Precious metals traded lower this spring as investors worried about the potential for interest rates to rise later in the year. After an unprecedented period in which the Federal Reserve has kept interest rates near zero and spent billions of dollars per month buying Treasury bonds, it is now making a calculated exit from its bond-buying program. #-ad_banner-#For investors in gold, one of the primary fears is that the Fed will allow interest rates to rise, which in turn, would lead to a stronger U.S. dollar. As a general rule, gold prices fall when the dollar is rising because a… Read More

Precious metals traded lower this spring as investors worried about the potential for interest rates to rise later in the year. After an unprecedented period in which the Federal Reserve has kept interest rates near zero and spent billions of dollars per month buying Treasury bonds, it is now making a calculated exit from its bond-buying program. #-ad_banner-#For investors in gold, one of the primary fears is that the Fed will allow interest rates to rise, which in turn, would lead to a stronger U.S. dollar. As a general rule, gold prices fall when the dollar is rising because a stronger dollar can buy more ounces of gold for less. Last week, the Federal Reserve completed its scheduled meeting, and as expected, announced a fifth straight $10 billion cut in its monthly bond-buying program. While these cuts are widely expected to be bullish for the U.S. dollar, the Fed also issued a statement noting that it intended to keep the short-term interbank lending rate in a range of zero to 0.25% “for a considerable time after the asset purchase program ends.”  Prices for precious metals jumped on the announcement as it is becoming clear that the Fed will continue to… Read More

There are times when it makes sense to take bullish positions in breakout stocks ahead of long-term advances. And then there are periods when that strategy is dangerous because equities have already advanced to the point where breakouts are prone to failure. #-ad_banner-#In today’s market, in which we have blue-chip indices routinely hitting new highs while small caps have faced more pressure, I am hesitant to buy breakouts. The bull market may still have legs, but many stocks’ valuations are at premium levels, leaving them vulnerable to significant pullbacks. Rather than using our put-selling… Read More

There are times when it makes sense to take bullish positions in breakout stocks ahead of long-term advances. And then there are periods when that strategy is dangerous because equities have already advanced to the point where breakouts are prone to failure. #-ad_banner-#In today’s market, in which we have blue-chip indices routinely hitting new highs while small caps have faced more pressure, I am hesitant to buy breakouts. The bull market may still have legs, but many stocks’ valuations are at premium levels, leaving them vulnerable to significant pullbacks. Rather than using our put-selling strategy on one of the many stocks trading at new highs, I want us to set up an income trade using a stock that has been under pressure and may very well be finding support. Shares of Vale (NYSE: VALE) have closely tracked the spot price for iron ore over the past several quarters. As questions emerge regarding future infrastructure development in China, prices for iron ore have declined. This has been compounded by the fact that the big three iron ore producers, BHP Billiton (NYSE: BHP), Rio Tinto (NYSE: RIO) and Vale, have made significant investments in their infrastructure… Read More

The past five years have been a tumultuous period for U.S. natural gas prices. The widespread use of hydraulic fracturing (aka fracking) to release gas from shale formations revolutionized the industry, dramatically increasing production. As a result of this massive new supply, natural gas prices spiraled lower, briefly dropping below $2 per Mcf (thousand cubic feet) in April 2012. Since that time, spot prices have moved steadily higher as demand has slowly picked up to the point where the supply/demand imbalance is being resolved. #-ad_banner-#We saw a big spike in price this winter, as harsh weather led to… Read More

The past five years have been a tumultuous period for U.S. natural gas prices. The widespread use of hydraulic fracturing (aka fracking) to release gas from shale formations revolutionized the industry, dramatically increasing production. As a result of this massive new supply, natural gas prices spiraled lower, briefly dropping below $2 per Mcf (thousand cubic feet) in April 2012. Since that time, spot prices have moved steadily higher as demand has slowly picked up to the point where the supply/demand imbalance is being resolved. #-ad_banner-#We saw a big spike in price this winter, as harsh weather led to a sharp increase in demand. Prices then settled into a stable pattern near $4.50 per Mcf, which is a higher level than we have seen in the past few years. Companies engaged in natural gas production now have the benefit of selling at higher prices, resulting in wider profit margins. Shares of Ultra Petroleum (NYSE: UPL) look particularly interesting at this juncture, as the company is making some significant investments that will benefit from higher gas prices. In 2012 and 2013, Ultra Petroleum responded to falling natural gas prices by cutting spending on its drilling programs. The company reduced its… Read More

As a general rule, I typically avoid using a put-selling strategy with stable blue-chip stocks. The reason is these slow-moving stocks usually have very low levels of volatility. Low volatility naturally results in lower option prices, which in turn, reduces our level of profits when selling our put options. #-ad_banner-#It is always important for us to consider the level of risk we are taking with our trades, and compare that risk to the level of income we expect to generate. The good thing about selling puts on blue chips is our level of risk… Read More

