Week in Review – September 11, 2016

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

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

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

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

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

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

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

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

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

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

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

The answers are pre-programmed.

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

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

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

Boring, perhaps, but when is stability exciting?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Traditional Stocks: Wells Fargo

Momentum Stocks: Marathon Oil, Twitter

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

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 – December 6, 2015

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

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

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

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

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

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

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

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

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

Most of all, you could believe the information.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

My thinking hasn’t changed, though.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



Traditional Stocks:  Pfizer

Momentum Stocks: T-Mobile, Twitter

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

Premiums Enhanced by Earnings: None

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 – June 14, 2015

The investing community is either really old or thinks it’s really well versed in history.

The prospects of interest rates going higher must be evoking memories of the Jimmy Carter era when personal experiences may have been pretty painful if on the wrong side of a prime interest rate of 21.5%.

I’d be afraid, too, of reliving the prospects of having to take out a 20% loan on my Chevrolet Vega.

The interest rate isn’t what would bother me, though. That Vega still evokes nightmares.

If not old enough to have had those personal experiences, then investors must be great students of history and simply fear the era’s repeat.

Unfortunately, neither group seems to readily recall the experiences of the intervening years when hints of inflation appearing over the horizon were addressed by a responsive Federal Reserve and not the Federal Reserve presided over by the last Chairman to have come from a corporate background.

It’s unfortunate only because the stock market has been held hostage, despite having reached new highs recently, by fears of a return to a long bygone era, which was also characterized by a passive Federal Reserve Chairman who opposed raising interest rates as a fiscal tool and while inflation was rapidly growing, believed that it would self-correct. 

G. William Miller was certainly correct on that latter belief as rates did self-correct once reaching that 21.5% level, although they lasted longer than did most people’s Vegas, while Miller’s length of tenure as Chairman of the Federal Reserve did not.

Passivity and benign neglect weren’t the best ways to approach an economy then and probably not a very good way to do so now.

This past week seemingly provided more of the confirmatory data the FOMC has been waiting upon to make the long signaled move that has also been long feared. Following the previous week’s Employment Situation Report and this past week’s JOLTS report and Retail Sales report, every indication is now pointing to an economy that is heating up.

Not as much as the crankcase of my Vega that caused so many engine blocks to crack, but enough to get the FOMC to act in a way that the interest rate dovish Miller would not.

Still, the various bits of information coming in during the week caused major moves in both stock and bond markets, although the cumulative impact was negligible, even while the details were attention getting.

 

While Janet Yellen has been referred to as a “dove,” when compared to Miller, she is a ravenous hawk who only needs a clear signal of when to swoop. While the FOMC will meet this week it’s not too likely that there will be any policy changes announced, although sometimes it’s all about the wording used to describe the committee’s thoughts.

As recently as 2 weeks ago many were thinking that rate hikes might not come until 2016. However, now the prevailing chatter is that September 2015 is the target date for action.

However with the July 2015 meeting coming at the very end of the month and the opportunity to peruse another month’s worth of data what would be easier than making that decision then, particularly coming in-between June and September scheduled press conferences?

That would take most by surprise, but at least it gets this ordeal over.

Like so many things in life, the anticipation can be the real ordeal as the reality pales in comparison. Somehow, though, that’s not a lesson that’s readily learned.

Unless the upcoming earnings season will have some very nice upside surprises due to a continuing strengthening of the US Dollar that never arrived, there doesn’t appear to be any catalyst on the horizon to prompt the stock market to test its highs. That is unless we finally get a chance to remove the yoke of fear.

Real students of history will know that the fear of those interest rate hikes, especially in the early stages of an overtly improving economy, is unwarranted.

After a week of not opening a single new position I’d love to see some clarity that can only come from FOMC decisiveness. It may well be a long hot summer ahead, but it’s time to embrace the heating up of the economy for what it is and celebrate its arrival and put the ghost of G. William to rest.

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

While markets were gyrating wildly this past week and news regarding Greece, the IMF and ECB kept going back and forth, I found myself shaking my head as the biggest story of the week seemed to be the upcoming CEO change at Twitter (TWTR). 

Although I am short puts and have a real interest in seeing shares rise, I sat wondering why a company that was so small, employed so few people and contributed so little to the economy, could possibly receive so much attention for a really inconsequential story.

Beyond that, the company could go away tomorrow and its 300 million monthly active users wouldn’t be facing a gap very long others in Silicon Valley could step in to fill that gap in a heartbeat and do so without all of the dysfunction characterizing the company.

One thing that strikes me is that with the change the Board of Directors will continue to have 3 past CEOs. A friend of mine was once Chairman of an academic department that had 4 past Chairman still active on the faculty. He said it was absolutely intolerable and he couldn’t act without continuing second guessing and sniping.

Among the characteristics of some selections this week is strong and unequivocal leadership. Right or wrong, it helps to be decisive.

It also helps to offer a dividend, as that’s another recurring theme for me, of late.

General Electric (GE) has been led by the same individual for nearly 15 years. While it may not be helpful to his legacy to compare General Electric’s stock performance relative to the S&P 500 under his tenure to that of his predecessor, no one can accuse GE of standing still and being indecisive.

The one thing that I continually bemoan is that I haven’t owned shares of GE as often as I should have over the past few years. Despite it’s relative under-performance over the years, other than 2015 YTD, it has been a very reliable covered call position. Its fairly narrow trading range, reasonable premium and its safe and excellent dividend are a great combination if not looking for dizzying growth and the risk that attends such growth.

Shares are ex-dividend this week and that may be the motivator I need to consider committing some funds at a time when I’m not terribly excited about doing so.

Although Larry Ellison has stepped back from some of his responsibilities at Oracle (ORCL), there’s not too much doubt that he is in charge. Who other than such a powerful leader could convince two other powerful business leaders to be in a CEO sharing arrangement?

Oracle reports earnings this week and is expected to go ex-dividend during the July 2015 option cycle. The options market is predicting only a 3.9% price move over the course of the coming week. 

There isn’t an appealing premium available for selling puts outside of the price range predicted by the options market, but Oracle is a company that I wouldn’t mind owning, rather than simply taking advantage of it to generate earnings volatility induced premiums. It’ like GE, is a company that I haven’t owned frequently enough over the years, as it has also been a very good covered call position, even while frequently trailing the S&P 500 over recent years.

Cypress Semiconductor (CY) is another company with a strong leader, who also happens to be a visionary. It’s stock price surged upon news that it was going to acquire Integrated Silicon Solution (ISSI), but over the past week has been on somewhat of a rollercoaster ride as the buyout went from Cypress Semiconductor missing a self-designated deadline to obtain regulatory approval, to then arranging financing and culminating in ISSI announcing that it had accepted the Cypress offer.

Or so it seemed.

That rollercoaster ride is likely to continue next week as the coveted buyout target has just recommended accepting an offer from a Chinese private equity consortium just a day after announcing it had accepted Cypress’ offer.

A special meeting of ISSI stockholders has now been called for June 19, 2015. With a close eye on that meeting and its outcome, I would consider waiting until then to make a decision of Cypress Semiconductor shares, that will go ex-dividend the following week.

While it’s clear that the market valued the combination of the two companies, the disappointment may now be factored in, although perhaps not fully. Cypress Semiconductor is a company that I’ve long admired, particularly as it has acted as an technology incubator and have liked as a covered option trade, although at a lower price. 

American Express (AXP) has also been led by a strong CEO for nearly 15 years. Of late, he may have been subject to some criticism for the opacity related to the company’s relationship with Costco (COST), as their co-branding credit card agreement will be ending in 2016 and surprisingly represented a large share of American Express’ profits. However, for much of the earlier years American Express was a good investment vehicle and offered a differentiated and profitable product.

Since that announcement and once the surprise was digested, American Express has traded in a narrow range following a precipitous drop in shares that discounted the earnings hit that was still to be a year away.

That steadiness in share price with the overhang of uncertainty, has made shares another good covered call and they, too, will be ex-dividend during the July 2015 option cycle.

International Paper (IP) may stand as the exception to the previous stocks. It has a new CEO and won’t be offering a dividend until the August or September 2015 cycle.

In fact, its recently retired CEO was once on a CNNMoney list of the 5 most over-paid CEOs.

What it does have is a recent 10% decline in share price that has finally brought it back to the neighborhood in which I wouldn’t mind considering shares. Like GE and Oracle, in hindsight, I wish I had owned shares more frequently over the years, not because of its share out-performance, as that certainly figured into the poor value received from its past CEO, but rather from that steady combination of option premiums and dividends along with a reasonably steady share price. 

Finally, although the sector isn’t very large, there hasn’t been a shortage of activity going in within the small universe of telecommunications companies and cable and satellite providers, of late.  

Verizon (VZ) has been making its own news with a proposed buyout of AOL (AOL), which is a relatively small one when compared to the other deals being made or proposed.

While matching the performance of the S&P 500 YTD, it is lagging well behind in the past month, but in doing so, it is also becoming more attractive, as it returns to the $47 neighborhood. It also will be going ex-dividend in the July 2015 option cycle and always has a reasonable option premium relative to the manageable risk that it generally offers.

At a time when there is ongoing market certainty there is a certain amount of comfort that comes from dividends and that comfort makes decisions easier to make.

 

Traditional Stocks: American Express, Cypress Semiconductor, International Paper, Verizon

Momentum Stocks: none

Double-Dip Dividend: General Electric (6/18)

Premiums Enhanced by Earnings:  Oracle (6/17 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.

 

 

Weekend Update – May 3, 2015

For all the talk about how April was one of the best months of the year, that ship sailed on April 30th when the DJIA lost 192 points, to finish the month just 0.2% higher.

It will take complete Magellan-like circumnavigation to have that opportunity once again and who knows how much the world will have changed by then?

Higher Interest rates, a disintegrating EU, renewed political stalemate heading into a Presidential election, rising oil prices and expanding world conflict are just some of the destinations that may await, once having set sail.

Not quite the Western Caribbean venue I had signed up for.

With the market getting increasingly difficult to understand or predict, I’m not even certain that there will be an April in 2016, but I can’t figure out how to hedge against that possibility.

But then again, for all the talk about “Sell in May and go away,” the DJIA recovered all but 9 of those points to begin the new month. With only a single trading day in the month, if there are more gains ahead, that ship certainly hasn’t sailed yet, but getting on board may be a little more precarious when within just 0.4% of an all time closing high on the S&P 500.

The potential lesson is that for every ship that sails a new berth is created.

What really may have sailed is the coming of any consumer led expansion that was supposed to lead the economy into its next phase of growth. With the release of this month’s GDP figures, the disappointment continued as the expected dividend from lower energy prices hasn’t yet materialized, many months after optimistic projections.

How so many esteemed and knowledgeable experts could have been universally wrong, at least in the time frame, thus far, as fascinating. Government economists, private sector economists, CEOs of retail giants and talking heads near and far, all have gotten it wrong. The anticipated expansion of the economy that was going to lead to higher interest rates just hasn’t fulfilled the logical conclusions that were etched in stone.

Interestingly, just as it seems to be coming clear that there isn’t much reason for the FOMC to begin a rise in interest rates, the 10 Year Treasury Note’s interest rate climbed by 5%. It did so as the FOMC removed all reference from a ticking clock to determine when those hikes would begin, in favor of data alone.

