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

Posted on February 24th, 2010 admin No Comments

This is an Income Strategy Recommendation for investors looking to invest in the US market via US options. This recommendation is similar to the last two month as the trade last month expire safe/profitable and has returned $3410 USD and still believe LOW is a good investment. 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 $23.05 we can place this trade which gives an equivalent entry price at $22.52 a discount of 2.3% and a price I am happy to buy the shares at.

Trade

  • Sell 22 contracts LOW March $23.00 Puts @ 58 cents
  • Buy 22 contracts LOW March $21.00 Puts @ 10 cents

Net Credit 48 cents

Shares per contract = 100

Trade Summary
Maximum Profit $1,056 USD
Maximum Loss $3,344 USD
Breakeven $22.52
Return on Share Value 2.09%
Annualised Return on Share Value 25.04%
Return on Risk (ROR) 31.58%

If exercised we will purchase 2,200 shares at $23.00 which is a trade value of $50,600. 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 $23.00 and our breakeven is below this level.
  • Return on Risk above 30%
  • Capital Protection at 93.25%

US Option Income Strategy – Register your interest here…

We are now providing full service US option recommendation for the US options market. To register your interest in receiving US option recommendations or opening an account please contact me for more information.

Chart

If you would like to place the LOW recommendation, please email me your account number and quantity of contracts.


To receive US Option Recommendations or to learn more about trading options register for our US Option Trading please contact us on 1300 368 316 or info@totaloptions.com.au

Introduction to Option Trading: Combination Trades

Posted on February 22nd, 2010 admin No Comments

Introduction to Option Trading

These basic option positions when combined create option combination orders. These can be created via buying and selling options either put options or call options. Each of the following seminars and e-books will cover one combination strategy in more detail.

Summary

When buying options look to take advantage of their leveraged nature to allow large return with small capital outlay. When selling options look to sell when volatility is high and expected to decrease to help use time decay in your favour.

The information in this e-book is designed so the following Total Option Education Webinars and eBooks will build on this knowledge. The strategies in this book are used by traders everyday however they are normally used together to try and mitigate risks like time decay and volatility.


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

Selection Criteria – Selling Options

Posted on February 22nd, 2010 admin No Comments

When selling options, there are a number of variables to take into consideration. When you enter a sold call option your outlook needs to be that the share price will stay still or fall. Conversely, when you enter a sold put option your outlook needs to be that the share price will stay still or increase. Your objective is to sell time and you profit from your positions time decay. Also you can sell options when the volatility is high and expected to decrease throughout the trade. Your risk profile will determine whether you sell out-of-the-money calls for lower returns and lower risk at-the-money calls to receive more premiums with higher risk of exercise. Before placing any trade you must make sure there is enough open interest and volume through the options so liquidity is not an issue.


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

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

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

Sold Call Option

Posted on February 19th, 2010 admin 1 Comment

Writing a call represents a short call, which is a slightly bearish or neutral position. This strategy entails writing (selling) the call option with an obligation to sell a fixed number or amount of the underlying asset to 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 call option writing can be extremely high and always carries margin requirements.

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

Selling calls has a very useful function when combined with a share portfolio. The strategy is called covered calls. Rather than selling your shares you can sell at-the-money calls and receive a premium. You can use your shares to produce a monthly income and if the share price is above where you sold the call you sell the shares anyway and receive the premium as well. This is a simplified version but in a sideways to up trending market is very profitable. This strategy will be discussed later in the course under a number of strategies including covered calls, collars and income strategy. Please contact me in the meantime if you wish to discuss trading this strategy.

Summary:

Market Outlook Neutral/Bearish
Risk Unlimited
Potential Reward Premium Received
Premium Received at purchase, margin required
Time Decay (Theta) Positive
Volatility (Vega) Negative

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

Bought Put Option Example:

Posted on February 19th, 2010 admin No Comments

Buy 1 contract CBA May 2500 Put option @ 180 cents

This option gives you the right to sell 1000 CBA shares for $25.00 each, on or before the expiry date in May. If CBA decreases strongly below $25.00 by expiry of the option, you have locked in a higher selling price for the shares.

As the buyer of the option, you have a choice as to whether you want to exercise and sell the 1000 CBA shares or if you just want to sell the option.

For example, if you are right in your assumption, and CBA falls to below $25.00 over this time, you have locked in a higher selling price for the 1000 CBA shares at $25.00. You could elect to exercise your option and sell the shares, receiving the full face value of $25.00 per share plus other fees and transaction costs that might be applicable. Also, the option premium you paid at the start for this option would be deducted from the $25.00 selling price, so the break-even on this trade will be decreased by this amount.

