Advanced Options Course

A couple of clients have asked recently if I could conduct an Advanced Options course.

So, here it is.

This will be a 3 hour course, for those who are familiar with the market and have basic knowledge of options

Charts, trading styles, real stocks with options strategies.

Come, contribute, learn and connect with other traders.

11 May 2012

Friday

3-6pm

Sydney CBD

$280

If you are interested, email me at waiyee.chen@rbsmorgans.com

small class size. 3 more spaces.

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Are YOU jeopardising your investments?

http://cpawomen.blogspot.com.au/

Join me if you are interested in the topic

Tuesday 27 Mar 6pm

CPA Office

111 Harrington Street Sydney

 

CPA Women in Business Discussion Group will meet on 27th of March with Wai-Yee Chen on “Are you jeopardising your investments?” Wai-Yee is an author, TV commentator and Adviser in the area of investments.

In this session, Wai-Yee will help you manoeuvre the current investment climate, not just with information or advice, but by making you aware of who you are, for better investments returns.

Wai-Yee’s experience is gained from her time in the share market investing and advising clients in shares and derivatives in the last 14 years. Through observations of her clients with diversed personalities, she finds its not just techniques and knowledge that generate greater investment returns. Human behaviour and inherent personality of each individuals, play as much a role, if not more, in influencing investment returns.

To get the most from this session, attendees are advised to take a quick 5 minute questionnaire at http://www.personalitytest.org.uk/  and come with a printout of the results.

Creating profits with options from a flat market

Thurs. Mar. 22 2012 | 2:13 PM[05:13]
Chen Wai-Yee, Head of Derivatives, Asian Desk Sydney, RBS Morgans urges investors to create a trading range for the ASX 200 since the index has been flat for some time
Options Strategy:
Sell 19Apr 4350 calls and
Sell 19Apr 4150 put
for combined 57 points of $570 per contract
Margins/deposits with Australian Clearing House around $2500 per contract.
Margins can be met with cash in bank or value of top 100 shares in portfolio.
No protection but has inherent hedging
Breakeven levels:
market breaks up: 4350 + 57 = around 4400
market breaks down 4150 – 57 = around 4100

Tread carefuly with ANZ and NAB

ANZ closed at $22.51 and NAB at $24.18 on Friday 16 Mar 2012.

Some warning signs are emerging by a couple of indicators.

ANZ

1)Put/call ratio

ANZ’s  put/call ratio (number of puts traded outweighing calls) had been creeping  up in the last 2 weeks. Last week it ended with a p/c ratio of 0.93 from 0.88 the week before, climbing from low under 1 readings since early Dec.

2) Historical daily Implied Volatility (IV)

Rising p/c ratio is coinciding with ANZ’s plunging  IV since Feb to now in the teens.  On Friday (16 Mar12), it was at early 17.

Putting these two indicators together, the last time we had ANZ IV at teens and p/c ratio at 1.7 was in 8th and 9th Nov, when ANZ was at close to $22 before plunging to under $19 after that.

 A rising p/c ratio combined with a low IV looking like the early Nov peak,  is a warning sign.

 On Friday, observed a calendar bear call spread executed which makes sense if one holds this view (selling of Mar $2250 call and buying of Apr $23 call).

NAB

 1 Put/call ratio

NAB’s p/c ratio has been creeping up as well. Last two weeks they had been at 1.07 and 1.05. Again, they have risen from low under 1 numbers since early Dec 11.

2  Historical daily Implied Volatility (IV)

In terms of volatility, quite similar to ANZ as well. Plunged to the teens of about 19. The last two times NAB’s IV was at 19 were on 8 Nov and 22 July when the share price was above $25 before plunging from there. As NAB is still shy of $25 now, it could mean two things, either the IV stays low for a while more whilst share price continue to rise to above $25 before turning down or this time, the peak is  shallower than the last two peaks. The former may be a stronger case.

 In any case, warning signs of a potential turning point (downwards) have emerged.  Though may not be immediate, cautiousness is required.

 

 

 

How to earn an income from a flat market

 

 

 

 

 

 

 

 

 

 

 

A client of mine has kindly emailed the chart above to me, a weekly XJO chart.

The XJO has managed to stay above its bottom trend line and it looks like its going to keep

zig-zagging until it decides what it wants to do or which direction it wants to go.

Levels to watch on potential breakouts are:

just under 4100 at the bottom and just above 4300

Until that eventuate, its likely to keep moving between the range and hang around 4150 to 4320.

What can we do with such a market?

Ideal for selling strangles.

conservative:

sell apr 4050 put and sell apr 4350 calls for combined income of about 62c per contract

Selling 5 contracts of these will generate about $3100 income (before costs)

Margins obligations: est $10k (cash/shares)

More aggressive:

sell apr 4100 put and sell apr 4300 calls for combined income of $4400 (before costs)

margin obligations: est $12,500 (cash/sahres)

These trades will be manually cut loss – on the upper end, if xjo breaks and stays above 4320 and at the bottom if xjo breaks and stays below 4050

Best scenario for this trade is XJO continues to grind between 4050 to 4350 from now till 19 April (expiry date)

(Not for super)

XJO’s trend (4211) from options market observations

XJO closed at 4211 on 9 Mar 2012, rising 41 points for the day.

1) Volume

Weekly overall options volume (index + equities) was down slightly (5%)  last week including that of Friday’s despite the XJO rising 41 points for the day and equities weekly volume higher by 1%. 

Trading in XJO options though, increased by 14% for the week. It showed that the dropped off in options volume was due to lower positions being taken in individual stock options with increased trading in XJO options.

On analysing each of the call and put components separately on the XJO options, it was found that the put/call ratio for the week was at an average reading of 1.31, though it was a better one of 0.8 on Friday.

2) Volatility

An interesting indicator to keep track of is the CBOE Volatility Indiex (VX) Futures* to get a sense of expectations, it looks like there is a gradual increase expectated of the VIX. With current reading at 17.11, the VX futures are calling for it to be closing at 19.8 this week for its Mar expiry with an incline all the way to above 25 in June. The Implied Volatility in our market is not displaying dissimilar trend.

(*VX JAN12  “F” expiry was at 21.95; Feb12 “G” was 19.0512;  with reading on  9 Mar 2012 as follows for: Mar12 “H” futures is 19.8;  APR12 “J” is 23.2;  MAY12 “K” is 24.85;  Jun12 “M” 25.85 )

What about the XJO?

The XJO options’ current Implied Volatility is at a very level again of early 16. It has been here a few times in the last few months. If we were to look at the XJO calls and puts separately, we will find that the Implied Volatility for the calls for the next few months out lower than the puts. The puts’  Implied Volatility are at levels even higher than that of the historical levels.

What are these indicators implying?

Overall, with index call options on  low volatility and put/call ratio at average levels whilst puts’ volatility elevated, there is a risk of the current market remaining flattish or capped to the upside with risk on the donwside.