Sold Put Option

Posted on February 22nd, 2010 admin No Comments

Writing a put represents a short put option, which is a slightly bullish or neutral position. This strategy entails writing (selling) the put option with an obligation to buy a fixed number or amount of the underlying asset from the holder at a fixed price on or before a specific period of time. The trader or investor who executes this strategy is called the writer. The risk inherent of naked put writing can be extremely high and always carries margin requirements.

The reward in this strategy is limited to the option premium received for selling the put option. The risk is unlimited. Writing puts is used if you are bullish on the underlying asset, and is used basically to collect the premium when a trader or investor feels strongly that the put option contract will expire worthless, or will be worth less than the premium received.

Selling put options can be an alternative to buying shares. For example rather than buy 1000 BHP at the current share price $30.00, you can sell at-the-money puts expiring in a month and receive $1.50 ($1500). This means your break even price on the shares is $28.50. You have basically sold insurance so if the share increases you get to keep the $1500 and sell another put option. If the share decreases you have bought the share at $28.50 instead of $30.00 anyway. There are many more variables to take into account regarding this strategy which will be discussed later in the course under income strategy. Please contact me in the meantime if you wish to discuss trading this strategy.

Summary:

Market Outlook Neutral/Bullish
Risk Limited to strike price less premium
Potential Reward Premium Received
Premium Received at purchase, margin required
Time Decay (Theta) Positive
Volatility (Vega) Negative


To receive The 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

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

The Income Strategy Recommendation:Lihir Gold (LGL)

Posted on January 18th, 2010 admin No Comments

The Income Strategy is an extremely powerful portfolio strategy that incorporates a combination of Stock and Options. It is designed to produce a consistent monthly income while providing capital protection for the portfolio.

The Income Strategy is very popular with Self Managed Super Fund (SMSF) and longer term wealth building individuals.

Lihir Gold (LGL) offers excellent exposure to the gold price through its largely fixed cost open pit gold mine in PNG. The Lihir Island project is world class containing 22.9Moz of gold in reserve and 40.6Moz of gold in resource. LGL has commenced a major expansion program at Lihir Island which will see gold production rise to over 1.0Mozpa by 2012.

Trade

  • Sell 7 contracts LGL July $3.00 Puts @ 12.5 cents
  • Buy 7 contracts LGL July $2.50 Puts @ 1.5 cents

Net Premium Received 11 cents

Maximum Profit

The ideal result is for both options to expire worthless, so that maximum premium is retained from the credit spread.

= Net Premium Received

= Sold Put Premium – Bought Put Premium

= (0.125 – 0.015) x 7 contracts

= $770

Maximum Loss

This will occur if the share price is below the bought at expiry

= Difference between strike prices less net premium received

= $0.50 – $0.11

= $0.39

= $0.39 x 7 contracts

= $2,730

Breakeven

The breakeven is the entry price for the shares if you are exercised and purchase shares. The

breakeven is the strike price minus premiums received. Breakeven = $2.89

Trade Points

  • Fundamentally strong company quality assets and leveraged to the gold price
  • Technically LGL is a buy at these levels.

Trade Summary

Maximum Profit - $770

Maximum Loss - $2,730

Breakeven - $2.89

Return on Share Value - 3.74%

Annualised Return on Share Value – 44.88%

Return on Risk (ROR) - 28.21%

To speak with a Total Options Advisor about this trade please call 1300 368 316

 

The Income Strategy Recommendation: Westfield Group (WDC)

Posted on January 18th, 2010 admin No Comments

To speak with a Total Options Advisor about this trade please call 1300 368 316

The Income Strategy is an extremely powerful portfolio strategy that incorporates a combination of Stock and Options. It is designed to produce a consistent monthly income while providing capital protection for the portfolio.

The Income Strategy is very popular with Self Managed Super Fund (SMSF) and longer term wealth building individuals.

Westfield Group (WDC) is a major retail property group holding 119 shopping centres with the gross value of investments under management being $69.4bn. The passive investment assets of the trusts will generate around 80% of group pre-tax net income. A portfolio of this size generates significant redevelopment work captive to the group. Management is very high calibre with an impressive track record.