Alternatively, if you decide that you don’t want to sell the shares, perhaps you were interested only in participating in the decrease in CBA’s share price; you could sell the option and profit from the increase in premium.

Worst case scenario, should CBA increase above $25.00 over this time, your option would lose value. If CBA is above $25.00 at expiry, the option would expire worthless. Should you now want to sell the shares, you could sell them at a higher price in the market. Even though the initial premium paid might be lost, the increased sale price of the shares will at least partially offset this.

Trade Summary

 

Exposure 1000 shares

Initial Investment = $1,800

Max Loss = $1,800

Breakeven = $23.20

Max Profit = $23,200

 


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

Bought Put Option

Posted on February 19th, 2010 admin No Comments

A bought put is a long put, which is a bearish or very bearish position. It gives the holder the right, but not the obligation, to sell the underlying asset at a fixed price or amount on or before a specific period of time. The risk for the holder is limited to the premium paid for the option. The reward is unlimited to an underlying price of 0. The Put purchase strategy benefits from a decrease in the price of the underlying asset.

Put purchases are used if you are bearish on the underlying asset. They can be used as an alternative to shorting (or selling) the underlying asset. A bought put can also be used to protect a currently held position with the underlying asset by locking in a selling price (via the strike price).

Buying a put can be used to hedge or protect existing shares. This can be seen as a form of insurance. You can protect your shares at any level but just like insurance the more you pay for the put the higher your protection. So you can work out if you want to risk 5% of your portfolio and hedge out the remaining position. This is the most important role of a bought put as it can be used as a form of protecting capital and is essential to Self Managed Super. This strategy will be discussed later in the course under protected equity. Please contact me in the meantime if you wish to discuss trading this strategy.

Summary:

Market Outlook Bearish
Risk Premium Paid
Potential Reward Limited to strike price less premium paid
Premium Paid at purchase, no margin calls
Time Decay (Theta) Negative
Volatility (Vega) Positive


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

Bought Call Option Trade Example

Posted on February 18th, 2010 admin No Comments

Buy 1 contract BHP May 3000 Call option @ 230 cents

This option gives you the right to buy 1000 BHP Billiton Limited (BHP) shares for $30.00 each, on or before the expiry date in May. If BHP rises strongly above $30.00 by expiry of the option, you have locked in a lower buying price for the shares.

As the buyer of the option, you have a choice as to whether you want to exercise and buy the 1000 BHP shares or if you just want to sell the option.

For example, if you are right in your assumption, and BHP rises to above $30.00 over this time, you have locked in a lower buying price for the 1000 BHP shares at $30.00. You could elect to exercise your option and buy the shares, paying the full face value of $30.00 per share plus other fees and transaction costs that might be applicable. Also, the option premium you paid at the start for this option would be added onto the $30.00 purchase price, so the break-even on this trade will be increased by this amount.

Alternatively, if you decide that you don’t want to buy the shares, perhaps you were interested only in participating in the increase in BHP’s share price; you could sell the option and profit from the increase in premium.

Worst case scenario, should BHP fall below $30.00 over this time, your option would lose value. If BHP is below $30.00 at expiry, the option would expire worthless. Should you now want to purchase the shares, you could buy them at a lower price in the market. Even though the initial premium paid might be lost, the decreased purchase price of the shares will at least partially offset this.

Trade Summary

  • Exposure 1000 shares
  • Initial Investment = $2,300
  • Max Loss = $2,300
  • Breakeven = $32.30
  • Max Profit = Unlimited

 

 

 


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

 

Bought Call Option

Posted on February 18th, 2010 admin No Comments

A bought call option purchase is also known as a long call option, which is a bullish or very bullish position. It gives the holder the right, but not the obligation, to buy the underlying asset at the exercise price on or before a specific period of time. The risk for the holder is limited to the premium paid for the option. The reward is unlimited. The bought call strategy benefits from an increase in the price of the underlying asset.

Buying calls is a bullish strategy that can be used as an alternative to the outright purchase of the underlying asset, giving you the benefits of limited risk and increased leverage. To profit from bought calls you are looking for a break out with a very bullish move. One way to identify this move is by using technical analysis.

If a call is in-the-money you can exercise your right to buy the shares at the strike price. The reason for exercising would be to hold the shares instead of closing the option and locking in the intrinsic value at expiry. Most option holders will close the position instead of exercising their right to buy the shares. An alternative strategy for buying shares is to sell put options.

Summary:

Market Outlook Bullish
Risk Premium Paid
Potential Reward Unlimited
Premium Paid at purchase, no margin calls
Time Decay (Theta) Negative
Volatility (Vega) Positive


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