The best thing to say about today is the market direction didn’t fall lower. With all the worries about the fiscal cliff and today being December options expiry you would have thought we might have fallen a lot lower. But there is underlying strength in the market which you can see everywhere.
With all the fear among investors don’t you think Apple Stock would be lower? On a day like today Apple Stock fell only to $510.24 which is higher than Dec 17 low of $501.23. Again strength being shown. Apple Stock could easily be putting a bottom in place. For put sellers who would own Apple Stock there are all kinds of possibilities. It comes down to your risk factor. For put sellers who would own Apple Stock but only if necessary, there are lots of put credit spread potentials available. Apple stock looks on a day like today that it may be bottoming or darn close to one.
As investors know this is a favorite stock of mine and I have lots of naked puts. For December alone I have puts and covered calls. Many are expiring today and others are being rolled. Even on a day like today, Intel Stock fell to just $20.48 by mid-day.
Coca Cola Stock
Another stalwart and apparently some short selling going on recently by various investors who believe Coca Cola Stock is overvalued. I hope they are right because I would love to own some Coca Cola Stock shares lower, but even today the stock is down just to $36.53.
Toronto Dominion Bank Stock
How about this stock? Earlier the earnings disappointed, the stock fell back I sold puts and even today the stock continues to climb, up another half percent today.
Here’s another Canadian Bank Stock. Earnings recently released which were okay but not fantastic. The Stock has been up every day since and now setting new 52 week highs and continued to climb today.
Another favorite of mine, down just to $43.09 by mid-day after a terrific run and honestly, overvalued for the present economic climate in my opinion. Yet even today this stock which was so weak just weeks ago is hanging on.
Walgreens Stock as investors know I have felt is overvalued once it got over $34.50. It managed to get just above $37.00 and I received about 50 emails from investors wondering if they should be buying back covered calls. Today the stock is falling back to fair value. So if you didn’t sell your covered calls no point in doing so now. Instead for those who did sell, consider buying to close for a very nice profit.
S&P 500 Market Action and the Fiscal Cliff
It’s not the end of the world. I think that was yesterday. Whether the fiscal cliff gets resolved next week or the week after or the week after that does not matter. It will be resolved one way or the other. The importance to take out of this is that investing is about managing risk. The risk over the last few weeks has been whether a deal would be made or not. I don’t think a lot of investors understand just how huge the US economy is and the shape that so many businesses are in. In my article yesterday on the bear turning to bull, I mentioned how 80% of companies have now established long-term debt at historic low levels. Some even sold 100 year bonds at less than 3%! Businesses are in good shape and many have a lot of cash.
The ramifications from the fiscal cliff are unknown if unresolved. The belief by economists that failing to resolve the fiscal cliff will put the US into a “terrible” recession are unfounded except in theory. Like the TARP bill I will not be surprised to see a resolution still come to the fiscal cliff. Once posturing is finally put aside perhaps there will be enough common ground found for a resolution. If not then we will see what the fiscal cliff results are, recession, slowdown or not.
Investing With Risk
Investing is always about risk. But it is that risk that often provides the best reward. The problem for most investors is they cannot see the reward but fear the risk. Instead by using strategies that continue to provide income and protect against risk, investors can stay invested and grow their portfolios. Quality companies will survive the fiscal cliff as they survived the financial crisis, flash crash, 9/11 and a host of other calamities and issues. Those investors who stay with a plan, remain consistent to that plan, invest with an eye to risk versus reward and know what strategies to use and when will always survive and profit.
Today I am selling some puts, watching other naked puts expire, rolling some puts, did two Trading For Pennies Trades and one Spy Puts Hedge trade and I have my 30% of cash available for any larger calamity. I feel very confident going into next week and 2013.