Trade

  • Sell 3 contracts WDC July $11.00 Puts @ 62 cents
  • Buy 3 contracts WDC July $9.00 Puts @ 7 cents

Net Premium Received 55 cents

Maximum Profit

The ideal result is for both options to expire worthless, so that maximum premium is retained from the credit spread.

= Net Premium Received

= Sold Put Premium – Bought Put Premium

= (0.62 – 0.07) x 3 contracts

= $1,650

Maximum Loss

This will occur if the share price is below the bought at expiry

= Difference between strike prices less net premium received

= $2.00 – $0.55

= $1.45

= $1.45 x 3 Contracts

= $4,350

Breakeven

The breakeven is the entry price for the shares if you are exercised and purchase shares. The breakeven is the strike price fewer premiums received. Breakeven = $10.45.

Trade Points

  • Fundamentally strong company quality assets and exceptional management
  • Dividend – WDC will go dividend in early August traditionally yielding over 5% semiannual and 10.03%p.a.
  • Technically WDC is a buy at these levels.

Trade Summary

Maximum Profit - $1,650

Maximum Loss - $4,350

Breakeven – $10.45

Return on Share Value - 5.19%

Annualised Return on Share Value – 62.2%

Return on Risk (ROR) – 37.93%

To speak with a Total Options Advisor about this trade please call 1300 368 316

 

The Income Strategy Recommendation: Bluescope Steel Ltd (BSL)

Posted on January 18th, 2010 admin No Comments

The Income Strategy is an extremely powerful portfolio strategy that incorporates a combination of Stock and Options. It is designed to produce a consistent monthly income while providing capital protection for the portfolio.

The Income Strategy is very popular with Self Managed Super Fund (SMSF) and longer term wealth building individuals.

This is an Income Strategy Recommendation for investors looking to buy BSL shares at a discount to market. The recommended trade is to sell put options on BSL with the intent to purchase the shares. This recommendation is designed for investor looking to generate monthly income with capital protection. Instead of buying BSL shares today at market at $2.91 we can place this trade which gives an equivalent entry price at $2.82 a discount of 3.1% and a price I am happy to buy the shares at. Short-term traders can place a bull put spread, please contact me for more information on this trade.

Trade

  • Sell 8 contracts BSL December $3.00 Puts   @ 20 cents 
  • Buy 8 contracts BSL December $2.25 Puts   @  2 cents 

Net Credit 18 cents

Shares per contract = 1332

Trade Summary

 Maximum Profit – $1918.08

 Maximum Loss – $6,073.92

 Breakeven – $2.82

 Return on Share Value – 6.21%

 Annualised Return on Share Value – 74.52%

 Return on Risk (ROR) – 31.58%

If exercised we will purchase 10,656 shares at $3.00 which is a trade value of $31,968. When entering this trade you need to be aware and able to purchase the shares if exercised. If this is not possible the bull put spread recommendation an alternative trade idea. For more information on the above trade please refer to the fundamental analysis on BSL.

Reason for Trade

  • Technical Analysis – BSL is a buy at these levels with strong support at $2.85 and our breakeven is below this level. 
  • Fundamental Analysis – BSL is a well managed company and has great growth potential 
  • Return on Risk above 30% 
  • Capital Protection at 81% 

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US Income Strategy Recommendation: Lowe’s Companies Inc (LOW)

Posted on January 18th, 2010 admin No Comments

The Income Strategy is an extremely powerful portfolio strategy that incorporates a combination of Stock and Options. It is designed to produce a consistent monthly income while providing capital protection for the portfolio.

The Income Strategy is very popular with Self Managed Super Fund (SMSF) and longer term wealth building individuals.

This is an Income Strategy Recommendation for investors looking to invest in the US market. The recommendation is buy LOW shares at a discount to market. The recommended trade is to sell put options on LOW with the intent to purchase the shares. This recommendation is designed for investor looking to generate monthly income with capital protection. Instead of buying LOW shares today at market at $22.91 we can place this trade which gives an equivalent entry price at $21.95 a discount of 4.2% and a price I am happy to buy the shares at.

