

It may be even worse if your antics are under embargo, finally being released at 2 PM, say on a Wednesday, and then really called into question the following day with the planned release of the GDP.

There’s nothing like being under the spotlight, especially when purposefully bringing attention to yourself and then somehow messing up.

I imagine, that even as poised and calm as she appears as the Chairman of the Federal Reserve, a young Janet Yellen may have been as easily subject to embarrassment as a child as any of us.

Obviously, I also imagine that the hairdo hasn’t changed over the years.

Of course, it could be really helpful to know what the actual GDP statistic will be and having your performance altered to meet the demands of reality.

This coming week has an FOMC Statement release which is followed barely 20 hours later by news of the GDP for the first quarter of 2016.

As the FOMC meeting gets underway on Tuesday, there is no doubt awareness of the consensus calling for lackluster GDP growth and the Atlanta Federal Reserve’s own decreased estimate just a few weeks ago.

One would think that with some strong sense of what the data really happens to be, the chances of embarrassing one’s self by taking the opportunity to announce an interest rate increase at this coming week’s FOMC meeting would be very small.

You can avoid embarrassment by never taking chances, although that carries its own cost.

Looking back just a few months to when the FOMC did announce its first interest rate increase in about a decade, there wasn’t much doubt that their intention was to institute a series of rate increases to match the anticipated strength in the economy.

Some 5 months later, imagine the potential for embarrassment when the expected growth had failed to materialize.

But before you come to the belief that a once chastened FOMC would be reluctant to put itself out again, comes the knowledge that Janet Yellen has “never been allergic to uncertainty.”

It’s refreshing to hear from the leader of the single most important central bank in the history of mankind that there are plenty of things about the economy that the Federal Reserve doesn’t grasp right now.

Refreshing, but maybe also a little bit frightening.

As a federal employee, Janet Yellen doesn’t really get the big bucks, but we generally expect a high degree of certainty from those in charge of large organizations.

While no one seriously expects the announcement of an interest rate increase this coming week, particularly with the belief that the GDP will be weak, some of the revelations about Janet Yellen’s ability to co-exist in a world marked by uncertainty, suggest that she may not be concerned about sacrificing action in the name of avoiding embarrassment.

While the FOMC has been stressing their “data dependence” we may be interpreting that in the wrong way.

We may all think that “data dependence” means that the FOMC will act in a reactive manner, only moving policy when the hand writing is on the wall.

That’s certainly one way to avoid embarrassment, but even a monkey can react to the obvious.

The FOMC needs to be, and likely will be, proactive.

We may not see the handwriting on the wall. because it may just not be there yet other than in the mind’s eye of Janet Yellen.

In hindsight, it may be embarrassing not to have been aware of the signs. However, that may be far less embarrassing than being wrong about trying to be out ahead of the handwriting becoming so obvious.

As much of a shock as an interest rate announcement this week may be, when put into perspective, it won’t rise to the level of asking where were you on that day, as may be asked about JFK, the O.J. Bronco Chase and Prince.

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

If you’ve been paying attention to the market’s response to the first week of earnings reports, it has been clear that companies meeting or exceeding the lowered expectations that had been set the previous quarter were rewarded.

Those that failed to meet lowered expectations or that continued to guide lower for the next quarter were brutally punished.

Microsoft (MSFT) was punished as it failed to meet expectations, but there may have been a literal silver lining in its cloud. That is, while so much focus was placed on some deterioration in certain aspects of its business, sometimes without full consideration of the implications of currency fluctuations, its transition to a cloud based company continues unabated.

Sometimes transition is painful.

In the meantime, Microsoft is, for now, available at a discount. At the same time it offers a reasonable option premium and an upcoming dividend.

With the chance that the discount may disappear when people come to their senses, put together with the premium and opportunity to capture the dividend, I’m looking at a purchase of shares and the sale of a longer dated call option that encompasses the May 17, 2016 ex-dividend date.