I don’t know what those bond traders are thinking. Perhaps they are just getting well ahead of the curve, but as this earnings season has progressed there isn’t too much reason to see any near term impetus for anything other than risk. No one can see over the horizon, but if you’re sailing it helps to know what may be ahead.

What started out as an earnings season that was understanding of the currency related constraints facing companies and even gave a pass on pessimistic guidance, has turned into a brutally punishing market for companies that don’t have the free pass of currency.

All you have to do is look at the reactions to LinkedIn (NYSE:LNKD), Twitter (NYSE:TWTR) and Yelp (NYSE:YELP) this week, as they all reported earnings. Some of those would have gladly seen their stocks tumble by only 20% instead of the deep abyss that awaited.

Before anyone comes to the conclusion that the ship has sailed on those and similar names, I have 4 words for you: Green Mountain Coffee Roasters, now simply known as Keurig Green Mountain (NASDAQ:GMCR).

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

Coach (NYSE:COH) reported earnings last week and in 2015, up until that point, had quietly diverged from the S&P 500 in a positive way, if you had owned shares. As the luster of some of its competitors was beginning to fade and in the process of implementing a new global strategy, it appeared that Coach was ready to finally recover from a devastating earnings plunge a year ago.

It was at that time that everyone had firmly shifted their favor to competitor Michael Kors (NYSE:KORS) and had started writing Coach off, as another example of a company sailing off into oblivion as it grew out of touch with its consumers.

Who knew at that time that Kors itself would so quickly run out of steam? At least the COach ride had been a sustained one and was beginning to show some signs of renewed life.

I’ve owned shares of Coach many times over the years and have frequently purchased shares after earnings or sold puts before or after earnings, always in the expectation that any earnings plunge would be short lived. That used to be true, but not for that last decline and I am still suffering with a lot that I optimistically sold $50 August 2015 calls upon, the day before earnings were released.

Unlike many stocks that have suffered declines and that then prompts me to add more shares, I haven’t done so with Coach, but am ready to do so now as shares are back to where they started the year.

With a dividend payout that appears to be safe, an acceptable option premium and the prospects of shares re-testing its recently higher levels, this seems like an opportune time to again establish a position, although I might consider doing so through the sale of puts. If taking that route and faced with an assignment, I would attempt to rollover the puts until that time in early June 2015 when shares are expected to go ex-dividend, at which point I would prefer to be long shares.

As far as fashion and popularity go, Abercrombie and Fitch (NYSE:ANF) may have seen its ship sail and so far, any attempt to right the ship by changing leadership hasn’t played out, so clearly there’s more at play.

What has happened, though, is that shares are no longer on a downward only incline, threatening to fall off the edge. It’s already fallen off, on more than one occasion, but like Coach, this most recent recovery has been much slower than those in the past.

But it’s in that period of quiescence for a stock that has a history of volatility that a covered option strategy, especially short term oriented, may be best suited.

Just 2 weeks ago I created a covered call position on new shares and saw them assigned that same week. They were volatile within a very narrow range that week, just as they were last week. That volatility creates great option premiums, even when the net change in share price is small.

With earnings still 3 weeks away, as is the dividend, the Abercrombie and Fitch trade may also potentially be considered as a put sale, and as with Coach, might consider share ownership if faced with the prospect of assignment approaching that ex-dividend date.

T-Mobile (NYSE:TMUS), at least if you listen to its always opinionated CEO, John Legere, definitely has the wind blowing at its back. Some of that wind may be coming from Legere himself. There isn’t too much doubt that the bigger players in the cellphone industry are beginning to respond to some of T-Mobile’s innovations and will increasingly feel the squeeze on margins.

So far, though, that hasn’t been the case. as quarterly revenues for Verizon (NYSE:VZ) and AT&T (NYSE:T) are at or near all time highs, as are profits. T-Mobile, on the other hand, while seeing some growth in revenues on a much smaller denominator, isn’t consistently seeing profits.

The end game for T-Mobile can’t be predicated on an endless supply of wind, no matter how much John Legere talks or Tweets. The end game has to include being acquired by someone that has more wind in their pockets.

But in the meantime, there is still an appealing option premium and the chance of price appreciation while waiting for T-Mobile to find a place to dock.

Keurig Green Mountain was the topic of the second article I everpublished on Seeking Alpha 3 years ago this week. It seems only fitting to re-visit it as it gets to report earnings. Whenever it does, it causes me to remember the night that I appeared on Matt Miller’s one time show, Bloomberg Rewind, having earlier learned that Green Mountain shares plunged about 30% on earnings.

Given the heights at which the old Green Mountain Coffee Roasters once traded, you would have been justified in believing that on that November 2011 night, the ship had sailed on Green Mountain Coffee and it was going to be left in the heap of other momentum stocks that had run into potential accounting irregularities.

But Green Mountain had a second act and surpassed even those lofty highs, with a little help from a new CEO with great ties to a deep pocketed company that was in need of diversifying its own beverage portfolio.

Always an exciting earnings related trade, the options market is implying a 10.2% price move upon earnings. In a week that saw 20% moves in Yelp, LinkedIn and Twitter, 10% seems like child’s play.

My threshold objective of receiving a 1% ROI on the sale of a put option on a stock that is about to report earnings appears to be achievable even if shares fall by as much as 12.1%.

It will likely be a long time before anyone believes that the ship has sailed on Intel (NASDAQ:INTC), but there was no shortage of comments about how the wind had been taken out of Intel’s sales as it missed the mobile explosion.

As far as Intel’s performance goes, it looks as if that ship sailed at the end of 2014, but with recent rumors of a hook-up with Altera (NASDAQ:ALTR) and the upcoming expiration of a standstill agreement, Intel is again picking up some momentum, as the market initially seemed pleased at the prospects of the union, which now may go the hostile route.

In the meantime, with that agreement expiring in 4 weeks, Intel is ex-dividend this week. The anticipation of events to come may explain why the premium on the weekly options are relatively high during a week that shares go ex-dividend.

Finally, perhaps one of the best examples of a company whose ship had sailed and was left to sink as a withered company was Apple (NASDAQ:AAPL).

Funny how a single product can turn it all around.

it was an odd week for Apple , though. Despite a nearly $4 gain to close the week, it finished the week virtually unchanged from where it started, even though it reported earnings after Monday’s close.

While it’s always possible to put a negative spin on the various components of the Apple sales story, and that’s done quarter after quarter, they continue to amaze, as they beat analyst’s consensus for the 10th consecutive quarter. While others may moan about currency exchange, Apple is just too occupied with execution.

Still, despite beating expectations yet again, after a quick opening pop on Tuesday morning shares finished the week $4 below that peak level when the week came to its end.

None of that is odd, though, unless you’ve grown accustomed to Apple moving higher after earnings are released. What was really odd was that the news about Apple as the week progressed was mostly negative as it focused on its latest product, the Apple Watch.

Reports of a tepid reception to the product; jokes like “how do you recognize the nerd in the crowd;” reports of tattoos interfering with the full functioning of the product; criticizing the sales strategy; and complaints about how complicated the Apple Watch was to use, all seemed so un-Apple-like.

Shares are ex-dividend this week and in the very short history of Apple having paid a dividend, the shares are very likely to move higher during the immediate period following the dividend distribution.

With the announcement this past week of an additional $50 billion being allocated to stock buybacks over the next 23 months, the ship may not sail on Apple shares for quite some time.

Traditional Stocks: Coach

Momentum Stocks: Abercrombie and Fitch, T-Mobile

Double Dip Dividend: Intel (5/5), Apple (5/7)

Premiums Enhanced by Earnings: Keurig Green Mountain (5/6 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 26, 2015

 

The question of how much longer this market rally can keep going is the same question that’s been asked ever since the last time the market had a 10% loss.

Actually even that time, way back in April 2102, it wasn’t quite a 10% loss. For that, you would have to go back to 2011.

But that’s splitting hairs.

I wish I would have known Michael Batnick, also know as “The Irrelevant Investor” on Twitter, back in those days.

He had the answer to that burning question that is every bit as applicable today as it was every time the market hit a new high over the past few years.

With each of those highs and the gap between corrections growing and growing, it reminded me of the fallacy of believing that after 8 straight spins of the roulette wheel falling on “red” the next spin just had to yield “black.”

The belief that “this time it’s going to be different” is frequently held by those who don’t get shamed even after having been already fooled twice.

Had I known Michael Batnick in 2011, 2012, 2013 or even 2014, he would have told me that it’s hard to make a bear case on the basis of the duration of any move, because the duration is never knowable.

Since I was one of those certain that the ninth spin would just have to fall on black, I’ve also been one of those waiting for a correction since having recovered from the one in 2012. Not only waiting, but convinced that with each and every week we were a week closer to that inevitable decline.

At least that logic wasn’t totally flawed, as we did get a week closer to everything. But mostly, what we’ve gotten closer to has been the next rally higher.

What do you say about a week that ends with the S&P 500 being 1.7% higher and closing at a new all time high, while at the same time the NASDAQ 100 closes at a 15 year high? Granted those S&P 500 highs have come fairly often and fairly regularly, so they don’t really mean very much, but for those that thought that the NASDAQ could never see 5000 again, a good case can be made for never giving up hope.

That’s why I never give up hope that there’s a correction coming.

NASDAQ has given me the strength.

This past week was one almost totally devoid of economic news. Instead, it was one fully dominated by earnings, as it was the first of the two most busy weeks of earnings reports every quarter.

The earnings pattern that has become clear is that revenues are down, but profits are up, especially if you focus on the “earnings per share” part of the report. The lesson to that may be that if you can’t grow your revenues simply find a strategy to shrink your share numbers.

Hashtag “buybacks.”

As long as revenues are lower as a result of the currency exchange issues that everyone has been expecting, the market has been kind. Surprisingly, however, the market has also been kind when companies have taken their guidance lower.

Next week, while still highly focused on earnings, two events within hours of one another may disrupt or enhance the party currently under way and take some attention away from earnings.

Just a few hours before an FOMC Statement release will be a GDP Report. Expectations are that the GDP report will be disappointing, particularly in light of earlier expectations for a consumer led surge in GDP. While disappointing GDP growth could quiet fears of an interest rate increase among those that are still hung up on that eventuality, it could also give FOMC doves another month to hold court.

Is that good news or bad news?

The longer the FOMC doves continue to influence monetary policy the more doubt there can be regarding the strength of economic recovery.

That can’t be good news.

Since it seems as if even bad news has been taken as good news for such a long time, it would seem natural to believe that sooner or later we would be due for some bad news to be finally taken as bad news.

You would think that sooner or later I would learn.

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

Among those not faring well this earnings season was General Motors (NYSE:GM), predominantly on disappointing foreign news that went beyond currency exchange. Following a boost in share price following some quick activist intervention it has returned to a level that makes it more enticing to re-enter into a position.

Having spent only $400 million on its promised $5 billion in share buybacks through the first quarter, as part of its activist appeasement, there is at least something to keep share price artificially inflated as it also artificially inflates earnings per share.

What General Motors has offered amidst all of the uncertainty and bad news over the past year has been an attractive option premium and a good dividend that, thanks to the same activist, is now even better.

Ford Motor (NYSE:F) reports earnings this week and also goes ex-dividend.

I’m not terribly interested in taking earnings risk with Ford, but those earnings are reported the morning of the day before it goes ex-dividend. In the event of a downward move after earnings are released, I would be interested in buying shares if the move down strongly after earnings.

