Weekend Update – October 16, 2016

As a movie a few years ago, “It’s Complicated,” starring Alec Baldwin, was a funny one that explored some aspects of life that many could relate to in one form or another.

A few weeks ago we were all surprised to learn of some new casting for the upcoming season of Saturday Night Live. But now after his successful appearances portraying Donald Trump, Alec Baldwin’s next role could very well be that of Janet Yellen.

While the Chairman of the Federal Reserve may not be as widely known as the Presidential candidate, for those that are aware of the very important role she plays in all of our lives, we could use something amusing to put events into perspective as we end so many days just shaking our heads wondering what is really going on.

Clearly, it’s complicated.

The one thing you know in life is that when you hear someone begin an explanation of anything with the qualifier “it’s complicated,” you had better be prepared to be deflated.

In the event you are paying attention to the world’s economies, deflated is not the direction anyone wants to be going.

Unlike the way it was portrayed in the movie, complications are usually not very funny, unless perhaps brought to life by Alec Baldwin.

Sometimes, “it’s complicated,” is just a way for someone to begin a long and winded rationalization in trying to explain how an endpoint was reached, especially when the route appeared to be illogical or the endpoint itself seemed to be the wrong destination.

In essence, in such cases, the hope is that you’re not smart enough to catch on or can be swayed into believing whatever it is that the story teller wants you to believe, which is often counter to your own best interests.

At other times, it’s just a diplomatic way to be told that you’re just not smart enough to understand, so don’t even bother listening and while I’m at it, why should I even be wasting my time trying to explain it to someone like you.

Well, you can take your pick when the Chairman of the Federal Reserve tells an audience at “The Elusive Recovery” conference that “it’s complicated,” if looking for a reason to explain why the FOMC has not raised interest rates in 2016.

As an investor, the degree of certainty plays a role in the decision making process and either supports confidence or erodes it. Our expectation is that what we mortals may believe is complicated is just “matter of fact” kind of material for the smartest people in the room.

What Janet Yellen said on Friday introduced a third way of interpreting what it means when someone tells you that “it’s complicated.”

Maybe the smartest in the room themselves don’t understand the dynamics of current day events.

That’s not very comforting and that doesn’t inspire too much confidence. Despite some really good news from the financial sector as earnings season began, the sense of optimism was fleeting as a sense of cluelessness came to replace it.

Still, the market is now of the strong belief that we will see an interest rate increase in December 2016 and it may be clearly signaling that while it supports an increase, it only does so when it doesn’t seem to be so near at hand.

It sort of like I accept the possibility of death when I’m 20 years old, but it doesn’t frighten me. Flash forward 50 years and you may think and act a bit differently

While Alec Baldwin may be able to make that all seem funny, as Janet Yellen or even as the Grim Reaper, it isn’t.

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

I generally do read like a broken record, but even for me this is getting a little ridiculous when I continue to pay attention to Marathon Oil (MRO).

After opening my ninth Marathon Oil position last week during 2016, I am ready for a tenth, even as last week’s position is still in my account.

The past week watched the stock market and energy prices re-establish the tethered relationship that they had maintained for much of 2016, although not quite as much in the past month or so.

Marathon Oil has been my “go to” stock for 2016, not because of anything inherently wrong or right with the company, but simply for its ability to be as resilient of a yo-yo as you can find in 2016.

What it has done is simply go up and down in big chunks, but maintained a fairly tight price range and offered a very attractive option premium at the same time, owing to those big price swings.

While option premiums tend to reflect price uncertainty, Marathon Oil has coupled that price uncertainty with range certainty.

I like that combination. That tends to give you  an advantage in the risk – benefit balance.

I don’t care too much about what the company is doing nor too much about the specific macroeconomic events that may drive the price of oil. What I care about with this position, that I also find easy to trade if needing a rollover, is how to enter into it as earnings are upcoming in just 2 weeks.

My most recent position was through the sale of a put option that I subsequently rolled over. That position, if at risk of assignment at the end of the coming week will probably be rolled over again, but I would be mindful of the  date of the upcoming dividend, which is expected sometime shortly after earnings.

Whether for that lot or any new lot in the coming week or next, I would prefer to be long shares and short calls in advance of the ex-dividend date, even as my preference would be to open another new position through the sale of puts again.

Seagate Technolgy (STX) reports earnings this week.

The option market is implying a price move of about 7%. You could potentially receive a 1% ROI for the sale of a weekly option right at a strike price defined as the lower boundary of the implied move.

That’s usually not sufficient of a reward for me relative to the risk and with Seagate Technology history has plenty of examples of price swings well in excess of 7%.

While the risk of computer hardware as a commodity has been discussed for years and Seagate Technology continually written off as a dinosaur, it survives and will likely do so for more than another earnings report.

However, after a significant run higher, you can easily make a case for an out-sized move in either direction, perhaps well in excess of 7%.

Where I would be interested is after earnings are announced and the dividend is confirmed, in the event of a considerable decline in share price.

In that event, I might be very interested in the sale of puts options.

Finally, sometimes you just wait for bad news and have to decide whether that is the time to take a stance.

With its split into two different companies in the past year, Hewlett Packard (HPQ) is no longer that complicated of a business, nor is it that interesting of a business. The split off entity, Hewlett Packard Enterprises (HPE), where Meg Whitman, CEO and Chairman of the pre-split entity, decided to relocate herself, retained the distinctions of complexity and of being interesting.

Essentially, now a hardware company in what is more or less a commodity, it announced layoffs and lowered guidance for the coming year at a time when expectations for 2017 are for a more involved consumer.

After all, if the consumer isn’t going to be participating in 2017, where is the justification for raising interest rates? Add to that how Hewlett Packard has a large consumer products base and you can see the potential problem.

Or the opportunity.

With the bad news also came news of a 7% increase in the already generous dividend, made even more generous with the past week’s price decline.

Just a week earlier, I had anticipated that my existing lot of shares was likely to be assigned from me as the October 2016 option cycle came to its end this week.

This week, I’m not overly sanguine about those prospects, but with earnings still a month away and an attractive premium befitting its very recent volatility, the 7% decline in the past week looks like a good entry point.

Although my most recent holding was for only a week and was only long enough to capture the dividend, I would be prepared for this to be a longer holding period. My existing lot of shares is now more than a year old, but I won’t mind continuing to hold onto it at this level if it can continue generating option premiums and dividends.

Sometimes, buying and inadvertently holding isn’t that interesting or complicated, but there’s nothing to laugh at when the income keeps accumulating even when the stock goes nowhere.

It really isn’t that complicated, after all.

 

Traditional Stocks: Hewlett Packard

Momentum Stocks: Marathon Oil

Double-Dip Dividend:  none

Premiums Enhanced by Earnings: Seagate Technology (10/18 AM)

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. 

Weekend Update – July 17, 2016

 

Stock market investing is all about risk and reward and sometimes you do have to stick your neck out.

There is no reward without risk.

It’s sort of like those who say that you will never understand happiness without having experienced sadness.

My preference, however, it to simply experience varying levels of happiness and to ignore anything that might detract anything from the lowest level of happiness.

I ignore lots of things, much to the consternation of those around me.

But I ignore that consternation.

The same thing isn’t really possible with investing as not only is happiness so often of a very temporary nature and fleeting, the only way to avoid risk right now is to look at bonds or your mattress and those carry lots of opportunity risk.

Also, there’s a big difference between the qualitative feel of personal happiness and the quantitative nature of investing.

In other words, instead of being a giraffe, you would have to be an ostrich, although the ostrich is actually doing something of value when their head is below ground.

So you do have to stick your neck out if your happiness is defined in the form of stock gains.

I wasn’t very happy in 2015, but am very happy with 2016, to date.

Much of that has to do with the fact that the very stocks that disappointed me in 2015 are the ones delighting in 2016, even as they still have lots to do to erase the stink of 2015.

Sitting on some substantial year to date gains comes as the market has not only hit its all time high, for the first time in over a year, but did so again and again.

The post-Brexit turnaround has been stunning.

From the lows following the swift decline after the Brexit vote was confirmed, the S&P 500 has climbed 8%. For its part, the DJIA had climbed nearly 1400 points.

All of that has come in just 13 trading sessions and there have been scant few breathers during the ascent.

That makes some technicians nervous, as they like to see those breathers establish support levels. Other technicians see the unimpeded climb higher as conformation of a breakout whose limits can’t be quantified other than in hindsight.

People like to talk about periods of risk on and risk off and if you’re sitting on cash at the moment, you are certainly faced with a question of whether to take on risk in trying to deal with your fear of missing out on the party.

With more cash being freed up in my account this past week than has been the case since 2015, I would have been ecstatic had that been the case had markets not just climbed 8%.

The challenge is what to do with that money that won’t make you feel like an idiot because of your action or like a moron because of your inaction.

With earnings season having just started in earnest during the latter half of last week, there wasn’t the kind of very guarded Brexit related guidance that I was expecting from JP Morgan (JPM) and that I thought could set the tone to bring an end to the market’s march higher.

Nor did any of the 13 speaking appearances by members of the Federal Reserve shake anyone’s confidence.

It only made sense that as very few were expecting anything good, that the market should take the occasion to move decidedly higher.

However, now as more are beginning to believe that there’s still time to get on board, I’m feeling more reluctant to stick my neck out and don’t mind the thought of burying my head in a pile of cash.

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

I don’t think there’s very much appealing about Potash Corporation of Saskatchewan (POT), other than perhaps its name being fun to say. Potash is one of those stocks that I swore that I would never buy again, as most stocks that I’ve sold for a loss are forever dead to me.

But that was almost 4 years ago and it now seems like an eternity has come and gone as Potash shares are at multi-year lows.

What I do find appealing, however, is that those shares seem to have settled in at a fairly stable price range while still offering an attractive option premium.

With earnings coming up the following week, I think that if considering opening a position, now that the ex-dividend date has recently passed, I would do so through the sale of put options.

While the premium is attractive enough to use an out of the money or near the money strike price on a weekly option contract, if faced with possible assignment of shares, I would very strongly consider rolling those puts out by a few weeks or perhaps into the monthly cycle.

At the current price, I think that much of the risk has been removed, although I might have some concern about the safety of its dividend.

What I look at with Potash, is the possibility of it being a vehicle for serial purchase or rollover, while awaiting a move to the upside.

If looking for an example of a breakout, look no further than Seagate Technology (STX). It did so last week while offering some improved guidance, but probably more importantly announcing some very large reductions in its work force.

Ultimately, I will never understand how that can be good news, but for a day here or a day there, the market looks at that kind of cost cutting as good news, even as it may portend some ominous news in the future.

However, I think that the move higher in those shares is simply the long overdue correction to some unduly large declines the previous quarter following revised downward guidance and then disappointing earnings.

While I like to see support levels established to punctuate climbs higher, with Seagate Technology getting ready to report earnings in a couple of weeks, my anticipation is that there will be further upside surprise, just as in the previous quarter there was further downside surprise.

While I would likely consider starting a position with the sale of puts, if faced with assignment, I would accept the assignment rather than rolling over those puts, as there will also be an upcoming ex-dividend date.

AS with Potash, but even more so, the safety of that dividend has to be in question. I had been of the belief that a dividend decrease had been discounted to a degree, but with the recent price surge, I think that now leaves more room to fall in the event of bad news.

If assigned shares, I would look to sell longer dated out of the money calls in an effort to take advantage of the earnings enhanced premium and the possibility of retaining the dividend, while also retaining some opportunity for price appreciation.

Starbucks (SBUX) hasn’t gotten too much attention in the past couple of weeks as it has trailed the S&P 500 in the days after the recovery from Brexit worries.

It really hasn’t recovered from its last earning’s related decline, which is fairly unusual, as it has traditionally done so quite quickly after any strong downward movement, as its CEO, Howard Schultz has typically been able to convince the world that any such declines were entirely unwarranted.

I generally consider the sale of puts in advance or after earnings, but I believe that this time around I would entertain a standard buy/write trade and with an upcoming ex-dividend date, would likely use a longer term call option.

Doing so, such as using the August 2016 monthly expiration, would offer a larger option premium, some time to ride out any price decline and a greater opportunity to capture the dividend.

Even with a decline in shares after earnings are released, there is some reasonable support at a level that could easily be  staging ground for writing new call options if the monthly options expire and there is a desire to generate additional income while waiting for price recovery.

Finally, while reading about it may get old, reveling in it never does.

Once again, this week, I’m thinking about another position in Marathon Oil(MRO).

While I already have a short call position expiring this week and just had a short put position expire last week, I don’t mind the prospect of mindless repetition.

One thing that I did do with that open short call position is something that I had done frequently at one time, but not very often in the past few years.

That is to have rolled over the short call position even when it was highly likely that the position was going to be assigned.

There is something nice about having sufficient volatility in a position to generate large premiums, but to be of a mind that the downside risk is limited or might be short lived.

That has definitely characterized Marathon Oil of late and I decided to roll over the short call position, at a point when even a 2.5% decline would still allow assignment, in return for an additional 1.3% premium.

That risk-reward proposition seemed safe enough to stick my neck out and to give up some of the security of cash.

With any decline in oil on Monday and presumably with Marathon Oil, as well, I would like to consider once again selling short put options. 

The risk, however, is that in the event of an adverse price move and the subsequent need to roll over the position, you run closer to the additional risk associated with earnings, which occur the following week.

In that event I would choose an expiration date to bypass earnings, but would also be mindful of an upcoming ex-dividend at the end of the August 2016 option cycle.

From my perspective, being short put options on the ex-dividend date is an unwarranted ceding of reward while taking on additional risk.

