Australian Reporting Season (II) and 3 Option Ideas

by Raymond Chan

As the financial year reporting season draws to a close, key themes are being digested in the market include;

1) Our major banks taking more inwardly looking stances in a tough credit growth market, but rewarding shareholders lifting payout ratios and dividends;
2) The major miners taking a more and more cautious view on China;
3) The retail sector reporting disappointing earnings and likely declines; and
4) Our utilities also reporting some fairly flat numbers.

One the more topical stories during the week was news from BHP Billiton that the Olympic Dam expansion would be on hold and that no new projects would get approved in FY13. This further affected sentiment towards our mining services sector with evidence that project deferrals are a very real risk to future earnings. Meanwhile, we saw strong results from Downer EDI, Decmil, Mondalpheous and Mermaid Marine during the week.

Gold stocks outperformed with the precious metal extending its rally throughout the course of the week. Major gold miners rebounded strongly which is likely the combination of short covering and an increasing likelihood of QE3 supporting higher gold prices in the short term. In stark contrast, the iron ore price fell below US$100/t for the first time since 2009. Senior Resource Analyst James Wilson highlighted during the week that seasonally low prices have been exacerbated by weaker steel demand from Chinese steel mills.

From our Option Desk, we have the following three option ideas:

Position One:                Sell RIO September $50 Puts at 145 cents
Current Share Price:        $50.47
Research Target Price:        $96.54

The RIO share price has retreated from around $56 on 9 August to just over $50 today. The shares appear to be technically oversold.

Position Two:                Sell WES September $35.00 Calls at 39 cents
Current Share Price:        $34.50
Research Target Price:        $30.06

Wesfarmers are trading ex-dividend, (unlike Woolworths) the stock has moved quickly from $33 to its current level.  You may only wish to consider this position if the underlying WES shares are held.

Position Three:        Sell ANZ September $25.50 Calls at 17 cents
Current Share Price:        $24.81
Research Target Price:        $23.94
 
ANZ has benefitted from the Australian stockmarket's recent flavour for stocks with yield.  If you are exercised at expiry the annualised return would be over 40%. You may only wish to consider this position if the underlying ANZ shares are held. 

Disclaimer

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