The options market is implying a move of only 3.5%. If it approaches or exceeds that to the downside, I might take that as an indication to buy shares, although I might consider using an extended weekly option, perhaps expiring May 8, 2015, rather than the weekly option that I would ordinarily use.

Also going ex-dividend this week and also having had a difficult time following its earnings release this week is Texas Instruments (NASDAQ:TXN).

In a market that suddenly seems to like “old tech,” what’s older than Texas Instruments? I can still remember buying the most rudimentary of calculators for about $150 more than 40 years ago and thinking that we had now seen everything.

What I didn’t think I would see was a nearly 8% decline on earnings last week. That leaves it still well above its yearly high, but may represent a good re-starting point, particularly as the dividend is at hand, as well. While semi-conductors may have had a hard go of things lately, if looking for a global correction in order to get a better entry point, you may be better served by settling for a more focused correction.

While I don’t like buying shares when they are near their yearly highs, Kinder Morgan (NYSE:KMI) may be an exception, particularly as it is ex-dividend this week.

In the world of energy related companies that have been under significant stress, Kinder Morgan has ironically been a breath of fresh air as it stores and transports combustible fuels for a nation that gets even more energy hungry as prices are dropping.

Cypress Semiconductor (NASDAQ:CY) is a company that I always like owning. Mostly it has been due to the admiration that I have for its CEO, TJ Rodgers, as long as he sticks to his CEO and incubator patron roles.

Occasionally he veers into other areas and then I have to remind myself that what I really admire is the ability to make money by investing in Cypress Semiconductor and that’s far more important than admiration or personal politics.

With its acquisition of Spansion being hailed by investors shares surged to a point that was well outside my comfort zone, but following a 20% decline in the past month, it is now at the upper level of that zone.

Cypress Semiconductor is often very volatile at earnings and this time will likely be no different. While I usually want to consider the sale of puts prior to earnings, in this case I would probably consider the purchase of shares, especially if they continue to move downward in the early part of the week and then consider a sale of June 2015 option contracts, rather than the May 2015 variety, thereby providing additional time for shares to recover if shares drop drastically.

Finally, I’ve been waiting for a chance to enter into a Twitter (NYSE:TWTR) position one way or another. In 2014 I had positions on 10 different occasionsand spent most of that time trying to avoid being assigned shares after having sold put contracts.

In hindsight, I don’t mind the very high maintenance that those positions required, however, the perception of Twitter has changed, as it seems to actually have a plan to monetize itself. More importantly it has the means and the people to execute on their strategies that continue to evolve.

Following a period of withering criticism of its leadership, the unequivocal show of support for its CEO, Dick Costolo by the Board as well as some Twitter founders, seemed to stem the tide of calls for his resignation.

That and earnings.

Following a large move higher after its last earnings report and then slowly migrating higher over the subsequent 3 months, the options market is implying an 11% move next week.

However, a 1% ROI may be possible if selling a weekly put contract even if shares fall by as much as 13.6%. If selling puts and faced with an adverse move beyond the range implied by the options market, my past experience with Twitter has shown that the options market is liquid enough to have a good chance of being able to roll over those puts if trying to avoid assignment and wait out the price cycle until it starts to show signs of recovery.

Alternatively, it has also offered a chance to assume ownership of shares and then generate income by selling calls, that always have premiums reflecting the underlying risk and volatility of the shares.

Traditional Stocks: General Motors

Momentum Stocks: none

Double Dip Dividend: Ford Motor (4/29), Kinder Morgan (4/28), Texas Instruments (4/28)

Premiums Enhanced by Earnings: Cypress Semiconductor (4/30 AM), Twitter (4/28 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 26, 2015

 

The question of how much longer this market rally can keep going is the same question that’s been asked ever since the last time the market had a 10% loss.

Actually even that time, way back in April 2102, it wasn’t quite a 10% loss. For that, you would have to go back to 2011.

But that’s splitting hairs.

I wish I would have known Michael Batnick, also know as “The Irrelevant Investor” on Twitter, back in those days.

He had the answer to that burning question that is every bit as applicable today as it was every time the market hit a new high over the past few years.

With each of those highs and the gap between corrections growing and growing, it reminded me of the fallacy of believing that after 8 straight spins of the roulette wheel falling on “red” the next spin just had to yield “black.”

The belief that “this time it’s going to be different” is frequently held by those who don’t get shamed even after having been already fooled twice.

Had I known Michael Batnick in 2011, 2012, 2013 or even 2014, he would have told me that it’s hard to make a bear case on the basis of the duration of any move, because the duration is never knowable.

Since I was one of those certain that the ninth spin would just have to fall on black, I’ve also been one of those waiting for a correction since having recovered from the one in 2012. Not only waiting, but convinced that with each and every week we were a week closer to that inevitable decline.

At least that logic wasn’t totally flawed, as we did get a week closer to everything. But mostly, what we’ve gotten closer to has been the next rally higher.

What do you say about a week that ends with the S&P 500 being 1.7% higher and closing at a new all time high, while at the same time the NASDAQ 100 closes at a 15 year high? Granted those S&P 500 highs have come fairly often and fairly regularly, so they don’t really mean very much, but for those that thought that the NASDAQ could never see 5000 again, a good case can be made for never giving up hope.

That’s why I never give up hope that there’s a correction coming.

NASDAQ has given me the strength.

This past week was one almost totally devoid of economic news. Instead, it was one fully dominated by earnings, as it was the first of the two most busy weeks of earnings reports every quarter.

The earnings pattern that has become clear is that revenues are down, but profits are up, especially if you focus on the “earnings per share” part of the report. The lesson to that may be that if you can’t grow your revenues simply find a strategy to shrink your share numbers.

Hashtag “buybacks.”

As long as revenues are lower as a result of the currency exchange issues that everyone has been expecting, the market has been kind. Surprisingly, however, the market has also been kind when companies have taken their guidance lower.

Next week, while still highly focused on earnings, two events within hours of one another may disrupt or enhance the party currently under way and take some attention away from earnings.

Just a few hours before an FOMC Statement release will be a GDP Report. Expectations are that the GDP report will be disappointing, particularly in light of earlier expectations for a consumer led surge in GDP. While disappointing GDP growth could quiet fears of an interest rate increase among those that are still hung up on that eventuality, it could also give FOMC doves another month to hold court.

Is that good news or bad news?

The longer the FOMC doves continue to influence monetary policy the more doubt there can be regarding the strength of economic recovery.

That can’t be good news.

Since it seems as if even bad news has been taken as good news for such a long time, it would seem natural to believe that sooner or later we would be due for some bad news to be finally taken as bad news.

You would think that sooner or later I would learn.

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

Among those not faring well this earnings season was General Motors (NYSE:GM), predominantly on disappointing foreign news that went beyond currency exchange. Following a boost in share price following some quick activist intervention it has returned to a level that makes it more enticing to re-enter into a position.

Having spent only $400 million on its promised $5 billion in share buybacks through the first quarter, as part of its activist appeasement, there is at least something to keep share price artificially inflated as it also artificially inflates earnings per share.

What General Motors has offered amidst all of the uncertainty and bad news over the past year has been an attractive option premium and a good dividend that, thanks to the same activist, is now even better.

Ford Motor (NYSE:F) reports earnings this week and also goes ex-dividend.

I’m not terribly interested in taking earnings risk with Ford, but those earnings are reported the morning of the day before it goes ex-dividend. In the event of a downward move after earnings are released, I would be interested in buying shares if the move down strongly after earnings.

The options market is implying a move of only 3.5%. If it approaches or exceeds that to the downside, I might take that as an indication to buy shares, although I might consider using an extended weekly option, perhaps expiring May 8, 2015, rather than the weekly option that I would ordinarily use.

Also going ex-dividend this week and also having had a difficult time following its earnings release this week is Texas Instruments (NASDAQ:TXN).

In a market that suddenly seems to like “old tech,” what’s older than Texas Instruments? I can still remember buying the most rudimentary of calculators for about $150 more than 40 years ago and thinking that we had now seen everything.

What I didn’t think I would see was a nearly 8% decline on earnings last week. That leaves it still well above its yearly high, but may represent a good re-starting point, particularly as the dividend is at hand, as well. While semi-conductors may have had a hard go of things lately, if looking for a global correction in order to get a better entry point, you may be better served by settling for a more focused correction.

While I don’t like buying shares when they are near their yearly highs, Kinder Morgan (NYSE:KMI) may be an exception, particularly as it is ex-dividend this week.

In the world of energy related companies that have been under significant stress, Kinder Morgan has ironically been a breath of fresh air as it stores and transports combustible fuels for a nation that gets even more energy hungry as prices are dropping.

Cypress Semiconductor (NASDAQ:CY) is a company that I always like owning. Mostly it has been due to the admiration that I have for its CEO, TJ Rodgers, as long as he sticks to his CEO and incubator patron roles.

Occasionally he veers into other areas and then I have to remind myself that what I really admire is the ability to make money by investing in Cypress Semiconductor and that’s far more important than admiration or personal politics.

With its acquisition of Spansion being hailed by investors shares surged to a point that was well outside my comfort zone, but following a 20% decline in the past month, it is now at the upper level of that zone.

Cypress Semiconductor is often very volatile at earnings and this time will likely be no different. While I usually want to consider the sale of puts prior to earnings, in this case I would probably consider the purchase of shares, especially if they continue to move downward in the early part of the week and then consider a sale of June 2015 option contracts, rather than the May 2015 variety, thereby providing additional time for shares to recover if shares drop drastically.

Finally, I’ve been waiting for a chance to enter into a Twitter (NYSE:TWTR) position one way or another. In 2014 I had positions on 10 different occasionsand spent most of that time trying to avoid being assigned shares after having sold put contracts.

In hindsight, I don’t mind the very high maintenance that those positions required, however, the perception of Twitter has changed, as it seems to actually have a plan to monetize itself. More importantly it has the means and the people to execute on their strategies that continue to evolve.

Following a period of withering criticism of its leadership, the unequivocal show of support for its CEO, Dick Costolo by the Board as well as some Twitter founders, seemed to stem the tide of calls for his resignation.

That and earnings.

Following a large move higher after its last earnings report and then slowly migrating higher over the subsequent 3 months, the options market is implying an 11% move next week.

However, a 1% ROI may be possible if selling a weekly put contract even if shares fall by as much as 13.6%. If selling puts and faced with an adverse move beyond the range implied by the options market, my past experience with Twitter has shown that the options market is liquid enough to have a good chance of being able to roll over those puts if trying to avoid assignment and wait out the price cycle until it starts to show signs of recovery.

Alternatively, it has also offered a chance to assume ownership of shares and then generate income by selling calls, that always have premiums reflecting the underlying risk and volatility of the shares.

Traditional Stocks: General Motors

Momentum Stocks: none

Double Dip Dividend: Ford Motor (4/29), Kinder Morgan (4/28), Texas Instruments (4/28)

Premiums Enhanced by Earnings: Cypress Semiconductor (4/30 AM), Twitter (4/28 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 – February 15, 2015

You would think that when the market sets record closing highs on the S&P 500 that there would be lots of fireworks after the fact and maybe lots of excited anticipation before the fact.

But that really hasn’t been the case since 2007.

The “whoop whoop” sounds you may have heard coming from the floor of the NYSE had nothing to do with pitched fervor, but rather with traditional noise making at 3:33 PM on the Friday before a 3 day holiday.

