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George Acs
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I am a simple individual investor who believes that the playing field is level, but may require active management of one's holdings. I've devised a series of steps that constitute a highly defined covered option strategy that most anyone can follow and that I've described in Option to Profit... More
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  • Having Faith That Europe Will Disappoint. Again. 2 comments
    Jul 3, 2012 10:15 AM | about stocks: AA, AXP, CAT, DE, EMN, IDCC, JPM, MCP, MS, VZ, WAG, YUM

    I love huge upward moves in the market, especially on Fridays.

    As a option contract seller, I often find myself wishing for competing winds and at very specific times. so that in the ideal world, with everything going on about my shares, they would be safely tucked inside the eye of the tornado.

    To be more precise, I especially like large advances on Fridays when it makes the rest of the week at least end up looking reasonably respectable. I was a little surprised at the negative trading for most of the day on Thursday (June 28, 2012) when the market was down by as much as 170 points going into the final hour. The surprise was because the markets had traded in a very healthy way the previous 2 1/2 days, first recovering from deep losses and then just slowly adding to gains for a couple of days.

    Instead, I just turned out to be a day off on my optimism.

    I especially like those big moves if it means that some of my shares will be assigned and that for others that were floundering, I could sell call options for the next week or for what's left in the month.

    In this case, July 2012 is one of those 5 week months, so there's also plenty of time value to take advantage of when looking for opportunities.

    Each week I put together a "Game Plan" for subscribers. It looks forward to what moves we are hoping to make in the coming week with existing positions.

    That's my least favorite of all tasks, because it represents "losers" in one way or another. Even when the mounting call premiums and dividends become tangible and may in fact offset paper losses on the underlying shares, there's still a sense of defeat when looking at a stock whose present value is below its cost. At the moment. the longest held position goes all the way back to the end of April 2012, when I recommended the sale of ProShares Ultra Silver ETF (AGQ).

    As I look at my personal accounts, my longest holding is ProShares UltraShort Silver ETF (ZSL), but with option premiums like it has, I wouldn't mind seeing its price jump up and down as it does until the day that I can no longer discern up from down.

    Otherwise, I have shares in Cablevision (CVC), which I am grateful that I never recommended to anyone. I think I bought into the Jeremy Lin story. Remember him? He once almost won the Republican nomination for President in 2000.

    Fortunately, I always have faith and believe that even the beaten down have a chance to be revived. Maybe i drink too much?

    What is even better than a really nice triple digit gain on a Friday, resulting in either assignment and/or writing new calls is when the following Monday brings about a market drop.

    For the 14 months that I've been specifically tracking the correlation between triple digit moves in either direction on a Friday with the following Monday's action, the correlation just hasn't appeared.

    So as everyone is giddy over what is being described as Angela Merkel's blinking over the issue of Euro bonds, you can't help but think we've been down this path before in the past 12 months, not to mention the past 4 weeks. A number of those weeks had positive news breaking right before or during the weekend that pushed the futures mightily and then quickly retreated as reality came into play. I think we've learned that we can count on Europe to not let our cynicism down.

    As it will likely turn out, the German translator hired by the major brokerage houses and hedge funds was at the bottom of her class, because Merkel's pronouncement of the newly proposed plan was not "Das funktional," instead it was "dysfunctional."

    So with that in mind, I'm hopeful of re-capturing some of the positions that were lost in the after-math of that simple mistranslation.

    For the past three weeks in a row, although I don't think it will be likely this coming week, or at least not on Monday, assigned shares in Morgan Stanley (MS), MolyCorp (MCP) and Deere (DE) were easily repurchased at lower prices after assignment. Sometimes with a dividend capture to boot.

    After the market closes on Friday I usually like looking for what appear to be bargains for the coming week, but those are hard to find when the market spends most of the day up 200 points. Besides, I already sent out Trading Alerts to sell JP Morgan Chase (JPM) puts on Thursday, then recommending buying back on Friday mornings, only to recommend selling again later in the morning. So, I'll have to look for some other bargain, maybe JP Morgan itself.

    As usual, the weekly recommendations fall into the same three categories; Traditional, Momentum and Double Dip Dividends (See details). Lately, only about 60% have resulted in actual trading alerts, as the market does what it wants to do when it opens on a Monday morning and sometimes what looked enticing at one moment in your life isn't quite as appealing when you sober up.

