Capturing BLD’s post-results share price strength

by Raymond Chan

Option strategy on BLD at $5.30 closing price on 11 february 2011
 
WHY: BLD has gone up some 5.5% since its results on 9 February, closing at $5.30 on Friday, getting back to where it was some 7 months ago. Those who have held on for all those time would be happy to see come recovery on the stock.
 
WHO: For those who would like to hold on to the stock; to enjoy the 7.5c dividend going ex on Friday 18 February; to enjoy potentially further share price appreciation due to Queensland rebuilding AND earning extra income from their shares
 
STRATEGY: sell covered calls over shareholdings
 
Sell BLD Mar11 $5.41 calls for around 9.5c*

(*based on theoretical price on 13 February. Live prices need to be obtained before executing this trade.)
 
Number of shareholdings required for each call contract: 1071
Obligation: selling/delivery of shares at $5.41, if assigned.
Income to be generated per contract (or per 1071 shares): $101.75 (before costs)
Mar 2011 expiry is on 24 Mar, with 38 more days to go (from 14 Feb)

 
Scenario Analysis:
 1 Investor not assigned on call options by expiry (investor gets to hold on to shares after 24 Mar 11)

Total income earned is 17c [7.5c dividend + 9.5c premium] or 3.2% in 38 days  

2 Investor is assigned within the next 5 days (investor sells stocks at strike of $5.41 wthout 7.5c dividend)

Return is 3.86% in 5 days [$5.41 strike + $0.095 premium = $5.505 over last traded price of $5.30]
 
3 Investor is assigned only after dividend is ex’ed on Friday (which is ideal)

Return is 5.48%  [$5.505 + $0.075 dividend = $5.58 over $5.30]
 

Disclaimer

Information/strategies/trading ideas in this blog is provided for general information purposes only and is not intended as an offer to enter into any transaction. Information contained in this blog is not necessarily complete and its accuracy cannot be guaranteed. Information/strategies/trading ideas here have been prepared without consideration of the investment objectives, financial situation or particular needs of any individual investor. Before a client/investor/reader makes an investment decision, a client/investor/reader should, with or without RBS Morgans' or the author’s assistance, consider whether any advice contained in this blog is appropriate in light of their particular investment needs, objectives and financial circumstances. It is unreasonable to rely on any recommendation without first having spoken to your adviser for a personal recommendation. The use of options may not be suitable for all investors. Potential investors are recommended to seek professional advice before embarking on any strategies mentioned in this blog. The information/strategies/trading ideas contained in this blog have been taken from sources believed to be reliable. Neither the author nor RBS Morgans Limited represent that the information is accurate or complete nor should it be relied upon as such. Any opinions expressed reflect the author’s judgment at this date and are subject to change and is not necessarily that of RBS Morgans'. RBS Morgans and/or its affiliated companies may make markets in the securities discussed. Further, RBS Morgans and/or its affiliated companies and/or their employees from time to time may hold shares, options, rights and/or warrants on any issue included in this blog and may, as principal or agent, sell such securities. The Directors of RBS Morgans Limited and Grosvenor Sydney office advise that they and persons associated with them may have an interest in the above securities and that they may earn brokerage, commissions, fees and other benefits and advantages, whether pecuniary or not and whether direct or indirect, in connection with the making of a recommendation or a dealing by a client/investor/reader in these securities, and which may reasonably be expected to be capable of having an influence in the making of any recommendation, and that some or all of our representatives may be remunerated wholly or partly by way of commission. Information in this blog is proprietary to its author and may not be copied as your own or used for any other purpose without the prior written consent of the author. RBS Morgans Limited (ABN 49 010 669 726 AFSL 235410) A Participant of ASX Group Principal Office: Level 29, Riverside Centre, 123 Eagle Street, Brisbane QLD 4000
 

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