Trade

  • Sell 44 contracts LOW January $22.50 Puts   @ 80 cents  
  • Buy 44 contracts LOW January $20.00 Puts   @ 25 cents

Net Credit 55 cents

Shares per contract = 100

Trade Summary

Maximum Profit – $2420 USD

Maximum Loss – $8580 USD

 Breakeven – $21.95

 Return on Share Value – 2.44%

 Annualised Return on Share Value – 29.28%

 Return on Risk (ROR) – 28.21%

If exercised we will purchase 4,400 shares at $22.50 which is a trade value of $99,000. When entering this trade you need to be aware and able to purchase the shares if exercised.

Brief Overview

Lowe’s Companies, Inc., together with its subsidiaries, operates as a home improvement retailer in the United States and Canada. The company provides a range of products and services for home decoration, maintenance, repair, remodelling, and property maintenance. It offers home improvement products in various categories, such as appliances, lumber, paint, flooring, building materials, millwork, lawn and landscape products, fashion plumbing, hardware, lighting, tools, seasonal living, rough plumbing, outdoor power equipment, cabinets and countertops, nursery, rough electrical, home environment, home organization, and windows and walls.

Reason for Trade

  • Technical Analysis – LOW is a buy at these levels with strong support at $22.00 and our breakeven is below this level.
  • Return on Risk above 25%
  • Capital Protection at 91.12%

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To speak with a Total Options Advisor please call 1300 368 316

US Income Strategy Recommendation: AT&T Inc (T)

Posted on January 18th, 2010 admin No Comments

The Income Strategy is an extremely powerful portfolio strategy that incorporates a combination of Stock and Options. It is designed to produce a consistent monthly income while providing capital protection for the portfolio.

The Income Strategy is very popular with Self Managed Super Fund (SMSF) and longer term wealth building individuals.

This is an Income Strategy Recommendation for investors looking to invest in the US Stock Market. The recommendation is buy AT&T shares at a discount to market. The recommended trade is to sell put options on AT&T with the intent to purchase the shares. This recommendation is designed for investor looking to generate monthly income with capital protection. Instead of buying AT&T shares today at market at $27.56 we can place this trade which gives an equivalent entry price at $26.55 a discount of 3.66% and a price I am happy to buy the shares at.

Trade

Sell 37 contracts T January $27.00 Puts @ 65 cents

Buy 37 contracts T January $25.00 Puts @ 20 cents

Net Credit 45 cents

Shares per contract = 100

Trade Summary

Maximum Profit – $1665 USD

Maximum Loss – $5735 USD

 Breakeven – $26.55

 Return on Share Value – 1.70%

 Annualised Return on Share Value – 20.40%

 Return on Risk (ROR) – 29.03%

 If exercised we will purchase 3,700 shares at $27.00 which is a trade value of $99,900. When entering this trade you need to be aware and able to purchase the shares if exercised.

 Brief Overview

 AT&T Inc. operates as a communications holding company. Its subsidiaries and affiliates provide the AT&T brand services in the United States and internationally. The company’s Wireless segment offers wireless voice communications services, including local wireless communications, long-distance, and roaming services with various post-paid and prepaid service plans. This segment also supplies various handsets and personal computer wireless data cards, as well as accessories. 

Reason for Trade

  • Technical Analysis – AT&T is a buy at these levels with strong support at $27.00 which is where the stock has broken above resistance and looks to be heading higher.
  • Return on Risk above 25%
  • Capital Protection at 94.16%

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US Income Strategy Recommendation: Weyerhaeuser Co (WY)

Posted on January 18th, 2010 admin No Comments

The Income Strategy is an extremely powerful portfolio strategy that incorporates a combination of Stock and Options. It is designed to produce a consistent monthly income while providing capital protection for the portfolio.

The Income Strategy is very popular with Self Managed Super Fund (SMSF) and longer term wealth building individuals.