 

Traditional Stocks:  none

Momentum Stocks:  Marathon Oil, Potash, Seagate Technology

Double-Dip Dividend:  none

Premiums Enhanced by Earnings:  Starbucks (7/21 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.

Weekend Update – July 13, 2016

 I still have a fascination with license plates and the bumper stickers put on their cars.

The license plate thing these days is more geared toward trying to decipher the message contained on someone’s vanity plates.

That often takes a combination of having a very open mind as to the intended grouping of letters and numbers and to the message.

Of course, the exercise isn’t complete until then driving past the car driver and either giving them a thumbs up or a shoulder shrug.

The bumper sticker thing is more just a question of reading and then trying to imagine what the person in the car will look like once going past them.

For example, in my experience, those with the "Choose Civility" bumper sticker tend to be very rude drivers, but they don’t look rude.

What both fascinations have in common is that as I get older, the distance that I need to get within range to be able to read the plates and the bumper stickers is increasingly getting smaller and smaller.

That brings some danger, but sometimes it’s really hard to resist.

When I say "sometimes," I mean that I can never resist and it is the reason that my wife won’t let me drive when we’re together.

I need to be within range.

But basically, when it comes to those fascinations, as my eyesight may be withering with age, i seem to be willing to take on more risk to be within range in satisfying those fascinations, even as there’s little in the way of reward.

As we are getting closer and closer to the next FOMC meeting, this past Friday’s unexpectedly strong Employment Situation Report brought us closer and closer to an all time high on the S&P 500.

The coming week has an unprecedented 13 appearances by members of the Federal Reserve and we could get some insights into what various positions will be at the FOMC’s upcoming meeting.

When Monday’s opening bell rings we will be within easy range of both the closing high and the intraday high and that may be when the danger begins.

The danger is either missing out on a market that catapults beyond its previous resistance or getting sucked in a an investor afraid of missing out on the catapulting that fails to materialize.

Getting within range, however, often also gets you closer to headwinds that conspire to ensure you keep your distance. As we are preparing to bound past the upper boundary established by the S&P 500, this week also brings the start of another earnings season.

What may make the headwinds a bit more strong than usual, despite being against a backdrop of an increased possibility of the FOMC deciding to go forward and raise interest rates, is the recent vote by Great Britain to leave the European Union.

Why that may matter is that many are expecting that companies will begin to factor the unknown that awaits them in their international businesses into the guidance and no one expects anything but dour guidance.

With JP Morgan (JPM) announcing earnings this coming week and with major operations in London, the risk is clear.

While s strong showing from the financial sector during quarterly earnings reports doesn’t necessarily translate into across the board strength in other sectors or in the market itself advancing, weakness in the financial sector rarely translates into an advancing market as earnings season unfolds.

We are within reach, but it’s not so easy to see what is actually ahead.

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

I tend to be repetitive, but sometimes there’s some value in doing so.

As a teaching tool, repetition can reinforce a lesson.

As a social or business tool, repeating a person’s name, such as to a telephone support member can create an affinity and familiarity and friends do help friends, after all.

One kind of repetition that I really, really like, is the ability to serially buy shares of a stock or to serially rollover the short calls or puts on the stock.

This week, it’s Marathon Oil (MRO) again.

I have nothing of substance to add about the company itself. My focus is entirely on the enhanced premiums it continues to offer as the price of oil bounces between $45 and $50 on a very regular basis.

While doing so, I’ve now owned Marathon Oil shares on 5 occasions in the past 100 days, for a cumulative 65 days of holding.

What that means is that in between holding periods, there is an opportunity to take recycled cash that is derived from  assignments and invest in some other premium generating position.

What I’ve especially liked about Marathon Oil is that the premium is so enriched that it can even be worthwhile to roll the short call position over if faced with assignment.

With earnings in just a few weeks, I may consider entering a position this time through the sale of puts, however. In the event that the position is in jeopardy of being exercised, I would prefer to roll the puts over.

However, if still short those puts heading into the week of earnings, I would probably look at rolling them over to an extended weekly expiration date to have a little more time for price recovery, while still enjoying some enhanced premium.

If still short those puts and approaching the ex-dividend date which will likely be later in August 2016, I would then prefer to take ownership of those shares, even as the dividend yield is only about 1.3%

While no one likes to hear grinding noises emanating from their computer’s hard drive, Seagate Technology has been grinding higher after a brutal decline following lowered guidance that continued after earnings were released.

I took the occasion of the large guidance led decline to enter a position in the erroneous assumption that the shares would be relatively immune to the same bad news.

It turns out that double jeopardy is possible with stocks, even as our personal freedoms are not put to such risk.

While earnings are approaching, I think that the near term disappointment may be over and I’m ready to consider another Seagate Technology position, again through the sale of out of the money put options.

Unlike Marathon Oil, if still in a position to be short those puts as the week of earnings approaches, I would not try to roll them over using an extended option expiration date, as the ex-dividend date is expected to be the following week.

The real wild card is whether Seagate Technology can continue paying that very rich dividend if earnings come in disappointing again.

Currently, it can’t afford to do so, but the question at hand may be just how much that had already been discounted and perhaps played a role in the price plunge of the previous quarter.

Best Buy (BBY) has neither an upcoming ex-dividend date, nor upcoming earnings.

What it has is to have found some reasonable price stability as it currently sits approximately mid-way between its 2016 high and low.

In doing so, it has been fairly impressive in that there hasn’t been terribly much to drive consumers into stores for a "must have" product that hasn’t materialized this year.

Best Buy reported better than expected earnings last quarter and I expect that it will do so again, but there is nearly 6 weeks to go until earnings and I like not being within range of those earnings at the moment, as the premiums are reflecting volatility, even as that volatility may have no real basis.

Among the nice things about Best Buy, if participating with call or put options is that there is some reasonable liquidity. That makes it much easier to be nimble and manage positions if faced with the need to rollover calls or puts.

Finally, I really like Fastenal (FAST).

To me, it represents the American economy as well as anything. It is a place for individuals and other businesses to express their confidence in going forward with various infrastructure projects and the business is fairly immune to world events.

In fact, the strong US Dollar may give it particular cost benefit these days as its supply costs may decrease.

Fastenal stands to benefit as employment increases and as average wages increase.

As it is less likely than many to complain about the impact of "Brexit" on its upcoming sales and profits, it does report earnings this week.

Fastenal has been a notoriously volatile stock when earnings are at hand. Those shares are currently sitting at about the mid-way point between the 2016 low and high.

Fastenal only offers monthly options and this happens to be the final week of the July 2016 option cycle.

The options market is implying that the price move in the coming week may be approximately 4.4%. My expectation, however, is that the range could be as big as 9%, however, I have no idea in which direction those shares might go.

My expectation is that the direction may be higher and as opposed to typically selling an out of the money put contract, in this case I would either consider selling an at the money put or executing a buy/write with a July 2016 expiration on either of those strategies.

Part of the equation is that Fastenal will also be ex-dividend sometime early in the August 2016 cycle and if faced with assignment of shares in the event of having sold puts, I would rather accept the shares than attempt to rollover the puts.

In the event of a higher price move and having elected to execute the buy/write, I might consider the opportunity to rollover the calls, even if faced with assignment to the August 2016 option, simply in an effort to milk some additional premium from the position, in the anticipation of an early exercise by the option buyer in an effort to capture the dividend.

My current open lot of Fastenal is almost 18 months old.

Prior to 2015 I would have scoffed at its 14.7% ROI to date for such a long holding period, but compared to the 5.2% return of the S&P 500, not including dividends, I’m not scoffing.

My expectation is that an additional lot of Fastenal may again wind up being a longer term holding, but as long as those dividends and premiums accrue, even if shares are relatively stagnant, the return can be better than the alternatives.

 

Traditional Stocks:  none

Momentum Stocks:  Best Buy, Marathon Oil, Seagate Technology

Double-Dip Dividend: none

Premiums Enhanced by Earnings: Fastenal (7/12 AM)

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.

 

Weekend Update – June 19, 2016

About 25 years ago a character debuted on Saturday Night Live and the recurring joke was to try and guess the character’s gender.

The sketches typically had  red herrings and lots of mis-direction and the question of Pat’s gender was never answered.

Never a terribly popular character, someone had the fiscally irresponsible idea of making a feature film and Pat was never heard from again.

The guessing stopped.

Fast forward to 2016 and think of Pat as an FOMC member.

Over the past 2 months or so there has probably been lots of mis-direction coming from Federal Reserve Governors, perhaps as they floated trial balloons to see how interest rate action or inaction would be received by the stock market.

The health of the stock market is not really part of their mandate, but since so much of the nation’s wealth is very closely aligned with those markets, it may only be logical that the FOMC should at least have some passing interest in its health.

Who would have guessed 6 months ago when the first interest rate hike occurred that we would be at a point where that has thus far been the only one?

Who would have thought that in the transpiring 6 months nothing would have validated the December 2015 interest rate increase and that nothing but conflicting economic data would be forthcoming?

Who would have thought that the most voluble interest rate hawk among the voting members of the FOMC would this week downplay the possibility of recurring interest rate increases in what time remains in 2016?

Who would have thought that Janet Yellen would alternate between her dovish and hawkish sides and come to a point of simultaneously taking both sides?

That’s hardly the sort of thing that inspires confidence in markets.

This past week was one that if you had tried to guess what was to come next or what was to influence markets, you would have been very disappointed with your abilities.

It was a week with increasing focus on the upcoming vote by British citizens as to whether remain in the European Union. It was a week of some large moves in European stock markets and lots of disagreement not only regarding the vote’s outcome, but whether either of those outcomes would mean.

England’s bookmakers seem to have an opinion at variance with polls, but it’s anyone’s guess what the outcome will be and what the reaction will be.

It was also a week of alternating moves in our own markets as traders just grasped for direction and meaning.

On our own shores there was focus, although far less following the truly disappointing Employment Situation Report of a few weeks ago, on the FOMC Statement release and Chairman Yellen’s subsequent press conference.

With the expectation that there would be no change in interest rates, it looked as if stocks were going to re-establish its ties to oil and for one day, at least it closely followed oil’s intra-day moves higher and lower.

But that relationship clearly disappeared in the latter half of the week as some very big moves in oil’s price saw nothing in kind in stocks and sometimes saw the glimpses of rationale behavior as oil and stocks moved in opposite directions.

Then, if you would have guessed that Janet Yellen would move markets in either direction in a big way, as she has usually been able to accomplish during her press conferences, you would have been well off the mark.

(click to enlarge)

While her obfuscation found some favor the previous week, this time around no one knew what to make of trying to have it both ways.

In fact the market was virtually unchanged during the period of the press conference, including the time taken to offer the prepared statement.

As with Pat, even if you were mildly intrigued, it may have taken a lot more than that to make some kind of a meaningful commitment or to take any kind of risk.

What the market did know was that the minute that press conference was done, it was time to sell stocks.

From another brief moment of rational thought, as good as low interest rates may be, there has to be the realization that such rates reflect mediocrity and a moribund economy. Certainly no one wants the US economy to emulate that of Japan and news that German interest rates dipped into negative territory may have sent a message that the same could then happen anywhere.

Who would have guessed?

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

For the most part, despite the uncertainty surrounding the market again this week, I’m more willing to accept risk than has been the case for much of the past year.

To a large degree that’s related to the additional increment of premium being seen in some positions as volatility has been rising.

Even if  broader market volatility is going to be short lived, some individual sectors and individual positions have a likelihood of continuing to offer higher premiums due to their baseline volatility and anything additional that may come from market uncertainty.

I am considering more positions this week than I have for much of 2016 and most of those are being considered through the sale of put options, rather than outright buy/write transactions.

With the exception of Dow Chemical (DOW), which has an upcoming ex-dividend date the following week, I’m considering the sale of puts for eBay (EBAY), PayPal (PYPL), Seagate Technology (STX), Under Armour (UA) and United Continental (UAL).

WIth the exception of Seagate Technology, the others in that put sales group do not offer a dividend, so the sale of puts doesn’t have to take into consideration that possibility of subsidizing someone else for the collection of that dividend.

The list this week is fairly varied, other than for the historical connection between eBay and PayPal.

I haven’t owned eBay since it spun off its PayPal growth engine, but it has been trading precisely the way it did when PayPal was still part of its holdings. That is, it traded in a fairly narrow and predictable range, while occasionally being punctuated with price spikes at earnings. Those spikes created a decent option premium for a stock that over the longer term of the past 4 or 5 years prior to the spin off basically traded sideways.

What is interesting about eBay this week is that there is some speculation than in the event of a withdrawal from the European Union by Great Britain, it is among those stocks that stands to lose in the process.

That process, however, is being treated as if it is going to be an instantaneous one, rather than one being drawn out over years.

If I could hold onto eBay shares and serially sell calls or able to serially roll over puts, I’d be more than happy to watch that process play out over several years.

That is if it ever even gets to that.

I’ve never owned PayPal, but it is now well past that 12 months since its offering, that is usually the amount of time that I wait before considering a position.

It too has been recently trading in a range and in the longer term has been doing so ever since the initial euphoria wore off.

I think that a near term position in PayPal does carry greater risks than with eBay, as the next support level below $36 is almost 10% lower. However, the premiums available for the sale of options can mitigate some of that risk, even as financial instruments as a whole are under pressure.

I expect that pressure to be abating fairly soon as we become less convinced of a rise in interest rates and instead end up wondering who would have guessed that they would have begun an insidious climb over the summer.

I do own and suffer with that ownership, shares of United Continental. It’s certainly a bad idea to base an investment on the proposal that shares couldn’t possibly go any lower.