While I generally don’t like chasing after stocks that have moved significantly higher, I may re-think that this week as Morgan Stanley (MS) goes ex-dividend.

It’s among stocks that the market hasn’t punished for poor results, as they were at least able to meet expectations. With the financial sector having had a prolonged period of under-performance in 2016 as the realization of increased interest rates hasn’t materialized, it undoubtedly will.

Someday.

I’m ready to believe that day will be much sooner, even if the upcoming GDP may say otherwise. In addition to interest rates, the financial sector stands to greatly benefit if oil prices continue to stabilize and those loans take on a less risky character.

Rather than seeking a true “Double Dip Dividend” trade and selling an in the money call option, I may look at an out of the money strike. However, if looking at an in the money strike and faced with likely early assignment, I would strongly consider trying to roll the short call position over by an additional week or more.

Otherwise, my focus this week is on some high profile and volatile names as they report earnings this week.

Apple (AAPL), Facebook (FB), Twitter (TWTR) and Seagate Technolgy (STX) are just a few among many reporting over the next few days.

The technology sector is one characterized by risk and uncertainty on any given day and especially so when earnings are at hand.

Apple, for all of the uncertainty surrounding the sales of its much awaited watch and the speculation regarding where it may turn to next, is out of the unwanted headlines for the moment, as the immediate need to create a back door into its security system is on hold.

But with the uncertainty, the option market is implying a fairly small move during earnings week, at least by historical standards.

The implied move is only 4.6%, resulting in an anticipated price range of approximately $101 – $111.

There is, however, no chance to derive a 1% ROI for the sale of a weekly put at a strike within that range. For that reason, my only interest in Apple would be in the event of a sharp decline outside of that range following the release of earnings.

In the event that Apple does fall below $101, or approaches that level, I may consider sale of puts. However, there is an upcoming ex-dividend date, perhaps just a week or two later, so I may not want to rollover the short puts if faced with assignment. I may be more inclined to take ownership of shares and then consider strategies to enhance the return by the sale of calls in an effort to also capture the dividend.

Facebook has no dividend. What it does have a greater uncertainty as predicted by the options market. Its implied move is 7.5%, resulting in an anticipated range of approximately $103 – $119.

In the case of Facebook, a 1% ROI for the sale of a weekly out of the money put contract may be obtained at a strike price nearly 8.1% below the mid-way point of the range.

That’s not too much of a cushion, but here too, I might be interested after earnings are released, in the event Facebook takes a rare decline on earnings.

Following a huge run higher after its previous earnings report and a subsequent plunge just a few days later, there are actually numerous support levels down to the lower end of the range predicted by the options market. However, below that lower range there is some room for a further decline and its there that there may be some more reliable price support even as the option market would likely send put premiums sharply higher.

While Apple has no immediate government worries and Facebook has no dividend, Twitter has no soul and no real reason for being, other than for its users.

For investors, that may not be reason enough.

For all of the promise of its overhaul of its management and its Board, not much has happened. As a “logged out user” that Twitter is reportedly targeting for untapped revenue, I don’t think that I’m going to be their answer.

After having enjoyed a very, very busy 2014 selling, rolling over, selling and rolling over Twitter puts repeatedly, I am sitting on a very expensive lot that was assigned to me when I could roll it over no more, other than to an expiration date that was likely beyond my life expectancy.

Talk about being a “logged out user.”

With an implied volatility of 12.2%, Twitter’s anticipated price range this week is $15 – $19. Meanwhile, a 1.2% ROI may possibly be obtained by selling a weekly put option at a strike price 14.7% below the mid-point of that range.

That’s beginning to become a better risk – reward proposition for my temperament. Fortunately, Twitter tends to have some good liquidity in its option trading, in the event that there is an adverse price move and your life expectancy exceeds my own.

Finally, I’m embarrassed to have sold Seagate Technology puts a week ago after it plunged about 18% following a preliminary earnings release. Since then it has plunged almost an additional 10%.

As you might expect, it was that second decline that led to the embarrassment.

