J.C. Penney (NYSE: JCP) bounced from an all-time low of $4.90 in early February. Shares went on to double in less than three months but have since pulled back slightly.  The extreme lows did not see new highs in volatility, representing a bullish divergence. This is a sign that a bottom has been put in place. The $8 level is a technical price pivot in the wide basing pattern since October. Midpoint support of the $10 to $5 trading channel sits at $7.50. #-ad_banner-#If you are comfortable holding on to this inexpensive stock… Read More

J.C. Penney (NYSE: JCP) bounced from an all-time low of $4.90 in early February. Shares went on to double in less than three months but have since pulled back slightly.  The extreme lows did not see new highs in volatility, representing a bullish divergence. This is a sign that a bottom has been put in place. The $8 level is a technical price pivot in the wide basing pattern since October. Midpoint support of the $10 to $5 trading channel sits at $7.50. #-ad_banner-#If you are comfortable holding on to this inexpensive stock for a potential recovery, then selling puts could allow you to collect income while you wait to get into JCP at a 13% discount. While the typical investor might use a limit order to buy a stock or ETF at a designated price or lower, the options trader can do one better by selling a cash-secured put option. This strategy has the same mathematical risk profile as a covered call. When selling puts, there is an obligation to buy the stock at the option’s strike price if it is assigned, allowing you to get into the… Read More

Check out this headline, “Study: Preschoolers Better at Figuring out How Gadgets Work than College Students.” At first, it had me scratching my head. How could this be possible? But then I figured it out. Preschoolers were more open-minded. They were willing to think outside of the box to solve problems. #-ad_banner-#The Wall Street Journal quoted the research team saying “the best and brightest college students acted as if the machine would always follow the common and obvious rule, even when we showed them how it might work.” That says a lot about human nature. Human beings build barriers to… Read More

Check out this headline, “Study: Preschoolers Better at Figuring out How Gadgets Work than College Students.” At first, it had me scratching my head. How could this be possible? But then I figured it out. Preschoolers were more open-minded. They were willing to think outside of the box to solve problems. #-ad_banner-#The Wall Street Journal quoted the research team saying “the best and brightest college students acted as if the machine would always follow the common and obvious rule, even when we showed them how it might work.” That says a lot about human nature. Human beings build barriers to change. The older we get, the more close-minded we become. It also provides a lesson for investing. The common and obvious rule is that buying stocks is a good way to build wealth. But the unconventional rule says that there is an even better way. You see, clinging to just one strategy and resisting evolution in a dynamic market can be costly, even downright risky. Imagine playing chess and sticking only to one strategy… it might work for a couple of games, but as your opponent evolves and realizes your one strategy, you may never win another game. Yet, we’re… Read More

This is no doubt a tough market to trade. Stocks seem to be levitating over a pit of ravenous bears. On average, taking big short positions has been a losing proposition for investors, as many stocks have managed to climb higher in the face of uncertainly. If you are going to go short, there better be a darn good reason to do so. Even though momentum stocks may look overpriced, it’s safer to use less volatile stocks in this market environment. Traders should also use stop-loss orders and have realistic expectations. One stock that I am willing to bet… Read More

This is no doubt a tough market to trade. Stocks seem to be levitating over a pit of ravenous bears. On average, taking big short positions has been a losing proposition for investors, as many stocks have managed to climb higher in the face of uncertainly. If you are going to go short, there better be a darn good reason to do so. Even though momentum stocks may look overpriced, it’s safer to use less volatile stocks in this market environment. Traders should also use stop-loss orders and have realistic expectations. One stock that I am willing to bet against here is General Motors (NYSE: GM). The company has been recalling vehicles in large numbers. In December, the automaker recalled 1.5 million cars produced in China to replace a faulty fuel pump bracket.  In January, it recalled 370,000 Chevy Silverado and GMC Sierra pickups to reprogram software that could lead to overheating of exhaust parts and fires. And of course, there was the massive recall of 2.6 million cars for defective ignition switches. Since January, GM has now recalled more cars than it has sold in all of 2013. Federal authorities are also investigating if the company committed… 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

Selectivity has always been a part of my professional life. Whether it was during my time in the military or in my career as a trader, I quickly realized how important this skill is in determining success or failure. From my time in the Army, I can say with authority that the military is a highly selective group. I spent some time as a recruiter and learned how to evaluate potential recruits. When considering someone for life in the Army, we looked at their test scores (intellectual ability), physical fitness, their height and weight, their character (community involvement and criminal… Read More