The size of the recent moves lately in those shares have my interest more than the recent sustained decline which came as it looked as if those shares might reclaim their 1 year high level.

Up until the latter half of April, United Continental and oil prices were very closely and directly aligned in 2016, despite the fact that the greatest increase in the price of oil came during the period before April.

Who would have guessed that increasing oil prices would be associated with increased share prices of United Continental? That relationship, though has reverted to its more normal pattern and I believe that despite the traditional summer time impact on energy prices, increasing supply will be of benefit to United Continental.

With the Brazil Olympics being one of one controversy after another, there’s probably not too much doubt that the companies that have lots at stake during the Olympics games are easily identifiable.

I still marvel at the resiliency of Under Armour when questions were raised as to whether its swimsuit design may have cost American swimmers their expected medals. They handled the situation perfectly and the world and investors quickly moved on.

Of course, one challenge may not have to wait until Brazilian festivities begin and may instead occur before trading begins on Monday.

On Monday morning we will all know whether the Under Armour wearing Stephen Curry or the Nike (NKE) wearing LeBron James will be celebrating.

In the event of a Cleveland victory in the basketball championship finals, if Under Armour takes a drop in share price, I would be very interested in selling puts into the weakness and as with eBay or PayPal, that is a position that I wouldn’t necessarily mind keeping open if it is amenable to serial rollover.

I’ve also been suffering with shares of Seagate Technology, but as far as I know it doesn’t have too much riding on a basketball game’s outcome.

What I do like about it now is that it seems to have developed some support at its current price level and that put premium is very attractive, even as that dividend yield is very frightening.

Seagate Technology and others in the storage and memory business have been written off before as being nothing more than commodities and at some point that may become an accurate description of the business, as well as prospects for growth.

Unless Elon Musk comes up with a way to carry physical hard drives up to the cloud in one of his SpaceX vehicles, the future may not shine too brightly for physical storage. But from my actuary’s perspective, a few weeks of ownership may not be overly risky, relative to the reward.

Finally, Dow Chemical is ex-dividend next week and if participating with it next week, my preference would be to buy shares and sell calls.

I already have 2 lots of shares and have been happily collecting the dividend and rolling over call options, while watching the premiums accumulate, even as shares go nowhere.

At some point, the convoluted deal with DuPont (DD) will become reality or it will be killed off by regulators.

As with Pfizer (PFE) several months earlier, I think the current price has already given back any premium that the market placed on the proposed transaction. For that reason, I think that there is little downside to adding shares of Dow Chemical at this time.

The option premium doesn’t reflect too much volatility, but the return for the sale of an at the money option is at levels that I used to see during periods of greater market volatility.

I look at that as a bonus, when considering the times we are in and the limited company specific downside potential as the summer unfolds and we await decisions.

 

Traditional Stocks: Dow Chemical, eBay

Momentum Stocks: PayPal, Seagate Technology, Under Armour, United Continental

Double-Dip Dividend: none

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.

Weekend Update – May 1, 2016


There was potentially lots that could have moved the market last week.

Earnings season was getting into full swing as oil continued its march higher.

As if those weren’t enough, we had an FOMC Statement release and a GDP report and even more earnings to round out the week.

But basically, none of those really mattered.

The FOMC expressed some confidence in the economy even as the GDP may have said otherwise the following day and earnings were all over the place with the market not being very forgiving when already lowered expectations weren’t met or were being pushed out another quarter.

Again, none of that mattered.

What really mattered was when Carl Icahn, who unlike Chicken Little, calmly told the world that he had sold his entire stake in Apple (AAPL) for fears of what China’s “attitude” might be with regard to the company.

The initial interviewer misinterpreted Icahn’s comments to mean that he was worried about the Chinese economy itself and that may have been exactly how traders interpreted Icahn’s words, although a second interviewer correctly interpreted Icahn’s comments and got him to add clarity.

Icahn confirmed that he was actually worried about the possibility that China would be less of a reliable partner for Apple and not that he envisioned a new round of meltdowns in the CHinese economy or in their financial institutions.

Big difference.

The reaction to Icahn’s exit was pretty swift and not only in shares of Apple, which already had a disappointing earnings report the prior day and saw shareholders faced with a large overnight losses.

Icahn’s sense of calm in reporting that perhaps the Chinese sky was falling down on Apple was in contrast to Chicken Little in another very different way.

Chicken Little, while he may have been wrong about the sky falling, had good intentions for society as he sought to spread the word so that everyone would have an opportunity to seek protection.

Not that Carl Icahn had any obligation to do so, but his exit from Apple and the sounding of the warning came too late for most.

Beyond that, I’m not too certain that any suggestion or interpretation of a clarion call from Icahn leading to the exit from stocks is intended to do anything other than leave him in a better position as a predator.

Given that Icahn Capital Management’s largest holding is in the eponymous Icahn Enterprises LP (IEP), representing approximately 50% more of the portfolio’s value than did Apple, it may not be too surprising that this was a good time to cash in on a very successful 30 month investment in Apple shares.

Shareholders in Icahn Enterprises may wonder when their share of the estimated $4.3 billion in pre-tax cash resulting from the Apple sale will find its way into their pockets.

Good luck with that, unless you’ve got some skin in Icahn Capital Management.

Like Pershing Capital’s profitable exit from Mondelez (MDLZ), sometimes there’s more to a sale than may meet the eye, especially when your portfolio is populated with some very heavy and risky bets that had seen better days.

Not to say that Icahn needed the cash, and he is certainly in a better position this week after some recent strength in some very hard hit energy and commodity related positions.

Icahn is actually in a great position at the moment as others take cover heeding his warning.

With lots of cash and the ability to move markets lower by making bearish comments, as he has been making for the past couple of years, this Chicken Little easily stands to profit from those who heed his warnings.

It’s not exactly like warning everyone to seek shelter at the fire station as the tornado is approaching and then taking the opportunity to ransack people’s homes, but it’s close.

After suffering some significant losses over the past 2 years, it may be time for Icahn to start his ransacking as he looks for those left vulnerable after seeking shelter.

With a quiet week ahead, despite an seemingly unending stream of earnings, I don’t have too much interest getting ahead of Friday’s Employment Situation Report. Neither am I very interested in being part of the test group that discovers that the stock market will finally disassociate itself from energy prices, as the climb in the latter continues.

That doesn’t mean that I’ll be selling, it just means that I may not be all that excited about buying in the coming week.

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

This coming week I have a singular interest and only a handful of stocks that may satisfy that interest.

The interest is in accumulating dividends.

If I had to have a dual mandate for the week it would also be to minimize risk while seeking those dividends.

In addition to Apple, which goes ex-dividend this week, I also have sights set on shares of Intel (INTC) and Starbucks (SBUX).

There’s nothing terribly exciting about Intel at the moment, just as there isn’t anything terribly exciting about anything that’s classified as “old technology.”

As weak as the S&P 500 was last week, those old technology names were even weaker. While I’m no Icahn, sometimes that really is the time to look for advantage, although in the case of another old technology name, Seagate Technology (STX) that is also ex-dividend this week, weakness sometimes only begets more weakness.

I don’t think that will be the case for Intel, which after a strong move higher that started when the market began its February turnaround, has lots of price support below its current level.

Intel shares have traded in a fairly narrow range over the past month and that appeals to me as a possible source of recurring premium income if able to execute serial rollovers while awaiting some appreciation on shares.

Starbucks doesn’t have a terribly exciting dividend, but what it does do very well is to rebound from sharp declines.

It also generally doesn’t take very long for those rebounds to get underway.

Those occasional sharp declines also help to nudge its option premiums higher as there will always be those who are of the belief that declines do beget more declines and the uncertainty that creeps in serves to boost those premiums.

While their coffee makes me exceptionally jittery, I’ve never felt the same about the shares, although I haven’t owned any for a couple of years. I think this may be a good time to consider opening a position and selecting an out of the money strike price in an effort to get the best of all worlds this week.

Finally, Apple.

I find it pretty amazing that in the absence of really any good news for what seems like an eternity for Apple, it’s price hasn’t suffered even more.

That’s faint praise, for sure.

However, ever since the inception of its dividend, purchasing shares just prior to that ex-dividend date, has generally been a good move, if armed with a short term horizon.

What distinguishes this upcoming ex-dividend date is that shares have taken quite a hit in the days immediately preceding that date.

With the exception of Apple’s decline from its 2012 highs, when most everyone was giddy about how it would become a $1000 stock and surpass a $1 trillion market capitalization, those declines have been fairly short lived.

However, on the flip side, in addition to whatever truth may be found in Icahn’s stated concerns, there really hasn’t been any obvious catalyst for Apple other than ever improving sales of its flagship product.

With that phenomenon perhaps on hiatus, one does have to consider that there aren’t too many supports between its current price and about $85.

And then $75.

With that in mind, I still am not ready to run away from the possibility of share ownership.

WWID?

What would Icahn do?

Well, he did it already, just by pushing for the buybacks and the dividends some 30 months ago.

Amid the lack of good news at last week’s earnings was the announcement of a dividend increase and the expectation that share buybacks will continue and be able to provide some price support.

Whether those buybacks in the past few years have been a good use of its cash may forever be open to debate, but while it’s happening, it is definitely a comfort to those in a position of risk.

While those buybacks and declining share price shrink Apple’s market capitalization to a point that it’s now half of that anticipated $1 trillion, I think it is again becoming a good trading vehicle, as opposed to a good investment.

Thank you, Uncle Carl, for having forever changed Apple.

 

 

Traditional Stocks: none

Momentum Stocks: none

Double-Dip Dividend: Apple (5/5 $0.57), Intel (5/4 $0.26), Starbucks (5/3 $0.20)

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.

Weekend Update – April 24, 2016

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)

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.

Weekend Update – April 3, 2016

 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

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.

Weekend Update – March 6, 2016

Depending upon what kind of outlook you have in life, the word “limbo” can conjure up two very different pictures.

For some it can represent a theologically defined place of temporary internment for those sinners for whom redemption was still possible. 

In simple terms it may be thought of as a place between the punishing heat and torment of hell below and the divineness and comfort of heaven above.

Others may just see an image reminding them of a fun filled Caribbean night watching a limber individual dancing underneath and maybe dangerously close to a flaming bar that just keeps getting set lower and lower.

Both definitions of “limbo” require some significant balancing to get it just right.

For example, you don’t get entrance into the theologically defined “Limbo” if the preponderance of your sins are so grievous that you can’t find yourself having died in “the friendship of God.” Instead of hanging around and waiting for redemption, you get a one way ticket straight to the bottom floor.

It may take a certain balance of the quantity and quality of both the good and the bad acts that one has committed during their mortal period to determine whether they can ever have a chance to move forward and upward to approach the pearly gates of heaven.

If you’ve ever watched a limbo dancer, you know that it’s more than just the ability to flex a spinal cord. There’s also the balance that has to be maintained while somehow still moving forward and downward.

One limbo makes you strive to move you to a higher plane and the other strives to make you move to a lower plane.

Why they’re called the same thing confuses me.

After this week’s surprisingly high Employment Situation Report that was coupled with an unexpected lower average wage, the data that the FOMC finds itself analyzing seems itself to be getting more and more confusing to mere mortals.

At the same time more and more people are craving for some pronouncement of clarity.

Along with that confusion comes a need for the FOMC to balance the relative importance and meanings of the individual bits of data coming in and trying to understand what it all means going forward, if you accept that their decisions are data driven.

And, of course, there can’t be a reason to suspect that the decisions made will be anything but data driven. It’s just that there’s no data that assesses the interpretation of those economic data points and to explain why there may be widely differing opinions among the FOMC’s highly capable analysts.

Of course, there will be no shortage of critics ready to excoriate the decision makers for whatever decision they reach. However, if the FOMC members ever feel the heat they certainly do a good job of hiding that fact.

For now, markets continue to follow oil, including during its intra-day reversals and as long as oil continues to move higher, that’s a good thing.

With a nearly 10% increase this past week in oil, stocks had another great week, especially if you were holding any number of a long beleaguered series of stocks.

But as the week is set to begin, with very little of economic news scheduled and no fundamental change in anything, we’re left in limbo as we await the FOMC’s decision the following week.

Whether to continue the 3 week rally or to take profits is going to be anyone’s guess, but there’s no doubt that oil will some day be redeemed.

Not as certain is whether the stock market will come to realize that it is the reason behind prevailing oil prices and not the prices themselves that should determine whether the stock market is worthy of redemption, as well.

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

Unlike Chesapeake Energy (CHK) and Cliffs Natural Resources (CLF), many of the week’s extraordinarily performing stocks didn’t take the death of a founder or hedge fund activist to propel them forward, although it did seem as if the market placed a high multiple on death.

Having long suffered through the ownership of far too many commodity related stocks I was happy to see death and non-death related companies move higher, but still have no reason to believe that they are anywhere but remaining in limbo, with their own redemptions still being but a dream.

General Motors (GM) emerged from limbo during the throes of the financial crisis and under new leadership has weathered some difficult issues that could have been far more ruinous in an earlier time.

Like so many stocks over the past few weeks its shares have shown recovery and I believe that there is more ahead being propelled by fundamental factors. With shares being ex-dividend this week it looks like a good time to consider adding shares and selling either a weekly near the money contract or considering adding an additional week if the strike price is in the money.

In the latter case, using the slightly longer term contract would offset the loss of the dividend in the event shares are assigned early.

In a perfect example of how the herd is wrong, while we were all awaiting a rise in interest rates since the FOMC raised rates more than 3 months ago, all of those recommendations based on a rising interest rate environment were ill advised.