I rolled the position over once, but decided to take assignment of shares rather than rolling over again heading into earnings.

If you sell options, you also tend to not be allergic to uncertainty, as it’s the uncertainty that creates the premiums that may be worth pursuing. The accumulation of those premiums can soften the cruelty of being embarrassed and with time it can be possible for everyone to forget the faux pas, especially if your most recent actions reflect redemption.

The option market, however, may be of the belief that you can only make a rock bleed so much, as Seagate Technology’s implied move is only 7.1%. That represents an approximate price range of approximately $24.50 – $27.50.

Here, a 1.2% ROI may potentially be achieved with the sale of a weekly put option 9.5% below the mid-point of that range.

However, with Seagate Technology announcing earnings at the end of the week and with its ex-dividend date likely to be the following week or perhaps the one after, there may be some uncertainty in addition to earnings.

That is, will Seagate Technology be able to continue its very rich dividend as it cut its guidance on weak demand, as it has done periodically over the past decade.

With that in mind, I would probably defer any action until after earnings. If earnings send shares lower, but the dividend is left intact or at least reduced to a still reasonable level, such as 3.5%, I would very much consider the purchase of shares and the sale of calls going into the ex-dividend date.

In doing so, I would still, however, prepare to embarrass myself once again.

Traditional Stocks: Microsoft

Momentum Stocks: none

Double-Dip Dividend: Morgan Stanley (4/27 $0.15)

Premiums Enhanced by Earnings: Apple (4/26 PM), Facebook (4/27 PM), Seagate Technology (4/29 AM), Twitter (4/26 PM)

Apr22016

Weekend Update – April 3, 2016

TheAcsManWeekend UpdateComment

I used to love comic books, but I was definitely never in the market for comic books based on great literature, unless a book report was due.

Normally engaged in less high brow reading pursuits, I knew enough to focus on key phrases found in the great works of literature. Those often held the theme and offered insight without having to commit to reading from cover to cover.

Unfortunately, sometimes those phrases from different comic books tended to coalesce and my graded book reports were often characterized by large red question marks.

Lyrics to a song may have no relationship to famous snippets from great works of literature, but this week reminded me of the “Talking Heads” always poignant question that one may find oneself asking:

“Well… How did I get here?”

It was really a week with no real direction, but it was the “Same As It Ever Was” and a perfect ending to the first quarter of 2016, which was truly a tale of two very different markets halves with much ado signifying nothing.

Despite there not being anything really different having occurred from one half of that quarter to the next half your head would have irreparably rolled had you succumbed to the temptation to cut loose, sell and run following the first 6 weeks.

For the Madame DeFarge’s of the world keeping track of some of the decimated hedge funds and their performance, some of their sales in the face of mounting losses in particular positions offered both risk and opportunity to others.

If you stood around on March 31st, as the first quarter of 2016 came to its end and asked the same question as did the Talking Heads, you’d have no answer, unless you drew from upon some of those great literary snippets.

It was truly a tale of two markets with much ado signifying nothing.

With no real catalysts other than the bouncing price of oil, the final week of the quarter got somewhat of a lift from a one time reliable dove who had returned to her roots.

The market’s reaction to the suggestion that the US economy and the world’s economies may not be growing as strongly as anticipated by those having projected a series of interest rate increases in 2016, was clearly an embrace.

The shifting reaction to Friday’s Employment Situation Report was more one of confusion, that even had cable television’s talking heads wondering the same as the viewers.

“Well…. how did I get here?”

Of course, it would also help to know, as the second quarter of 2016 got its start, just where we’re headed next as earnings season begins in just 2 weeks.

If it will truly be same as it ever was, earnings won’t be much of a catalyst as it’s unlikely that the kind of confidence exhibited by Jamie Dimon was widespread in the last quarter.

If it was same as it ever was it would be unlikely to see companies, acting as the stewards of shareholder’s interests, actually doubling down on their buybacks at bargain share prices and doing the only thing that has reliably worked to increase earnings per share.

When you can’t grow earnings, just shrink the number of shares.

