|NEW POSITIONS/STO||NEW STO||ROLLOVERS||CALLS ASSIGNED/PUTS EXPIRED||CALLS EXPIRED/PUTS ASSIGNED||CLOSED|
|7 / 7||1||2||2 / 0||7 / 0||0|
Weekly Up to Date Performance
New purchases beat the time adjusted S&P 500 this week by 0.8% and surpassed the unadjusted index by 1.0% during a week that saw the largest loss in the S&P 500 in over 18 months. They did so, however, while being at a net loss for the week themselves.
The market showed a large adjusted loss for the week of 2.4% and unadjusted loss of 2.6% for the week, while new positions fell 1.6%.
For 21 positions positions closed in 2014, performance exceeded that of the S&P 500 by 1.2%. They were up 3.7% out-performing the market by 50.0%, a difference that I don’t expect to continue to be sustained..
I was right about something last week.
After the kind of week we just had it was a good thing that it lasted for only 4 trading days. It may be too bad that next week is a full trading week, especially since it will be a very busy week for earnings and as we’ve seen from this past week earnings finally matter.
But even with some decent earnings reported after Thursday’s close and before Friday’s open, there is a tone creeping into the market that is slowly, but not overly dramatically, being very cautious and being responsive to news overseas.
It has been a while since we really concerned ourselves much with what was going on in the rest of the world, other than an occasional pause to consider Chinese economic news reports which always seemed to come in right where projected.
For starters, the latest news from China wasn’t encouraging and increasingly more and more of our stock market is tethered to the Chinese economy. Putting on a cynical hat, we used to like it much better when we thought that Chinese economic data couldn’t be trusted, as opposed to when they may actually be telling the truth.
That’s something that we may not be able to handle.
It used to be that if the US sneezed, the rest of the world caught a cold. Now we’re all in close contact and no one really has immunity, especially when someone the size of China is doing the sneezing.
A constellation and convergence of news from China of slowing industrial growth and currency worries in Turkey, credit worries in Argentina and Brazil have placed a lot of pressure on a market that was beginning to shift to an emphasis on fundamentals at a time when the fundamentals weren’t so great.
Things also moved more quickly than we’ve been accustomed too lately. The deteriorations were swift.
News that a company like WW Grainger had disappointing earnings brings into question the strength of any economic recovery, much in the same way as when Fastenal disappoints. Coupled with almost universally horrible retail statistics and it will be interesting to see what the next move by the Federal Reserve will be, under its new leader, and then how that will be interpreted by the markets.
I felt happy to see the week end and to be able to escape with a handful of assignments and even a rollover. Plunging Fridays are my least favorite kind of days, unless everything I owned was about to be assigned otherwise. My expectations, even this morning was for more assignments and more rollovers, but the market never gave that a chance.
Looking forward, with less cash in hand as I would like to start the week I’m still not fully bowled over by some lower prices. I do see some volatility sneaking into some forward week premiums which indicates an expectation that the decline will continue.
During a period of decline there is sometimes opportunity to take advantage of weakness in existing positions by selling calls even if the strike price represents a loss, if assigned. The reason that becomes appealing is that as volatility increases, so do the premiums and you may be able to find an appealing premium that is a strike price or two out of the money.
The key, however, is to not let that assignment happen, unless a tax loss is a competing objective. Some may have noticed that as personal trades the past three weeks that is what I had done with shares of Anadarko, as its premium was moving higher. With today’s rollover the strike price has crept up with each sale, going from $82.5 to $83 and now to $84 while collecting net premiums of $1.04, subject to the need to trade again next Friday.
In such cases, if assignment looks likely, the call contract is bought back, sometimes at a loss. That looked like it might have been a possibility with Anadarko shares on Wednesday, as it went higher on word of David Einhorn taking a position.
But the anticipation is that assignment won’t happen and instead, while there is systemic weakness you hope to add some additional income stream to your positions. Essentially you are adding reward when you believe the additional risk, that is losing the position at a price lower than your purchase, is tolerable.
While this is entirely premature and would be an over-statement, that is the kind of trading that was very instrumental in dealing with the declines of 2008 and 2009. Doing so is sometimes a little more stressful than a straightforward trade, but can really feel very rewarding when successfully managed.
I’ve often said that the best times are when the market is either non-committal or going lower. The use of a more aggressive trading strategy with existing positions is one way to make it so.
Get ready and keep your cash reserves safe, but at hand.
(Note: Duplicate mention of positions reflects different priced lots):
New Positions Opened: AIG, C, COP, CREE (puts), FAST, INTC, MOS,
Puts Closed in order to take profits: CREE
Calls Rolled over, taking profits, into the next weekly cycle: LOW
Calls Rolled over, taking profits, into extended weekly cycle: CSCO (2/7)
Calls Rolled over, taking profits, into the monthly cycle: none
Calls Rolled Over, taking profits, into a future monthly cycle: none
Calls Rolled Up, taking net profits into same cycle: none
New STO: CPB
Put contracts sold and still open: none
Put contracts expired: nonr
Put contract rolled over: none
Long term call contracts sold: none
Calls Assigned: CHK
Calls Expired: HFC, LULU, MOS, MRO, WAG, WLT
Puts Assigned: none
Stock positions Closed to take profits: none
Stock positions Closed to take losses: none
Calls Closed to Take Profits: none
Ex-dividend Positions: none
For the coming week the existing positions have lots that still require the sale of contracts: AGQ, APC, CLF, DRI, FCX, GPS, HFC, LB, JCP, LULU, MCP, MOS, MRO, NEM, PBR, PM, RIG, TGT, WAG, WFM, WLT (See “Weekly Performance” spreadsheet or PDF file)
* If you don’t have a program to read or modify spreadsheets, you can download the OpenOffice Suite at no cost.