You know that if you owned shares of most anything in the financial sector.

I know that I know that to be the case, but I think we now may be in store for some sustained interest rate increases in the 10 Year Treasury and should see more strength being reflected in the financial sector.

One of my favorites in the event that those rates do finally resist making everyone look foolish again is MetLife (MET).

Even after having made up some lost ground over the past 3 weeks it still has more upside following a gap lower after its most recent earnings report.

While it has an admirable dividend as well, it tends to be associated with its earnings report date, which is still 2 months away. I would consider a purchase of shares and the sale of short term call contracts, further considering rolling over those contracts if assignment is likely at a price near the strike level.

It wasn’t so long ago that Seagate Technology (STX) may as well have given up. When storage was being talked about as being a commodity, most had written it off as irrelevant for anyone’s portfolio.

When a product becomes a mere commodity the conventional wisdom is that the stock becomes dead money, but it has been hard to characterize Seagate Technology as having anything but life.

Sometimes that existence has been fairly erratic as it is prone to sharp moves higher and lower, often both in narrow time frames.

That gives options an attractive premium, reflecting the enhanced volatility.

Seagate Technology is a stock that I prefer to consider through the sale of out of the money puts and am often happy rolling those puts over in an attempt to avoid being assigned shares.

With its ex-dividend date is still 2 months away, I wouldn’t mind the opportunity to do so on a serial basis and accumulating those premiums in the process. If still faced with assignment in the week leading up to that ex-dividend date I would take assignment in an effort to then grab the dividend.

The caveat is that Seagate Technology’s dividend is unsustainably high. Seagate, during its existence as a publicly traded company did briefly reduce and then suspend its dividend for nearly 2 years, beginning at the depth of the market’s 2009 meltdown. but has been consistently raising it since the resumption.

It may be time for either a respite or some killer earnings. If selling puts I would prefer the latter.

I also like the idea of selling puts into price weakness. In the event that Dow Chemical (DOW) shows some weakness as the week gets ready to begin, I may consider the sale of put options.

What may put some pressure on Dow Chemical is the news that broke after the closing bell on Friday that DuPont (DD), well along the way toward its complex merger with Dow Chemical, may have another suitor with very, very deep pockets.

That suitor is reported to be BASF SE (BASFY) the Germany based chemical company, who may have to dig extra deep due to the Euro insisting that it make its way toward parity with the US Dollar.

For its part, Dow Chemical may be forced to dig deeper to complete the deal, but the after hours trading actually saw some increase in Dow Chemical’s share price, as well, perhaps reflecting the perceived value of the Dow Chemical and DuPont merger, which may be too afar along to be disrupted by something other than regulators.

Finally, while commodities led the week higher, the advance was broad. However, in the “No Stock Left Behind” march higher during the late half of February and beginning of March are some pharmaceutical names.

Pfizer (PFE), while not the poorest of a cohort of under-performers over the past 3 weeks while the market has been working hard to erase 2016’s losses, was at the bottom of the heap this past week.

While it still has a big unresolved issue ahead of it with regard to its strategy to escape significant US tax liability by merging with Ireland based Allergan (AGN), it has long ceded the premium that investors had given it when the news of the proposal first broke.

While there is no assurance that Pfizer and Allergan will receive regulatory approval, while the proposal itself is in limbo, there continues to be opportunity to utilize Pfizer as a vehicle to generate option premiums.

With its healthy dividend, a long sojourn in limbo could be propitious for option writers, particularly if there is little downside risk associated with the merger being blocked.

 
Traditional Stocks: Dow Chemical, MetLife, Pfizer

Momentum Stocks: Seagate Technology

Double-Dip Dividend: General Motors (3/9 $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.

 

Weekend Update – January 17, 2016


The world is awash in oil and we all know what that means.

From Texas to the Dakotas and to the North Sea and everything in-between, there is oil coming out of every pore of the ground and in ways and places we never would have imagined.

Every school aged kid knows the most basic law of economics. The more they want something that isn’t so easy to get the more they’re willing to do to get it.

It works in the other direction, too.

The more you want to get rid of something the less choosy you are in what it takes to satisfy your need.

So everyone innately understands the relationship between supply and demand. They also understand that rational people do rational things in response to the supply and demand conditions they face.

Not surprisingly, commodities live and die by the precepts of supply and demand. We all know that bumper crops of corn bring lower prices, especially as there’s only so much extra corn people are willing to eat as a result of its supply driven decrease in price.

Rational farmers don’t plant more corn in response to bumper crops and rational consumers don’t buy less when supply drives prices lower.

Stocks also live by the same precepts, except that most of the time the supply of any particular stock is fixed and it’s the demand that varies. However, we’ve all seen the frenzy around an IPO when insatiable demand in the face of limited supply makes people crazy and we’ve all seen what happens when new supply of shares, such as in a secondary offering is released.

Of course, much of what gains we’ve seen in the markets over the past few years have come as a result of manipulating supply and artificially inflating the traditional earnings per share metric.

When a deep Florida freeze hits the orange crop in Florida, no one spends too much time deeply delving into the meaning of the situation. The price for oranges will simply go higher as the demand stays reasonably the same, to a point. 

If, however, people’s tastes change and there is suddenly an imbalance between the supply and demand for orange juice, reasonable suppliers do the logical thing. They try to recognize whether the imbalance is due to too much supply or too little demand and seek to adjust supply.

Whatever steps they may take, the world’s economies aren’t too heavily invested in the world of oranges, no matter how important it may be to those Florida growers.

Suddenly, oil is different, even as it has long been a commodity whose supply has been manipulated more readily and for more varied reasons. than a farmer simply switching from corn to soybeans.

The price of oil still lives by supply and demand, but now thrown into the equation are very potent external and internal political considerations.

Saudi Arabia has to bribe its citizens into not overthrowing the monarchy while wanting to also inflict financial harm on anyone bringing new sources of supply into the marketplace. They don’t want to cede marketshare to its enemies across the gulf nor its allies across the ocean.

With those overhangs, sometimes irrational behavior is the result in the pursuit of what are considered to be rational objectives.

Oil is also different because the cause for the imbalance says a lot about the world. Why is there too much supply? Is it because of an economic slowdown and decreased demand or is it because of too much supply?

Stock markets, which are supposed to discount and reflect the future have usually been fairly rational when having a longer term vision, but that’s becoming a more rare phenomenon.

The very clear movement of stock markets in tandem with oil prices up or down has been consistent with a belief that the balance between supply and demand has been driven by demand.

Larry Fink, who most agree is a pretty smart guy, as the Chairman and CEO of Blackrock (BLK) was pretty clear the other day and has been consistent in the belief that the low price of oil was supply, and not demand driven. He has equally been long of the belief that lower oil prices were good for the world.

In any other time, supply driven low prices would have represented a breakdown in OPEC’s ability to hold the world’s economies hostage and would have been the catalyst for stock market celebrations.

Welcome to 2016, same as 2015.

But world markets continue to ignore that view and Fink may be coming to the realization that his voice of reason is drowned out by fear and irrational actions that only have a near term vision. That may explain why he now believes that there could be an additional 10% downside for US markets over the next 6 months, including the prospects of job layoffs.

That’s probably not something that the FOMC had high on its list of possible 2016 scenarios.

Ask John McCain how an increasing unemployment rate heading into a close election worked out for him, so you can imagine the distress that may be felt as 7 years of moderate growth may come to an end at just the wrong time for some with great political aspirations.

The only ones to be blamed if Fink’s fears are correct are those more readily associated with the existing power structure.

Just as falling stock prices in the face of supply driven falling oil prices seems unthinkable, “President Trump” doesn’t have a dulcet tone to my ears. More plausible, in the event of the unthinkable is that it probably wouldn’t take too much time for his now famous “The Apprentice” tag line to morph into “You’re impeached.”

So there’s always that as a distraction from a basic breakdown in what we knew to be an inviolate law of economics.

With 2016 already down 8% and sending us into our second correction in just 5 months so many stocks look so inviting, but until there’s some evidence that the demand to meet the preponderance of selling exists, to bite at those inviting places may be even more irrational than it would have been just a week earlier.

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

One stock that actually does look like a bargain to me reports earnings this week. Verizon (VZ) is the only stock in this week’s list that isn’t in or near bear correction territory in the past 2 months.

Even those few names that performed well in 2015 and helped to obscure the weakness in the broader market are suffering in the early stages of 2015.

Not so for Verizon, even though the shares have fallen nearly 5% from its near term resistance level on December 29, 2015, the S&P 500 fell almost 9% in that time.

While there is always added risk with earnings being reported, Verizon and some of its competitors stand to benefit from their own strategic shifts to stop subsidizing what it is that people crave. That may not be reflected in the upcoming earnings report, but if buying Verizon shares I may consider looking beyond the weekly options that I tend to favor in periods of low volatility. Although I usually am more likely to sell puts when earnings are in the equation, I’m more likely to go the buy/write route for this position.

The one advantage of the kind of market action that we’ve had recently is the increase in volatility that it brings.

When that occurs, I start looking more and more at longer term options. The volatility increase typically means higher premiums and that extends into the forward weeks. Longer term contracts during periods of higher volatility allow you to lock in higher premiums and give time for some share price recovery, as well.

Since Verizon also has a generous dividend, but won’t be ex-dividend for another 3 months, I might consider an April 2016 or later expiration date.

One of the companies that is getting a second look this week is Williams-Sonoma (WSM), which is also ex-dividend this week and only offers monthly options.

Shares are nearly 45% lower since the August 2015 correction and have not really had any perceptible attempt at recovering from those losses.

What it does offer, however. is a nice option premium, that even if shares declined by approximately 1% for the month could still deliver a 3.8% ROI in addition to the quarterly 0.7% dividend.

Literally and figuratively firing on all cylinders is General Motors (GM), but it is also figuratively being thrown out with the bath water as it has plunged alongside the S&P 500.

With earnings being reported in early February and with shares probably being ex-dividend in the final week of the March 2016 option cycle, there may be some reason to consider using a longer term option contract, perhaps even spanning 2 earnings releases and 2 ex-dividend dates, again in an attempt to take advantage of the higher volatility, by locking in on longer term contracts.

Netflix (NFLX) reports earnings this week and the one thing that’s certain is that Netflix is a highly volatile stock when reporting earnings, regardless of what the tone happens to be in the general market.

With the market so edgy at the moment, this would probably not be a good time for any company to disappoint investors.

The option market definitely demonstrates some of the uncertainty that’s associated with this coming week’s earnings, as you can get a 1% ROI even if shares drop by 22%.

As it is, shares are down nearly 20% since early December 2015, but there seem to be numerous levels of support heading toward the $81 level.

If shares do take a plunge, there would likely be a continued increase in volatility which could make it lucrative to continue rolling over puts, even if not faced with impending assignment.

Of some interest is that while call and put volumes for the upcoming weekly options were fairly closely matched, the skew was toward a significant decline in shares next week, as a large position was established at a weekly strike level $34 below Friday’s close.

Finally, last week wasn’t a very good week for the technology sector, as Intel (INTC) got things off on a sour note, which is never a good thing to do in an already battered market.

Seagate Technology (STX) wasn’t spared any pain last week, either, as it has long fallen into the same kind of commodity mindset as corn, orange juice and even oil back in the days when things made sense.

Somehow, despite having been written off as nothing more than a commodity, it has seen some good times in the past few years. That is, if you exclude 2015, as it has now fallen more than 50% since that time, but with nearly 35% of that decline having occurred in just the past 3 months.

I usually like entering a Seagate Technology position through the sale of puts, as its premium always reflects a volatile holding.

For example the sale of a weekly put at a strike price 3% below Friday’s closing price could provide a 1.9% ROI. When considering that next week is a holiday shortened week, that’s a particularly high return.

Seagate Technology is no stranger to wild intra-weekly swings. If selling puts, I prefer to try and delay assignment of shares if they fall below the strike level. Since the company reports earnings the following week, I would likely try to roll over to the week after earnings, but if then again faced with assignment, would be inclined to accept it, as shares are expected to be ex-dividend the following week.

The caveat is that those shares may be ex-dividend earlier, in which case there would be a need to keep a close eye out for the announcement in order to stand in line for the 8% dividend.

For now, Seagate does look as if it still has the ability to sustain that dividend which was increased only last quarter.

 

Traditional Stocks: General Motors

Momentum Stocks: Seagate Technolgy

Double-Dip Dividend: Williams-Sonoma (1/22 $0.35)

Premiums Enhanced by EarningsNetflix (1/19 PM), Verizon (1/21 AM)

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.

Weekend Update – December 20, 2015

After an absolutely horrible week that came on the heels of an absolutely glorious reaction to the Employment Situation Report just 2 weeks ago, it looked as if some common sense finally had come to the market as the clock was ticking down on the year.

After that glorious reaction the DJIA found itself 0.1% higher on the year, only to see itself sink to 3.1% lower just a week later.

But this past Monday after adding another 100 points to that loss, it all turned around mid-day and kept going higher right up to and beyond the FOMC Statement release and beyond.

By the time the FOMC broke an almost 10 year hiatus on raising interest rates and Janet Yellen finished telling us all that the rate rise wasn’t likely to be the only one in the coming year, the market had embraced the news and taken the index to a point that it was almost 0.5% higher on the year.

That’s not much after nearly a year’s work, but it’s better than some of the alternatives.

Strong buying heading into the widely expected FOMC announcement looked as if it was an attempt to capitalize on what was expected to be a strong year end rally as the interest rate overhang was finally coming to its end.

