Never write a covered call or sell a cash-secured put when there is an upcoming earnings report prior to contract expiration. This is one of the most important rules in the BCI methodology. Adhering to this guideline can create challenges during the heart of earnings season when most companies publicize their financial statements. In our BCI community, when difficulties present themselves our response is “bring it on” With earnings season now upon us, we will use this week’s article to demonstrate how to use our premium member reports to circumnavigate earnings reports challenges. I am writing this article prior to production of the reports published at the end of the October contracts. I strongly urge our members to use the reports dated 10/19 and 10/21 for ETF and stock selections for the November contracts.
Eligible November contract candidates from the Premium Stock Reports
Stocks that reported during the October contracts will be eligible for the November contracts. These stocks are highlighted in gold in the previous week’s report:
The red arrow points to one of the five candidates with inadequate option open interest so there are four candidates eligible for the November contracts in this area. We also find two more stocks that report in the December and January contracts as we scroll down the report:
In addition to the six eligible candidates located so far, many of the stocks that report during the November contracts have Weekly options associated with them. This means that we can use the securities in the three of the four contract weeks. Granted we will lose some premium income but it will be worth it to avoid earnings report risk. The screenshot below shows some of these potential candidates with Weekly options:
Eligible November contract candidates from the Premium ETF Reports
Exchange-traded funds (ETFs) do not represent earnings report risk since they are baskets of securities with some reporting favorably and others unfavorably and they tend to balance themselves out. Each report normally produces between 20 -25 eligible candidates to select from:
It is critical to avoid the risk of an earnings report disappointment. Since most securities report during earnings season (January, April, July and October) there are apparent challenges funding our option-selling portfolios four months per calendar year. We overcome these challenges by using stocks that report in other contract months, by using stocks with Weekly options and by incorporating ETFs into our portfolios those months.
Upcoming live events
October 17th, 2016
November 5, 2016
Plainview, New York
Saturday morning 3-hour workshop at the Plainview Holiday Inn. I am the only speaker and plan an information-packed presentation covering 5 actionable ways to make money or buy a stock at a discount using both call and put options. We will also evaluate the stocks you currently own for option-selling.
December 6, 2016
Options Industry Council Webinar Summit
Tuesday afternoon…information to follow:
Global dropped slightly this week, weighed down by a firmer US dollar and rising long-term interest rates amid concerns over the Chinese economy. Volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), rose to 16.12 this week from 13.4 a week ago. Oil prices held steady above $50 per barrel. This week’s reports and international news of importance:
- The minutes of the September meeting of the FOMC, the US Federal Reserve’s rate setting committee, show that several officials felt a rate hike is needed “fairly soon,” and that a reasonable argument could be made for either an increase at that (September) meeting or after receiving additional information on the labor market or inflation
- The FOMC next meets in November, a few days before the presidential election. Most observers expect the committee to wait until the December meeting to hike rates
- UK long-term yields have risen sharply in the past month, more than doubling from 0.52% on August 12 to 1.10% today. A plunging pound has increased inflation expectations, but has also boosted the FTSE 100, which is made up primarily of multinationals, many of which will benefit from favorable currency translation when overseas earnings are brought home to the United Kingdom
- Chinese exports declined 10% in September. Imports fell too, down 1.9% from the prior month
- Offsetting the trade gloom somewhat was the first rise in Chinese producer prices in nearly five years, reported Friday. Producer prices rose 0.1% year over year in September, ending a price slump that began in January 2012
- Like the UK economy, the eurozone economy appears to be taking Brexit mostly in stride, and data released this week were mostly upbeat
- German exports climbed 5.4% in August, the biggest rise since 2010. Investor confidence in Germany improved as well, with the ZEW index rising to 6.2 in October from 0.5 in September
- Eurozone industrial production beat expectations, jumping 1.6% in August
- OPEC has never pumped more oil than it did last month. According to the International Energy Agency, OPEC produced 33.64 million barrels of oil per day in September. World production peaked a year ago, at 97.2 million barrels per day, in September 2015. Over the past year, OPEC production has risen 900,000 barrels per day
- US retail sales rose 0.6% in September, while August sales figures were revised to -0.2% from an initial 0.3%. Combined with sold employment figures, this reinforces the idea that the Fed will hike rates before the end of the year
- US weekly jobless claims this week held at their lowest level since 1973, when the economy and population were significantly smaller than today
THE WEEK AHEAD
- The United Kingdom reports retail sales and consumer price data on Tuesday, October 18th
- US CPI data is released on Tuesday, October 18th
- China reports Q3 GDP on Wednesday, October 19th
- The Bank of Canada’s rate setting committee meets on Wednesday, October 19th
- The European Central Bank’s Governing Council meets on Thursday, October 20th
For the week, the S&P 500 declined by 0.96% for a year-to-date return of +4.36%.
IBD: Uptrend under pressure
GMI: 1/6- Sell signal since market close of October 12, 2016
BCI: My positions for the October contracts continue to favor in-the-money strikes 2-to-1. I’m leaning slightly defensive because of the upcoming election and Fed watch.
WHAT THE BROAD MARKET INDICATORS (S&P 500 AND VIX) ARE TELLING US
The charts point to a neutral to slightly bearish outlook. In the past six months the S&P 500 rose by 4% while the VIX rose by 17%.
Wishing you the best in investing,
Alan ([email protected])