Full day options course in Sydney in just two weeks…

Hi All,

The early bird savings of $100 will be closing very soon! It’s still now $795 and with a friend $695.

As we have seen lately, the recent “happy recovery” in the stock market was interrupted by a sudden geo-political unrest – oil spiked, gold rallied, resources dropped. These sort of unexpected events is very much part of life now. As investors though, we need to not let the “unexpecteds” turn into “unfortunates” for our portfolios.

Learn how to protect smartly, by going with time and pumping up your portfolio income at the same time. Maximising use of capital whilst minimising risks.

No big promises. Just knowledge, experience, persistence and having realistic expectations.

Come and learn together with some other like-minded investors.

There is still time to register below and come along.


Bullish on Iron Ore?

Bullish on Iron Ore? Use Options on BHP, Rio

Published: Sunday, 20 Feb 2011 | 7:19 PM ET Text Size By: Lianting Tu Assistant Producer , CNBC

Rising demand from China has been pushing iron ore prices to record highs lately. The Steel Index daily price for mid-range iron ore (grades with iron content of 62%) reached $189 per metric ton last week, the highest level since publication of rates began in November 2008.

The rising demand and supply shortage won’t go away anytime soon, according to Citi Investment Research. The firm says the iron ore market will remain tight until around 2014. For investors seeking to profit from this trend, a natural option is to buy stocks of iron ore miners such as BHP and Rio Tinto. Latest earnings of both companies surged with Rio Tinto tripling its full-year profit and BHP almost doubling first-half profit. Their stocks have also outperformed the benchmark S&P/ASX 200 index over the past year by a large margin.

Options Leverage

But for investors looking to make a leveraged bet on this market, without having to put a lot of money up-front, equity options offer an alternative. The most straightforward approach is to buy a Call option on the miners. But Chen Wai-Yee Head Of Derivatives, Sydney Asian Desk at RBS Morgans recommends selling a put instead as a safer strategy. She recommends selling a May A$46.5 put on BHP, which generates A$1.75 in income. Selling a put gives the investor the right to buy the stock at the strike price in return for some premium income.

Bullish But Cautious

Chen says the advantage of selling a put on BHP rather than buying a call, is that you stand to make money whether the stock rises or goes nowhere.

“I’m long-term bullish on the both companies but cautious on the near-term because [there’s unlikely] to be a bullish catalyst,” says Chen.

Investors had been waiting for both companies to announce big share buybacks, and with that out of the way, Chen feels the shares of both firms are likely to trade sideways for some time.

If the shares of BHP were to rise or stay unchanged, the option would expire, and the investor would earn A$1.75.

Chen also recommends a similar strategy for Rio Tinto, selling a May A$86 put, which pays a A$2.82 premium.

The risks for investors in both strategies however, is that there is no downside protection. If shares of BHP were to fall below A$44.75 (the strike price minus the premium income) investors would stand to lose money. Similarly, in the case of Rio Tinto, investors would stand to lose money if the shares fall below A$83.18.


Yuan, iron ore and FMG options

Investing in Yuan options and Strategy on FMG  

Thurs. Feb. 17 2011 | 2:10 PM[05:15]As China gets set to launch onshore yuan options, Chen Wai-Yee, head of derivatives, Asian desk at RBS Morgans Limited, says this is a good hedging tool for banks or firms doing business in the Chinese currency. She speaks to CNBC’s Oriel Morrison.

Strategy on FMG: A synthetic long, bullish strategy.

This is a combination trade (“combo”) with two separate legs to it for a combined income of 10c per contract.

 The strategy involves the:

Buying of the Mar $7.25 call (10c dr) AND

Selling of the Mar $6.75 put (20c cr)

for total income of 10c

– Upside on this trade upcapped

– Paid to have a position in FMG, funded through the selling od put options

– leveraged to the underlying without putting money on the table


No downside protection

Less risk for those who are willing/prepared to buy FMG at $6.65 ($6.75 put strike – 10c credit)

A short term play on stronger iron ore prices

Fortescue Metals Group FMG.ASX last trading at $6.88

A small outlay for a potentially strong upside.