Selectivity has always been a part of my professional life. Whether it was during my time in the military or in my career as a trader, I quickly realized how important this skill is in determining success or failure. From my time in the Army, I can say with authority that the military is a highly selective group. I spent some time as a recruiter and learned how to evaluate potential recruits. When considering someone for life in the Army, we looked at their test scores (intellectual ability), physical fitness, their height and weight, their character (community involvement and criminal history) and medical history. Each factor was important and well defined. #-ad_banner-#To succeed in the Army, someone needs to be smart enough to complete fairly complex tasks from memory, fit enough to get out of the way if something goes wrong while helping others get to safety, not so tall that they can’t quickly fit into an armored vehicle under fire and not so small that standard safety equipment will be too big for them. The military lifestyle is a demanding one. Work is often physically and mentally exhausting. Instead of going home to your family at the end of… Read More

The major telecommunication stocks always seem to be in focus in one way or another. When not involved in mergers or acquisitions, or being roiled by lawsuits or federal regulations, they are often the focus of dividend-seeking investors. #-ad_banner-#Last week, we found out that Warren Buffett’s Berkshire Hathaway (NYSE: BRK-B), Paulson & Co. and Third Point added positions in Verizon Communications (NYSE: VZ) when the hedge funds revealed their latest quarterly regulatory filings. This information is obviously on a time lag, but the media and public pay attention nonetheless. And, of course, anytime Buffett makes a big purchase, people… Read More

The major telecommunication stocks always seem to be in focus in one way or another. When not involved in mergers or acquisitions, or being roiled by lawsuits or federal regulations, they are often the focus of dividend-seeking investors. #-ad_banner-#Last week, we found out that Warren Buffett’s Berkshire Hathaway (NYSE: BRK-B), Paulson & Co. and Third Point added positions in Verizon Communications (NYSE: VZ) when the hedge funds revealed their latest quarterly regulatory filings. This information is obviously on a time lag, but the media and public pay attention nonetheless. And, of course, anytime Buffett makes a big purchase, people take notice. In the case of VZ, it’s an 11 million-share stake as of March 31, which is valued at about $530 million.  As a result of the hedge fund news, VZ rallied 2.3% Friday in a technically significant move, and it appears the upside momentum will continue. Before we get to VZ’s chart, let’s take a look at iShares US Telecommunications (NYSE: IYZ). From the depths of early 2009 to the recent highs, IYZ has steadily risen. From a technical perspective, the trend remains intact, so the odds of a continuation are good. On the weekly chart… 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

A trading strategy known as a bull put spread offers the benefits of put-selling while taking on less risk.#-ad_banner-# To initiate a bull put spread, the trader sells a put option and simultaneously purchases another put option on the same underlying asset with the same expiration date but a lower strike price. A net credit is collected, and while you generate less income than you would by selling a put alone, the purchased put acts as insurance against big losses. Today, I want to look at a specific bull put spread trade in Micron… Read More

A trading strategy known as a bull put spread offers the benefits of put-selling while taking on less risk.#-ad_banner-# To initiate a bull put spread, the trader sells a put option and simultaneously purchases another put option on the same underlying asset with the same expiration date but a lower strike price. A net credit is collected, and while you generate less income than you would by selling a put alone, the purchased put acts as insurance against big losses. Today, I want to look at a specific bull put spread trade in Micron Technology (Nasdaq: MU). Because we may be obligated to buy shares of the underlying stock with this strategy, it is important that we be willing to own the shares at the strike price of the put being sold. Therefore, I’ll take a moment to discuss why I am bullish on MU. Micron Technology manufactures semiconductors, memory chips, various flash memory drives and other related products worldwide that are used in smartphones, solid-state drives, tablets and computers, as well as in other industrial and automotive applications. From a technical point of view, MU is in a long uptrend.  It… Read More

It goes without saying that Warren Buffett is one of the greatest investors of all time. His net worth jumped to $59 billion in 2013, ranking him as one of the very richest people in the world. His average annual return of 20% in the past 55 years doesn’t just put him ahead of all peers… it means he doesn’t even have any peers. Buffett’s success in the stock market has been driven by an ultra-conservative investment style. Like many of us, Buffett loves a great deal. He only puts his money into undervalued businesses. Buffett is so famously risk-averse… Read More

It goes without saying that Warren Buffett is one of the greatest investors of all time. His net worth jumped to $59 billion in 2013, ranking him as one of the very richest people in the world. His average annual return of 20% in the past 55 years doesn’t just put him ahead of all peers… it means he doesn’t even have any peers. Buffett’s success in the stock market has been driven by an ultra-conservative investment style. Like many of us, Buffett loves a great deal. He only puts his money into undervalued businesses. Buffett is so famously risk-averse that he refuses to own technology companies. But Buffett doesn’t just sit around and wait for a great deal on a stock he wants to own. In fact, one of his favorite investment strategies allows for him to buy a stock at the exact low price he wants, all while generating huge streams of income. #-ad_banner-#You don’t have to be a billionaire to do this either. Any investor can use this trick. Buffett’s passion for value and a great deal was on display in the financial crisis of 2008. He lent Goldman Sachs $5 billion at the height of 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