The whooping noise was also in sharp contrast to the relative calm of the past week and it may have been that calm, or maybe the absence of anxiety, that allowed the market to add another 2% and set those record highs.

After a while you do get tired of always living on the edge and behaving in a hyper-caffeinated way in response to even the most benign of events.

Even back in 2007 as we were closing in on what we now realize was the high point for that year, there were so many records being set, seemingly day in and out, that it began to feel more like an entitlement rather than something special.

You whoop about something special. You don’t whoop about entitlements. There was no whooping on Friday at 4 PM. instead, it was a calm, matter of fact reaction to something we had never seen before. New highs are met with yawns and new heights aren’t as dizzying as they used to be, especially if you don’t look down.

When your senses get dulled it’s sometimes hard to see what’s going on around you, but there’s a difference between maintaining a sense of calm and having your senses dulled to the dangers of collateralized debt obligations or other evils of the era.

This calmness was good.

As opposed to those who refer to pullbacks from highs as being healthy, this calm character of this climb to a new high was what health is really all about. I feel good when my portfolio outperforms the market during a down week, but the end result is still a loss. When I really feel great is when out-performing during an up week.

Both may feel good, but only one is good in absolute terms. From my perspective, the only healthy market is one that is moving higher, but not doing so recklessly.

This week, was a continuation of a month that has characterized by calm events and an appropriate measure of acceptance of those events while moving to greater heights in a methodical way

While it may be good to not see some kind of unbridled buying fervor break out when records are reached, it does make you wonder why the same self control can’t be put on when things momentarily appear dire, as there have certainly been plenty of near vertical declines in the past few months that just a little calmness of mind could have avoided.

Coming from the most recent decline that ended in January 2015, the move higher has presented a circuitous path toward Friday’s new high close.

Instead of the straight line higher or the “V-shaped” recoveries that so many refer to, and that have characterized upward reversals in the past few months, this most recent reversal has been a stagger stepped one.

Rather than coming as a burst of unbridled excitement, the market has been taking the time to enjoy and digest the ride higher.

The climb was odd though when you consider that oil prices had been moving strongly higher, retail sales were disappointing, interest rates were climbing and currency troubles were plaguing US company profits. All these were happening as gold, long a proxy for the investor anxiety was gyrating with large moves.

But perhaps it was a sense of serenity and calm from overseas that offset those worrying events. Greece and the European Union appeared to be closer to an agreement on debt concerns and another Ukraine peace accord seemed likely.

The stock market simply decided that nothing could possibly happen to derail either of those potential agreements.

So there’s calmness, dulled senses and burying your head in the sand.

This week the calmness may have been secondary to some denial, but given the result, I’m all for denial, as long as it can keep reality away just a little longer.

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

What surprises me most, particularly considering a portfolio that doesn’t often hold very many DJIA positions, is that this week there are 5 DJIA members that may have reason for garnering attention.

It has been a bit more than two years since I last owned American Express (NYSE:AXP). Up until 2015, if you had looked at its performance in the time since I last owned it and happened to have also been in a vacuum at the time, it looked as if it had a pretty impressive ride.

That impression would have been upset if the vacuum was disrupted and you began to compare its performance to the S&P 500 and especially if comparing it to its rivals.

That ride got considerably more bumpy this past week as it will be losing a major co-branding partner, Costco (NASDAQ:COST) in 2016. While the possibility of that partnership coming to an end had been well known, the market’s reaction suggests that either it was ignored or calmness doesn’t reside when mediocre rewards programs are threatened with extinction.

But a 10% plunge seems drastic. The co-branding effort allowed American Express to dip its toes into the credit card business and deal with normal folks who don’t always pay their credit card charges in full, but do pay interest charges. Given the Costco shopper demographic that seemed like a nice middle ground for risk and reward that will be difficult to replace. However, American Express shares are now on sale, having reached 16 month lows and the excitement injects some life into its option premiums.

Intel (NASDAQ:INTC) recovered some of its losses since my last purchase, but not enough to make it within easy striking distance of an assignment.

While it was a great performer in 2014 it has badly trailed the S&P 500 in 2015. While it may be subject to currency crosswinds, nothing fundamental has changed in its story to warrant its most recent decline, particularly as “old tech” has had its respect restored.

While its option premium is not overly exciting enough to consider using out of the money options, there is enough reason to believe that there is some additional potential for price recovery left in its shares to consider not covering all new shares.

Coca Cola (NYSE:KO) continues to be derided and maybe for good reason as it needs something to both change its image of being out of touch with contemporary tastes and some diversification of its product lines.

The former isn’t likely to happen overnight, nor is any revenue related calamity expected to strike with suddeness, at least not before its next dividend, which is expected in the next few weeks. In the meantime, as with Intel, there may be some reason to believe that some price recovery may be part of the equation when deciding to sell calls on the position.

In the cases of DJIA components Johnson and Johnson (NYSE:JNJ) and General Electric (NYSE:GE) their upcoming ex-dividend dates this week add to their interest.

Johnson and Johnson, when reporting earnings last month was one of the first to remind us of the darkness associated with a strong US dollar and its shares are still lower, having trailed the S&P 500 by nearly 8% since earnings release on January 20th. Most of that decline, however, has come since the market began its turnaround once February started.

Uncharacteristically, Johnson and Johnson’s option premium has become attractive, even in a week that has a significant dividend event. As with its fellow DJIA members, Intel and Coca Cola, I would consider some possibility of trying to also capitalize on share appreciation to complement the option premium and the dividend.

General Electric is the least appealing of the DJIA components considered this week as its option premium is fairly small as it goes ex-dividend. However, General Electric is a stock that I repeatedly can’t understand why I haven’t owned with much greater regularity.

It has traded in a fairly predictable range, has offered an excellent and growing dividend and reasonable option premiums for an extended period of time. That’s a great combination when considering a covered option strategy.

Add Kellogg (NYSE:K) to the list of companies bemoaning the impact of a strong dollar on their earnings and future prospects for profits. Down nearly 5% on its earnings and a more impressive 9.6% in the past 3 weeks it also has to deal with falling cereal sales, which likely played a role in analyst downgrades this week. While currencies continually fluctuate and at some point will shift to Kellogg’s benefit, those sagging sales adjusted for currency effect, is a cause for concern, but not right away.

As with American Express that price decline brings shares to a more reasonable price point, well below where I last owned shares less 2 months ago. With an upcoming dividend in the March 2015 option cycle and only offering monthly options, I would consider selling March options bypassing what remains of the February contract in anticipation of some price recovery.

Facebook (NASDAQ:FB) has been uncharacteristically quiet since it reported earnings last month, as investor attention has shifted to Twitter (NYSE:TWTR).

Its share price has been virtually unchanged over the past 3 months but its option premiums have remained very attractive and continue to be so, even as it may have recently fallen off investor’s radar screens despite having avoided mis-steps that characterize so many young companies with great growth.

While I generally consider the sale of puts in advance of earnings and frequently would prefer not to take assignment of shares, Facebook is an exception to that preference. While I would consider entering a position through the sale of puts if shares move adversely the market for its options is liquid enough to likely allow put rollovers, or if taking assignment create an easy path for selling calls on the position.

Finally, I don’t really begin to make believe that I understand the dynamics of oil prices, nor understand the impact of prices on the various industries that either get their revenue by being some part of the process from ground to tank or that see a large part of their costs related to energy pricing. I certainly don’t understand “crack spreads” and find myself more likely to giggle than to ask an informed question or add an insight when the topic arises.

United Continental Holdings (NYSE:UAL) is one of those that certainly has a large portion of its costs tied up in fuel prices. While hedging of fuel can certainly be a factor in generating profits, it can also be a tool to generate losses, as they have learned.

With about $1 billion in hedging related losses expected in 2015 United shares are down nearly 10% since having reported earnings. That’s only fair as its price trajectory higher over the previous months was closely aligned with the perception that falling jet fuel prices would be a boon for airlines, without real regard to the individual liabilities held in futures contracts.

As with energy companies over the past few months the great uncertainty created by rapidly moving prices created greatly enhanced option premiums. With oil prices having significant gains this week but still a chorus of those calling for $30 oil, it’s anyone’s guess where the next stop may be. However, any period of stability or only mildly higher fuel prices may still accrue benefit to those airlines that had been hedged at far higher levels, such as United.

While we think about an “energy sector,” there’s no doubt that its comprised of a broad range of companies that fit in somewhere along that continuum from discovery to delivery. It’s probably reasonable to believe that not all portions of the sector experience the same level of response to price changes of crude oil.

Western Refining (NYSE:WNR) is ex-dividend this week and reports earnings the following week. It’s in a portion of the energy sector that doesn’t suffer the same as those in the business of drilling when crude oil prices are plunging, as evidenced by the refiner’s performance relative to the S&P 500 in 2015.

If previous earnings reports from many others in the sector are to act as a guide, although there have been some exceptions, any disappointing earnings are already anticipated and Western Refining’s report will be well received.

For that reason, I might consider, as with Kellogg, bypassing the February 2015 option contract and considering a sale of the March 2015 contract, which also provides nearly a month for share price to recover in the event of a move lower upon earnings.

Traditional Stocks: American Express, Coca Cola, Intel, Kellogg

Momentum Stocks: Facebook, United Continental Holdings

Double Dip Dividend: General Electric (2/19), Johnson and Johnson (2/20), Western Refining (2/18)

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 7, 2014

Trying to listen to the President put forth some statistics regarding the employment situation in the United States this past week was difficult, as my attention was captured by the festive holiday backdrop.

Holding a prominent position next to our nation’s flag was what appeared to be a symbol that perhaps reflected official endorsement of Bacchanalian celebrations, together with the more traditionally accepted holiday decorations. Enlarging the photo did nothing to re-direct my imagination.

The President’s exploring the good news contained in the Employment Situation Report and trumpeting the trend in employment statistics may have been his muted version of a Bacchanalian victory lap, of sorts.

Focusing on that background item for as long as I did in wonderment caused me to lose sight of what should probably be recognized, as Friday’s Employment Situation Report indicated the addition of more than 300,000 new jobs in the past month, as well as a substantial upward revision to the previous month.

I guess that I wasn’t alone in losing focus about what’s been going on in the economy, as later that day during one of their now ubiquitous polls, CNBC viewers were asked whether President Obama was good for the stock market.

I suppose the answer may depend on the criteria one uses to define “good.” as well as whether one believes that things would have been better without him or his economic policies, or whether their time frame is forward or backward looking. read more

Weekend Update – November 23, 2014

About a month ago we got a much needed gift from Federal Reserve Governor James Bullard, who at the depths of a nearly 10% market decline gave some reason to believe that the Federal Reserve may not have been done with its tapering policy.

Since then, he’s back-peddled just a bit, appropriately, in light of the fact that tapering has now come to its planned end.

The market, however, never looked back and took full advantage of that market propelling gift.

Subsequently, a few weeks ago we got another little gift, this time from far away, as the Bank of Japan announced its own version of Quantitative Easing just in time to battle a 20 year period of economic stagnation.

Since then there haven’t been too many others coming to our shores bearing market moving gifts, as for now, it appears as if our own Federal Reserve won’t be acting as a primary catalyst for the stock market’s expansion. Once you get a taste for gifts it can be hard to go on without them continuing to stream in on a regular basis.

What Bullard and the Bank of Japan offered was probably what was in mind when the concept of “a little help from my friends” found its way to a sheet of music.