As a general rule, I typically avoid using a put-selling strategy with stable blue-chip stocks. The reason is these slow-moving stocks usually have very low levels of volatility. Low volatility naturally results in lower option prices, which in turn, reduces our level of profits when selling our put options. #-ad_banner-#It is always important for us to consider the level of risk we are taking with our trades, and compare that risk to the level of income we expect to generate. The good thing about selling puts on blue chips is our level of risk is usually very low. Unfortunately, an anemic level of income makes it somewhat pointless to take these trades when we could be using the capital in more productive areas. Today, we have a unique chance to set up a new income trade on a blue-chip stock that has recently experienced more volatility than usual. In fact, a major transaction is pending that has resulted in a degree of uncertainty among traders. This uncertainty is boosting option premiums, giving us a more attractive level of income despite the underlying stability of this company. AT&T (NYSE: T) made headlines this month when… Read More

Boring has become the new “sexy” for investment managers as they turn away from speculative growth stocks and toward more stable blue-chip names.  #-ad_banner-#Last week, I presented a chart of the S&P 500 compared with the Russell 2000. The difference is remarkable, as capital can be seen flowing out of the small-cap index while the large-cap index is hitting new highs. Today, we have another income opportunity that benefits from this institutional capital rotation toward stability. After all, what could be more stable than a company with a recession-proof portfolio of products that generates reliable revenue month after month? GlaxoSmithKline… Read More

Boring has become the new “sexy” for investment managers as they turn away from speculative growth stocks and toward more stable blue-chip names.  #-ad_banner-#Last week, I presented a chart of the S&P 500 compared with the Russell 2000. The difference is remarkable, as capital can be seen flowing out of the small-cap index while the large-cap index is hitting new highs. Today, we have another income opportunity that benefits from this institutional capital rotation toward stability. After all, what could be more stable than a company with a recession-proof portfolio of products that generates reliable revenue month after month? GlaxoSmithKline (NYSE: GSK) is a well-established drug company that also has an attractive suite of consumer staples products.  This is attractive to money managers right now because analysts can come up with fairly accurate earnings expectations. As a general rule, GSK is expected to continue to sell its drugs and vaccines at a reliable rate (this is a much different business than the biotech drug discovery business), and consumers are going to continue to buy staples like toothpaste and personal products. Another feather in GSK’s cap is the fact that the stock currently has a 4.6% yield, which is at the… Read More

In today’s market, blue-chip stocks are generally fetching a premium because of the stability they offer. Investment managers have begun paring back exposure to speculative, high-multiple growth stocks, and institutional capital has been flowing into large-cap stocks with more stable long-term earnings. The chart below offers a good visual of this transition. Notice that the broader market SPDR S&P 500 (NYSE: SPY) is making new highs, while the iShares Russell 2000 (NYSE: IWM) is well off its March highs. #-ad_banner-#As investors continue to struggle with uncertainty on a number of fronts, capital should continue to flow… Read More

In today’s market, blue-chip stocks are generally fetching a premium because of the stability they offer. Investment managers have begun paring back exposure to speculative, high-multiple growth stocks, and institutional capital has been flowing into large-cap stocks with more stable long-term earnings. The chart below offers a good visual of this transition. Notice that the broader market SPDR S&P 500 (NYSE: SPY) is making new highs, while the iShares Russell 2000 (NYSE: IWM) is well off its March highs. #-ad_banner-#As investors continue to struggle with uncertainty on a number of fronts, capital should continue to flow into “safe” equities and out of speculative names. At this point, I am much more comfortable setting up income trades on blue-chip stocks that are increasingly attractive to institutional investors, as these are likely to hold up well and pose less risk for our put-selling strategy. Shares of General Electric (NYSE: GE) were tarnished during the global financial crisis because of the company’s financial arm, which was subsequently dubbed “a hedge fund in drag.” Despite the fact that GE had a profitable portfolio of industrial business lines, the embedded risk from its derivative positions nearly took… Read More

The capital rotation out of speculative growth stocks continues. #-ad_banner-#This month, we’ve seen Whole Foods Market (Nasdaq: WFM) get crushed after the company missed earnings estimates and reported same store-sales below investor expectations. Shares of speculative tech stocks have also been hit hard, with Twitter (NYSE: TWTR) and LinkedIn (NYSE: LNKD) hitting new 52-week lows, and cloud computing champion Salesforce.com (NYSE: CRM) more than 20% off its late February highs. Interestingly, the declines in high-valuation growth stocks have come at a time when the overall economy is showing signs of a stable recovery. Last week, it was reported that sales… Read More

