Relief rally? Bear market head fake?
Who knows … but at least we are benefiting from positive price action today in this short week after yesterday’s market holiday. Stock trading got a much needed a day-off from the constant blast of news, bad economic data, and fearless future forecasts.
All of our Triple Play Income positions are trading higher this morning … anywhere from 1% to 5%. We have a number of uncovered stock positions in the portfolio but implied volatility remains relatively low. That makes it a challenge to sell out of the money options at or near our entry prices and collect a reasonable premium.
After the price destruction in the market over the last 10 days, it will take a few more days of a more stable market to get back to where we can sell calls at attractive prices. Let’s be patient and wait another day or two before we jump back in.
Meanwhile, here is an update on several of our positions.
Philip Morris (PM): 98.48
Last week we had a 17 Jun 103 put position in Philip Morris that we knew we couldn’t roll down and we had the ex-dividend date coming up next Wednesday (6/29). The write-up for taking assignment was supposed to be in the alert we did last Thursday (6/16) and was dropped accidentally from the email. Our apologies for not getting that in.
However, the plan all along was to take assignment of PM stock ahead of the ex-dividend date … and then start selling covered calls.
Philip Morris has traditionally been viewed as a “defensive” stock … stable long-term sales with high profit margins along with steady cashflow and a consistent dividend payment. But the stock could also be viewed as “over-valued” in the $90 to $100 range with a higher forward P/E of 17. The company has exposure in Russia and Ukraine … and management has been moving to extract their business and manufacturing plants from Russia.
The other threat? There is a move by the current administration to reduce nicotine levels for cigarettes sold in the US to where they are almost non-addictive. Philip Morris’ business is 98% outside this country and likely not to see any immediate impact on their sales. But when this is announced, we would expect selling pressure across all of the tobacco stocks.
We are setting up to earn our dividend next week and then we will look at how to manage this position longer term. We are also researching other potential Triple Play Income positions in “defensive” stocks if we need to replace Philip Morris in the coming months.
ACTION: No action
Blackstone (BX): 93.14
Blackstone has been one of the more over-valued stocks in our portfolio and it still shows with a higher implied volatility in the options. BX stock has sold off by 30% since the winter but with careful trade management, we can still collect 1% to 1.5% selling calls 8% to 10% out of the money.
No change in the company’s ability to deliver on its strategic business plan … sales and profits rose again during the first quarter. The next earnings report on 7/21 will be the real tell for BX and its business operations. For now, we will sit tight and look to sell a covered call later this week.
ACTION: No action.
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