And to really make it same as it ever was, make certain to do that as shares are reaching their highs.

For the rest of us just watching, it may just be that out generation’s great piece of literature may turn out to be “The Walking Dead.”

I don’t yet know whether there are any great or memorable literary phrases to be found among those pages, such as “It was the best of times, it was the zombiest of times,” but the title is too dangerously close to the reality of 2016.

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

One place where there has not been a tale of two halves has been in the financial sector.

To some degree that’s curious, because many ascribe the turnaround that began on February 11th to the announcement that JP Morgan’s (JPM) Jamie Dimon could no longer resist the bargain price that the shares of his own company represented.

Yet the financial sector has under-performed the S&P 500 both in the first half of the first quarter of 2016 and in its second half, as well.

That’s not to say that the performance of the financial sector in the final 6 weeks of the first quarter was bad, it’s just that Jamie Dimon may have been better served by placing his confidence in a zombie index.

Among those badly battered during the first quarter of 2016, and in fact, in a bear correction, has been Morgan Stanley (MS).

I currently own shares, having also bought shares and surrendered them to assignment on 4 previous occasions in a 1 month period, at the end of 2015.

Contrast that to the lot purchased on January 4, 2016 and you can really see a tale of two stories.

Looking at a 10 Year Treasury Note rate of 1.8%, I don’t think that many talking heads would have predicted that to be the case at the end of the first quarter, except perhaps as an April Fool’s joke.

Unless you believe that interest rates will keep setting one foot deeper and deeper into the grave, there may still be more of a recovery in store for financial sector stocks as the second quarter awaits.

Seagate Technology (STX) is among a handful of stocks whose obituary has been written over and over again. Not because it is a poorly run company, but because for years the prevailing wisdom has been that storage was no different from a commodity, with every ear of corn being indistinguishable from the next.

As an end user, that may be very true. I don’t particularly care what’s inside the box nor what kind of technology it encompasses, but someone must still care and it can’t all be related to price.

Performance and features must still be part of the equation.

For investors, Seagate Technology may not represent a truly great “investment” any longer, but for traders it has long been a repository of opportunity and excitement.

I generally like to consider Seagate Technolgy in terms of a sale of put options and I especially like its current price. That’s especially the case since its very recent performance a 9% decline in the past 10 days.

Selling puts in the face of such losses usually entails a heightened option premium which offers greater downside protection.

In the past I have enjoyed rolling over those put positions as Seagate Technology often makes large and unexpected moves in either direction. Rolling over allows continuing premiums to accumulate while awaiting price recovery and expiration of the short put position.

The caveat is that Seagate Technology will report earnings in just 3 weeks. In the event that a short position is still open or in jeopardy of being assigned, I would consider rolling the position over to something other than the next weekly expiration date, in order to buy some additional time in the event of an unfavorable price movement.

The heightened premium that comes along with earnings risk may allow that rollover to be accomplished at a lower strike price, as well, offering a bit more of a cushion.

Of course, the other caveat is that a few weeks after earnings, Seagate is expected to be ex-dividend and that dividend is very rich.

It appears to still be marginally sustainable, but with an ex-dividend date coming up, I would rather be in a position to own shares, get the dividend and have a call option buyer subsidize some of the share price dividend related reduction. That’s certainly preferable to being a put seller and subsidizing a reduced premium in the face of a known drop in share price.

One dividend that isn’t very rich is the one that Whole Foods (WFM) is offering this coming week.

I have not had good success with Whole Foods share ownership over the years, especially if I include the missed opportunities in its early years.

In addition to two uncovered lots that I currently own, previously owned lots have mostly all required more maintenance than they may have been worth, even if having out-performed the S&P 500 during the various holding periods.

Sometimes, that’s not enough.

At the moment, what Whole Foods has going for it is that it is approaching a point at which it has found support. While approaching that point and trading at a long standing mid-point of its price range, shares are offering a respectable option premium while also being ex-dividend this week.

