Strategy for Bhp’s reporting on 20 Feb

Wed 230 pm 6 Feb CNBC cash flow

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What to do in a ranging stock market ?

The XJO dipped to a low of mid 4200 in early Sep12 and rallied to mid 4500 in mid October.

If you share the view it’s likely to mirror the range from now to pre-Christmas and want to make an income from it, then we’ve got a trade.

Go long at 4300 Dec12 XJO by selling put
Go short at 4500 Dec12 XJO by sellingcall. Together the combination gives 40 points credit or *$10, $400 per contract

Set aside about $2k cash or share value per combination of the trade and leave it alone till 20Dec12. Meanwhile XJO can go anywhere it wants to, there shall be no implication. As long as it stays within 4300 and 4500 on 20dec12.

Bear Put Spread on the defensives

Defensive stocks had done well in Jul and Aug

In that category is Wesfarmers WES.ASX and Woolworths WOW.ASX

In Jul and Aug combined, WES returned 15%, WOW 10% versus the XJO’s return of 5.3%.
They have outperformed.

In September, we are seeing some pull back in both shares, particularly they have both gone ex-dividend as well.

Next 5 months, let impetus, investors may take some money out of defensives to either move to next dividend paying stocks like the banks or should risk appepite increase, move to growth stocks.

Strategy to play on the downside:
Buy Nov 3450 put and sell Nov 3251 put
cost today with WES at $34.15 is 66c per contract or $660

How to profit?
As long as WES falls from here.

If WES rises, max loss is 66c spent, but could breakeven by selling long put leg ($34.50) out should WES runs up a dollar from here.

If WES drops all the way to $32.50, the this bear put spread can almost double.
Either close spread out or just take profit on the long put leg ($34.50), leave $32.51 put alone for potential to buy stock at the level.

At $32.50, will be buying stock at PE of 16x (vs 17.2x now) and 5% fully franked yield (vs 4.8%) for FY13.

Strategy to benefit on the way down with the potential to pick stock up at $32.50.

From ANZ (after dividend) to BHP in May

Switching Back to Resources From Finances Using Options

http://video.cnbc.com/gallery/?video=3000081392

Wednesday, 4 April 2012 1:10 PM ET Wai Yee Chen, Partner, RBS Macquarie Street Sydney says investors should be able to lock in a lower entry price for a resource stock like BHP in May, to make the switch from financials back to resources

Selling ANZ $22.51 May (European) calls (only exercisable after ex dividend in mid May)
and
Sell BHP May $34.01 put (though can not be exercised earlier, but seller can close early to take profit should BHP rises)

Holder of 2000 ANZ is able to sell 1300 BHP put options

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

Getting a boost from the banks

Getting a Boost From the Banks – CNBC

http://www.cnbc.com/id/15840232/?video=3000066328&play=1
Tuesday, 10 January 2012 2:10 PM ET Wai Yee Chen, Head of Derivatives at RBS Morgans discusses why options are a good way to make some extra income if you are dependent on dividends
Banks are expected to be neutral, trade in a range. They face macro-challenge (European debt crisis raises wholesale funding cost) and domestic issues (recovery in property values to boost mortgage lending, increase in business lending and consumer spending). In those 3 key areas, NAB has led in market share towards the end of 2011.
However, next five months is going to be a dry spell for NAB, it has just paid dividend, In order to justify holding on to the share, we need to make it work harder.
Options Strategy: Sell Strangles
Simultaneous selling of puts (lower strike) and calls (higher strike) with share price in the middle of the two strikes for 2 lots of income.
Feb $24.51 call and Fe $22.51 put gave 82c credit.