There’s nothing more American than trying to foresee and then take advantage of an opportunity and to then create a “feel good” story, by using the final trading days of the year to bring some glory to a year that the net change had done little justice toward portraying the wild activity seen.

However, the kiss of death probably came as analyst after analyst started talking about a year end rally and some even began to dust off the old “we’re setting up for a rip your face off rally” cry.

With that kind of optimism it probably shouldn’t have been too much of a surprise that as the week came to its end the DJIA was 3.9% lower for the year, with the S&P 500 faring better, being only 2.6% lower.

While society may appreciate the motives behind many non-profits, it’s different when that status is intentional.

With now less than 10 trading days left before 2015 becomes inscribed there’s still plenty of time to move away from the flat line, although many will hope that we don’t move too far, as the year following q flat performing year tends to be very good.

Just like in far too many basketball games, it all comes down to the final seconds when a single missed opportunity can make all of the difference in the outcome.

The upcoming Christmas holiday trade shortened week does have a GDP report release, but not much else, although it didn’t take much to set markets upside down this week.

That GDP data may make all of the difference for the year and it may be the true test of just how firm that recent embrace of the FOMC’s decision may be.

The key to 2016 may very well end up being the same thing that kept 2015 in shackles for most of the year.

The fear of an interest rate increase was the prevailing theme as the market generally recoiled at the very thought of those rates moving higher. Instead, traders should have done what it did on far too few occasions during the year when coming to a realization that a small rate increase would not hamper growth and that an increase was the recognition of an expanding economy.

Those realizations were infrequent and short lived, just as it was this past week.

In essence, all of 2015 has been a large missed opportunity where an irrational fear of a return of 1970s era interest rates held reign.

That’s where the GDP data comes in as it intersects with Janet Yellen’s suggestion that last week’s announcement wasn’t likely to be part of a “one and done” strategy.

A strong GDP, particularly if above consensus and coupled with good news on home sales, durable goods and jobless claims may serve to fuel the fear of more interest rate hikes.

It will take something really tangible to offset the fears of an image of unrestrained interest rate increases. If the FOMC is right, that should mean that corporate earnings will finally begin to reflect actual economic expansion rather than contraction of the number of shares floating around.

While the next earnings season begins in just a month, perhaps some retail sales data coming as Christmas shopping concludes may give us some hope that the consumer is really coming alive. It would be nice to see consumers helping to grow corporate earnings per share the old fashioned way, by increasing revenues.

It would then be especially nice to see traders taking that opportunity to take a stake in a growing economy.

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

In the past 2 weeks I’ve only opened a single new position.

In the week following the Employment Situation Report release I never got a feeling of comfort to move in and buy at what may have appeared to be developing bargain prices.

I had a little bit of regret last week as it didn’t take long for the market to develop a positive tone and move higher, yet even then I had a hard time justifying doing very much and really wanting to preserve cash.

Ultimately that feeling of regret gave way to some relief.

This week doesn’t have me in a very different state of mind and I expect to be reluctant to part with cash, particularly as the week’s option premiums will reflect a holiday shortened week.

In setting up a covered option portfolio I try to use a laddered approach to expiration dates in the hope that being somewhat diversified in those dates there can be some opportunity to not get caught with too many expiring positions at one time either getting stranded or assigned.

Even when not adding new positions as a means of generating weekly income, with some luck the expiring positions can become the sources of income for the week if they are able to be rolled over.

I had some decent fortune with that last week and have a number of positions up for expiration in the coming week that could potentially serve as income sources, although I would prefer that they become sources of replenishment for a low cash reserve.

This week, if spending down any of that reserve, I don’t expect to get very far flung in the positions under consideration.

Unfortunately, there aren’t any upcoming ex-divided positions this week to consider and my initial thought is to think about less risky kind of positions, but while it is a more speculative position, Seagate Technolgy (STX) has been behaving well at its current price.

Looking at 10 buy/writes or put sales of Seagate Technology over a period of 4 years has me wishing I had followed through on consideration of it more frequently. The shares are almost always volatile and they tend to defined trade in a range for a period of time following a volatile move, although the risk is always for another volatile move when otherwise unexpected.

My Seagate Technology positions have been evenly split between buy/writes and put sales, tending to favor the put sale when there is no near term ex-dividend date at hand. That has been the case with 3 put sales in the past 2 months.

Based on Friday’s closing price a put sale at a strike 1.8% below that closing price could still offer a 1.3% ROI for a week.

My most recent short put position was the longest of any of my previous positions and lasted 29 days, including the initial sale of puts and 3 rollovers in an attempt to defer assignment of shares, which I would be willing to take if the ex-dividend date was soon upcoming.

The finance sector performed better than the S&P 500 for the week, but they were even more harshly punished on the final 2 days of the week, even as some of the guessing about interest rates has been taken out of the equation.

I already own 2 lots of Bank of America (BAC) and after last week am ready to add a position in it or perhaps returning to Morgan Stanley (MS).

I had owned the latter on 17 occasions during a 19 month period in 2012 and 2013, but only 4 times since then. Those 4 times have all been in the past two months and I wouldn’t mind trying to re-create some of the experiences from 2012 and 2013.

On the other hand, I’ve owned Bank of America less frequently, but have already owned shares on 7 occasions in 2015. In my world, the more often you own shares in any given period of time the better it is performing for you, while hardly performing for anyone else just watching the shares go up and down.

In both cases the recent large moves up and down have created appealing opportunities to accumulate option premiums as well as thinking about trying to capture some gains on the shares themselves. For those a bit more cautious, some consideration could be given to foregoing the potential gain on shares by selling in the money calls or out of the money puts.

As long as their volatility remains elevated the risk is reduced as the premiums themselves become elevated as well. Additionally,as there’s little reason to believe that interest rates are heading lower any time soon, the financials may have some wind at their backs.

For investors, there is nothing special about Pfizer (PFE) at the moment, other than its quest to escape US corporate taxes. Unfortunately for Pfizer, there is nothing otherwise special about it at the moment.

Where the opportunity may be is in the amount of time that it could take for it to actually move forward with its plans. Shares are currently trading at about the level they had been when news came out of their plans so there may not be too much downside if there is an eventual roadblock placed in their path.

In the meantime, trading in a defined range may make it a hospitable place to park some cash while also collecting option premiums and perhaps a dividend, as well.

Finally, for some reason I heard the classic Byrds song “Turn, Turn, Turn” many times this week and it made me think that in addition to a time for war and a time for peace, there is also a time for comfort foods and maybe monthly options, as well.

In this case, Dunkin Brands (DNKN) offers both that form of comfort and only offers monthly option contracts.

It is well off from its highs from 3 months ago and has recently traded higher from its low point 2 months ago.

I might be very interested in adding shares if there’s any additional discomfort in its share price this week and might consider even selling March 2016 calls in an effort to ride out any earnings risk in early February as well as to collect its dividend and some potential gain on the shares themselves.

That would be sweet.

Traditional Stocks: Bank of America, Dunkin Brands, Morgan Stanley, Pfizer

Momentum Stocks: Seagate Technology

Double-Dip Dividend: none

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.

Weekend Update – December 13, 2015

Sometimes if you take a step back and look at the big picture it’s much easer to see what’s going on as you distance yourself from the source.

No one, for example, falls off a cliff while watching the evening news from the safety of their media room, although being in the last car of a train doesn’t necessarily protect you when the lead car is getting ready to take a dive.

I’m not certain that anyone, whether knee deep in stocks or just casually looking at things from a dispassionate distance could have foreseen the events of the past week.

For starters, there really were no events to foresee. Certainly none to account for the nearly 4% decline in the S&P 500, with about half of that loss coming on the final trading day of the week.

What appears to have happened is that last week’s strong Employment Situation Report was the sharp bend in the track that obscured what was awaiting.

Why the rest of the track beyond that bend disappeared is anyone’s guess, as is the distance to the ground below.

With Friday’s collapse that added on to the losses earlier in the week, the market is now about 6% below its August highs and 2.3% lower on the year, with barely 3 weeks left in 2015.

Not too long ago we saw that the market was again capable of sustaining a loss of greater than 10%, although it had been a long time since we had last seen that occur. The recovery from those depths was fairly quick, also hastened by an Employment Situation report, just 2 months ago.

I don’t generally have very good prescience, but I did have a feeling of unease all week, as this was only about the 6th time in the past 5 years that I didn’t open any new positions on the week. All previous such weeks have also occurred in 2015.

The past week had little to be pleased about. Although there was a single day of gains, even those were whittled away, as all of the earlier attempts during the week to pare losses withered on the vine.

Most every sell-off this year, particularly coming at the very beginning of the week has seemed to be a good point to wade in, in pursuit of some bargains. Somehow, however, I never got that feeling last week, although I did briefly believe that the brakes were put on just in time before the tracks ran out up ahead early during Thursday’s trading.

For that brief time I thought that I had missed the opportunity to add some bargains, but instead used the strength to roll over positions a day earlier than I more normally would consider doing.

That turned out to be good luck, as there again was really no reason to expect that the brakes would give out, although that nice rally on Thursday did become less impressive as the day wore on.

Maybe that should have been the sign, but when you’re moving at high speed and have momentum behind you, it’s not easy to stop, much less know that there’s a reason to stop.

Now, as a new and potentially big week is upon us with the FOMC Statement release and Janet Yellen’s press conference to follow, the real challenge may be in knowing when to get going again.

I plan on being circumspect, but wouldn’t mind some further declines to start the coming week. At some point, you can hand over the edge and realize that firm footing isn’t that far below. Getting just a little bit closer to the ground makes the prospect of taking the leap so much easier.

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

It’s not entirely accurate to say that there were no events during the past week.

There was one big, really big event that hit early in the week and was confirmed a few days later.

That was the merger of DJIA component DuPont (DD) and its market capitalization equivalent and kissing cousin, Dow Chemical (DOW).

After both surged on the initial rumor, they gave back a substantial portion of those gains just two days later.

I currently own shares of Dow Chemical and stand to lose it to assignment at $52.50 next week, although it does go ex-dividend right before the end of the year and that may give some incentive to roll the position over to either delay assignment or to squeeze out some additional premium.

While it would be understandable to think that such a proposed merger would warrant regulatory scrutiny, the announced plans to break up the proposed newly merged company into 3 components may ease the way for the merger.

A with the earlier mega-merger between Pfizer (PFE) and Allergan (AGN) for some more questionable reasons related to tax liability, even if higher scrutiny is warranted, it’s hard to imagine action taken so quickly as to suppress share price. Because of that unlikely situation, the large premium available for selling Dow Chemical calls makes the buy/write seem especially inviting, particularly as the dividend is factored into the equation.

General Motors (GM) is ex-dividend this coming week and like many others, the quick spike in volatility has made its option premiums more and more appealing, even during a week that it is ex-dividend.

I almost always buy General Motors in advance of its dividend and as I look back over the experience wonder why I hadn’t done so more often. 

Its current price is below the mean price for the previous 6 holdings over the past 18 months and so this seems to be a good time to add shares to the ones that I already own.

The company has been incredibly resilient during that time, given some of its legal battles. That resilience has been both in share price and car sales and am improving economy should only help in both regards.

After a month of rolling over Seagate Technology (STX) short puts, they finally expired this past Friday. The underlying shares didn’t succumb to quite the same selling pressure as did the rest of the market.

As with Dow Chemical, I did give some thought to keeping the position alive even as I want to add to my cash position and the expiration of a short put contract would certainly help in that regard.

With the Seagate Technolgy cash back in hand after the expiration of those puts, I would like to do it over again, especially if Seagate shows any weakness to start the week. 

Those shares are still along way away from recovering the large loss from just 2 months ago, but they have traded well at the $34.50 range.

By my definition that means a stock that has periodic spasms of movement in both directions, but returns to some kind of a trading range in between. Unfortunately, sometimes those spasms can be larger than expected and can take longer than expected to recover.

As long as the put market has some liquidity and the options are too deeply in the money, rolling over the short puts to keep assignment at bay is a possibility and the option premiums can be very rewarding

Finally, it was a rough week for most all stocks, but the financials were hit especially hard as the interest rate on a 10 Year Treasury Note fell 6%.

That hard hit included Morgan Stanley (MS), which fell 9% on the week and MetLife (MET), which fared better, dropping by only 8%.

The decline on the former brought it back down to the lows it experienced after its most recent earnings report. At those levels I bought and was subsequently assigned out of shares on 4 occasions during a 5 week period.

In my world that’s considered to be as close to heaven as you can hope to get.

With the large moves seen in Morgan Stanley over the past 2 months it has been offering increasingly attractive option premiums and can reasonably be expected to begin to show some strength as an interest rate increase becomes reality.

MetLife, following the precipitous decline of this past week is now within easy striking distance of its 52 week low. However, shares do appear to have some reasonably good price support just $1 below Friday’s close and as with Morgan Stanley, the option premiums are indicating increased uncertainty that’s been created because of the recent strong moves lower.

In a raising rate environment those premiums can offset any near term bumpiness in the anticipated path higher, as these financial sector stocks tend to follow interest rates quite closely.

The only lesson to be learned is that sometimes it pays to not follow too closely if there’s a cliff awaiting you both.

Traditional Stocks: Dow Chemical, MetLife, Morgan Stanley

Momentum Stocks: Seagate Technology

Double-Dip Dividend: General Motors (12/16 $0.36)

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.

Weekend Update – November 1, 2015

The recently deceased Hall of Fame catcher, Yogi Berra, had many quotes attributed to him, some of which he admitted were uttered by him.

One of those allegedly genuine quotes had Yogi Berra giving directions to his home, ending with the words “when you get to the fork in the road, take it.”