1 We have seen iron ore prices rising back up to November 2008 levels. Analysts believe there are higher levels to come in the next 2 – 3 years, due to infrastructure constraints, rising demand and limitations on Indian exports

2 why FMG?

a. there’s a gap of 8% price differentiation between iron ore prices and share price of FMG since beginning of 2011 – gap may close

b. FMG is due to report on 18 February, Friday. May be the catalyst to push it higher if result is as expected.

c. FMG is fully funded to ramp up production from around 40Mtpa now to the projected 155Mtpa

Options strategy for a short term, cash flow positive play on FMG, receiving 7c credit upfront (with about 8% of total put exposure for margining)

Options Strategy: Synthetic Long

Sell Mar $6.75 put and buy Mar $7.25 call for 7c credit

Looking for FMG to go beyond $7.25 to benefit from bought call, without outlaying cash now

To be aware:

1 this strategy does not have down side protection. It’s a bullish play

2 for protection, exit position when share price falls to around $6.70 to breakeven on 7c received

3 Margins are required on the short put position. A full exposure for 1 contract is $6750, which is obligation to buy 1000 FMG at $6.75. At the start of this trade, margins required is about 8% of $6750 or $540 per contract (which can be funded by lodgement of eligible shares or cash).

Not forgetting value stocks in a strong market

AMCOR, AMC.ASX – a “quiet” stock, especially in terms of options.

But options actions, especially on the call side has picked in the last week.

At the last price of $6.75, from fundamental point of view, looks like there is more to go.

RBS calls it  “the four legs of upside for AMC”

leg 1: PE, FY12 is still under historical PE of 14x

leg 2: Synergies from Alcan acquisition

leg 3: increased margins from Alcan post acquisition      

leg 4: post integration, cash generation will be significant

On Monday, the put spread for AMC in March, selling Mar $6.75/buying Mar $6.25 spread was giving a credit a 20c.

Financials: a steady 20c income per contract as AMC stays above the $6.75 level with loss limited to 50c per contract.

Catalyst for the stock to move up in the next few weeks: reporting on 21 February (Monday) and 12.5c upcoming dividend.



Go, Harvey Norman!… (humming the jingles?!)

Well, catch this one before it flies out the door.

Reporting on 25 Feb.

Consumer discretionary stocks have been sold down due to perceived subdued Christmas spending.

But, HVN may be more robust than the share price is justifying it at the moment.

At PE of 11.8x, it’s the cheapest of others in the same category like Billabong (BBG at 17.1x) and JB Hi-Fi (JBH at 14.6%).

At a decent yield of 4.3% and a price of $3.04, the stock may be “on sale” now.

Telstra – 2011 shaping up as a big year

Yes, some of us may have a “love hate “relationship with Telstra, in various capacities.

But, putting aside all grievances, for the next 46 days, its worth having it in your portfolio.

1. It’s expected to go ex-dividend on 22 Feb with 14c, grossed up its worth 20c

2. Implied volatility is high on the stock, its worth being on the sale side of options to pump up income even higher

3. Stock price is still undemanding, middle of 6 month range at $2.86 from Friday’s close

4. finalisation of NBN deal could be imminent (shareholder vote in June can still be squeezed in)

5. perhaps we can start to see some growth in mobile in 2011

All that said, let’s take advantage of the positive movement in the stock.

Options Strategy: buy shares and sell strangle

Buy shares at $2.86 and sell Feb $2.75 put and Mar $2.90 calls for combined income of 10c.

Possible outcome in 46 days:

1. Calls assigned after dividend – return is 9.7% (in 46 days)

2. Calls NOT assigned after dividend (still holding on to shares bought) – 8.4% in 46 days

3. Calls assigned BEFORE dividend on 22 Feb – 4.9% in 46 days

Not bad returns.