My options strategy for BHP

by Michael Gable

In my Stock Watch video two weeks ago (http://www.finnewsnetwork.com.au/archives/finance_news_network76889), I explained that BHP should fall back towards $35.50. A breach of that could see it dip towards $31. Now that it has hit that $35.50 area as expected, we would expect to see a bounce in the order of $1.50 - $2 from here. The reason why it may not crash through it this time is because by hitting that support level very quickly, the stock has become oversold on the RSI (circled) and moving back above the oversold line has now triggered a short term buy signal. So the stock should bounce here, but any rally back towards the top of the recent range could then be sold again.
 
 
If you want to take advantage of some short term upside in BHP, this is a basic credit spread that I put in place for clients yesterday. It works like this. We sell a $36 July put and then use some of those proceeds to buy a $35 July put. At time of writing, it is generating about 50c in premium. Maximum profit is 50c and that is if BHP is trading above $36 at July expiry. Maximum loss is 50c if BHP is trading below $35 at that date. In the meantime, the position will move between profit and loss as BHP’s share price moves. We can also close it off early if we wish to take an earlier profit/loss. 
 
As mentioned above, our target for BHP is back towards the top of the recent range, so if it hits that, we will look to close our bullish spread and contemplate opening a bearish one.

Disclaimer

Disclaimer: Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.