Hopes and expirations
What more is there to say about the market except that it’s trending up? This is once again confirmed by the weekly trend analysis charts of the major indices, which are almost exclusively green – from the short-term trends to the longer term.
The trend analysis for a listing of popular blue chips isn’t quite as unanimous, with stocks like Altria Group (MO), Clorox (CLX), IBM (IBM), Johnson & Johnson (JNJ), Microsoft (MSFT), and Proctor & Gamble (PG) more red than green. The analysis of the tech stocks too is a bit mixed. This suggests that while the main trend remains up, there may well be more corrective action ahead in individual stocks and sectors – hope for those who missed the boat and are looking for an opportunity to jump on board.
While the market has refused so far to sell off to the degree I was hoping for, last week did offer a few brief downdrafts that yielded a couple of new positions. Last Monday I sold July puts on Verizon (VZ), and on Friday I sold July puts on Bristol Myers Squibb (BMY) when it seemed likely my shares of BMY would be called away as a result of the covered calls I had sold against them a few weeks ago.
Of course last week was options expirations week, and I went into it short June 25 puts on MSFT, June 27.5 puts on Pfizer (PFE), and June 25 calls against my long position in BMY. As expected, the covered calls in BMY closed in the money, and my shares were called. The Pfizer puts expired handily out of the money, with the stock closing the week at 28.78.
Microsoft proved to be the real nail biter, as the stock bounced above and below the 25 level right until the very end, when it managed to close the week at 25.04. Given MSFT’s recent weak performance, I’m just as happy not to have ended up with the stock. I’m keeping it on my watchlist, but will just be watching it for now.
The annualized net return (after commissions) on the MSFT, PFE, and BMY positions was 13%, 18%, and 17%, respectively. (The BMY result includes one dividend payout.) The overall result on the “cash secured” put sales was based on the unmargined capital set aside to pay for the possible assignment of the respective stocks.
This week I added Becton Dickinson (BDX), Fresh Del Monte Produce (FDP), Illinois Tool Works (ITW), Johnson Controls (JCI), Lear Corp. (LEA), and McDonalds (MCD) to my watchlist. All have had recent corrections and may be near short- or intermediate-term bottoms.