But what has anyone done for us lately?

This week was one of an almost comatose nature where not even an FOMC Statement release could jar the market. Having already matched a 45 year record of 5 consecutive days without a greater than 0.1% move, it seemed as if we were poised for some kind of an over the top reaction, but none was to be found.

That is, until our friends from China and the European Union decided to show their friendship and gave indications that central bank money was not a problem and would be there to support lagging economies, although the trickle down benefit of supporting equity markets seems like a welcome idea on this side of a couple of oceans.

The Bank of China’s announcement of a reduction in interest rates came as quite a surprise and at some point will get cynics wondering what is really going on in China that might require that kind of a boost from the central bank.

But that’s next week’s problem.

For today, that was a wonderful gift from the country that invented the term “capitalist roader,” perhaps as a sign of affection for what the United States represented. Amazingly, the manipulation of interest rates has seemingly replaced re-education as a means of effecting change.

While economic data from China has long been suspect, what should really be suspect is when Mario Draghi, President of the European Central Bank starts making comments about the lengths to which the ECB will go in order to achieve its mandate.

He has had a great record of hyperbole and has had an equally great ability for being able to move markets on the basis of what was consistently interpreted as a pledge to introduce a form of Quantitative Easing.

He has also been great at not following through with the unbridled support that he has consistently offered.

Was he being serious this time around? After a number of false starts and promises Draghi should have given some overt sign that this time was going to be different. I know that I can trust a man dressed for casual Friday more than I do one in a beautifully tailored Armani suit, so that could have been a good place to begin demonstrating how this time will be different.

For the U.S. stock market, it probably doesn’t really matter, as long as we can keep coming up with gifts from our other friends on a very regular basis. If not the EU, perhaps Russia will be next to grease our market climb through its central banking policies.

After that it gets a little fuzzy, but that’s a problem for 2015.

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

The most recent earnings season has had mixed news for retailers. The upper end continues to do well and there are signs of life in the middle range as well, however specialty retailers continue to struggle.

The Gap (NYSE:GPS) is one of those struggling as it awaits its new CEO after having released earnings this past week. However, in the past 2 years the Gap has been very much of a yo-yo, as it alternates regularly between disappointing sales news and optimistic forecasts. It does so monthly, so those ups and downs come more often than for many other retailers that have abandoned the practice of reporting monthly same store sales.

After this most recent decline, having just recently recovered from the loss encountered upon the announcement of the departure of its current CEO, along with some weak monthly sales reports, it looks as if is ready for yet another cycle of ups and downs. Because of its continuing to offer monthly reports, the Gap offers enhanced option premiums on a monthly basis, as well, in addition to respectable premiums the remainder of the time.

Companies that are part of the DJIA don’t usually offering a very compelling reason to try and capture an upcoming dividend along with the concurrent sale of a call option. Most often the option is appropriately priced and there is very little opportunity to try to exploit some inefficiency in that pricing, particularly when using an in the money strike.

This week, however, there may be some opportunity in both Coca-Cola (NYSE:KO) and McDonald’s (NYSE:MCD), which appropriately enough, tend to already go together.

While McDonald’s is recovering a bit from a recent share drop after some news of activist involvement in the company, it may finally make the run for the $100 level and stay there for more than just a couple of months. It’s dividend is attractive and as long as there is continuing activist interest its option premiums may continue to also be attractive, even in weeks when the dividend is offered.

Coca-Cola, on the other hand, is trading just slightly below its one year high, which isn’t generally a place that I like to enter a position. That however, can be said for many stocks as the market continually makes its own new highs.

With Warren Buffett lending his support, it’s not terribly easy for any activist activity to try and move this behemoth, which along with McDonald’s may be on the wrong side of food trends. Still those businesses are not going to unravel from one minute to the next. With a short term time frame in mind, Coca-Cola, even at these levels may offer a respectable award for the risk, particularly with the dividend in mind this week.

While Baker Hughes (NYSE:BHI) doesn’t go ex-dividend this week, it has quite a bit in common with Lorillard (NYSE:LO), which does.

Both are subjects of takeover bids and both are trading substantially lower than the current value of those bids, which are both comprised of cash and stock offers. It’s a little difficult to fully understand the relatively large gaps between their closing prices and the offer values, although regulatory and anti-trust obstacles may be playing roles.

Reportedly the Reynolds American (NYSE:RAI) bid for Lorillard is progressing and is expected to be completed sometime in the first half of 2015. Meanwhile, Halliburton (NYSE:HAL) has essentially said “tell us what assets to sell and we’ll do it” to the Department of Justice. Unfortunately, as a current Halliburton shareholder, it also has a large anti-trust termination fee as part of the proposed deal.

As a result of the activity and uncertainty revolving around the proposed buy-out the option premiums in Baker Hughes are higher than they have been in many years, reflecting also some of the risk that a deal will not be completed. However, as with the businesses at Coca-Cola and McDonald’s, that doesn’t appear to be likely in the very near time frame, as there will likely be considerable time before the Department of Justice gets involved in a meaningful and overt fashion.

Lorillard, on the other hand, has not had any enhancements of its option premiums as a result of the planned buy-out by Reynolds American. That would indicate a degree of certainty that the deal will be completed, yet there is still a considerable gap between its current price and the value implied in the offer.

My shares of Lorillard were assigned this week, despite about three days attempting to roll the shares over in order to secure the very generous dividend, which is expected to continue after the takeover. The inability to rollover the shares is further reflection of the frustrations created by the extremely low volatility and larger than normal spreads between bid and ask prices, as option volume continues to be very light.

With still about a $5 gap between those prices, Lorillard has upside potential, but also carries the risk of unexpected regulatory action. If purchasing shares of Lorillard to capture the dividend and I likely try to use near or in the money options, in an attempt to serially collect small weekly premiums, while waiting for something definitive.

Lexmark (NYSE:LXK) also goes ex-dividend this week. The last time I purchased shares was on November 25, 2013, so it seems like it may be a good way to celebrate that anniversary. Perhaps not to coincidentally, the last purchase was also dividend related.

Lexmark, once the printer division for International Business Machines (NYSE:IBM), took a page out of IBM’s strategy and completely re-invented itself. In a realization that printers were nothing more than a commodity, it has become a service and solutions oriented provider and its stock price hasn’t regretted that decision.

It does trade with some volatility, though, and it offers a good option premium in reflection of that opportunity. While earnings are still two months away, it frequently has large earnings related moves that can be managed through the use of monthly option contracts, sometimes one cycle beyond the earnings date.

If looking for volatility, you may not need to look any further than Market Vectors Gold Miners ETF (NYSEARCA:GDX). While gold has been on an essentially uni-directional downward path for much of the past 6 months and it has been difficult to find any credible proponents of its ownership, it appears as if there may be a battle brewing for where it is headed next. That battle creates significantly improved option premiums, which had been in the doldrums for much of the past 6 months.

As with the underlying metal, the miners can have significant volatility and risk and should be considered for use only as part of the speculative portion of a portfolio and in proportion to the risk it may entail.

As with some fortunate companies in the bio-technology group, sometimes speculative ventures lead to tangible products. That is certainly the case for Gilead Sciences (NASDAQ:GILD).

After a brief uproar about the yearly cost of treatment with its extremely effective Hepatitis C drug, Sovaldi, it has rebounded with ease. Congressional hearings that sought to get some spotlight for protecting the public’s interests resulted in a sharp and quick decline, but the reality has been that the costs of treatment pale in comparison to the costs of traditional treatment. Subsequently, Gilead keeps refining the protocols and adding to the profit margins, while achieving better patient outcomes for an incredibly prevalent chronic disease.

As expected, because of the continuing concerns about price and the manner in which Gilead’s price increase has been so closely associated with its Hepatitis C efforts, it is at risk for being overly reliant on a single drug or class of drugs., However, as with many suggested trades, the outlook tends to be very short term and hopefully avoids some of the risks associated with longer term cycles of ownership.

GameStop (NYSE:GME) did what it so often does after earnings. It made a large move, this time sharply lower this past Friday. With each earnings cycle and frequently in-between, questions arise regarding the business model and how GameStop can continue to survive in the current environment. That question has been asked for about a decade and GameStop has been one of the most heavily shorted stocks throughout that time.

GameStop tends to do well in the final month of the year, although it may simply be carried along for the ride, as the broad market tends to perform well at that time. Following its sharp decline, a reasonable way to consider participation would be through the sale of out of the money puts. If taking that route, this is a stock that I wouldn’t be adverse to owning if faced with possible assignment, although there is usually sufficient activity and volume to be able to roll over those puts in an attempt to avoid assignment and wait out a bounce higher in shares, while continuing to collect premiums.

Finally, this is yet another week in which to consider the sale of Twitter (NYSE:TWTR) put contracts. While it wasn’t really in the news very much this week, other than announcing some less than spectacular enhancements to its messaging options, it has been developing some support in the $39 area and offers an excellent premium in recognition of the risk involved.

The risk is the unwanted assignment and then ownership of its shares. However, what makes Twitter an appealing put option sale trade is that in the event of the prospects of assignment, it may be relatively easy to rollover to a forward week and collect additional premium without taking ownership of shares.

At a time when for many stocks the bid and ask spreads are widening and volume is shrinking, Twitter isn’t really suffering those fates, which makes the possibility of avoiding assignment higher.

For the past 3 weeks I have been rolling over Twitter puts even when not facing assignment, occasionally adjusting the strike prices in an effort to achieve an additional 1% weekly ROI on the position. Doing so may be tempting fate, but in Twitter’s brief history as a publicly traded company it has shown the ability to both come well off its highs as well as to bounce well beyond its lows. All that’s necessary is the ability to put elation or frustration into suspended animation and play the numbers, without regard to the rumors and dysfunction that may be swirling.

Traditional Stocks: The Gap

Momentum: Baker Hughes, GameStop, Gilead, Market Vectors Gold Miners ETF, Twitter

Double Dip Dividend: Coca-Cola (11/26), Lexmark (11/26), Lorillard (11/26), McDonald’s (11/26)

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 16, 2014

The past week was one of the quietest ones that could have been imagined.

The biggest stories of the week were the broken scaffolding that left two window washers dangling on the edge of the new “One World Trade Center” and the successful landing of Rosetta on a faraway comet after a 10 year mission.

With the exception of a late in the week rumor of a buyout of one oilfield services company by another, there really was nothing to propel markets as it was an extraordinarily quiet week on the economic news front, only slightly punctuated by a relatively obscure statistic that suddenly may be an important one in the coming months.

Years ago the single most important economic report came on a weekly basis. If anyone remembers all the way back to the 1980s you may recall how everyone waited for Thursdays and the release of the “M2 Money Supply” statistic.

If you do remember that you may also remember the inflation in the 1980s and can understand why M2 was watched so closely. Inflation was “Enemy #1” and the M2 Supply was linked to that evil. At one time M2 was used by the Federal Reserve to steer the economy in attempting to avoid a renewed bout of inflation.

You don’t hear much talk about M2 anymore as it was replaced by a more direct reliance on interest rates, especially the “Fed Funds Rate.” We still care about interest rates, but sometimes a little too much. Right now we seem overly concerned about when the Federal Reserve will begin to finally increase interest rates forgetting how that which helps to bring about inflation is exactly what we’ve been pining for a sign of the economy finally getting some footing.