People have likely written PhD dissertations on the many levels of meaning that could be contained in that expression in the belief that there was something more deep to it when it was originally uttered.

We’ll probably never know whether the original expression had an underlying depth to it or was simply an incomplete thought that took on a life of its own.

Nearly each month during the Janet Yellen reign as Chairman of the Federal Reserve we’ve been wondering what path the FOMC would take when faced with a potential decision.

Each month it seems that investors felt that they were being faced with a fork in the road and there was neither much in the way of data to decide which way to go, just as the FOMC was itself looking for the data that justifies taking action.

While that decision process hasn’t really taken on a life of its own, the various and inconsistent market responses to the decisions all resulting in a lack of action have taken on a life of their own.

Over much of Yellen’s tenure the market has rallied in the day or days leading up to the FOMC Statement release and I had been expecting the same this past week, until having seen that surge in the final days of the week prior.

Once that week ending surge took place it was hard to imagine that there would still be such unbridled enthusiasm prior to the release of the FOMC’s decision. It was just too much to believe that the market would risk even more on what could only be a roll of the dice.

Last week the market stood at the fork in the road on Monday and Tuesday and finally made a decision prior to the FOMC release, only to reverse that decision and then reverse it again.

I don’t think that’s what Yogi Berra had in mind.

With the FOMC’s non-decision now out of the way and in all likelihood no further decision until at least December, the market is now really standing at that fork in the road.

With retail earnings beginning the week after next we could begin seeing the first real clues of the long awaited increase in consumer spending that could be just the data that the FOMC has been craving to justify what it increasingly wants to do.

The real issue is what road will the market take if those retail earnings do show anything striking at all. Will the market take the “good news is bad news” road or the “good news is good news” path?

Trying to figure that out is probably about as fruitless as trying to understand what Yogi Berra really meant.

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

When it comes to stocks, I’m often at my happiest when I can go in and out of the same stocks on a serial basis.

While it may be more exciting to discover a new stock or two every week to trust with your money, when it comes to making a choice, I’d much rather take the boring path at the fork.

For those inclined to believe that Yogi Berra meant to tell his prospective guests that they shouldn’t worry when they got to the fork in the road, because both paths could lead to his home, I’m inclined to believe that the boring path will have fewer bumps in its road.

After 2 successive weeks of being in and out of Morgan Stanley (NYSE:MS) and Seagate Technology (NASDAQ:STX), I’m ready to do each or both again in the coming week.

Morgan Stanley, which was ex-dividend last week, has now recovered about half of what it lost when it reported earnings earlier in the month. Its decline this past Friday and hopefully a little more as the new week gets set to begin, would again make it an attractive stock to (“re”)-consider.

While volatility has been declining, Morgan Stanley’s premium still continues elevated, even though there’s little reason to believe that there will be any near term reason for downward price pressure. In fact, a somewhat hawkish FOMC statement might give reason to suspect that the financial sector’s prospects may be brighter in the coming quarter than they were in this quarter past.

Seagate Technology, which reported earnings last week is ex-dividend this week and I would like to take advantage of either the very generous dividend, the call option premium or both.

For the past 2 weeks I had sold puts, but was prepared to take assignment rather than rolling over the short put option position in the event of an adverse price movement.

That was due to the upcoming ex-dividend date and an unwillingness as a put seller to receive a lower premium than would ordinarily be the case if no dividend was in the equation. Just as call buyers often pay a greater premium than they should when a stock is going ex-dividend, put sellers frequently receive a lower premium when selling in advance of an ex-dividend date.

I would rather be on the long end of a pricing inefficiency.

But as Seagate Technology does go ex-dividend and while its volatility remains elevated there are a number of potential combinations, all of which could give satisfactory returns if Seagate spends another week trading in a defined range.

Based upon its Friday closing price a decision to sell a near the money $38 weekly contract, $37.50 or $37 contract can be made depending on the balance between return and certainty of assignment that one desires.

For me, the sweet spot is the $37.50 contract, which if assigned early could still offer a net 1.2% ROI for a 2 day holding period.

I would trade away the dividend for that kind of return. However, if the dividend is captured, there is still sufficient time left on a weekly contract for some recovery in price to either have the position assigned or perhaps have the option rolled over to add to the return.

MetLife (NYSE:MET) is ex-dividend this week and then reports earnings after the closing bell on that same day.

Like Morgan Stanley, it stands to benefit in the event that an interest rate increase comes sooner rather than later.

Since the decision to exercise early has to be made on the day prior to earnings being announced this may also be a situation in which a number of different strike prices may be considered for the sale of calls, depending on the certainty with which one wants to enter and exit the position, relative top what one considers an acceptable ROI for what could be as little as a 2 day position.

Since MetLife has moved about 5% higher in the past 2 weeks, I’d be much more interested in opening a position in advance of the ex-dividend date and subsequent earnings announcement if shares fell a bit more to open the week.

If you have a portfolio that’s heavy in energy positions, as I do, it’s hard to think about adding another energy position.

Even as I sit on a lot of British Petroleum (NYSE:BP) that is not hedged with calls written against those shares, I am considering adding more shares this week as British Petroleum will be ex-dividend.

Unlike Seagate Technology and perhaps even MetLife, the British Petroleum position is one that I would consider because I want to retain the dividend and would also hope to be in a position to participate in some upside potential in shares.

That latter hope is one that has been dashed many times over the past year if you’ve owned many energy positions, but there have certainly been times to add new positions over that same past year. If anything has been clear, though, is that the decision to add new energy positions shouldn’t have been with a buy and hold mentality as any gains have been regularly erased.

With much of its litigation and civil suit woes behind it, British Petroleum may once again be like any other energy company these days, except for the fact that it pays a 6.7% dividend.

If not too greedy over the selection of a strike price in the hopes of participating in any upside potential, it may be possible to accumulate some premiums and dividends, before someone in a position to change their mind, decides to do so regarding offering that 6.7% dividend.

Finally, if there’s any company that has reached a fork in the road, it’s Lexmark (NYSE:LXK).

A few years ago Lexmark re-invented itself, just as its one time parent, International Business Machines (NYSE:IBM), did some years earlier.

The days about being all about hardware are long gone for both, but now there’s reason to be circumspect about being all about services, as well, as Lexmark is considering strategic alternatives to its continued existence.

I have often liked owning shares of Lexmark following a sharp drop and in advance of its ex-dividend date. It won’t be ex-dividend until early in the December 2015 cycle and there may be some question as to whether it can afford to continue that dividend.

However, in this case, there may be some advantage to dropping or even eliminating the dividend. It’s not too likely that Lexmark’s remaining investor base is there for the dividend nor would flee if the dividend was sacrificed, but that move to hold on to its cash could make Lexmark more appealing to a potential suitor.

With an eye toward Lexmark being re-invented yet again, I may consider the purchase of shares following this week’s downgrade to a “Strong Sell” and looking at a December 2015 contract with an out of the money strike price and with a hope of getting out of the position before the time for re-invention has passed.

In Lexmark’s case, waiting too long may be an issue of sticking a fork in it to see if its finally done.

Traditional Stocks: Morgan Stanley

Momentum Stocks: Lexmark

Double-Dip Dividend: British Petroleum (11/4 $0.60), MetLife (11/4 $0.38), Seagate Technology (11/4 $0.63)

Premiums Enhanced by Earnings: MetLife (11/4 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.

Weekend Update – October 25, 2015

There’s an old traditional Irish song “Johnny, We Hardly Knew Ye,” that has had various interpretations over the years.

The same title was used for a book about President John F. Kennedy, but in that case, it was fairly clear that the title was referring to the short time in which we had a chance to get to know the 35th President of the United States, whose life was cut down in its prime.

But in either case, both song and book are generally a combination of sadness over hopes dashed, although the song somehow finds a way to reflect the expression of some positive human traits even in the face of betrayal and tragedy.

While hardly on the same level as the tragedies expressed by song and written word, I hold a certain sadness for the short lived period of volatility that was taken from us far too soon.

The pain is far greater when realizing just how long volatility had been away and just how short a chance some of us had to rejoice in its return.

Even though rising volatility usually means a falling market and increasing uncertainty over future market prospects, it drives option premiums higher.

I live on option premiums and don’t spend very much time focusing on day to day price movements of underlying shares, even while fully cognizant of them.

When those premiums go higher I’m a happy person, just as someone might be when receiving an unexpected bonus, like finding a $20 bill in the pockets of an old pair of pants.

Falling prices leads to volatility which then tends to bring out risk takers and usually brings out all sorts of hedging strategies. In classic supply and demand mode those buyers are met by sellers who are more than happy to feed into the uncertainty and speculative leanings of those looking to leverage their money.

Good times.

But when those premiums dry up, it’s like so many things in life and you realize that you didn’t fully appreciate the gift offered while it was there right in front of you.

I miss volatility already and it was taken away from us so insidiously beginning on that Friday morning when the bad news contained in the most recent Employment Situation Report was suddenly re-interpreted as being good news.

The final two days of the past week, however, have sealed volatility’s fate as a combination of bad economic news around the world and some surprising good earnings had the market interpreting bad news as good news and good news as good news, in a perfect example of having both your cake and the ability to eat that cake.

With volatility already weakened from a very impressive rebound that began on that fateful Friday morning, there then came a quick 1-2-3 punch to completely bring an end to volatility’s short, yet productive reign.

The first death blow came on Thursday when the ECB’s Mario Draghi suggested that European Quantitative easing had more time to run. While that should actually pose some competitive threat to US markets, our reaction to that kind of European news has always been a big embrace and it was no different this time around.

Then came the second punch striking a hard blow to volatility. It was the unexpectedly strong earnings from some highly significant companies that represent a wide swath of economic activity in the United States.

Microsoft (NASDAQ:MSFT) painted a healthy picture of spending in the technology sector. After all, what prolonged market rally these days can there be without a strong and vibrant technology sector leading the way, especially when its a resurgent “old tech” that’s doing the heavy lifting?

In addition, Alphabet (NASDAQ:GOOG) painted a healthy picture among advertisers, whose budgets very much reflect their business and perceived prospects for future business. Finally, Amazon (NASDAQ:AMZN) reflected that key ingredient in economic growth. That is the role of the consumer and those numbers were far better than expected.

As if that wasn’t enough, the real death blow came from the People’s Bank of China as it announced an interest rate cut in an effort to jump start an economy that was growing at only 7%.

Only 7%.

Undoubtedly, the FOMC, which meets next week is watching, but I don’t expect that watching will lead to any direct action.

Earlier this past week my expectation had been that the market would exhibit some exhilaration in the days leading up to the FOMC Statement release in the anticipation that rates would continue unchanged.

That expectation is a little tempered now following the strong 2 day run which saw a 2.8% rise in the S&P 500 and which now has that index just 2.9% below its all time high.

While I don’t expect the same unbridled enthusiasm next week, what may greet traders is a change in wording in the FOMC Statement that may have taken note of some of the optimism contained in the combined earnings experience of Microsoft, Alphabet and Amazon as they added about $80 billion in market capitalization on Friday.

If traders stay true to form, that kind of recognition of an economy that may be in the early stages of heating up may herald the kind of fear and loathing of rising interest rates that has irrationally sent markets lower.

In that case, hello volatility, my old friend.

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

As is typically the case when the market closes on some real strength for the week, it’s hard to want to part with cash on Monday when bargains may have disappeared.

Like volatility, those bargains are only appreciated when they’re gone. Even though you may have a strong sense that they’ll be back, the waiting is just so difficult sometimes and it’s so easy to go against your better judgment.

Although the market has gone higher in each of the past 4 weeks, the predominant character of those weeks had been weakness early on and strength to close the week. That’s made a nice environment for adding new positions on some relative weakness and having a better chance of seeing those positions get assigned or have their option contracts rolled and assigned in a subsequent week.

Any weakness to begin the coming week will be a signal to part with some of that cash, but I do expect to be a little tighter fisted than I have in the past month.

If you hold shares in EMC Corporation (NYSE:EMC), as I do, you have to wonder what’s going on, as a buyout offer from privately held Dell is far higher than EMC’s current price.

The drag seems to be coming from VMWare (NYSE:VMW), which still has EMC as its majority owner. The confusion had been related to the implied value of VMWare, with regard to its contribution to the package offered by Dell.

Many believed that the value of VMWare was being over-stated. Of course, that belief was even further solidified when VMWare reported earnings that stunned the options market by plunging to depths for which there were no weekly strikes. That’s what happens when Microsoft and Amazon, both with growing cloud based web storage services, start offering meaningful competition.

With VMWare’s decline, EMC shares followed.

EMC isn’t an inherently volatile stock, however, the recent spike higher upon news of a Dell offer and the sharp drop lower on VMWare’s woes have created an option premium that’s more attractive than usual. With EMC now back down to about $26, much of the Dell induced stock price premium has now evaporated, but the story may be far from over.

Ford Motors (NYSE:F) reports earnings on Tuesday morning and is ex-dividend the following day.

Those situations when earnings and dividends are in the same week can be difficult to assess, but despite Ford’s rapid ascent in the past month, I believe that it will continue to follow the same trajectory has General Motors (NYSE:GM).

There are a number of different approaches to this trade.

For those not interested in the risk associated with earnings, waiting until after earnings can still give an opportunity to capture the dividend. Of course, that trade would probably make more sense if Ford shares either decline or remain relatively flat after earnings. If so, the consideration can be given to seeking an in the money strike price as would ordinarily be done in an attempt to optimize premium while still trying to capture the dividend.

For those willing to take the earnings risk, rather than selling an in the money option in advance of the ex-dividend date, I would sell an out of the money option in hopes of capturing capital gains, the option premium and the dividend.