    After a day that the DOW goes up nearly 300 points it may be a bit harder to find a bargain the very next day. One stock that may just be right, despite a nice gain today, is Caterpillar (CAT), a somewhat cousin of Deere, but not really. It certainly has been flagging Deere of late and if you stick with the monthly option sale, you may even squeeze a dividend out of th deal.

    (click to enlarge)

    Among stocks that didn't share in the same degree of exhilaration and celebration of the quarter's end is YUM Brands (YUM), over fears of a Chinese slowdown. Given that we can never really know what's going on in China, especially as it regards accounting, why start stressing now? Besides, another one of this week's picks, JP Morgan Chase, hasn't exactly shown that it's the most reliable when it comes to reporting numbers.

    Although JP Morgan is one of this week's Double Dip Dividend choices, you could just as easily make a case for selling puts. When it comes right down to it, your banker doesn't care where your money was derived when your about to deposit your trading profits.

    Eastman Chemical (EMN) definitely shared in today's rally, but I think there's more to go. The only thing that has me a little hesitant is that it only trades monthly options and it is already about $7 higher than it was just 3 weeks ago.

    Although Walgreen (WAG) was added by subscribers a few weeks ago a few days after waiting for the dust to settle after its announced purchase of Alliance Boots, I think it's still a good position either to add shares or one to open. Ordinarily, I tend to sell calls concomitantly with purchase of shares or shortly thereafter, but in the recent case of Walgreen we waited two days for an expected bounce following what I believed to be an over-reaction to the buy-out news.

    On the Momentum side of the fence, Alcoa (AA) is once again looking appealing. Of course, the only problem is that it will be kicking off earnings season on July 9, 2012 and it can be a wild ride. I'd be more inclined to recommend its purchase if the price rose above $9 and would then jump at selling the $9 call.

    More easily justified is Storage Technology, despite a outsized gain on Friday. With that gain in mind, I'd be more likely to select the in the money strike price and would be accepting of a pullback next week. There's something perversely satisfying about making a profit when shares go downward, yet not be a cursed short seller.

    The dividend payers next week include Verizon (VZ), American Express (AXP), the previously mentioned JP Morgan and Interdigital (IDCC). The latter of those is for the fearless of heart and is not one that I'm likely to end up recommending, but I'll be watching in the event that I feel like doing something where the reward is outweighed by the risk by an order of magnitude.

    Traditional: Caterpillar, JP Morgan Chase, Eastman Chemical, YUM Brands, Walgreen

    Momentum: Alcoa, Storage Technology

    Double Dip Dividend: American Express (July 3), JP Morgan (July 3), Verizon (July 5) and Interdigital (July 9)

    Remember, these are just guidelines for the coming week. Subscribers will get Trading Alerts if these appear to be reasonable actions as trading begins next week. If you're on your own, please adjust accordingly with market movement and you'll have the makings of a healthy income stream for the week with reduced risk.

    Close feedback(s).

     

    SA editor's feedback

    03 Jul, 09:45 AM

    Thanks, but this needs to be updated, as you discuss what is likely to happen "on Monday" and it is now Tuesday. We apologize if we weren't able to get to this one in time but our resources are thinner than normal during this vacation period.

    Disclosure: I am long CVC, JPM, WAG, AGQ, MCP, ZSL, MS.

    Additional disclosure: I may purchase shares of AA, AXP, IDCC, VZ, DE, YUM. EMN, CAT

    Themes: income-investing-strategy Stocks: AA, AXP, CAT, DE, EMN, IDCC, JPM, MCP, MS, VZ, WAG, YUM
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Comments (2)
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  • Nic C
    , contributor
    Comments (10) | Send Message
     
    I just had to comment first! I always enjoy reading your articles, thanks.
    4 Jul 2012, 01:50 PM Reply Like
  • George Acs
    , contributor
    Comments (4438) | Send Message
     
    Author’s reply » Thanks. I always enjoy hearing that, although as my faculties are readily diminishing, I enjoy hearing anything.

     

    You may be the only one to comment on this article, since Editors couldn't get to it on time to publish it before Monday's market opening.

     

    That would be like a double serving of something, I'm just not quite certain of what.
    4 Jul 2012, 06:55 PM Reply Like
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