Looking at the awc chart, the $2 level seems like a key support level for AWC. Having retraced from a high of $2.28 on 5 Nov down to early $2 (that’s a 12% retracement), arguably it can bounce off support here.However, there is also the risk that it won’t.
Options actions are favouring the latter (that it will break the $2 support level). Last week, its put/call ratio started to turn bearish. There were large trades which looked like downside protection went through on Friday as well.
This will be an interesting one to watch. I am on the bearish side on this one.
TLS touched a new low of $2.55 last week and closed higher on Friday at $2.62. Are we seeing a recovery in the stock or is it just a short spike?
Based on options actions, the pendulum has swung on TLS. Last week when the stock touched its new low of $2.55, it was the most positive for the stock in as many as the last 5 weeks. It’s put/call ratio was 0.29, an improvement from 0.51 the week before (when TLS was higher), with volume doubling last week. On top of that, implied volatility for its near term Dec10 options has spiked.
Traders are going for a short bullish ride on TLS by buying the Dec10 call options. The popular ones are Dec 300, 325, 275 and 270.
WPL has fallen almost 12% in the last 2 weeks. Closing near to the $41 level on Friday, it may be starting to look attractive for investors. But what are the options actions saying?
Still negative. The put/call ratio for the traded call and puts for WPL has turned negative 2 weeks ago coincided with the stock plunging from $46.40 to the $41 level. Its Open Interests are equally bearish.
But, there is one divergence in its indicators. It’s implied volatilities have not spiked in the plunge, in fact they are still near to historical levels.
With this divergence and WPL nearing support level, the stock may recover from this low level with the encouragement of some catalysts like recovery in oil price.
5 min – 16 Nov 2010
Chen Wai-Yee, head of derivatives at RBS Morgans is bullish on Australia’s Bluescope Steel. Discussing her strategy with CNBC’s Oriel Morrison…
Wed. Nov. 17 2010 | 2:51 PM[05:26]
1. Buy call option
Dec10 $2.06 strike for 7c dr. (at $2.02 for BSL, lower than 7c if BSL is lower)
Breakeven profit point is $2.13 ($2.06 + 7c)
Pros: unlimited upside, limited downside
Cons: cash flow negative and suffers from time erosion
2. Sell put option
Dec10 $2.06 strike for 12c cr. (at $2.02 for BSL, higher than 12c if BSL is lower)
Breakeven purchase price of shares (if assigned) is $1.94 ($2.06 – 12c)
Pros: cash flow positive upfront, potential to buy shares cheaper
Cons: upside capped (only suitable for mildly positive share) and downside unlimited (capped at $0, just like any shareholder).
Which is better?
Depends on investor’s view on the share.
Mostly, BSL will grind at this lower end to search for a bottom. If the expecatation is that BSL will most likely go mildly up and stay above $2.06 for the next 36 days, then, selling put is more suitable.
The S&P/ASX 200 Index (XJO) has enjoyed a nice upward rally of close to 10% in the last two months (from 4315 points on 30 August to 4815 points reached on 5 November).
The question in investors mind now may be “Has it reached its near-term peak?” The Index has not been able to stay decisively above 4800 and has deteriorated last week to around 4700 level.
Observing its put/call ratio, it has deteriorated as well, last week. In the 11 week rise of the Index in late August to early November of about 434 points (10%), the put/call ratio on the index had been in a range of 0.85 to 1.4, but mostly at the average of 1.2. Last week, though, it had a reading of 1.84, with a heavier bias on the puts traded.
This may be signaling more investors have taken up portfolio protection or hedging using the XJO and/or traders are increasingly punting on the bearish side of the market in the near term.
For those who are cautious, it’s time to consider some portfolio insurance.