I sold Seagate Technolgy (NASDAQ:STX) puts last week and true to its nature, even when the sector isn’t in play, it tends to move up and down in quantum like bounces. However, with its competition on the prowl for acquisitions, Seagate Technolgy may have been a little more volatile than normal in an already volatile neighborhood.

I would again be interested in selling puts this week, but only if shares show any kind of weakness, following Friday’s strong move higher. If doing so and the faced with possible assignment, I would likely accept assignment, rather than rolling over the put option, in order to be in a position to collect the following week’s dividend.

I had waited a long time to again establish a Seagate Technology position and as long as it can stay in the $38-$42 range, I would like to continue looking for opportunities to either buy shares and sell calls or to sell put contracts once the ex-dividend date has passed.

So with the company reporting earnings at the end of this week and then going ex-dividend in the following week, I would like to capitalize on the position in each of those two weeks.

Following its strong rise on Friday, I would sell calls on any sign of weakness prior to earnings. With an implied price move of 6.6% there is not that much of a cushion of looking for a weekly 1% ROI, in that the strike price required for that return is only 7.4% below Friday’s closing price.

However, in the event of opening weakness that cushion is likely to increase. If selling puts and then being faced with assignment at the end of the week, I would accept that assignment and look for any opportunity to sell call contracts the following week and also collect the very generous dividend.

AbbVie (NYSE:ABBV) reports earnings this week and health care and pharmaceuticals are coming off of a bad week after having had a reasonably good year, up until 2 months ago.

AbbVie, though, had its own unique issues this year and for such a young company, having only been spun off 3 years, it has had more than its share of news related to its products, product pricing and corporate tax strategy.

This week, though, came news calling into question the safety of AbbVie’s Hepatitis C drug, after an FDA warning that highlighted an increased incidence of liver failure in those patients that already had very advanced liver disease before initiating therapy.

I had some shares of AbbVie assigned the previous week and was happy to have had that be the case, as I would have preferred not being around for earnings, which are to be released this week.

As it turns out, serendipity can be helpful, as no investor would have expected the FDA news nor its timing. However, with that news now digested and the knee jerk reaction now also digested, comes the realization that it was the very sickest people, those in advanced stages of cirrhosis were the ones most likely to require a transplant or succumbed to either their disease or its treatment.

With the large decline prior to earnings I’m again interested in the stock. Unlike most recent earnings related trades where I’ve wanted to wait until after earnings to decide whether to sell puts or not, this may be a situation in which it makes some sense to be more proactive, even with some price rebound having occurred to close the week.

The option market is implying only a 5.1% price move next week. Although a 1% ROI may be able to be obtained at a strike level just outside the bounds defined by the option market, I would be more inclined to purchase shares in advance of earnings and sell calls, perhaps using an extended option expiration date, taking advantage of some of its recent volatility and possibly using a higher strike price.

Ali Baba (NYSE:BABA) also reports earnings this week and like much of what is reported from China, Ali Baba may be as much of a mystery as anything else.

The initial excitement over its IPO has long been gone and its founder, Jack Ma, isn’t seen or heard quite as much as when its shares were trading at a significant premium to its IPO price.

Having just climbed 32% in the past month I’d be reluctant to establish any kind of position prior to the release of earnings, especially following a 6.6% climb to close out this week.

Even if a sharp decline occurs in the day prior to earnings, I would still not sell put options prior to the report, as the option market is currently implying only an 8.5% move at a time when it has been increasingly under-estimating the size of some earnings related price moves.

However, in the event of a significant price decline after earnings some consideration can be given to selling puts at that time.

Finally, Twitter (NYSE:TWTR) was my most frequent trade of 2014 and very happily so.

2015, however, has been a very different situation. I currently have a single lot of puts at a far higher price that I’ve rolled over to January 2016 in an attempt to avoid assignment of shares and to wait out any potential stock recovery.

That wait has been far longer than I had expected and January 2016 is even further off into the future than I ever would have envisioned.

With the announcement that Jack Dorsey was becoming the CEO, there’s been no shortage of activity that is seeking to give the appearance of some kind of coherent strategy to give investors some reason to be optimistic about what comes next.

What may come next is something out of so many new CEO playbooks. That is to dump all of the bad news into the first full quarter’s earnings report during their tenure and create the optics that enables them to look better by comparison at some future date.

With Twitter having had a long history of founders and insiders pointing fingers at one another, it would seem a natural for the upcoming earnings report to have a very negative tone. The difference, however, is that Dorsey may be creating some good will that may limit any downside ahead in the very near term.

The option market is implying a move of 12.1%. However, a 1% ROI could be potentially delivered through the sale of put contracts at a strike price that’s nearly 16% below Friday’s close.

That kind of cushion is one that is generally seen during periods of high volatility or with individual stocks that are extremely volatile.

For now, though, I think that Twitter’s volatility will be on hiatus for a while.

While I think that there may be bad news contained in the upcoming earnings release, I also believe that Jack Dorsey will have learned significantly from the most recent earnings experience when share price spiked only to plunge as management put forward horrible guidance.

I don’t expect the same kind of thoughtless presentation this time around and expect investor reception that will reflect newly rediscovered confidence in the team that is being put together and its strategic initiatives.

Ultimately, you can’t have volatility if the movement is always in one direction.

Traditional Stocks: EMC Corp

Momentum Stocks: none

Double-Dip Dividend: Ford (10/28)

Premiums Enhanced by Earnings: AbbVie (10/30 AM), Ali Baba (10/27 AM), Ford (10/27 AM), Seagate Technology (10/30 AM), Twitter (10/27 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.

Weekend Update – October 18, 2015

You have to be impressed with the way the market has rallied back from the morning of the most recent Employment Situation Report just 2 weeks earlier.

At the low point of that morning when the market seemed appropriately disappointed by the very disappointing numbers and the lowered revisions the S&P 500 had sunk to a point more than 11% below its recent high.

At its peak point of return since that low the S&P 500 was only 4.9% below its summer time high.

The difficulty in sustaining a large move in a short period of time is no different from the limitations we see in ourselves after expending a burst of energy and even those who are finally tuned to deliver high levels of performance.

When you think about a sprinter who’s asked to run a longer distance or bringing in a baseball relief pitcher who’s considered to be a “closer” with more than an inning to go, you see how difficult it can be to reach deep down when there’s nothing left to reach for.

Sometimes you feel as if there’s no choice and hope for the best.

You also can see just how long the recovery period can be after you’ve been asked to deliver more than you’ve been capable of delivering in the past. It seems that reaching deep down to do your best borrows heavily from the future.

While humans can often take a break and recharge a little markets are now world wide, inter-connected and plugged into a 24/7 news cycle.

While it may be boring when the market takes a rest by simply not moving anywhere, it can actually expend a lot of energy if it moves nowhere, but does so by virtue of large movements in off-setting directions.

We need a market that can now take a real rest and give up some of the histrionics, even though I like the volatility that it creates so that I can get larger premiums for the sale of options.

The seminal Jackson Browne song puts a different spin on the concept of “running on empty,” but the stock market doesn’t have the problems of a soulless wanderer, even though, as much as it’s subject to anthropomorphism, it has no soul of its own.

Nor does it have a body, but both body and soul can get tired. This market is just tired and sometimes there’s no real rest for the weary.

After having moved up so much in such a short period of time, it’s only natural to wonder just what’s left.

The market may have been digging deep down but its fuel cells were beginning to hit the empty mark.

This week was one that was very hard to read, as the financial sector began delivering its earnings and the best news that could come from those reports was that significantly decreased legal costs resulted in improved earnings, while core business activities were less than robust.

If that’s going to be the basis for an ongoing strategy, that’s not a very good strategy. Somehow, though, the market consistently reversed early disappointment and drove those financials reporting lackluster top and bottom lines higher and higher.

You can’t help but wonder what’s left to give.

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

American Express (NYSE:AXP) and Wal-Mart (NYSE:WMT) may be on very different ends of the scale, but they’ve both known some very bad days this year.

For American Express it came with the news that it was no longer going to be accepted as the sole credit card at Costco (NASDAQ:COST) stores around the nation. While that was bad enough, the really bad news came with the realization of just how many American Express card holders were actually holders of the Costco co-branded card.

There was a great Bloomberg article this week on some of the back story behind the American Express and Costco relationship and looks at their respective cultures and the article does raise questions about American Express’ ability to continue commanding a premium transaction payment from retailers, as well as continuing to keep their current Costco cardholders without the lure of Costco.

What American Express has been of late is a steady performer and the expectation should be that the impact of its loss of business in 2016 has already been discounted.

American Express reports earnings this week, but it’s option premiums aren’t really significantly enhanced by uncertainty.

Normally, I look to the sale of puts to potentially take advantage of earnings, but with American Express I might also consider the purchase of shares and the concomitant sale of calls and then strapping on for what could be a bumpy ride.

Wal-Mart, on the other hand only recently starting accepting American Express cards and that relationship was seen as a cheapening of the elite American Express brand, but we can all agree that money is money and that may trump everything else.

Apparently, however, investors didn’t seem to realize that Wal-Mart’s well known plan to increase employee salaries was actually going to cost money and they were really taken by surprise this week when they learned just how much.

What’s really shocking is that some very simple math could have spelled it out with some very reasonable accuracy since the number of workers eligible to receive the raise and the size of the raise have been known for months.

It reminds me of the shock expressed by Captain Renault in the movie “Casablanca” as he says “I’m shocked to find gambling is going on in here,” as he swoops up his winnings.

Following the decline and with a month still to go until earnings are reported, this new bit of uncertainty has enhanced the option premiums and a reasonable premium can possibly be found even when also trying to secure some capital gains from shares by using an out of the money strike price.

The Wal-Mart news hit retail hard, although to be fair, Target’s (NYSE:TGT) decline started as a plunge the prior day, when it fell 5% in the aftermath of an unusually large purchase of short term put options.

While I would look at Target as a short term trade, selling a weekly call option on shares, in the hope that there would be some recovery in the coming week, there may also be some longer term opportunities. That’s because Target goes ex-dividend and then reports earnings 2 days later during the final week of the November 2015 option cycle.

DuPont (NYSE:DD), Seagate (NASDAQ:STX) and YUM Brands (NYSE:YUM) don’t have very much in common, other than some really large share plunges lately, something they all share with American Express and Wal-Mart.

But that’s exactly the kind of market it has been. There have been lots of large plunges and very slow recoveries. It’s often been very difficult to reconcile an overall market that was hitting all time highs at the same time that so many stocks were in correction mode.

DuPont’s plunge came after defeating an activist in pursuit of Board seats, but the announcement of the upcoming resignation of its embattled CEO has put some life back into shares, even as they face the continuing marketplace challenges.

Dupont will report earnings the following week and will be ex-dividend sometime during the November 2015 option cycle.

While normally considering entering a new position with a short term option sale, I may consider the use of a monthly option in this case in an effort to get a premium reflecting its increased volatility and possibly also capturing its dividend, while hoping for some share appreciation, as well.

Seagate Technology is simply a mess at a time that hardware companies shouldn’t be and it may become attractive to others as its price plunges.

Storage, memory and chips have been an active neighborhood, but Seagate’s recent performance shows you the risks involved when you think that a stock has become value priced.

I thought that any number of times about Seagate Technology over the course of the past 6 months, but clearly what goes low, can go much lower.

Seagate reports earnings on October 30th, so my initial approach would likely be to consider the sale of weekly, out of the money puts and hope for the best. If in jeopardy of being assigned due to a price decline, I would consider rolling the contract over. The choice of time frame for that possible rollover will depend upon Seagate’s announcement of their next ex-dividend date, which should be sometime in early November 2015.

With that dividend in mind, a very generous one and seemingly safe, thoughts could turn to taking assignment of shares and then selling calls in an effort to keep the dividend.

Caterpillar (NYSE:CAT) hasn’t really taken the same kind of single day plunge of some of those other companies, but its slow decline is finally making Jim Chanos’ much publicized 2 year short position seem to be genius.

It’s share price connection to Chinese economic activity continues and lately that hasn’t been a good thing. Caterpillar is both ex-dividend this week and reports earnings. That’s generally not a condition that I like to consider, although there are a number of companies that do the same and when they are also attractively priced it may warrant some more attention.

In this case, Caterpillar is ex-dividend on October 22nd and reports earnings that same morning. That means that if someone were to attempt to exercise their option early in order to capture the dividend, they mist do so by October 21st.

Individual stocks have been brutalized for much of 2015 and they’ve been slow in recovering.

Among the more staid selections for consideration this week are Colgate-Palmolive (NYSE:CL) and Fastenal (NASDAQ:FAST), both of which are ex-dividend this week.

I’ve always liked Fastenal and have always considered it a company that quietly reflects United States economic activity, both commercial and personal. At a time when so much attention has been focused on currency exchange and weakness in China, you would have thought, or at least I would have thought, that it was a perfect time to pick up or add shares of a company that is essentially immune to both, perhaps benefiting from a strong US Dollar.

Well, if you weren’t wrong, I have been and am already sitting on an expensive lot of uncovered shares.

With only monthly option contracts and earnings already having been reported, I would select a slightly out of the money option strike or when the December 2015 contracts are released possibly consider the slightly longer term and at a higher strike price, in the belief that Fastenal has been resting long enough at its current level and is ready for another run.

Colgate-Palmolive is a company that I very infrequently own, but always consider doing so when its ex-dividend date looms.

I should probably own it on a regular basis just to show solidarity with its oral health care products, but that’s never crossed my mind.

