Richard Croft, president and chief investment officer at R.N. Croft Financial Group

Focus: Options and ETFs
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MARKET OUTLOOK: GLOBAL EXPANSION CONTINUES
It’s official. We are now experiencing the third-longest economic expansion in history. If this continues into 2019 it will become the longest expansion in history, a fact that is disconcerting for many economists and those who analyze stock market performance.

On the latter point, which is the focus of our clients, are concerns about investor sentiment, rising interest rates and equity price to earnings multiples.

In terms of investor sentiment, we see two sides of the same coin. On one side, we note that investors are complacent based on data from the CBOE Volatility Index. The VIX measures the implied volatility on the S&P 500 composite index and acts as a gauge to quantify investors’ tolerance for risk. When the VIX is low it is telling us that investors have a high tolerance for risk, which is simply another way of saying that investors are sanguine.

On the other side, we note that individual investors are worried about the speed and slope of the rally in stocks since the financial crisis. Among individual investors this has been the most unloved bull market in recent memory. Individual investors — not institutions — live in fear of a major market meltdown and for the most part, have been sitting on the sidelines. Not fully invested and hesitant to make a leap of faith.

TOP PICKS

Richard Croft's Top Picks

Richard Croft, president of R.N. Croft Financial Group, shares his top picks: PowerShares S&P 500 BuyWrite Portfolio ETF; Wal-Mart; and JPMorgan Chase.

POWERSHARES S&P 500 BUYWRITE PORTFOLIO ETF (PBP.P)

WAL-MART (WMT.N)

JPMORGAN CHASE (JPM.N)
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
PBP N N N
WMT N N Y
JPM N N Y


PAST PICKS: DECEMBER 9, 2016

BANK OF AMERICA (BAC.N) – SYNTHETIC LONG

  • Buy BAC Jan. 25 calls at $2.12 (Now: $1.32)
  • Sell BAC Jan. 25 puts at $4.35 (Now: $2.17)
  • Presumed share per margin: $9.00
  • Total return: 20.4%

MORGAN STANLEY (MS.N) – SYNTHETIC LONG

  • Buy MS Jan. 45 calls at $4.90 (Now: $3.15)
  • Sell MS Jan. 45 puts at $6.75 (Now: $3.25)
  • Presumed share per margin: $16.00
  • Total return: 12.4%

ROYAL BANK OF CANADA (RY.TO) – LONG-TERM CALL

  • Buy RY Jan. 90 call at $4.50
  • Now: $6.30
  • Total return: 40%

TOTAL RETURN AVERAGE: +24.26%
 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
BAC Y Y Y
MS N N N
RY Y Y Y


WEBSITE: www.croftgroup.com
BLOG: www.optionmatters.ca