One Steel OST.ASX instead of Bluescope Steel BSL.ASX was John’s preference who wrote in a few days ago in reference to my recent options strategy on BSL titled “Bullish on steel demand” on CNBC.
Thanks for writing in, John!
Well, your comments has been the impetus for me to find out more about these two steel players.
This is a brief comparison of the two:
BSL is a higher risk play on steel demand upturn. It is still in -$25m loss this financial year whilst OST is expected to return a profit of $288m with a 5% dividend yield. OST is definitely the stronger player from a fundamental perspective. However, BSL is the one which is more leveraged to the recovery in steel demand especially with its exposure to the export markets like Asia and US, whilst OST is more local and its manufacturing business has been detracting from value.
How to choose? Which one to go for? Well, I see BSL as a shorter term trading play for the thematic of steel demand recovery, for income, and not necessary one for the portfolio (due to its higher risk and leveraged position) whilst OST will be the one I would position to buy the stock especially for the 6c dividend expected to be going ex in early September.
Both deserve a play. Let’s look at how we can do so with options.
Options strategy for BSL and OST:
1. For those who have implemented the BSL strategy which was the selling of the BSL May $2 put for 12c (late Mar/early Apr) are already sitting on profits. This position can be closed off today (though no need to) by buying back for 8c (4c profit or 33% in about a week).
2. With OST, for those who want to buy the stock, but is willing to wait it out can implement this strategy:
Sell Aug $2.75 put for 40c (today’s theoretical) with OST last traded at $2.47.
If assigned on this position, investor buys shares at $2.35 (12c cheaper than buying them now); with 6c to be received soon, giving a 2.5% return soon after purchase; and would have earned extra interest on capital for 5 more months.