Not too surprisingly, given its business and sector, even from peak to trough, Colgate-Palmolive has fared far better than many and will likely continue to do so in the event of market weakness. While it may not keep up with an advancing market, that’s something that I long ago reconciled myself to, when deciding to pursue a covered option strategy.

As a result of it being perceived as having less uncertainty it’s combined option premium and dividend, if captured, isn’t as exciting as for some others, but there’s also a certain personal premium to be paid for the lack of excitement.

The excitement may creep back in the following week as Colgate reports earnings and in the event that a weekly contract has to be rolled over I would considered rolling over to a date that would allow some time for price recovery in the event of an adverse price move.

Reporting earnings this week are Alphabet (NASDAQ:GOOG) and Under Armour (NYSE:UA).

Other than the controversy surrounding its high technology swim suits at the last summer Olympics, Under Armour hasn’t faced much in the way of bad news. Even then, it proved to have skin every bit as repellent as its swim suits.

The news of the resignation of its COO, who also happened to serve as CFO, sent shares lower ahead of earnings.

The departure of such an important person is always consequential, although perhaps somewhat less so when the founder and CEO is still an active and positive influence in the company, as is most definitely the case with under Armour.

However, the cynic sees the timing of such a departure before earnings are released, as foretelling something awry.

The option market is implying a price move of about 7.5%, while a 1% ROI may possibly be obtained through the sale of puts 9% below Friday’s closing price.

For me, the cynic wins out, however. Under Armour then becomes another situation that I would consider the sale of puts contracts after earnings if shares drop strongly after the report, or possible before earnings if there is a sharp decline in its advance.

I’m of the belief that Google’s new corporate name, “Alphabet” will be no different from so many other projects in beta that were quietly or not so quietly dropped.

There was a time that I very actively traded Google and sold calls on the positions.

That seems like an eternity ago, as Google has settled into a fairly stodgy kind of stock for much of the past few years. Even its reaction to earnings reports have become relatively muted, whereas they once were things to behold.

That is if you ignore its most recent earnings report which resulted in the largest market capitalization gain in a single day in the history of the world.

Now, Alphabet is sitting near its all time highs and has become a target in a way that it hasn’t faced before. While it has repeatedly faced down challenges to its supremacy in the world of search, the new challenge that it is facing comes from Cupertino and other places, as ad blockers may begin to show some impact on Alphabet’s bread and butter product, Google.

Here too, the reward offered for the risk of selling puts isn’t very great, as the option market is implying a 6% move. That $40 move in either direction could bring shares down to the $620 level, at which a barely acceptable 1% ROI for a weekly put sale may be achieved.

With no cushion between what the market is implying and where a 1% ROI can be had, I would continue to consider the sale of puts if a large decline precedes the report or occurs after the report, but I don’t think that I would otherwise proactively trade prior to earnings.

Finally, VMWare (NYSE:VMW) also reports earnings this week.

If you’re looking for another stock that has plunged in the past week or so, you don’t have to go much further than VMWare, unless your definition requires a drop of more than 15%.

While it has always been a volatile name, VMWare is now at the center of the disputed valuation of the proposed buyout of EMC Corp (NYSE:EMC), which itself has continued to be the major owner of VMWare.

I generally like stocks about to report earnings when they have already suffered a large loss and this one seems right.

The option market is implying about a 5.2% move next week, yet there’s no real enhancement of the put premium, in that a 1% ROI could be obtained, but only at the lower border of the implied move.

The structure of the current buyout proposal may be a factor in limiting the price move that option buyers and sellers are expecting and may be responsible for the anticipated sedate response to any news.

While that may be the case, I think that the downside may be under-stated, as has been the case for many stocks over the past few months, so the return is not enough to get me to take the risk. But, as also has been the case for the past few months, it may be worthy considering to pile on if VMWare disappoints further and shares continue their drop after earnings are released.

That should plump up the put premium as there might be concern regarding the buyout offer on the table, which is already suspect.

Traditional Stocks: American Express, DuPont, Target, Wal-Mart

Momentum Stocks: Seagate Technology, YUM Brands

Double-Dip Dividend: Caterpillar (10/22 $0.71), Colgate-Palmolive (10/21 $0.38), Fastenal (10/23 $0.28),

Premiums Enhanced by Earnings: Alphabet (10/22 PM), Under Armour (10/22 AM), VMWare (10/20 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.

Weekend Update – September 13, 2015

For those of a certain age, you may or may not recall that Marvin Gaye’s popular song “What’s Going On?” was fairly controversial and raised many questions about the behavior of American society both inside and outside of our borders during a time that great upheaval was underway.

The Groucho Marx character Rufus T. Firefly said “Why a four-year-old child could understand this report. Run out and find me a four-year-old child, I can’t make head or tail of it.”

While I could never answer that seminal question seeking an explanation for everything going on, I do know that the more outlandish Groucho’s film name, the funnier the film. However, that kind of knowledge has proven itself to be of little meaningful value, despite its incredibly high predictive value.

That may be the same situation when considering the market’s performance following the initiation of interest rate hikes. Despite knowing that the market eventually responds to that in a very positive manner by moving higher, traders haven’t been rushing to position themselves to take advantage of what’s widely expected to be an upcoming interest rate increase.

In hindsight it may be easy to understand some of the confusion experienced 40 years ago as the feeling that we were moving away from some of our ideals and fundamental guiding principles was becoming increasingly pervasive.

I don’t think Groucho’s pretense of understanding would have fooled anyone equally befuddled in that era and no 4 year old child, devoid of bias or subjectivity, could have really understood the nature of the societal transformation that was at hand.

Following the past week’s stealth rally it’s certainly no more clear as to what’s going on and while many are eager to explain what is going on, even a 4 year old knows that it’s best to not even make the attempt, lest you look, sound or read like a babbling idiot.

It’s becoming difficult to recall what our investing ideals and fundamentals used to be. Other than “buy low and sell high,” it’s not clear what we believe in anymore, nor who or what is really in charge of market momentum.

Just as Marvin Gaye’s song recognized change inside and outside of our borders, our own markets have increasingly been influenced by what’s going on outside of those borders.

If you have any idea of what is really going on outside of our borders, especially in China, you may be that 4 year old child that can explain it all to the rest of us.

The shock of the decline in Shanghai has certainly had an influence on us, but once the FOMC finally raises rates, which may come early as this week, we may all come to a very important realization.

That realization may be that what’s really going on is that the United States economy is the best in the world in relative terms and is continuing to improve in absolute terms.

That will be something to sing about.

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

With relatively little interest in wanting to dip too deeply into cash reserves, which themselves are stretched thinner than I would like, I’m more inclined to give some consideration to positions going ex-dividend in the very near future.

Recent past weeks have provided lots of those opportunities, but for me, this week isn’t as welcoming.

The two that have my attention, General Electric (NYSE:GE) and Las Vegas Sands (NYSE:LVS) couldn’t be more different, other than perhaps in the length of tenure of their Chairmen/CEOs.

I currently own shares in both companies and had shares of General Electric assigned this past week.

While most of the week’s attention directed toward General Electric is related to the European Union’s approval of its bid to buy Alstom SA (EPA:ALO), General Electric has rekindled my interest in its shares solely because of its decline along with the rest of the market.

While it has mirrored the performance of the S&P 500 since its high point in July, I would be happy to see it do nothing more than to continue to mirror that performance, as the combination of its dividend and recently volatility enhanced option premium makes it a better than usual candidate for reward relative to risk.

While I also don’t particularly like to repurchase recently assigned shares at a higher price, that most recent purchase may very well have been at an unrealistically low price relative to the potential to accumulate dividends, premiums and still see capital appreciation of shares.

Las Vegas Sands, on the other hand, is caught in all of the uncertainty surrounding China and the ability of Chinese citizens to part with their dwindling discretionary cash. With highly significant exposure to Macau, Las Vegas Sands has seen its share price bounce fairly violently over the past few months and has certainly reflected the fact that we have no real clue as to what’s going on in China.

As expected, along with that risk, especially in a market with its own increasing uncertainty is an attractive option premium. Since Las Vegas Sands ex-dividend date is on a Friday and it does offer expanded weekly options, there are a number of potential buy/write combinations that can seek to take advantage of the option premium, with or without also capturing the dividend.

The least risk adverse investor might consider the sale of a deep in the money weekly call option with the objective of simply generating an option premium in exchange for 4 days of stock ownership. At Friday’s closing prices that would have been buying shares at $46.88 and selling a weekly $45.50 call option for $1.82. With a $0.65 dividend, shares would very likely be assigned early if Thursday’s closing price was higher than $46.15.

If assigned early, that 4 day venture would yield a return of 0.9%.

However, if shares are not assigned early, the return is 2.3%, if shares are assigned at closing.

Alternatively, a $45.50 September 25, 2015 contract could be sold with the hope that shares are assigned early. In that case the return would be 1.3% for the 4 days of risk.

In keeping with Las Vegas Sand’s main product line, it’s a gamble, no matter which path you may elect to take, but even a 4 year old child knows that some risks are better than others.

Coca Cola (NYSE:KO) was ex-dividend this past week and it’s not sold in Whole Foods (NASDAQ:WFM), which is expected to go ex-dividend at the end of the month.

There’s nothing terribly exciting about an investment in Coca Cola, but if looking for some relative safety during a period of market turmoil, Coca Cola has been just that, paralleling the behavior of General Electric since that market top.

As also with General Electric, its dividend yield is more than 50% higher than for the S&P 500 and its option premium is also reflecting greater market volatility.

Following an 8% decline I would consider looking at longer term options to try and lock in the greater premium, as well as having an opportunity to wait out some chance for a price rebound.

Whole Foods, on the other hand, has just been an unmitigated disaster. As bad as the S&P 500 has performed in the past 2 months, you can triple that loss if looking to describe Whole Foods’ plight.

What makes their performance even more disappointing is that after two years of blaming winter weather and assuming the costs of significant national expansion, it had looked as if Whole Foods had turned the corner and was about to reap the benefits of that expansion.

What wasn’t anticipated was that it would have to start sharing the market that it created and having to sacrifice its rich margins in an industry characterized by razor thin margins.

However, I think that Whole Foods will now be in for another extended period of seeing its share price going nowhere fast. While that might be a reason to avoid the shares for most, that can be just the ideal situation for accumulating income as option premiums very often reflect the volatility that such companies show upon earnings, rather than the treading water they do in the interim.

That was precisely the kind of share price character describing eBay (NASDAQ:EBAY) for years. Even when stuck in a trading range the premiums still reflected its proclivity to surprise investors a few times each year. Unless purchasing shares at a near term top, adding them anywhere near or below the mid-point of the trading range was a very good way to enhance reward while minimizing risk specific to that stock.

While 2015 hasn’t been very kind to Seagate Technology (NASDAQ:STX), compared to so many others since mid-July, it has been a veritable super-star, having gained 3%, including its dividend.

Over the past week, however, Seagate lagged the market during a week when the performance of the technology sector was mixed.

Seagate is a stock that I like to consider for its ability to generate option related income through the sale of puts as it approaches a support level. Having just recovered from testing the $46.50 level, I would consider the sale of puts and would try to roll those over and over if necessary, until that point that shares are ready to go ex-dividend.

That won’t be for another 2 months, so in the event of an adverse price move there should be sufficient time for some chance of recovery and the ability to close out the position.

In the event that it does become necessary to keep rolling over the put premiums heading into earnings, I would select an expiration a week before the ex-dividend date, taking advantage of either an increased premium that will be available due to earnings or trading down to a lower strike price.

Then, if necessary, assignment can be taken before the ex-dividend date and consideration given to selling calls on the new long position.

Adobe (NASDAQ:ADBE) reports earnings this week and while it offers only monthly option contracts, with earnings coming during the final week of that monthly contract, there is a chance to consider the sale of put options that are effectively the equivalent of a weekly.

Adobe option contracts don’t offer the wide range of strike levels as do many other stocks, so there are some limitations if considering an earnings related trade. The option market is implying a move of approximately 6.7%.

However, a nearly 1% ROI may be achieved if shares fall less than 8.4% next week. Having just fallen that amount in the past 3 weeks I often like that kind of prelude to the sale of puts. More weakness in advance of earnings would be even better.

Finally, good times caught up with LuLuLemon Athletica (NASDAQ:LULU) as it reported earnings. Having gone virtually unchallenged in its price ascent that began near the end of 2014, it took a really large step in returning to those price levels.

While its earnings were in line with expectations, its guidance stretched those expectations for coming quarters thin. If LuLuLemon has learned anything over the past two years is that no one likes things to be stretched too thin.

The last time such a thing happened it took a long time for shares to recover and there was lots of internal turmoil, as well. While its founder is no longer there to discourage investors, the lack of near term growth may be an apt replacement for his poorly chosen words, thoughts and opinions.

However, one thing that LuLuLemon has been good for in the past, when faced with a quantum leap sharply declining stock price is serving as an income production vehicle through the sale of puts options.

I think that opportunity has returned as shares do tend to go through a period of some relative stability after such sharp declines. During those periods, however, the option premiums, befitting the decline and continued uncertainty remain fairly high.

Even though earnings are now behind LuLuLemon, the option market is still implying a price move of % next week. At the same time, the sale of a weekly put option % below Friday’s closing price could still yield a % ROI and offer opportunity to roll over the position in the event that assignment may become likely.

Traditional Stock: Coca Cola, Whole Foods

Momentum Stock: LuLuLemon Athletica, Seagate Technology

Double-Dip Dividend: General Electric (9/17 $0.23), Las Vegas Sands (9/18 $0.65)

Premiums Enhanced by Earnings: Adobe (9/17 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.