Bought Strangles – Fundamental Analysis

Posted on October 12th, 2010 admin No Comments

A bought strangle can also be traded through earnings announcements. The situation creates an uncertainty as to the direction of move may be just before an important corporate announcement, court verdict, earnings announcement etc.

To receive ASX Option Recommendations or to learn more about straddles and strangles please request the complete Straddles and Strangles eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au

Bought Strangle Psychology

Posted on March 24th, 2010 admin No Comments

There is a time and a place for bought straddles and strangles. Ideal market conditions are when volatility is low and expected to increase. The bought strangle is a non-directional trade with the share price able to move upwards or downwards to profit in this strategy.

The idea with bought strangles is to identify a large share price move. This share price move can be either an increase or decrease in share price. To identify these moves you can look at technical analysis and fundamental analysis. Technical analysis tried to identify a break out pattern, while the fundamental analysis indentifies a particular announcement that may cause a large move in share price.


To receive ASX Option Recommendations or to learn more about straddles and strangles please request the complete Straddles and Strangles eBook by contacting us on 1300 368 316 or info@totaloptions.com.au

Bull Put Spread: Technical and Fundamental Analysis

Posted on March 17th, 2010 admin No Comments

Technical Analysis

Identifying bull put spread can be assisted through technical analysis. Technical analysis allows identification of expected price movement through indentifying trends through momentum indicators and trend lines. The types of chart patterns you are looking to identify a bull put trade are:

  • Strong support levels
  • Uptrend
  • Lower end of trading range
  • Oversold indicators – MACD and Stochastic.

Fundamental Analysis

Fundamental analysis can determine if the bull put outlook is aligned with the company news and research. There are a number of fundamental factors that influence the option prices of a stock. When identifying a bull put spread you have a bullish to neutral outlook on the share. Therefore you are looking for positive news in the company or sector. As this trade also makes money if the share price does not move, if there is no news coming out of the company for the next month this can also be a positive for this particular strategy.

To receive ASX Option Recommendations or to learn more about Bull Call Spread, Bull Put Spread, Bear Call Spread, Bear Put Spread Strategies please request the Option Spreads eBook by contacting us on 1300 368 316 or info@totaloptions.com.au

Bear Call Spread: Technical and Fundamental Analysis

Posted on March 10th, 2010 admin No Comments

Technical Analysis

Identifying bear call spreads can be assisted through technical analysis. Technical analysis allows identification of expected price movement through indentifying trends through momentum indicators and trend lines. The types of chart patterns you are looking to identify a bear call trade are:

  • Strong resistance levels
  • Down trends
  • Trading ranges

Fundamental Analysis

Fundamental analysis can determine if a trade is viable or not. There are a number of fundamental factors that influence the option prices of a stock. When identifying a bear call spread you have a bearish outlook on the share. Therefore you are looking for negative news in the company or sector. As this trade also makes money if the share price does not move it if there is no news coming out of the company for the next month this can also be a positive for this particular strategy.


To receive ASX Option Recommendations or to learn more about Bull Call Spread, Bull Put Spread, Bear Call Spread, Bear Put Spread Strategies please request the Option Spreads eBook by contacting us on 1300 368 316 or info@totaloptions.com.au

Bear Put Spread: Technical and Fundamental Analysis

Posted on March 4th, 2010 admin No Comments

Technical Analysis

Identifying bear put spreads can be assisted through technical analysis. Technical analysis allows identification of expected price movement through indentifying trends through momentum indicators and trend lines. Technical indicators used to identify bear put spreads include:

  • Share Price Downtrend
  • Overbought – MACD and Stochastic
  • Momentum indicators
  • Breaks below support

Fundamental Analysis

Fundamental analysis can determine if a trade is viable or not. There are a number of fundamental factors that influence the option prices of a stock. When identifying a bear put spread you have a bearish outlook on the share. Therefore you are looking for negative news in the company or sector. This may be a worst then expected profit announcement or a global affect on a specific sector or industry.


To receive ASX Option Recommendations or to learn more about Bull Call Spread, Bull Put Spread, Bear Call Spread, Bear Put Spread Strategies please request the Option Spreads eBook by contacting us on 1300 368 316 or info@totaloptions.com.au

Bull Call Spread: Past Recommendation

Posted on March 1st, 2010 admin No Comments

Below is a past recommendation on Oxiana which is now known as Oz Minerals (OZL). This Bull Call Spread demonstrates how the strategy works in real life.