This week we finally heard about something that wasn’t really new but got lots of comments and focus. Just a few months ago Federal Reserve Chairman Janet Yellen suggested that we should start paying more attention to the “quit rate” that was included in the “Job Openings and Labor Turnover Summary” also known as the “JOLT” Summary.

That acronym may be very unintentionally appropriate, as sometimes a jolt is exactly what’s needed to get things back into gear.

While many fight over whether the monthly Employment Situation Report should be looked at through the lens of the “U-6” measure of employment, Yellen is suggesting that the decision of people to quit their jobs in the belief that they can now land another, presumably better paying job, is telling of an economy that is heading in the right path and that will introduce some wage inflation.

That’s the kind of jolt this economy has needed. Not just more jobs, but better paying jobs that allow consumers to begin consuming again. Instead of fearing inflation, there should be some realization that a degree of inflation is exactly what this economy has needed for a long time.

One of my sons will likely be included in the next “JOLT” Summary, as he quit a job in which he was more of a low priced commodity and started on a new and much better paying job. He also bought a new car that week.

See how it works? It’s all about the discretionary spending. That’s what really fuels everything, as part of a virtuous cycle of jobs and consumerism.

Given the mixed results reported by some major retailers this week there definitely needs to be some enhancements to the top line and the only thing that can bring that about is an energized consumer jolted back to life.

For anyone that has been either on the receiving end or delivery end of paddles that are meant to jolt you back to life you know just how important that kick start is, but you also know that too much of a good thing brings its own problems.

Having been witness to the late 1970s and early 1980s there is certainly a degree of hesitance when inflation enters into the equation, but somewhere there may be a person in a position to steer the economy who understands that the extremes of the continuum aren’t the only possible outcomes.

Janet Yellen gives all indications of being the person who can jolt and withdraw jolt as signs of economic life warrant.

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

Another company bound to benefit from any improvement in employment, especially the kind that results in increased ability to engage in discretionary spending is Fastenal (FAST). This is a company that I’ve come to look at as a reflection of the real economy and while it has traded in a very narrow range it has been an excellent covered call trade.

It simply sells those things that are measures of economic development and expansion to both other business, middlemen and do it yourself kind of people. What they sell reflects a wide and varied kind of activity. They sometimes have q habit of providing revised guidance a few weeks before earnings and those occasional surprises help to create a reasonable option premium in advance of earnings, in addition to the enhancement that may come with earnings.

Dow Chemical (DOW) had a few false starts this week, jumping significantly higher and then giving back much of the gains on successive days. Those moves came before and after the announcements of additional share buybacks and an increased dividend. Shares closed up nicely on Friday continuing the hesitant optimism of earlier in the week, after having fallen from its highs of the day, only to rally back in an otherwise mediocre tape.

Add into the mix the presence of an activist investor and a long tenured CEO that is as tough as he can be charming and you have the makings of a company that will continue seeing pressures from both sides in support of shares, even though that may be a by-product of a more personal kind of battle. However, as a shareholder, you don’t necessarily care how you get to your objective, as long as you get there. Having some entertainment accompany the journey can just be an added bonus.

Joy Global (JOY) is another of these companies that trades with quite a bit volatility and is highly levered to activity in China, as well as to the veracity of reports from China. None of those are particularly endearing qualities, but Joy Global has been a company that routinely bounces back from disappointment over prospects of slowdowns in Chinese construction and infrastructure activity. It will report earnings in just a few weeks and will also be ex-dividend prior to that, so there are some events that have to be considered if entering into a new position, particularly if hoping for a quick exit.

While the majority of the systemically important companies have already reported earnings, there are quite a few of the more highly volatile companies reporting earnings this week. Among those that have caught my attention for this week are Best Buy (BBY), GameStop (GME), Green Mountain Keurig (GMCR) and salesforce.com (CRM).

Rather than considering any of them on the basis of their fundamental businesses, strengths or challenges awaiting them, I see them as potential opportunities based only on their recent price behaviors.

One thing that they all have in common is that they’ve all had recent runs higher in price. Another thing that they have in common, befitting the level of risk associated with their upcoming earnings is very high option premiums.

In order to achieve a 1% ROI on the sale of put contracts Best Buy, GameStop, Green Mountain Keurig and salesforce.com could still fall by approximately 9.2%, 21.3%, 10.5%, and 7%, respectively without assignments of puts sold. Meanwhile, their respective implied volatilities are 7.5%, 12%, 8.8% and 6.2%.

However, another thing that they share in common, at least from my perspective is that due to their recent runs higher, they may be prone to even harder falls than those implied moves might indicate. For that reason, I’m more inclined to consider the sale of puts after earnings for any of those companies that may in fact fall hard upon their releases, especially for salesforce.com, which offers the least amount of cushion between the implied move and the strike at which the ROI objective is attained.

On the other hand, GameStop offers the greatest cushion, so may be one to consider the sale of put options prior to earnings. As always, the sale of puts may require some additional attention, especially if hoping to avoid assignment if share price goes below the strike level selected.

Finally, it may be yet another week to think about Twitter (TWTR). Whether using the service or not, there’s no denying that it is a company whose stock is in search of direction, very much as many believe its company is in need of direction.

While no one has been criticizing the company on the basis of its earnings there is certainly lots of confusion about what Twitter plans to be and how it will get there, especially if it can’t decide on how to measure its activities and relate those to revenues.

This past week put the Twitter story into focus. Shares soared at its first analysts day meeting, up about 10% until Standard and Poor’s delivered an unsolicited credit report on the company, placing it at a “junk” level designation.

Granted, that S&P, by virtue of having performed an unsolicited analysis didn’t have access to the same company records as it ordinarily does when assessing a company’s credit worthiness, but the market immediately reversed course and sent shares sharply lower.

As was the case last week, I already had sold Twitter puts. I rolled those over on Thursday as Twitter was falling sharply and mat sell even more puts this week, particularly if there is some opening weakness to begin the week.

For anyone following this trade, it is one that may see lots of ups and downs and may require more maintenance, particularly in deciding whether to roil over puts to a forward week or take assignment in the event of adverse movement, but it can be a serially satisfying trade. Friday’s bounce again higher, perhaps after the realization that the S&P rating may have been based on incomplete information, may simply be one of many bounces ahead.

Traditional Stocks: Dow Chemical, Fastenal

Momentum: Joy Global, Twitter

Double Dip Dividend: none

Premiums Enhanced by Earnings: Best Buy (11/20 AM), GameStop (11/20 AM), Green Mountain Keurig (11/19 PM), salesforce.com (11/19 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 – November 9, 2014

Pity the poor hedge fund manager.

For the second consecutive year hedge fund managers are, by and large, reportedly falling far short of their objectives and in jeopardy of not generating their performance fees. 

We all know that those mortgages aren’t going to pay themselves, so their choices are clear.

You can close up shop, disown the shortfalls and try to start anew; you can keep at business as usual and have your under-performance weigh you down in the coming year; or you can roll the dice.

In 2013 it may have been easy to excuse lagging the S&P 500 when that index was nearly 30% higher while you were engaging in active management and costly complex hedging strategies. This year, however, as the market is struggling to break a 10% gain, it’s not quite as easy to get a bye on a performance letdown.

The good news, however, is that the 2014 hurdle is not terribly far out of reach. Despite setting new high after new high, thus far the gains haven’t been stupendous and may still be attainable for those hoping to see daylight in 2015.

The question becomes what will desperate people do, especially if using other people’s money knowing that half of all hedge funds have closed in the past 5 years. Further more funds were closed in 2013 and fewer opened in 2014 than at any point since 2010. It has been a fallow pursuit of alpha as passivity has shown itself fecund. Yet, assets under management continue to grow in the active pursuit of that alpha. That alone has to be a powerful motivator for those in the hedge fund business as that 2% management fee can be substantial.

So I think desperation sets in and that may also be what, at least in part, explained the November through December outperformance last year as the dice were rolled. Granted that over the past 60 years those two months have been the relative stars, that hasn’t necessarily been the case in the past 15 years as hedge funds have become a part of the landscape.

Where it has been the case has been in those years that the market has had exceptionally higher returns which usually means that hedge funds were more likely to lag behind and in need of catching up and prone to rolling the dice.

While the hedging strategies are varied, very complex and use numerous instruments, rolling the dice may explain what appears to be a drying up in volume in some option trading. As that desperation displaces the caution inherent in the sale of options motivated buyers are looking at intransigent sellers demanding inordinately high premiums. With the clock ticking away toward the end of the year and reckoning time approaching, the smaller more certain gains or enhancements to return from hedging positions may be giving way to trying to swing for the fences.

The result is an environment in which there appears to be decreased selling activity, which is especially important for those that have already sold option contracts and may be interested in buying them back to close or rollover their positions. In practice, the environment is now one of low bids by buyers, reflecting low volatility but high asking prices by sellers, often resulting in a chasm that can’t be closed.

Over the past few weeks I’ve seen the chasm on may stocks closed only in the final minutes of the week’s trading when it’s painfully obvious that a strike price won’t be reached. Only then, and again, a sign of desperation, do ask prices drop in the hopes of making a sale to exact a penny or two to enhance returns.

So those hedge fund managers may be more likely to be disingenuous in their hedging efforts as they seek to bridge their own chasms over the next few weeks and they could be the root behind a flourish to end the year.

Other than a continuing difficulty in executing persona trades, I hope they do catch up and help to propel the market even higher, but I’m not certain what may await around the corner as January is set to begin.

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

I already own shares of Cypress Semiconductor (CY) and am continually amazed at the gyrations its price sees without really going very far. In return for watching the shares of this provider of ubiquitous components go up and down, you can get an attractive option premium that reflects the volatility, but doesn’t really reflect the reality. In addition, if holding shares long enough, there is a nice dividend to be had, as well. Selling only monthly call options, I may consider the use of a December 2014 option and may even consider going to the $11 strike, rather than the safer $10, borrowing a page from the distressed hedge fund managers.

I had my shares of Intel (INTC) assigned early this week in order to capture the dividend. I briefly had thoughts of rolling over the position in order to maintain the dividend, but in hindsight, having seen the subsequent price decline, I’m happy to start anew with shares.

Like the desperate hedge fund managers, I may be inclined to emphasize capital gains on this position, rather than seeking to make most of the profit from option sales, particularly as the dividend is now out of the equation.

I may be in the same position of suffering early assignment on existing shares of International Paper (IP) as it goes ex-dividend this week. With a spike in price after earnings and having a contract that expires at the end of the monthly cycle, I had tried to close the well in the money position, but have been faced with the paucity of reasonable ask prices in the pursuit of buying back options. However, even at its current price, International Paper may be poised to go even higher as it pursues a strategy of spin-offs and delivery of value to its investors.

With decent option premiums, an attractive dividend and the chance of further price appreciation, it remains a stock that I would like to have in my portfolio.

Mosaic (MOS) is a stock that I have had as an inactive component of my portfolio after having traded it quite frequently earlier in the year at levels higher than its current price and last year as well, both below and above the current price. It appears that it may have established some support and despite a bounce from that lower level, I believe it may offer some capital appreciation opportunities, as with Intel. As opposed to Intel, however, the dividend is still in the equation, as shares will go ex-dividend on December 2, 2014. With the availability of expanded weekly options there are a mix of strategies to be used if opening this position.

It seems as if there’s barely a week that I don’t consider adding shares of eBay (EBAY). At some point, likely when the PayPal division is spun off, the attention that I pay to eBay may wane, but for now, it still offers opportunity by virtue of its regular spikes and drops while really going nowhere. That typically creates good option premium opportunities, especially at the near the money strikes.