I like that combination, despite not having liked my past experiences.

In the season of redemption, this may be the one that I like the most for the week.

Finally every week brings a reminder of just how imperfect of a science investing in stocks can be.

To some degree a portion of that imperfection has to come from those who are paid to be analytical and quantitative in the pretense that there actually is some sort of science behind what makes stock prices move.

General Motors (GM) announced monthly sales and despite having been higher, they didn’t meet expectations.

That reminded me of something Jamie Dimon said more than a year ago at Davos, when he so cynically and appropriately said that maybe the analysts were wrong in the expectations and that JP Morgan was right on its targets.

Even in science there are expectations of imperfections in theory that result in a need for tolerances. In stock investing when those expectations are realized there isn’t much in the way of tolerance.

However, rather than giving up on the theory behind the science, everyone keeps returning, only to so often be caught in the very same current.

At this price and following this disappointment, I simply like shares of General Motors. Having just lost shares to assignment at a bit more than $1 above Friday’s close, that is the kind of opportunity that a serial buy and write kind of trader longs for even if it represents nothing novel nor exciting.

Traditional Stocks: General Motors, Morgan Stanley

Momentum Stocks: Seagate Technology

Double-Dip Dividend: Whole Foods (4/6 $0.13)

Premiums Enhanced by Earnings: None

Mar192016

Weekend Update – March 20, 2016

TheAcsManWeekend UpdateComment

Best laid plans often have a way of working out other than expected.

On slow days I make it a point to go and sit in anyone’s waiting room, even without an appointment, just to read stale issues of business and news magazines.

Eventually I get up and leave and feel better about my track record.

Doing that tends to reinforce the belief that the “experts” called upon to predict what awaits in the future are invariably wrong, even as self tying sneakers depicted in “Back to the Future” may now become somewhat of a reality.

Sometimes it’s the timing that’s all wrong and sometimes it’s the concept.

Unless you put much stock in a prediction, such as converting all of your assets to gold in anticipation of yet another Doomsday, they tend to be forgotten unless a dusty magazine is picked up.

The plan to be awash in the one true and universal currency might have seemed like a good idea until coming to the realization that it’s hard to spread on a slice of bread, even if you actually had a slice of bread.

While you can’t be very certain about the accuracy of a “futurists” predictions, you can be very certain that no self-respecting expert on the future keeps a complete scorecard and most would probably be advocates of having physician’s offices regularly rotate their stock of reading materials.

When the FOMC does finally decide to raise interest rates again most will likely have forgotten their earlier prediction of the need for a series of rate hikes.

Not too long ago the FOMC was predicting a more robust economy for 2016 than has been the case and this past week the members saw things somewhat differently.

To its credit, the FOMC and Chairman Yellen didn’t disown the past, which sometimes, due to revisionism can be just as difficult to discern as the future.

For what seems like the longest time, I have seen a future that has traders finally coming to the belief that a growing economy was good news and the need to continue cheap money policy was bad news.

Conceptually that has to make sense, so I’ll blame poor timing on the poor progress toward changing sentiment.

I’ve also been waiting for the longest time to see lower oil prices prod a consumer based economy toward growth and taking corporate revenues and profits to higher levels.

And I keep waiting for stock prices and oil prices to disassociate from one another during a period that oil prices are more influenced by oversupply and not reduced demand.

The track record on those is pretty abysmal, although for some very brief periods over the past few weeks it looked as if that disassociation might finally be coming.

If your memory can go back far enough, you may remember that as 2015 was coming to its end many were predicting that 2016 would follow the pattern seen in the year following a flat year in markets.

It didn’t take very long for that prediction to itself fall flat.

But what no one would have predicted was that as bad as the first 6 weeks of the year had been, the subsequent 5 weeks would erase the losses and perhaps even serve to rehabilitate the earlier prediction.

There is little economic news next week other than release of the GDP, which has reflected less impressive than predicted growth of late.

I can confidently predict that it will have no impact on Friday’s stock market close, but I’m not willing to venture as far into the future as the following Monday.

