ANZ Call Spread

Posted on April 18th, 2012 admin No Comments

This is a recent trade of Option Expert William Chien, if you are interested in speaking to William about his option trades you are welcome to call on 07 5504 2244

(This publication is not providing advice, it is just published as an example.)

 

ANZ will report its result on 2-May-2012 & will go ex-dividend (about $0.65 fully franked) on 10-May-2012.

 

Furthermore, ANZ appears to be resting on its long term uptrend line at the $22.60 level before it moves higher again (see below daily ANZ chart).

 

Hence, I would recommend the following ANZ calendar call spread trade to take advantage of a potential rise in the ANZ share price.

 

Buy 50 May ANZ $23.50 call & Sell 50 Apr ANZ $23.51 call for a net debit of about $0.12 per spread GTC; costing about $600 in premium (before brokerage)

Details.

  • Low risk: maximum potential loss = $600 plus brokerage
  • No ongoing margin requirement
  • High potential profit: if the Apr ANZ sold call expires worthless, then we will have an unlimited upside potential on the May ANZ bought call

 

Please ring the Dealing Desk and ask for William on 1300 73 66 22 if you are interested in his Option Trades.

 

 

The Basics Behind the Covered Calls

Posted on April 18th, 2011 admin No Comments

Despite the popular notion that is constantly being perpetuated by the mainstream media not all options trading strategies place an undue amount of risk on an investor’s portfolio. It certainly is true that many speculative techniques, such as selling naked calls and puts, increase your overall risk, there are numerous option trades that are not only safe, but are also moderately conservative. Perhaps the most widely used option strategy available to the average investor is selling covered calls.

The buy write strategy, as selling covered calls is also known as, is a relatively straight forward and simple technique to execute. As the seller the only thing you really must have is at least 1000 shares for every call option you want to sell. This is important since each option contract controls 1000 shares of the underlying asset. Additionally, selling a covered call gives the purchaser the right to buy a certain number of shares of stock at a certain price as long as the buyer actually exercises his or her right to do so.

As compensation for selling these options the seller receives payment, called a premium, from the buyer. This income stays with the seller regardless of the ultimate direction the underlying stock takes. It should be noted that the buyer has the right to buy the stock yet is under no obligation to do so. In fact, approximately 75% of all option contracts that are held until maturity expire with no value. Savvy investors know this and are constantly looking for ways to use covered calls to turbo charge their investment returns even in neutral or slightly declining markets.

Perhaps the most important part to this entire investing technique is that the seller actually owns an appropriate amount of stock to cover them in the event that the price of the underlying stock closes above the option’s strike price. If the investor did not own the underlying stock, and the options were executed, he or she would have to actually go out into the open market and buy a sufficient number of shares at the current market price to cover their obligation.

As there is no cap on how high the price of a stock can rise the investor would be exposed to an almost unlimited potential liability. It is, therefore, highly recommended that intelligent investors stick with covered call strategies as their option trading technique of choice.