I currently own shares of Sinclair Broadcasting (SBGI) a company that has quietly become the largest owner of local television stations in the United States. It is now trading at about the mid-point of its lows and where it had found a comfortable home, prior to its price surge after the Supreme Court’s decision that this past week finally resulted in Aereo shutting down its Boston offices and laying off employees, as revenue has stopped.

Sinclair Broadcasting will be ex-dividend early in the December 2014 option cycle and offers a very attractive option. It reported higher gross margins and profits last week, as short interest increased in its shares the prior week. I think that the price drop in the past week is an opportunity to initiate a position or add to shares.

Mattel (MAT) is a company that I haven’t owned in years, but am now attracted back to it, in part for its upcoming dividend, its option premium and some opportunity for share appreciation as it has lagged the S&P 500 since its earnings report last month.

However, while holiday shopping season is approaching and thoughts of increased discretionary consumer spending may create images of share appreciation, Mattel has generally traded in a very narrow range in the final 2 months of the year, which may be just the equation for generating some reasonable returns if factoring in the premiums and dividend.

Twitter (TWTR) continues to fascinate me as a stock, as a medium and as a source of so many slings and arrows thrown at its management.

Twitter has always been a fairly dysfunctional place and with somewhat of a revolving door at its highest levels before and after the IPO. While it briefly gained some applause for luring Anthony Noto to become its CFO, the spotlight heat has definitely turned up on its CEO, Dick Costolo.

Last week I sold Twitter puts in the aftermath of its sharp decline upon earnings release. While the puts expired, I did roll some over to a lower strike price as the premium was indicating continued belief in the downside momentum.

This week I’m considering adding to the position, and selling more puts, especially after the latest round of criticisms being launched at Costolo. At some point, something will give and restore confidence. It may come from the Board of Directors, it  may come from Costolo himself or it may even come from activists who see lots of value in a company that could really benefit from the perception of professional management.

I’m not certain how many times I’ve ended a weekly column with a discussion of Abercrombie and Fitch (ANF), but it’s not a coincidence that it frequently warrants a closing word.

Abercrombie and Fitch has been one of my most rewarding and frustrating recurrent trades over the years. At the moment, it’s on the frustrating end of the spectrum following Friday’s revelations regarding sales that saw a 17% price drop. That came the day after an inexplicable 5% rise, that had me attempting to rollover an expiring contract but unable to find a willing seller for the expiring leg.

Over the course of a cumulative 626 days of ownership, spanning 21 individual transactions, my Abercrombie and Fitch activity has had an annualized return of 32% and has seen some steep declines in the process, as occurred on Friday.

This has been an unnecessarily “in the news” kind of company whose CEO has not weathered well and for whom a ticking clock may also be in play. Over the past years each time the stock has soared it has then crashed and when crashing seems to resurrect itself.

Earnings are expected to be reported the following week and premiums will be enhanced as a result. While I currently have an all too expensive open lot of shares I’m very interested in selling puts, as had been done on nine previous occasions over those 626 days. In the event assignment looks likely I would attempt to rollover those puts which would then benefit from enhanced premiums and likely be able to be rolled to a lower strike.

However, if then again faced with assignment, I would consider accepting the assignment, as Abercrombie and Fitch is due to go ex-dividend sometime early in the December 2014 option cycle. However, I would also be prepared for the possibility of the dividend being cut as its payout ratio is unsustainable at current earnings.

 

 

Traditional Stocks:  Cypress Semiconductor, eBay, Intel, Mattel, Mosaic, Sinclair Broadcasting

Momentum: Abercrombie and Fitch, Twitter

Double Dip Dividend: International Paper (11/13)

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 – November 2, 2014

 It’s really hard to know what to make of the past few weeks, much less this very past one.

On an intra-day basis having the S&P 500 down 9% from its high point seemed to be the stop right before that traditional 10% level needed to qualify as a bona fide “correction.”

But something happened.

What happened isn’t really clear, but if you were among those that credited the words of Federal Reserve Governor James Bullard, who suggested that the exit from Quantitative Easing should be delayed, the recovery that ensued now appears more of a coincidence than a result.

That’s because a rational person would have believed that if the upcoming FOMC Statement failed to confirm Bullard’s opinion there would be a rush to the doors to undo the rampant buying of the preceding 10 days that was fueled under false pretenses.

But that wasn’t the case.

In fact, not only did the FOMC announce what they had telegraphed for almost a year, but the previously dissenting hawks were no longer dissenters and a well known dove was instead the one doing the dissenting.

I don’t know about you, but the gains that ensued on Thursday, had me confused, just as the markets seemed confused in the two final trading hours after the FOMC Statement release. You don’t have to be a “perma-bear” to wonder what it’s going to take to get some of your prophesies to be fulfilled.

Even though Thursday’s gains were initially illusory owing to Visa’s (V) dominance of the DJIA, they became real and broadly applied as the afternoon wore on. “How did that make any sense?” is a question that a rationally objective investor and a perma-bear might both find themselves asking as both are left behind in the dust.

I include myself in that camp, as I didn’t take advantage of what turned out to be the market lows as now new closing highs have been set.

Those new highs came courtesy of the Bank of Japan on Friday as it announced the kind of massive stimulus program that we had been expecting to first come from the European Central Bank.

While the initial reaction was elation and set the bears further into despair it also may have left them wondering what, if any role rational thought has left in the processes driving stocks and their markets.

Many, if not most, agree that the Federal Reserve’s policy of Quantitative Easing was the primary fuel boosting U.S. stock markets for years, having drawn foreign investor demand to our shores. Now, with Japan getting ready to follow the same path and perhaps the ECB next in line, we are poised to become the foreigners helping to boost markets on distant shores.

At least that what a confused, beaten and relatively poorer bear thinks as the new week gets underway.

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

I love listening to Howard Schultz defending shares of Starbucks (SBUX) after the market takes the stock lower after earnings. No one defends his company, its performance and its outlook better than Howard Schultz.

But more importantly, he has always followed up his assertions with results.

As with many stocks over the past two weeks, Starbucks is one, that in hindsight I should have purchased two weeks ago, while exercising rational thought processes that got in the way of recognizing bargain prices. Friday’s drop still makes it too late to get shares at their lows of 2 weeks ago, but I expect Schultz to be on the correct side of the analysis once again.

There’s not much disagreement that it has been a rough month for the energy sector. While it did improve last week, it still lagged most everything else, but I think that the Goldman Sachs (GS) call for $75 oil is the turning point. Unfortunately, I have more energy stocks than I would have liked, but expect their recovery and am, hesitatingly looking to add to the position, starting with British Petroleum (BP) as it is ex-dividend this week. That’s always a good place to start, especially with earnings already out of the way.

While I continue to incorrectly refer to BP as “British Petroleum” that is part of my legacy, just as its Russian exposure and legal liabilities are part of its legacy. However, I think that all of those factors are fully  priced in. Where I believe the opportunity exists is that since the September 2014 highs up to the Friday’s highs, BP hasn’t performed as well as some of its cohorts and may be due for some catch-up.

I purchased shares of Intel (INTC) the previous week and was hoping to capture its dividend, as its ex-dividend date is this week. 

Last week Intel had quite a ride as it alternated 4% moves lower and then higher on Thursday and Friday. 

Thursday’s move, which caught most everyone by surprise was accompanied by very large put option trading, including large blocks of aggressive in the money puts with less than 2 days until expiration and even larger out of the money puts expiring in 2 weeks.

Most of the weekly puts expired worthless, as there was fairly low activity on Friday, with no evidence of those contracts getting rolled forward, as shares soared.

While initially happy to see shares take a drop, since it would have meant keeping the dividend for myself, rather than being subject to early assignment, I now face that assignment as shares are again well above the strike. 

However, while entertaining thoughts of rolling those shares over to a higher strike at the same expiration date or the same strike at next week’s expiration, I may also consider adding additional shares of Intel,  for its dividend, premiums and share appreciation, as well. Given some of the confusion recently about prospects for the semi-conductor industry, I think Intel’s vision of what the future holds is as good as the industry can offer if looking for a crystal ball.

What can possibly be said about Herbalife (HLF) at this point that hasn’t already been said, ad nauseum. I’m still somewhat stunned that a single author can write 86 or so articles on Herbalife in a 365 day period and find anything new to say, although there is always the chance that singular opinion expressed may be vindicated.

The reality is that we all need to await some kind of regulatory and/or legal decisions regarding the fate of this company and its business practices.

So, like any other publicly traded company, whether under an additional microscope or not, Herbalife reports earnings this week, having announced it also reached an agreement on Friday regarding a class action suit launched by a past distributor of its products.

The options market is predicting a 16% movement in shares upon earnings release. At its Friday closing price, the lower end of that range would find shares at approximately $44. However, a weekly 1% ROI could still be obtained if selling a put option 35% below Friday’s close.

That is an extraordinary margin, but it may be borne out of extraordinary circumstances, as Monday’s earnings release may include other information regarding pending lawsuits, regulatory or legal actions that could conceivably send shares plummeting.

Or soaring.

On a more sedate, and maybe less controversial note, Whole Foods (WFM) reports earnings this week. I’m still saddled with an expensive lot of shares, that has been offset a bit by the assignment of 4 other lots this year, including this past week.

After a series of bad earnings results and share declines I think the company will soon be reporting positive results from its significant national expansion efforts.

While I generally use the sale of puts when considering an earnings related trade, usually because I would prefer not owning shares, Whole Foods is one that I would approach from either direction. While its payout ratio is higher than its peers, I think there may also be a chance that there will be a dividend increase, particularly as some of the capital expenditures will be decreasing.

While not reporting earnings this week, The Gap (GPS) is expected to provide monthly same store sales. It continues to do so, going against the retail tide, and it often sees its shares move wildly. Those moves are frequently on a monthly alternating basis, which certainly taxes rational thought.

Last month, it reported decreased same store sales, but also coupled that news with the very unexpected announcement that its CEO was leaving. Shares subsequently plummeted and have been very slow to recover.

As expected, the premium this week is significantly elevated as it reflects the risk associated with the monthly report. As with Whole Foods, this trade can also justifiably be approached wither from the direction of a traditional buy/write or put sale. In either case, some consideration should also be given to the fact that The Gap will also report its quarterly earnings right before the conclusion of the November 2014 option cycle, which can offer additional opportunity or peril.

Also like Whole Foods, I currently own a much more expensive lot of Las Vegas Sands (LVS), but have had several assigned lots subsequently help to offset those paper losses. Shares have been unusually active lately, increasingly tied to news from China, where Las Vegas Sands has significant interests in Macao.

Share ownership in Las Vegas Sands can be entertaining in its own right, as there has lately been a certain roller coaster quality from one day to the next, helping to account for its attractive option premium. In the absence of significant economic downturn news in China, which was the root cause of the recent decline, it appears that shares have found some support at its current level. Together with those nice premiums and an attractive dividend, I’m not adverse to taking a gamble on these always volatile shares, even in a market that may have some uncertainty attached to it.

Finally, Facebook (FB) and Twitter (TWTR) each reported earnings last week and were mentioned as potential earnings related trades, particularly through the sale of put options.

Both saw their shares drop sharply after the releases, however, the option markets predicted the expected ranges quite well and for those looking to wring out a 1% weekly ROI even in the face of post-earnings price disappointment were rewarded.