At least I’m capable of learning from my mistakes and am equally confident in predicting that will not always be the case.

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

One thing that I would not have predicted was just how shortly following the market’s embrace of the Dow Chemical (DOW) and DuPont (DD) merger deal the price premium would be lost.

With shares trading just above their pre-merger disclosure and having had gone below that level in the early part of 2016, I’ve believed that there was relatively little merger related risk associated with those shares.

I had bought shares twice after the merger announcement and am ready to do so again, particularly as shares have had a somewhat irrational pattern of following the price of oil and now that trend is higher.

With its option premium still reasonably attractive as there is still a perception of either oil or merger related risk, I also have my eyes on its ex-dividend date, which is at the end of the month.

For that reason I would probably look at selling an extended weekly option and if faced with a possible early assignment, I would consider further rolling the option over, if only to get some additional premium to offset the loss of the dividend to the option buyer.

Among the things that many predicted, including myself, was that financial sector stocks would perform nicely as the path for interest rates after the FOMC’s decision at the end of 2015 was going to be higher.

In anticipation that would be the case, I had purchased shares of Morgan Stanley (MS) on 4 occasions in the 2 months leading up to that eventual decision.

That seemed like an easy thing to predict. It was a fifth purchase, that came a few weeks after the announcement that went counter to what seemed predictable.

Instead of interest rates continuing to move higher as any sane seer would have predicted, they went lower and lower, as did most financial sector stocks.

So here we are again with the feeling that now rates can only go higher, but without much confidence in when they will start to happen.

It may be the uncertainty of the latter that makes considering opening a position to be a more predictably rational thing to do.

Last week Williams Companies seemed like a good idea, particularly as there may have been some inefficiencies in its pricing and a divergence between the arbitrage and options communities regarding the prospects of its planned merger.

This week, Marathon Oil (MRO) doesn’t have the same kind of drama figuring into the equation, but along with a battered sector, it may have been price compressed more than most and with the prospects of a larger spring back.

However, even price stability in oil could create an attractive environment for accumulating very generous option premiums.

While those option premiums are attractive, I would probably sacrifice some of the assured premium by selling out of the money strikes in an effort to also capture some capital gains on shares.

As is often the case during periods of high market volatility or individual stock volatility, there may also be advantage in rolling over calls even if faced with assignment as the forward week premiums may be continuing to reflect greater uncertainty.

That was a nice formula in 2008, 2009 and the latter half of 2011 and I wouldn’t mind seeing more of those opportunities appear.

Finally, having purchased eBay (EBAY) a few weeks ago was like re-discovering an old, old friend.

I hadn’t owned shares since the confirmation that eBay was going to spin off the driver of its growth, PayPal (PYPL). There was probably some luck with having made that first purchase in over a year on the day before the market decided to end the craziness of the first 6 weeks of 2016.

With volatility at its peak for 2016 that was a good time to consider buying just about anything, if only you could have predicted what was in store in the subsequent 5 weeks.

I couldn’t, but at the same time I couldn’t resist the lure of eBay shares. Despite having climbed 5% since then, that performance pales in comparison to the S&P 500 which was nearly 10% higher during that time span.

What eBay is continuing to offer, even as volatility has started returning to the levels it had languished for up until the past 6 months, is an attractive option premium.

The reason I had found myself having purchased shares of eBay on 25 occasions during a 4 year period, despite not having owned any shares for more than a year of that time span, is that it tended to trade in a tight range, but due to occasional surges or plunges, offered a very attractive premium.

They say that you can’t go back home, but predictably you do and sometimes it works out.

Traditional Stocks: Dow Chemical, eBay, Morgan Stanley

Momentum Stocks: Marathon Oil

Double-Dip Dividend: none

Premiums Enhanced by Earnings: None

Jan232016

Weekend Update – January 24, 2016

TheAcsManWeekend UpdateComment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Not everything should be about oil and China.

Traditional Stocks: none

Momentum Stocks: GameStop

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

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