Due to a recent unfortunate family event I was unable to post last week and have had little time to attend to market-related matters. This is doubly unfortunate as the market last week presented more opportunities than it had in many weeks and months.
While the trend picture is obviously currently down (at least for the intermediate and longer term), sentiment indicators clearly reached extremes of bearishness last week as panic and fear surfaced during last week’s sell off. Whether or not we are now in a “bear market” as many market observers are now (predictably) proclaiming, the odds now seem to be suggesting more upside potential than downside – at least over the intermediate term – from last week’s lows.
Other indicators as well are suggesting that now may be a good time to buy. Bears properly point out that in a bear market such indicators can continue to reach greater extremes as the market goes lower. While this may be true, it’s also true that anyone with a somewhat longer-term perspective is likely to do very well by buying quality stocks at good values during periods like these.
Bottom line: Had I been available to do so, I would have been significantly increasing my short put positions into the market sell-offs on Tuesday and Wednesday of last week. And although I still have limited time available, I will be actively using it to look to sell puts on further declines at this point.
Options Expiration Results
Alcoa (AA) – The January 40 calls I sold on 12/10/07 against my long position in AA expired out of the money (OTM) for a 6-week net return of about 2.8%.
Ambac (ABK) – The January 22.5-strike puts I sold against ABK on 12/28/07 expired in the money (ITM) and I was put the stock for a net cost of about $21 per share. Given more recent negative developments on ABK and its chaotic price action, I elected to sell my relatively small position at a loss last Thursday as ABK rallied to over $16 on speculation of an imminent bailout or buyout. The market’s recent sell-off is presenting many much better and lower-risk opportunities than to be bothered with this sort of situation.
Bank of America (BAC) – The January 40-strike puts I sold against BAC on 12/28/07 expired ITM and I was put the stock for a net cost of about $39.20 per share.
CBS Corp. (CBS) – The January 25-strike puts I sold against CBS on 01/04/08 expired ITM and I was put the stock for a net cost of about $24.50 per share.
Citigroup (C) – The January 35 calls I sold on 12/10/07 against my long position in C expired OTM for a 6-week net return of about 6% on the position.
Group 1 Automotive (GPI) – The January 22.5-strike puts I sold against GPI on 12/28/07 expired ITM and I was put the stock for a net cost of about $22 per share.
Home Depot (HD) – The January 25-strike puts I sold against HD on 12/17/07 expired OTM for a 4-week net return of about 2.3%.
Jabil Circuit (JBL) – The January 15-strike puts I sold against JBL on 12/21/07 expired ITM and I was put the stock for a net cost of about $14.35 per share.
Paychex (PAYX) – The January 35-strike puts I sold against PAYX on 01/02/08 expired ITM and I was put the stock for a net cost of about $34.30 per share.
Wachovia Corp. (WB) – The January 35-strike puts I sold against WB on 01/04/08 expired ITM and I was put the stock for a net cost of about $34.10 per share.
Wal-Mart Stores (WMT) – The January 47.5-strike puts I sold against WMT on 12/27/07 expired OTM for a 4-week net return of about 1.9%.
New positions
Wachovia Corp. (WB) – On Friday I sold some February 40-strike calls against my long position in WB (purchased 1/22/08) as the stock opened higher with the rest of the market.
Wal-Mart Stores (WMT) – Last Thursday I sold some February 47.5-strike puts on WMT as the stock pulled back after recently testing the 50 resistance level.
Watchlists
Recent upside candidates of interest include Johnson & Johnson (JNJ) and Wal-Mart Stores (WMT).
Oversold candidates of interest include Boeing (BA), Aetna (AET), Arrow Electronics (ARW), Praxair (PX), Progress Energy (PGN), and Vodaphone (VOD).
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This entry was posted
on Sunday, January 27th, 2008 at 2:49 pm and is filed under Analysis, Expirations, Market, Watchlist.
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