OXR Bull Call Spread

Trade:

Bull Call Spread

Buy 12 OXR Feb 325 Calls @ 17

Sell 12 OXR Feb 350 Calls @ 9

Net Debit = 8 cents

This trade requires no margin requirements.

Maximum Profit

The ideal result is for both the share price to be above $3.50 at 28th February.

= Spread minus cost

= 0.25-0.08

= 0.17

On 12 contracts this is a return of $2040, which is 212.5% return.

Maximum Loss

This is the cost of placing the trade which is $0.08 which on 12 contracts is $960.

Breakeven

The breaks even at expiry is $3.25+$0.08 = $3.33.

Risk vs. Reward

Risk = 8 cents Reward = 17 cents

Risk vs. Reward = 1:2.125

Fundamental View

The fundamental analysis below outlines that OXR at the time of the recommendation was sound fundamentally.

OXR’s diversified asset base provides excellent exposure to buoyant copper, zinc and gold prices. The company’s medium and long-term production profile is very strong, with the Prominent Hill copper/gold project in South Australia, the Sepon Copper expansion in Laos and the Matarbe gold project in Indonesia expected to translate to significant production growth in 2009 and beyond. An expansion at Golden Grove in Western Australia is also likely to occur that should translate to a significant extension of that project’s operational life. (Source StoneBridge Research)

Technical Analysis

The below is the analysis on the OXR chart when this recommendation was made.

OXR is oversold and today the share price looks to be heading back up towards resistance at $3.60. The momentum indicators are crossing over indicating a buy signal. This means OXR has been oversold and the current share price increase indicates a change in trend. Below is a chart of Oxiana.

Chart


To receive ASX Option Recommendations or to learn more about Bull Call Spread, Bull Put Spread, Bear Call Spread, Bear Put Spread Strategies please request the Option Spreads eBook by contacting us on 1300 368 316 or info@totaloptions.com.au

Bull Call Spread: Technical and Fundamental Analysis

Posted on February 25th, 2010 admin No Comments

Technical Analysis

Identifying bull call spreads can be assisted through technical analysis. Technical analysis allows identification of expected price movement through indentifying trends through momentum indicators and trend lines. Indicators which are used when identifying trade opportunities to enter a bull call spread are:

  • Share Price Uptrend
  • Oversold – MACD and Stochastic
  • Momentum indicators
  • Break out formations

Fundamental Analysis

Fundamental analysis can determine if a trade is viable or not. There are a number of fundamental factors that influence the option prices of a stock. When identifying a bull call spread you have a bullish outlook on the share. Therefore you are looking for a positive announcement either for the share, sector or share market in general.


To receive ASX Option Recommendations or to learn more about Bull Call Spread, Bull Put Spread, Bear Call Spread, Bear Put Spread Strategies please request the Option Spreads eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au

Selection Criteria – Buying Options

Posted on February 22nd, 2010 admin No Comments

When buying call options and put options it is critical to have good timing. When buying call options you don’t only need the stock to increase in value you need it to do so before the time decay in the option starts to affect the option value. Selecting the entry point (timing) of the trade can be assisted through technical and fundamental analysis. You can use technical analysis to identify break-out patterns to trade through buying calls or puts. It is important to make sure you buy enough time for expected movements. Also to make sure you buy your option at a reasonable price, you must analyse the volatility and make sure you are buying when volatility is low and expected to increase. Always make sure the option has enough open interest so liquidity is not an issue. If you stick to the blue chips this should not be an issue. Buying out-of-the-money calls is higher risk but potentially has large percentage returns. However, buying at-the-money calls has a higher delta but costs more so percentage returns are smaller.


To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au

Options Trading: Stock Analysis

Posted on February 17th, 2010 admin No Comments

Technical Analysis is the ability to forecast the future direction of share prices through the study of past market data, primarily price and volume. Technical analysis is more of a visual analysis which allows the identification of key levels of support and resistance. Basic technical analysis teaches you to identify trends, momentum, reversal, support and resistance. It is essential to ensure your technical analysis suits your options strategy. For example if your technical analysis indicates a short-term price movement, it is important that your options strategy best suits the short-term price movement.

Fundamental Analysis is the analysing of a company’s financial statements, its management and competitive advantages, and its competitors and markets. This analysis is based on historical data and can be a lagging indictor regarding the company’s current financial situation. When placing a trade it is important to check ex–dividend dates and company announcements. These announcements may result in unexpected share price moves.