The capital rotation out of speculative growth stocks continues. #-ad_banner-#This month, we’ve seen Whole Foods Market (Nasdaq: WFM) get crushed after the company missed earnings estimates and reported same store-sales below investor expectations. Shares of speculative tech stocks have also been hit hard, with Twitter (NYSE: TWTR) and LinkedIn (NYSE: LNKD) hitting new 52-week lows, and cloud computing champion Salesforce.com (NYSE: CRM) more than 20% off its late February highs. Interestingly, the declines in high-valuation growth stocks have come at a time when the overall economy is showing signs of a stable recovery. Last week, it was reported that sales of “trophy homes” hit a new record, according to an analysis by DataQuick, and consumer credit posted its largest gain in a year. The increasingly bullish economic picture has given the Federal Reserve more latitude to continue tapering its bond-buying program. And perhaps the prospect of higher interest rates is to blame for driving institutional investment managers out of speculative stocks and into more stable blue-chip securities. With interest rates still near historic lows, it is easier to justify long-term speculation on growth stocks because it is possible to wait nearly indefinitely for companies to generate profits. But rising rates… Read More

It has been more than three years since the Fukushima nuclear power plant was crippled by a tsunami, spewing radioactive material into the environment. Similar to the way in which nuclear radiation lingers for an extended time, the financial and political effects of the disaster continue to affect nuclear power generation across the world. #-ad_banner-#Shortly after the Fukushima disaster, the Japanese government made the decision to shut down its 50 remaining nuclear power plants, with Germany following suit and committing to accelerate its decommissioning of nuclear power generation. Even China got in on the act, demanding an accurate… Read More

It has been more than three years since the Fukushima nuclear power plant was crippled by a tsunami, spewing radioactive material into the environment. Similar to the way in which nuclear radiation lingers for an extended time, the financial and political effects of the disaster continue to affect nuclear power generation across the world. #-ad_banner-#Shortly after the Fukushima disaster, the Japanese government made the decision to shut down its 50 remaining nuclear power plants, with Germany following suit and committing to accelerate its decommissioning of nuclear power generation. Even China got in on the act, demanding an accurate account from Japan so it could apply the disaster’s lessons to its own nuclear power initiatives. With so much talk of reducing nuclear power generation, demand for uranium has been on the downswing. This has pressured profit margins for companies that produce uranium. But we may now be at the point where sentiment has reached its ultimate low. Prospects for uranium demand are starting to improve. China in particular should help drive demand for uranium as the country continues to build out its nuclear power program. In fact, there are several state-owned nuclear companies that are gearing up for initial… Read More

One of today’s most exciting investment themes revolves around the electric car market. At the center of this trend is Tesla Motors (Nasdaq: TSLA), which is becoming a commanding force both as an auto manufacturer and a dynamic growth stock. In 2013, the company delivered 22,477 electric vehicles to customers. Tesla plans to boost that number to a half-million vehicles per year by the end of the decade. That ambitious plan has not gone unnoticed by investors, who have driven the share price up more than 650% from the beginning of last… Read More

One of today’s most exciting investment themes revolves around the electric car market. At the center of this trend is Tesla Motors (Nasdaq: TSLA), which is becoming a commanding force both as an auto manufacturer and a dynamic growth stock. In 2013, the company delivered 22,477 electric vehicles to customers. Tesla plans to boost that number to a half-million vehicles per year by the end of the decade. That ambitious plan has not gone unnoticed by investors, who have driven the share price up more than 650% from the beginning of last year to the stock’s peak in February. #-ad_banner-#But while the electric vehicle market looks like an exceptional growth industry, shares of TSLA now appear vulnerable. The stock is trading at more than 100 times expected earnings for this year — and this despite a nearly 30% drop in just the past two months. Although I consider TSLA to be far too risky for investors right now, that doesn’t mean we can’t participate in this industry. In fact, today I have an income trade directly tied to growing demand for electric vehicles that should generate more than 39% per… Read More

Shares of energy producer Encana (NYSE: ECA) have been moving steadily higher since January. In fact, while the S&P 500 Index is only up about 2% for the year, ECA investors have enjoyed a gain of 18% on their stock position. And this doesn’t even include the $0.07 dividend the company paid to investors of record on March 12. #-ad_banner-#Of course, one of the challenges with a runaway stock like ECA is that it is difficult to jump on board once it has already begun to trade sharply higher. Investors who buy at… Read More

Shares of energy producer Encana (NYSE: ECA) have been moving steadily higher since January. In fact, while the S&P 500 Index is only up about 2% for the year, ECA investors have enjoyed a gain of 18% on their stock position. And this doesn’t even include the $0.07 dividend the company paid to investors of record on March 12. #-ad_banner-#Of course, one of the challenges with a runaway stock like ECA is that it is difficult to jump on board once it has already begun to trade sharply higher. Investors who buy at new highs risk purchasing the stock at a peak, only to see the price pull back. But investors who decide to wait until the stock pulls back could find themselves on the sidelines while potential profits are missed and the stock continues to trend higher. Selling puts for income is a good way to participate in a stock that has established a strong bullish trend, while avoiding the risk of purchasing at the peak of that trend. By selling puts against the stock, we commit to buying shares if the stock pulls back below the strike… Read More