Positive market outlook remains warranted
Last week’s strong rally and a now once-again positive market trend picture appear to confirm an ongoing intermediate-term uptrend from the March lows. Assuming the market (as represented by the S&P 500) continues to make its way higher over the coming days/weeks, it might be expected to find significant upside resistance at the 1410-1420, 1440-1450, and 1490-1500 levels; meanwhile, near-term downside support is at about 1340-1350.
Options Expiration Results
- Altria Group (MO) – The April 20-strike puts I sold against MO on 4/01/08 expired out-of-the-money (OTM) for a 3-week net return of about 0.9%.*
- Bank of America (BAC) – The April 37.5-strike puts I sold against BAC on 3/25/08 expired OTM for a 3-1/2-week net return of about 1.5%.*
- BCE, Inc. (BCE) – The April 30-strike puts I sold against BCE on 3/27/08 expired OTM for a 3-week net return of about 2.3%.*
- Countrywide Financial (CFC) – The April 6-strike covered calls I sold on 3/24/08 against my long position in CFC (purchased 3/22/08) expired OTM for a 4-week net return on the position of about 8.9%.
- New York Community Bancorp (NYB) – The April 17.5-strike covered calls I sold on 3/20/08 against my long position in NYB (purchased 2/17/08) expired in-the-money (ITM) and my shares were called for a total 11-week net return of about 10.3%.
- Wachovia Corp. (WB) – The April 32.5-strike covered calls I sold on 3/19/08 against my long position in WB (purchased 1/22/08) expired OTM for a 4-1/2-week net return on the position of about 3.2%.
- UnitedHealth Group (UNH) – The April 35-strike puts I sold against UNH on 3/11/08 expired OTM for a 5-1/2-week net return of about 2.3%.*
- Verizon Communications (VZ) – The April 35-strike puts I sold against VZ on 3/25/08 expired OTM for a 3-1/2-week net return of about 2.0%.*
- Weyerhaeuser (WY) – The April 55-strike puts I sold against WY on 3/13/08 expired OTM for a 5-week net return of about 2.4%.*
- Whole Foods Market (WFMI) – The April 33-strike covered calls I sold on 4/01/08 against my long position in WFMI (purchased 03/22/08) expired OTM for a 2-1/2-week net return on the position of about 5.2%.
New positions
Huaneng Power (HNP) – On Wednesday of last week I sold some May 25-strike puts on HNP as the stock declined after the Chinese electricity provider warned of lower profits due to rising coal costs:
Despite a sharp short-term rally in mid March, the stock remains in an intermediate-term downtrend, but may be losing some downside momentum. Near-term downside support is at ~24-25, while upside resistance is at 28-29. The stock seems reasonably valued here and offers a ~5% dividend yield.
Watchlists
Stocks of interest showing up on this week’s “upside strength” scans include Aflac (AFL), Corn Products International (CPO), Dover Corp. (DOV), Eaton Corp. (ETN), Exelon (EXC), Health Care Property Investors (HCP), Health Care REIT (HCN), Overseas Shipholding Group (OSG), Parker Hannifin (PH), Patterson-UTI Energy (PTEN), Pentair (PNR), Rohm & Haas (ROH), and Taiwan Semiconductor Mfg. (TSM).
New and returning “oversold” candidates of interest this week include Abbott Laboratories (ABT), Boyd Gaming (BYD), Brunswick Corp. (BC), and HNI Corp. (HNI).
* As always, the return on “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.
