Market uptrend extended, but intact
With most major U.S. market indices breaking out to new six-year (or all-time) highs, it’s clear that the current trend picture remains positive. On Friday even the still-lagging Nasdaq closed at a new high, although its intraday high was only fractionally higher than its highest February intraday high.
While the trend remains up, the current upmove is becoming extended and I’m using this opportunity to sell more calls against my long positions. At the same time, I’ll continue to view any downdrafts as put-selling opportunities on my watchlist stocks.
Last February’s top areas now serve as near-term downside support levels: 1450-1460 (S&P 500); 12,700-12,800 (DJIA); 2500-2515 (Nasdaq); and 850-855 (Russell 3000). Near-term upside resistance levels for the S&P 500 and Nasdaq appear to be at about 1490-1500 and 2540-2550, respectively.
Options Expiration Results
- Automatic Data Processing (ADP) – The April 50-strike calls I sold on 3/21/07 against my long position in ADP (purchased 3/19/07) expired out of the money (OTM) for a 4-1/2-week net return of about 2.9%.
- Caterpillar (CAT) – The April 65-strike calls I sold on 3/21/07 against my long position in CAT (purchased 3/19/07) expired in the money (ITM), and my shares were called, for a 7-1/2-week net return in the total position of about 4.5%.
- Freeport McMoRan (FCX) – The April 60-strike puts I sold on 3/27/07 expired OTM for a 3-1/2-week net return of about 1.5%.*
- Gerdau S. A. (GGB) – The April 17.5-strike calls I sold on 3/21/07 against my long position in GGB (purchased 3/19/07) expired ITM, and my shares were called, for a 7-1/2-week net return in the total position of about 7.9%.
- GlaxoSmithKline (GSK) – The April 55-strike calls I sold on 3/21/07 against my long position in GSK (purchased 4/21/06) expired ITM, and my shares were called, for a 1-year net return in the total position of about 12.3%, including dividends.
- Nordic American Tanker Shipping (NAT) – The April 35-strike calls I sold on 3/26/07 against my long position in NAT (purchased 3/15/07) expired ITM, and my shares were called, for an 8-1/2-week net return in the total position of about 6.3%.
- Occidental Petroleum (OXY) – The April 50-strike calls I sold on 3/28/07 against my long position in OXY (purchased 1/22/07) expired ITM, and my shares were called, for a 4-month net return in the overall position of about 4.9%, not including dividends.
- Wal-Mart Stores (WMT) – The April 47.5-strike calls I sold on 3/21/07 against my long position in WMT (purchased 11/20/06) expired ITM, and my shares were called, for a 5-1/2-month net return in the overall position of about 3.3%, not including dividends.
New positions
Amgen (AMGN) – On Thursday I sold some May 62.5 calls against my long position in AMGN (purchased 3/15/07) after the stock opened sharply higher on positive news about the company’s anemia drug Aranesp:
AMGN has been in a sharp intermediate-term decline and recently reversed off the bottom of its long-term trend channel – a relatively low-risk entry point (for selling puts) that I would have acted on if I hadn’t already had a long position in the stock. Currently it seems likely that AMGN may have bottomed for now, but this could still mean plenty of backing and filling between the 57 and 65 price levels for a while.
Broadridge Financial Solutions (BR) – On Tuesday I sold my shares in this spinoff of ADP (which I received as a shareholder of ADP on record as of March 23) for a small profit as they moved back above their initial issuing price of $20/share a couple of weeks earlier. I didn’t have enough information on the company, or enough shares to sell calls against, to warrant staying with this position.
Oshkosh Truck (OSK) – On Tuesday I sold some May 55 calls against my long position in OSK (purchased 3/19/07) as the stock rallied along with the rest of the market:
OSK is currently in an intermediate-term uptrend, with support at the 55 and 52-53 price levels. Near-term upside resistance appears to be at around 58 and 60.
Whole Foods Market (WFMI) – Late Friday I sold some May 45 calls against my long position in WFMI (purchased 1/22/07) as the stock rallied along with the rest of the market:
WFMI’s intermediate-term trend is unclear, but its short-term trend is clearly up. As long as the stock holds above its near-term support level at about 44, it could easily challenge its near-term resistance at the 47 and 48-49 price levels in the coming days/weeks.
Watchlists
I’m still away from my main computer and unable to run my usual scans, but will resume next week.
* As always, the return on these “cash secured” put sales was based on the premium received from the sale of the options (minus commissions) against the unmargined capital set aside to pay for the possible assignment of the stock.
