Month: January 2011

Options on Egypt unrest

With the built-up of unrest in Egypt, oil price and gold jumped, $3.70 and $22.82 respectively.

How can we take advantage of the price movement?

1. Oil

Out of the three key oil stocks, OSH (Oil Search) has underperformed oil price (and the index significantly).

In the last month, OSH has fallen 6.4% whilst oil price fell 4.4%, OSH underperformed.

STO (Santos) on the other hand rose 2% , whilst WPL (Woodside Petroleum) fell 1.6%, both better than the oil price.

Observing the options actions on all three stocks though, WPL has been displaying negative put/call ratio sentiment for more than two and a half weeks now. Last week, its put/call ratio was 2 times more puts than calls traded. OSH though has been gradually improving on its indicators.

You will see from the chart below that whilst OSH (red) has retraced in the short term, it has remained in a positive trend whilst WPL (blue) may have more underperformance to come.

The chart of daily prices over 6 months for security OSH

Out of the three, OSH looks like a better bet on the oil play.

2. gold

NCM has fallen 10% versus gold price which has lost 5% in the last month to 30 Dec (and significantly underperformed a flat S&P/ASX200 (XJO) index)

The chart of daily prices over 6 months for security NCM

Gold has been sold off as fear seemed to have precipitated in the last month, but NCM has been sold off more.

Its volatility has remain high with put/call ratio indicators being negative from last week. Traders may have been caught surprise by the jump in gold price overnite.

With the jump in gold price and volatility to follow suit, those who are looking jump in may augur will by selling put options in NCM.

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Full day options courses in Penang and KL

A Securities Commission CPE-accredited course for Financial Planning Association of Malaysia

Title:              How to Invest Sensibly With Options

Date:               15th April 2011

Venue:            Gurney Hotel, Penang

To register for Penang,

http://www.fpam.org.my/fpam/wp-content/uploads/2010/04/ce-penang-110415-c.doc

and

Date:               20 April 2011

Venue:            Dewan Berjaya, Bukit Kiara Equestrian & Country Resort, KL

Instructor:   Ms. Wai-Yee Chen

To register for KL,

http://www.fpam.org.my/fpam/wp-content/uploads/2010/04/reg-ce-110420-b.doc

CE COURSE OUTLINE 

Objective:

 

Selling or writing options for income is a strategy that is touted by many option operators as a profitable short term trading tool with even “outrageous” promises like several hundred percent of return in the short term. Many unsuspecting investors are attracted to them and then spend thousands of dollars in learning this money-making skill before travelling down the path of trading options without having proper understanding of the inherent risks and some even to disastrous results.

Whilst writing options can be a lucrative money-making tool, so can it be a lethal money-losing vehicle as the inherent gearing in the underlying strategies are extremely high. The purpose of this course is to provide an objective and unbiased learning of these popular options strategies, with not just the money-making strategies being taught but the inherent risks of each and potential pitfalls including mental traps are highlighted with up-front strategies and defenses taught alongside them.

Learning Outcome

 

By attending the course, participants will be able to understand:

1.  The key concepts in options and the variables that affect them

2.  How to use options successfully by taking advantage of its inherent attributes

3.  How to de-construct and then construct option strategies to meet objectives/criteria

4.  How to determine the variables for each strategy

5.  The inherent risks of each strategy and the necessary risk management strategy according    to specific risk profile

6.  How to apply common option strategies for hedging, building portfolios and selling shares

7.  How to manage option positions that do not go according to plan

8.  How to establish a workable individual options investment plan

9.  Some working knowledge of the Australian stock market and Australian exchange traded options (ETOs)

 

Time   Function/Paper Title
9.30 – 10.00 am  Registration
10.00 – 10.30 am Foundation Building The nine key concepts which forms the foundations in understanding options.
10.30 – 12.00 pm Portfolio Hedging Strategies The required pre-qualifying conditions, the expected outcomes and accompanying risks of each of the first four hedging strategies with index and equities options are expounded respectively. Participants learn how to identify and apply the relevant strategies according to their views, objectives and risk profiles. Use of KLCIO will be discussed.

Breakeven prices, Delta, Perfect hedging, Endowment trap and Capital Gains Tax trap

 
12.00 – 12.15 pm  Coffee break
12.15 – 1.00 pm What is not Hedging The understanding of when hedging strategies like shorting become aggressive trading strategies.

Risk Margins, Margin Interval Percentage, Impact of volatility

 
1.00 –2.00 pm Combination and Portfolio Hedging Strategies Advanced hedging strategies like Collar and Ratios are explained and all strategies are pulled together to help participants establish a portfolio approach to hedging to meet cash flow requirements and objectives.

 
2.00 – 3.00 pm  Lunch break
3.00 – 4.30 pm Portfolio Building Strategies The six portfolio building strategies are expounded. Participants learn how to identify the relevant strategies based on their views of the underlying investment conditions, objectives to be achieved, risk profiles and cash flow requirements.

Eligible collateral, Margin escalation defense strategies, the Aversion trap
4.30 – 4.45 pm  Coffee break
4.45 – 5.30 pm How To Manage Options Portfolio Participants will learn how to manage an options portfolio on an on-going basis and what to do when strategies do not happen according to plan.

 
 5.30 – 6.00 pm Creating An Options Investment Plan for a Malaysian Investor This will be run like an open forum for participants to share knowledge learn from the course, how they can be applied to the Malaysian conditions in view of what is available to investors locally and overseas. Participants will be encouraged to establish an Options Investment Plan applicable to their individual objectives and risk profile.