To receive ASX Options Recommendation or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 1300 368 316 or info@totaloptions.com.au

US Option Recommendation – The Mosaic Company (MOS) Protected Long Synthetic

Posted on February 16th, 2010 admin No Comments

I am looking to place the following option trade on The Mosaic Company (MOS:xnys) which trades on the New York Stock Exchange to take advantage of an increase in the share price. The option strategy has limited risk, and will make money as soon as the share price increases so the position can be closed out at any time for a profit once the share price increases. The trade has limited risk and unlimited return. The greater the share price increases, the higher the profit. Once the stock has moved there could be opportunities to sell short dated options against the position to further increase the return. The bought call position expires in June, so there is plenty of time for the stock to increase. The trade involves buying a long dated call for June which expires in 6 months to take advantage of the share price increasing. To pay for this we are selling a bull put spread out until June to pay for the call option. The whole trade is actually done for an approximate 205 cent credit or $1230. The trade details are below as well as some more information on the reasons for entering this trade.

Trade:

Sell 6 contracts June 2010 $60.00 Puts 700 cents

Buy 6 contracts June 2010 $50.00 Puts 300 cents

Buy 3 contracts June 2010 $65.00 Calls 390 cents

Net credit: 205 cents

Net credit: $1230

Summary:

Maximum Profit: Unlimited

Profit if above $60.00 and below $65.00 = $1,230

Maximum Loss is below $2.50 = $4,770

Breakeven = $57.95

Primary Profit Target $80.00 = $13,230

Return on Risk = 277.36%

Secondary Profit Target $100 = $25,230

Return on Risk = 528.93%

Margin requirement:

This trade is done for a credit of $1230; however a margin is required for the bull put spread. The margin requirement will increase if the stock falls, and reduce if the stock increases. After the market increases the bull put spread if cheap enough will be closed out for a profit and then there would be no margin requirement. Allow approximately the maximum risk in dollars to cover the margin requirement or clients with share portfolios can use the shares as collateral. Initially the margin will not be that high, but it’s important to have it available if needed.

Fundamental Analysis:

The Mosaic Company engages in the production and marketing of concentrated phosphate and potash crop nutrients for the agriculture industry worldwide. The company produces phosphate crop nutrients for use in crop nutrients and feed phosphate for animal feed ingredients. It also produces and sells potash for use as fertilizers and animal feed ingredients, as well as in industrial applications. Potash is also used for de-icing and as a water softener regenerant. In addition, The Mosaic Company produces and/or markets phosphate-, potash-, and nitrogen-based crop nutrients and animal feed ingredients, as well as operates sales offices, crop nutrient blending and bagging facilities, port terminals, and warehouses. It sells its products primarily to wholesale distributors, retail chains, cooperatives, independent retailers, and national accounts. The company was founded in 2004 and is headquartered in Plymouth , Minnesota . The Mosaic Company is a subsidiary of Cargill, Incorporated.

The Strategy – Protected Long Synthetic:

The Protected Long Synthetic is a strategy designed to have a leveraged exposure to a stock while only committing a small amount of capital. The strategy is designed to have a bullish view on a stock and to determine the maximum risk when entering and having unlimited potential return. This strategy is implemented when a stock looks set for a breakout or a strong share price increase. The bull put spread is entered for a credit and the funds received on this trade are used to buy call options. Buy selling the put options it reduces the negative time decay on the call options. The strategy also allows a profit to be made straight away and the trade can be closed out early with a profit and does not need to be held until expiry.

US Option Recommendations:

Clients who wish to trade the US market can now set up online accounts to take advantage of Full Service Recommendation or to trade yourself on the US Options Platform. If you are interested in opening an account to trade US options please contact me for more information.

For more information on this strategy or to implement a Protected Long Synthetic Portfolio on a number of stocks please contact me to discuss in more detail. If you would like to place this trade please email me your account number and quantity of contracts to trade otherwise I can be contacted by email or on 1300 736 622 for more information.

Technical Analysis:

  • Mosaic is in a long-term uptrend which has recently held on the last pull back in the market.
  • The weekly stochastic is indicating a strong buy at these levels.
  • Mosaic has very little resistance and has potential to reach its primary target of $80 and secondary target of $100


To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 1300 368 316 or info@totaloptions.com.au