Stockstalk Thinking Out Loud April 3, 2017

Hi, and welcome to Stockstalk. We’ve gotten some feedback (both good and bad) on some of the changes that Steven and I have tried and we appreciate it. I’ll be sending out an anonymous survey in the next couple days to gauge interest on different aspects of the market and this newsletter, any honest opinions would be helpful.

But in the meantime we had a few market events, which we need to be aware of only as they affect underlying sentiment. Do Brexit, US Fed interest hikes, Trump tweets, or whatever really affect the bottom line of Precision Drilling, Microsoft, Apple, Birchcliff, or Franco-Nevada? If life were fair probably not. Technically option prices are directly affected by interest rate changes (an interest rate hike would make the Black-Scholes model increase the value of call options out of the money, and decrease the value of puts… Not much for shorter term expiries, more noticeable on LEAPs). But the news helps create the mood traders are in, for better or for worse. Even it we see a stock with great fundamentals, fantastic chart, sector in season, and even like it, if the whole market is fluctuating it can have an effect on any one stock/ETF. And until the past week, the general direction was gradual uptrend, which most people don’t seem to mind.

There was more Brexit news last week. Article 50 was officially triggered and the clock is ticking until March 2019 for all the trade agreements to settle. Euro and pound dropped a bit, the rest of the market seemed to have it priced in. It’s getting harder to “buy the rumour, sell the news” with a faster-paced INDU/SPY, but the reversals have been just as quick. Fed meeting minutes will come out Wednesday and US employment is expected to stay at 4.7% on Friday (well, ShadowStats still has unemployment over 22%, but that’s not tradable news).

So it should be a relatively quiet week for selling calls.

MSFT was down $0.31 today, so it was a decent day to buy back any weekly options for 07 April 2017. The $65 strike dropped a third in value, so depending on the entry point saving the assignment commission can be a strategy. My Dad was a big fan of rolling options over right away. Buying back this Fridays $65 for 60 cents and selling next weeks for 90 cents could be worth it with at least several contracts. I’m more of a limit-order-guy when it comes to covered calls. Most of the time in a market with a bit of choppiness it’s possible to make another 10% on a rolling over trade by picking sell price above market and waiting a bit to see if it gets filled. Then I’ll put in a good-til-day limit sell and see how it goes. The benefit to rolling over the options quickly is to keep the time factor money deposited into the account. Five days away on a stock like MSFT there’s about 3 cents worth of time decay today. Going out till next Friday there’s about 5 cents of time decay for tomorrow. So if the call is rolled out until next week and the spread between the limit prices can be filled at more than a nickel more, it does pay to be a little more patient. Or at least covers the commission anyway.

Precision Drilling (PD.TO) also bounced around a bit. Seems to be basing out a bottom and kept off it’s 10-day moving average. It looks decent and it’s certainly possible to sell a 21 May 2017 call for 45 cents and pick up 6.5% after commissions for six weeks. Not bad for a days work. As I mentioned last time it is moving into a period of seasonal strength though, so one might be tempted to roll up a call just as the sell-in-May-fever comes around. The 21 July 2017 $6 is around 70 cents for 2 extra months, but there’s probably time on this one. Good to watch.

Franco-Nevada (FNV.TO) had a good upswing today. It’s also coming into it’s seasonal period and almost reached it’s short-term resistance at $90 today. My Dad was selling calls on this in his RRIF for income and that was working. FNV is slightly more volatile so it does need more attention. The more volatile the higher the premiums go so there is a benefit for the effort. The options are quite liquid, so the decisions are always reversible.

Just a note on one of the Chinese companies Steven mentioned the other day. Tencent just bought a 5% stake in Tesla, and there was a news release last week that one of the patched VMWare bugs was found by them. They may not be listed on any NY exchange, but they certainly are playing a part in some of the other companies there. Even our new Trudeau is buddying-up. Steven’s a lot more familiar with China, just seems there will continue to be more news on that front than less.

For those interested in technical analysis we’ll be having a meeting at the library on Wednesday. I still have to confirm the speaker tomorrow, but we will be there. I also live stream the meetings so if you happen to be interested in the CSTA but can’t physically make it, let me know and I can send you a link.

On a sadder note Lee Walker passed away last week. I’d only known him for the past few years through the CSTA, but we lived very close so my Dad would pick the two of us up and we’d go to the meetings together. He was a funny guy. At the service on Sunday I saw pictures of the young Lee… quite a handsome fellow. That means he married in spite of his humour. Everyone had a funny story about Lee. I saw firsthand how he could lighten a room. And he did like his Point & Figure charts. He will be missed.

Trump Launches Missiles, Oil and GOLD Go Up

In a move that the Twittersphere says is a ‘wag the dog’ distraction from the rest of his presidency, US President Trump has ordered his army to fire a few missiles into Syria after the gas attack a few days ago. Apparently Russia was supposed to have secured and captured this gas and its makers a few years ago but failed to do so, and so Trump has stepped in. And Hey, what happened to the concern about Ukraine?

Today’s events have roiled markets and have now given us the pullback that is needed to reset things. Further, both WTIC and GOLD have jumped, the one because of the uncertainty of Middle East oil, the other because it’s a safe haven trade. Both commodites have moved despite the USD staying relatively stable.

We wonder how US arms manufacturers will do tomorrow. Same with BANKS as they have been precariously perched for the last little while.

We don’t have the charts in front of us but there is research out there that shows markets can drop suddenly because of events like these but also tend to rebound in sharp ‘V’ patterns.

In terms of our Portfolio, we got rid of LABU a few days ago, luckily before its big drop, and entered into another position of NUGT. We still hold and and a couple CALLs on

These events in Syria should roil the markets. How will Russia react both militarily and in terms of its markets? How long will this conflict last in an area already decimated by turmoil? Is this Trump’s answer to Bush’s Iraq invasion? Lots of questions, few answers.