 

Profile of Ms. Wai-Yee Chen

 

Wai-Yee Chen has been helping investors make sound financial decisions since 1996. She is currently Head of Derivatives and Co-Principal of RBS Morgans Grosvenor in Sydney, a managed office of RBS Morgans, one of Australia’s largest stockbroking and financial planning firm servicing more than 300,000 clients with 500 Advisors and 840 staff, operating from 55 offices in all states and territories.

Wai-Yee is a Certified Practising Accountant, a qualified financial planner with a Diploma in Financial Planning from the Financial Planning Association of Australia, received a Masters in Applied Finance from Macquarie University and holds a Level 2 Derivatives Accreditation from the ASX.

Whilst providing her clients full investment advice from fixed interest products, managed funds to direct shares and derivatives, her unique expertise is in the use of Options to enhance share portfolio returns.

Well-respected by her peers, Wai-Yee shares her knowledge regularly with the wider public by presenting live options commentaries on TV with Sky Business Channel and CNBC and addressing different investor groups at various Expos and Conferences both locally and in Asia. Wai-Yee also lectures in options for Industry Associations like Stockbrokers’ Association of Australia and Financial Planning Associations and is a regular contributor of options articles to leading edge investment magazines like Your Trading Edge and Wealth Creators.

Wai-Yee believes personally tailored option strategies are suitable to all investors, not just traders and high-risk speculators. In her usual clear and simple style of explaining options, Wai-Yee has helped set many investors in the successful journey of embracing options in their investments.

OptionsWise How to invest sensibly,  her first book, serves as a step-by-step user manual for the investor who wants a sustainable source of income and a sensible way of investing with options. OptionsWise demonstrates the importance of an investment plan and of managing emotions as well as money. You are invited to visit her blog at www.optionswise.wordpress.com to find out more of her options strategies and ideas.

Wai-Yee’s passion is to help people from all walks of life manage their financial issues and as a result enjoy money and life. Wai-Yee lives in Sydney with her husband and three children.

Full day options courses in Sydney CBD

Some investors I met last year in conferences and expos have enquired if I offer options courses. Having to juggle trading and advisory during the day and fitting in a normal life with the family in the evening, makes it challenging to block out a day to offer full day courses.

Having said that, I did run some courses last year for the industry, with SAA for Advisers in Australia and FPAM for the planners and a wider industry professionals in Malaysia.

This year, I will continue to so (for Advisers) and will extend the offer to a wider group of investors as well. I believe this comprehensive full day course, will provide a solid grounding for any options investors.  No jargons, no outlandish promises (I don’t promise you will make millions in a week), but just as it is.

I have scheduled and blocked out 3 days this year to run 3 similar full day courses. I know some of you are based outside of Sydney, unfortunately at this stage I have scheduled them for only Sydney for ease of planning.

These classes will be small to a maximum of 12 people only. I envisage that you will be at ease to ask questions, discuss and get to know others in the class as well. It’s my hope that the class participants will get to know each other and continue contact with each other in support, grow and invest together even after the session.  I hope to have some videos for you in the future as well (where time and technology permits) to keep you on the track of learning.

If you are looking to learn more about options, I know it may mean some sacrifices, but this 6 hour course will set you on the right path in options investing.

I hope you will be able to join me in either of these sessions – 10 Mar, 21 Jul or 10 Nov – all Thursdays from 9am to 4.30pm at Sydney CBD RBS Tower. There are some from last year’s conferences already locked in for the 10 Mar course. If you are based outside of Sydney let me know where you are, when numbers are around 5, I may be able to come to you, hopefully.

Course Information:

Who should attend: All investors, new and those learning to use options, including Trustees of SMSFs

Curriculum: Options building blocks, the use of options for hedging, building portfolios, selling shares and strategies to optimise returns whilst minimising risks. An understanding of risk management strategies and ways of managing positions that do not go according to plan and learn how to construct a status quo individual options plan. All strategies are based on case studies drawn from actual ASX shares.

Concepts covered: Breakeven prices, delta, perfect hedging, endowment trap, capital gains tax trap, Risk Margins, Margin Interval Percentage, impact of different volatilities, eligible collateral, margin escalation defence strategies, the aversion trap

Venue: Level 29 88 Phillip Street, Sydney CBD

(near Martin Place/Wynyard station) or Australia Square if parking

Time: 9am to 4.30pm (includes food)

Cost: full price $895, early bird $795 or bring a mate for $695 each  

Please drop me an email at waiyee.chen@rbsmorgans.com to email detailed course information and registration form to you, alternatively, you could submit your details at the “Keep Learning” tab.

See you there!

Wai-Yee

Capturing volatility via WES







Betting on Wesfarmers Via Options

Wed. Jan. 12 2011 | 2:20 PM[03:51]

Chen Wai-Yee, head of derivatives, Asia at RBS Morgans Limited, recommends buying Australian retailer and coal miner Wesfarmers through options. She shares her strategy with Oriel Morrison of CNBC’s.

 

In addition to the stock being at an attractive entry level, it is also giving very attractive volatility to options investors.

The March call options (with 71 trading days to go) we are looking to sell with this Buy Write Strategy are implying volatility of 22% versus the 60 day historical volatility of 12.35%. That’s almost a double dose of volatility. What better way to capture that than by selling options.

I mentioned in the interview that selling put options to buy stock would not work at this juncture for WES because of the timing of its dividend due to go ex. The selling of put options in even the February expiry month would void options seller the opportunity of buying stock pre-dividend (unless exercised earlier). Hence, the best option to take advantage of an attractively priced stock due to go ex, is by buying the stock. And then selling a high volatility call options over it for some mild hedging and a big income.

Buy stock and sell Mar $32.50 call.