Presented on SKY Business Channel (602) Monday 10.10am
1. As TLS made a new all time low of $2.63 on Friday, what are your observations from the options market?
TLS’ share price is at an interesting juncture at the moment, whilst there are a few headwinds facing the stock at the moment – like the risk of not maintaining its dividend and the yet to be finalised NBN deal, at $2.63 a share there are definitely two camps out there on the stock. There are those who think its cheap whilst others may think a new low is on its way. Let’s see what the options market have to say about the direction of the share price.
Upon preliminary examination of the put /call ratio on Friday it shows an optimistic story, it was at a ratio of 17 times, which means for every put that was traded, there were almost 5.5 more calls traded. If we were to go back three weeks, the story was more telling. Beginning from the week of 6 September, there were heavy volumes of calls traded on TLS leading to it hitting a high of $2.90 during the week, the put/call ratio then was 0.57; the bullish indicator co-incided with the stock rising. Then there was a switch the week after, two weeks ago with the put/call ratio switching to a bearish 1.31 as the stock fell. So, what about the week just past when TLS reached a new low of $2.63? The put/call ratio was a bullish 0.48, more bullish then three weeks ago when the stock was rising. Bottom line, the actions in the options market is suggesting that the stock is searching for its bottom price range and the strength of the bull camp may be outweighing the bear camp.
However, even if all these observations are inaccurate, the strategy of buying call options when a stock is searching for a bottom is a good strategy, as it caps losses to money spent on the call. The popular TLS call last week was the TLS Oct10 $2.65 call which closed at 8.5c.
2. The ASX launched the Australian VIX Index last week. How is it tracking so far?
The new Australian VIX Index can be found by typing XVI.ASX at the market depth, just like typing in BHP to find its price. This volatility index is derived over the movement of the S&P/ASX 200 Index which is the XJO. It is the weighted average of the implied volatility of calls and puts of stocks that constitute the XJO index. In essence, it is a measure of investor “fear” factor or a sentiment gauge. The ASX back dated this index and the highest reading of the Australian VIX or the XVI this year was at 34.23 which happened at the depth of the market slide this year when the index dipped to around 4200 late May. The lowest readings are perhaps more relevant to us at the moment. We had low readings twice this year and they were also times when the market was trading close to 5000. The first time was in early January this year when the market reached a high of 4955 on the 11 Jan. The XVI was at 18.87 and second time was on 15 April when the market hit 5000, the XVI was at 17.32. Both these times, the XVI reached mid 15s before climbing back up to those 17/18 levels before the market turned down.
Where are we at, at the moment? On the 23 Sep, the XVI was at 18.31, with a recent low of 17.31, not quite the 15 level. But I think it’s time we watch this VIX very closely for the possible turning point in the market.
With a positive lead from the US and the lack key economic data till end the of week, we may just see the XVI dip further.