October options expire on Friday, Oct. 15, which is a very short option cycle this month. With only three weeks left I do not anticipate putting much into October trades since the time values are falling on call options. I am looking out towards November expirations at the moment and have about 25% of my portfolio still in cash. I'm going to be picky the next week and only go into things I really like, because I have time to step back and watch the market. I take my market cues from Phil at Phil's Stock World, and I agree with his current view that we have run up quickly this month on low volume and could have a pull back, especially as the 3rd Quarter ends and funds are done window dressing for statements and sell off in early October. I'm not expecting a huge move, but I think some quality stocks may be at a better price in a week or two. Here's what I'm watching now:
CCJ is my current favorite as it recently went over its 200-day MA, a great bullish sign. I'd like to see it bounce off that line in early October and write an at-the-money call for November.
CAT is another long-term favorite but is overbought right now and I am waiting for a pullback.
AAP is in the same boat with CAT.
MSFT makes the cut because big tech is making a comeback and Microsoft is the only one with compelling premium worth writing calls.
TSL is a solar stock I have written calls on many times. Its pulling back to its 20 day MA and may be bouncing back soon.
FWLT is a quality infrastructure stock and has pulled back to it's moving average. If it bounces back up I will give it serious consideration.
Also, everything I currently own with October covered calls already written are candidates for November. So I will be watching AGU, AKS, BCSI, CLF, CMI, GLW, GMCR, SNDK, TRW, VMW and WFR. I am happy with this current group of stocks and all but two of them have made decent gains and should be high enough to get called out on October 15 even with a pullback. Only SNDK and AKS are currently below the strike prices, but they are still above the cost basis and have held steady since pulling back last week. They are candidates for rolling down and out (meaning I would buy back the call, and sell a lower strike in November) but it is too early to be worthwhile today. While I am ready for a pullback, I'm going to let the market move before I react. Look at the SPY chart below with me:
First, notice how quickly the price has moved above all three moving averages (red, blue and green lines.) A pullback is likely. However, look at the price of the February through May rally, which just kept on moving up.
Second, look at the RSI (14) chart above the price graph. Generally the market is overbought when that indicator is above 70. Today it is at 65.24, which is high. However, look at how long the SPY index stayed over 70 in the last rally! It just wouldn't quite die, though we all wondered at the time when we should go short. Then you see the "flash crash" and the steep downturn that followed. So the watchword is "be prepared" and be patient, because anything could and probably will happen.
Disclosure: Long AGU, AKS, BCSI, CLF, CMI, GLW, GMCR, SNDK, TRW, VMW and WFR.