Market uptrend: “Trust, but verify”
Following last week’s rally, the trend pictures for all of the major market indices are once again solidly green, reflecting a clear uptrend in place. That said, the most recent upmove is, so far, generating new negative divergences on the price oscillator charts – a possible warning sign, but nothing more until or unless the market trend analysis turns negative.
Options Expiration Results*
I went into last week’s options expiration short options on a variety of stocks:
- Newell Rubbermaid (NWL) – The April 25 puts I sold on 4/7 expired out of the money (OTM), for a two-week net return of 1.06%.
- General Maritime (GMR) – The April 35 covered calls I sold on 3/20 against my long position in the stock expired OTM, for a 1-month net return of 2.4%. I still own the shares (now at a lower net cost basis of about 33.70 per share) and will look to sell more calls against them.
- Frontline (FRO) – The April 30 puts I sold on 4/13 expired OTM, for a 1-week net return of about 1.07%.
- Sanderson Farms (SAFM) – The April 22-1/2 covered calls I sold on 3/20 against my long position in the stock expired in the money (ITM), and my shares were called. The net two-month return on the total position (from when I first sold puts on SAFM back on 2/21) was about 4.4%.
- Bristol Myers Squibb (BMY) – The April 25 puts I sold on 3/28 expired slightly ITM, and I was put the stock, for a net cost basis of about 24.40. I’ll look to sell calls against the position on strength, and more puts on weakness.
- Progress Energy (PGN) – The April 45 puts I sold on 3/21 expired ITM, and I was put the stock, for a net cost basis of about 44.10.
- Glaxo Smithkline (GSK) – The April 55 puts I sold on 3/21 expired ITM, and I was put the stock, for a net cost basis of about 53.30.
- Abbott Laboratories (ABT) – The April 45 puts I sold on 3/20 expired ITM, and I was put the stock, for a net cost basis of about 43.65.
- Lear Corp. (LEA) – The April 17-1/2 covered calls I sold on 3/20 against a portion of my long position in the stock expired (way) ITM, and my shares were called for a net return on this portion of my LEA position (from when I first sold the puts back on 3/2) of about 9.2%.
New positions
Late Wednesday I sold some May 20-strike covered calls against the remaining portion of my long position in LEA when it rallied strongly back above the 20 level after another company in the sector announced some good earnings. As it turns out I could have done much better if I’d waited a bit – the stock went up another two points the following day – but my interest in owning this stock vanished when the dividend was suspended and I’m no longer inclined to be quite so patient with this position.
Watchlist
Stocks of interest on this week’s “upside strength” scans include Alcoa (AA), American Home Mortgage (AHM), Avery Dennison (AVY), BP plc (BP), Black & Decker (BDK), Chubb Corp. (CB), Deere & Co. (DE), International Paper (IP), SK Telecom (SKM), Thornburg Mortgage (TMA), Unilever (UN), and UST (UST). Currently “oversold” and/or “beaten down” stocks of interest include Altria Group (MO), Ameren (AEE), Amgen (AMGN), eBay (EBAY), JM Smucker (SJM), and New York Bancorp (NYB).
* As always, the return on the “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.