I didn’t take the opportunities, but still see some in each of those companies this week.

While Twitter received nothing but bad press last week and by all appearances is a company that is verging on some significant dysfunction, it is quietly actually making money. It just can’t stick with a set of metrics that are widely accepted and validated as having relevance to the satisfaction of analysts and investors.

It also can’t decide who to blame for the dysfunction, but investors are increasingly questioning the abilities of its CEO, having forgotten that Twitter was a dysfunctional place long before having gone public and long before Dick Costolo became CEO.

At its current price and with its current option premiums the sale of out of the money puts looks as appealing as they did the previous week, as long as prepared to rollover those puts or take assignment of shares in the event the market isn’t satisfied with assurances.

Facebook, on the other hand is far from dysfunctional. Presumably, its shares were punished once Mark Zuckerberg mentioned upcoming increased spending. Of course, there’s also the issue of additional shares hitting the markets, as part of the WhatsApp purchase.

Both of those are reasonable concerns, but it’s very hard to detract from the vision and execution by Zuckerberg and Cheryl Sandberg.

However, the option market continues to see the coming week’s options priced as if there was more than the usual amount of risk inherent in share pricing. I think that may be a mistake, even while its pricing of risk was well done the previous week.

Bears may be beaten and wondering what hit them, but a good tonic is profit and the sale of puts on Facebook could make bears happy while hedging their bets on a market that may put rational thought to rest for a little while longer.

Traditional Stocks:   Starbucks, The Gap

Momentum: Facebook, Twitter, Las Vegas Sands

Double Dip Dividend: British Petroleum (11/5), Intel (11/5)

Premiums Enhanced by Earnings: Herbalife (11/3 PM), Whole Foods (11/5 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 26, 2014

It’s too bad that life doesn’t come with highly specific indicators that give us direction or at least warn us when our path isn’t the best available.

Parents are supposed to do that sort of thing, but in real life the rules are pretty simple. You don’t go swimming for 30 minutes after a meal, you don’t kill people and you don’t swallow your chewing gum.

The seven additional commandments are really just derivative of those critically important first three.

Knowing the difference between right and wrong gives one the ability to change direction when getting too close to what is known to be on the wrong side of what society finds acceptable. Most people get the concept and also apply it to their personal safety.

In stock investing it’s not that simple, although there are lots of rules and all kinds of advance warning signals that may or may not work, depending on whether you were giving or receiving the information. As opposed to adolescents who eventually become adults and lose the “it can never happen to me” mentality, investors often feel a sense of immunity from what may await just beyond that point that others would avoid.

It would have been really, really nice if there was some kind of warning system that both alerted us to an upcoming decline and especially the fact that it would be abruptly followed by a reversal.

Much has been said about the various kinds of recoveries that can be seen, but if this most recent bounce higher will in fact be the recovery to the nearly 9% drop on an intra-day basis, then it is certainly of the “V-shape” variety.

This week came word that by a very large margin the activity in personal 401(k) retirement accounts had been to move out of equities, after the declines, and into fixed income instruments, after those interest rates had seen a 15% increase.

What may really complicate things is that there really is no society to provide guidance and set the boundaries. There are short sellers who like to see movement in one direction and then there are the rest of us, although we can all change those roles at any moment in time that seems to suit us.

For those that depended on the “key reversal” of a few weeks ago as a sign to buy or dipping below the 200 day moving average as a sign to sell, the past few weeks have frustrating.

On the other hand, news of rampant selling in 401(k) accounts may offer precisely the kind of prognostic indicator that many have been looking for, as being a perfectly contrarian signal and indication that the time to buy had come once again.

But what caused the sudden change that created the “V shape?”

Technicians and chart watchers will point to the sudden reversal seen on October 15th in the early afternoon as the DJIA had fallen more than 400 points. However, that 260 point mid-day reversal was lost, almost in its entirety at the following morning’s opening bell.

However, we may also want to thank serendipity that IBM (IBM) and Coca Cola (KO) didn’t report their earnings last week, and that reports of a New York City Ebola patient didn’t surface until market and contagion fears had abated.

It wasn’t until the afternoon following that 400 point drop that St. Louis Federal Reserve Governor James Bullard suggested that the Federal Reserve should consider delaying its ending of Quantitative Easing.

If you were looking for a turning point, that was it.

Even those that are critical of the Federal Reserve for its QE policies have been happy to profit from those very same policies. The suggestion that QE might continue would be a definite reason to abandon fear and buy what appear to be bargain priced stocks, especially as the fixed income side’s sudden 15% increase in rates made bonds less of a bargain..

I was either flatfooted or disbelieving in the sudden climb higher, not having made any new purchases for the second consecutive week. I was almost ready to make some purchases last Thursday, following what Wednesday’s decline, but that was followed by a 120 point gap up the following morning. Instead of adding positions I remained content to watch fallen asset values recapture what had been lost, still in the belief that there was another shoe to drop while en-route perhaps to a “W-shape”

That other shoe may come on Wednesday as the FOMC releases its monthly statement. Lately, that has been a time when the FOMC has given a boost to markets. This time, however, as we continue so consumed by the nuances or changes in the wording contained in the statement, there could be some disappointment if it doesn’t give some indication that there will be a continuing injection of liquidity by the Federal Reserve into markets.

If Bullard was just giving a personal opinion rather than a glimpse into the majority of opinion by the voting members of the FOMC there may be some price to be paid.

While there will be many waiting for such a word confirming Bullard’s comments to come there also has to be a sizable faction that would wonder just how bad things are if the Federal Reserve can’t leave the stage as planned.

Welcome back to the days of is good news bad news.

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

While the move higher this week was more than impressive, there’s still no denying that these large moves higher only happen in downturns. The question that will remain to be answered is whether the very rapid climb higher from recent lows will have any kind of sustainability.

For the coming week I expect another quiet one, at least personally. The markets may be anything but quiet, as they certainly haven’t been so for the past few weeks, but trying to guess where things may go is always a dicey prospect, just seemingly more so, right now.

Despite what may be continuing uncertainty I have increased interest in earnings related and momentum stocks in the coming week.

Among those is Joy Global (JOY) a stock whose fortunes are closely aligned with Chinese economic growth. Those prospects got somewhat of a boost as Caterpillar (CAT) delivered better than expected earnings during a week that was a cavalcade of good earnings, despite some high profile disappointments. While the S&P 500 advanced 4.1% for the week and Caterpillar rose 4.6%, Joy Global may just be warming up following only a 2.1% climb higher, but still trading well below its mean for the past year.

In that year it has generally done well in recovering from any downward moves in price and after two months in that kind of trajectory may be ready to finally make that recovery.

With “old technology” continuing to do well, EMC Corp (EMC) held up surprisingly well after its majority owned VMWare (VMW) fell sharply after its own earnings were announced. EMC typically announces its earnings the morning after VMWare announces and while showing some impact from VMWare’s disappointment, rapidly corrected itself after its own earnings were released.

EMC has simply been a very steady performer and stands to do well whether staying as an independent company, being bought out pr merged, or spinning off the large remainder of its stake in VMWare. Neither its dividend nor option premium is stunning, but there is a sense of comfort in its stability and future prospects.

Halliburton (HAL) has been trading wildly of late and is well below the cost of my most recent lot of shares. WHile the entire energy sector has fallen on some hard times of late, there’s little reason to believe that will continue, even if unusually warm weather continues. Halliburton, as have others, have been down this path before and generally investors do well with some patience.

That will be what I practice with my more expensive lot. However, at its current price and volatility, Halliburton, with its just announced dividend increase offers an exceptional option premium that is worthy of consideration, as long as patience isn’t in short supply.

Another stock having required more patience than usual has been Coach (COH). It reports earnings this week and as has been the case over the past 3 years it wouldn’t be unusual to see a large price move in shares.

The options market is expecting a 7% move in shares, although in the past the moves have been larger than that and very frequently to the downside. Lately, however, Coach seems to have stabilized as it has gotten a reorganization underway and as its competitor in the hearts and minds of investors, Michael Kors (KORS) has also fallen from its highs and stagnated.

The current lot of shares of Coach that I purchased were done so after it took a large earnings related decline and I didn’t believe that it would continue doing so. This time around, I’m likely to wait until earnings are announced and if shares suffer a decline I may be tempted to sell puts, with the objective of rolling over those puts into the future if assignment appears to be likely.

For those that like dabbling in excitement, both Facebook (FB) and Twitter (TWTR) announce their earnings this week.

I recently came off an 8 month odyssey that began with the sale of a Twitter put, another and another, but that ultimately saw assignment as shares dropped about $14. During that period of time, until shares were assigned, the ROI was just shy of 25%. I wouldn’t mind doing that again, despite the high degree of maintenance that was required in the process.

The options market’s pricing of weekly options is implying a price movement of about 13% next week. However, at current premiums, a drop of anywhere less than 18% could still deliver a weekly ROI of about 1.2%. I look at that as a good return relative to the risk undertaken, albeit being aware that another long ride may be in store. Since Twitter is, to a large degree, a black box filled with so many unknowns, especially regarding earnings and growth prospects, even that 18% level below could conceivably be breached.

Facebook seems to have long ago quieted its critics with regard to its strategy and ability to monetize mobile platforms. In the 2 years that it has been a publicly traded company Facebook has almost always beaten earnings estimates and it very much looks like a stock that wants to get to $100.

The option market is implying a much more sedate 7.5% in price movement upon earnings release and the decline cushion is only about 9.5% if one is seeking a 1% ROI.

Both Facebook and Twitter are potentially enticing plays this coming week and the opportunities may be available before and after earnings, particularly in the event of a subsequent share decline. If trying to decide between one or the other, my preference is Twitter, as it hasn’t had the same upside move, as Facebook has had and I generally prefer selling puts into price weakness rather than strength.

After some disappointing earnings Ford Motor (F) goes ex-dividend this week. Everyone from a recent Seeking Alpha reader who commented on his Ford covered call trade to just about every talking head on television is now touting Ford shares.

Normally, the latter would be a sign to turn around and head the other way. However, despite still being saddled with shares of a very beleaguered General Motors (GM), I do like the prospects of Ford going forward and after a respite of a few years it may be time to buy shares again. The dividend is appealing and more importantly, appears to be safe and the option premiums are enough to garner some interest as shares are just slightly above their yearly low.

Finally, I don’t know of anyone that has anything good to say about Abercrombie and FItch (ANF), regardless of what the perspective happens to be. It, along with some other teen retailers received some downgrades this past Friday and its shares plummeted.

I have lost count of how often that’s been the case with Abercrombie and FItch shares and I’ve come to expect them to rise and plunge on a very regular basis. If history is any guide Abercrombie and Fitch will be derided for being out of touch with consumers and then will surprise everyone with better than expected earnings and growth in one sector or another.

I’ve generally liked to jump on any Abercrombie post-plunge opportunity with the sale of puts and while I’d be inclined to roll those over in the event of likely assignment, I wouldn’t be adverse to taking possession of shares in advance of its earnings and ex-dividend date, which are usually nearly concurrent, with earnings scheduled for November 20t, 2014.

Traditional Stocks: EMC, Halliburton

Momentum: Abercrombie and Fitch, Joy Global

Double Dip Dividend: Ford (10/29)

Premiums Enhanced by Earnings: Coach (10/28 AM), Facebook (10/28 PM), 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.