This is an Income Strategy Recommendation for investors looking to invest in the US Stock Market. The recommendation is buy WY shares at a discount to market. The recommended trade is to sell put options on WY with the intent to purchase the shares. This recommendation is designed for investor looking to generate monthly income with capital protection. Instead of buying WY shares today at market at $41.87 we can place this trade which gives an equivalent entry price at $39.00 a discount of 6.85% and a price we are happy to buy the shares at.

Trade

  • Sell 25 contracts WY January $40.00 Puts   @ 140 cents  
  • Buy 25 contracts WY January $36.00 Puts   @ 40 cents

Net Credit 100 cents

Shares per contract = 100

Trade Summary

 Maximum Profit – $2500 USD

 Maximum Loss – $7500 USD

 Breakeven – $39.00

 Return on Share Value – 2.5%

 Annualised Return on Share Value – 30%

 Return on Risk (ROR) – 33.33%

If exercised we will purchase 2,500 shares at $40.00 which is a trade value of $100,000. When entering this trade you need to be aware and able to purchase the shares if exercised. 

Brief Overview

Weyerhaeuser Company grows and harvests trees, builds homes, and manufactures forest products worldwide. The company manages approximately 6 million of private commercial forestland and leases the other 700,000 acres; and has renewable long-term licenses on 15.2 million acres of forestland. It grows and harvests trees for use as lumber, pulp and paper, and other wood and building products; and offers logs, timber, minerals, oil, gas, seed and seedlings, and poles, as well as plywood and hardwood lumber. 

Reason for Trade 

  • Technical Analysis – WY is a buy at these levels with strong support at $40.00 which is where the stock has broken above resistance and which is now very strong support level.  
  • Return on Risk above 25%  
  • Capital Protection at 92.31%

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The Income Strategy Recommendation: Telstra Corporation Ltd (TLS)

Posted on January 18th, 2010 admin No Comments

The Income Strategy is an extremely powerful portfolio strategy that incorporates a combination of Stock and Options. It is designed to produce a consistent monthly income while providing capital protection for the portfolio.

The Income Strategy is very popular Investing Strategy with Self Managed Super Fund (SMSF) and longer term wealth building individuals.

This is an Income Strategy Recommendation for investors looking to buy TLS shares at a discount to market. The recommended trade is to sell put options on TLS with the intent to purchase the shares. This recommendation is designed for investor looking to generate monthly income with capital protection. Instead of buying TLS shares today at market at $3.37 we can place this trade which gives an equivalent entry price at $3.21 a discount of 4.75% and a price I am happy to buy the shares at. This trade incorporates 90% Capital Protection.  Short-term traders can place a bull put spread, please contact us on 1300 368 316 for more information on this trade.

Trade

  • Sell 10 contracts TLS February 2010 $3.36 Puts   @ 16.5 cents
  • Buy 10 contracts TLS February 2010 $2.89 Puts   @  1.5 cents

Net Credit 15 cents

 Shares per contract = 1040

Trade Summary

Maximum Profit - $1560

Maximum Loss –  $3,328

Breakeven - $3.21

Return on Share Value - 4.46%

Annualised Return on Share Value  – 26.76%

Return on Risk (ROR) – 46.88%

If exercised we will purchase 10,400shares at $3.36 which is a trade value of $34,944. When entering this trade you need to be aware and able to purchase the shares if exercised. If this is not possible the bull put spread recommendation an alternative trade idea. For more information on the trade, refer to our fundamental analysis on TLS.

Dividend

Telstra goes ex-dividend early March so by selling a put that expires in February before the ex-dividend date means that if exercised we will be entitled to receive the dividend of 14 cents or 4.17%. This increases our chances of not being exercised and receiving the maximum profit as share prices tend to increase before ex-dividend dates. However if exercised it is not a bad thing as we receive the high yield dividend and call sell calls to produce a large % yield in March.

Reason for Trade

  • Technical Analysis – TLS is a buy at these levels with strong support at $3.30 and our breakeven is below this level.
  • Fundamental Analysis – We have a bullish view on TLS long-term please see this mornings Daily Grindstone and the attached research for more information.
  • Increased returns due to high yield dividend and happy to be exercised.
  • Return on Risk very high being above 30% and close to 50% Return on Risk
  • Capital Protection at 90%

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