Options Commentary

ASX 200 recorded 4th consecutive weekly
Posted By:Raymond Chan On:10/04/2013 15:36
From RBS Morgans Research

Ongoing concerns about the health of the global economy continued to plague equity markets with ASX 200 (XJO) falling below 4,900 points. Aggressive new stimulus measures from the Japanese central bank failed to inspire confidence (except for its own stock market Nikkei +3.5%) as weak US labour data and European Central Bank President Mario Draghi said the euro-zone economy was at risk of a deeper recession.
 
Heightened tensions surrounding North Korea added to the woes of investors with markets in the Asian region already weaker in light of Chinese growth concerns. These issues continued to affect commodity prices with base metals and oil prices falling sharply whilst the 'safe haven' status of the bullion did little to prevent gold prices from reaching nine-month lows. We saw risk-off mentality return as the local market followed overseas equities lower, with Materials and Energy sectors leading the falls.
 
The Reserve Bank of Australia held the official cash rate unchanged at its April Board meeting which came as no surprise to economists who widely tipped no change to the current cash rate of 3%. In a statement accompanying the decision, Reserve Bank governor Glen Stevens said previous easing of monetary policy was having an expansionary effect on the economy and the bank expected further benefits to be realised
over time. However, the RBA was keeping an eye on the inflated exchange rate given the observed decline in export prices.
 
Despite lower prices, the Australian trade deficit narrowed more than expected in February, as a result of growing export volumes from key resources like coal and iron ore grow. This didn't prevent miner Rio Tinto from announcing more intended asset sales with its thermal coal assets joining Mongolian copper and Canadian iron ore assets on the chopping block. Next week, ABS will release latest Labour Force Survey on Thursday.
 
From our Option Desk 

Position One:                Buy Write ANZ- buy stock at $28.48 and sell April $29.01 European Calls at 20 cents
Current Share Price:        $28.43
Research Target Price:        $25.28
 
ANZ will trade ex-dividend approximately $0.66 fully franked in early May, the idea of this trade is to receive the dividend, the call may require rolling at the April expiry.
 
 
Position Two:                Sell BHP May $33.50 Puts at 33 cents
 
Current Share Price:        $33.96
Research Target Price:        $37.40
 
After several months of underperformance resource stocks may be on the turn.  The effective entry price if assigned is $33.17.
Several other brokers have upgraded resources today, most sighting valuation support.
 
 
Position Three:        Buy Write RIO- buy stock at $58.46 and sell April $59.50 calls at 85 cents
Current Share Price:        $58.46
Research Target Price:        $80.66
 
After several months of underperformance resource stocks may be on the turn.  The effective entry price, after discounting for the call premium is $57.61.
Several other brokers have upgraded resources today, most sighting valuation support. 
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Reporting Seasons Wrap + Three Option Ideas
Posted By:Raymond Chan On:27/02/2013 15:32

This article is made without consideration of any specific client’s investment objectives, financial situation or needs. Those acting upon such information without first consulting one of RBS Morgans investment advisers do so entirely at their own risk. It is recommended that any persons who wish to act upon this report consult with an RBS Morgans investment adviser before doing so. This email does not constitute an offer or invitation to purchase/sell any securities and should not be relied upon in connection with any contract or commitment whatsoever. 



Weekly Commentary

The new year rally came to a grinding halt this week amid growing fears the US Federal Reserve will slow or cancel its QE3 programme after minutes revealed a divide amongst senior officials about the risks of persisting with the stimulus measures. The news spooked global markets, triggering a sharp fall in all major Indices as investors sold out of equities on the back of heightened concerns over US growth in an economic environment not supported by central bank stimulus. Poor economic exacerbated investor concerns as jobless claims increased and US manufacturing activity deteriorated. Ironically, the weak data is more likely to be viewed positively by equity markets as unfavourable economic indicators support the validity of QE3 and likelihood that the Fed will persist with the stimulus programme.

Despite Thursday's fall, our market did make up ground to close the week slightly lower. The best resilience was seen in the banking (NAB up 14 straight weeks) and insurance stocks such as IAG and Suncorp. The resources sector continues to drag on the market with the sector again under pressure as commodity markets followed negative leads in equities, causing many mining equities (ex BHP and RIO) to forfeit much of the gains to date in 2013. Base metals fell across the board while the bullion dropped below UD$1,600 to hit the lowest level since July last year. Oil prices eased slightly whilst iron ore prices remained over US$150/t to be largely unaffected by recent sell off in commodities.
However, it was not all bad news for the sector with BHP Billton stating said it expects a recovering global economy to support commodity demand and prices in the short-term. The nation's largest publically listed company reported a 57.8% fall in net profit over the half ending December 31, with the company joining other local and overseas majors such as Rio Tinto, Newmont, Paladin, Kinross, Anglo America and Barrick to be affected by large write-downs.

We also saw half yearly reports from some of our major energy stocks with Origin Energy missing market expectations whilst Santos and Woodside provided mixed results which showed enough promise to support current prices.
Amongst a deluge of earnings results reported this week, industrials companies reporting resilient growth in this environment are being rewarded while those that disappoint are quickly punished. Seek rallied on the back of the strong result, following peers such as the REA Group and Carsales.com. The same couldn't be said for the Breville Group as the share price plummeted as results failed to meet investors' lofty expectations and concerns arose around a key Canadian distribution contract.  

From Our Trading Desk this week...

Position One: Buy-write NCM - Buy stock at $22.13 and Sell NCM March $23.5 Calls at 30 cents
Current Share Price: $22.13
Research Target Price: $27.90
The Newcrest share price has been having a tough time post an ordinary (in-line) interim result and a weaker gold price.
The recent volatility in the Dow Jones should mean that gold stocks find some support.
Position Two: Sell QBE June $13.75 Puts at 155 cents
Current Share Price: $12.75
Research Target Price: $11.96
QBE shares closed down 2% yesterday after missing earnings again, the dividend was cut to $0.10.
This trade hopes the turnaround in the stock is getting closer, break-even entry point into the stock is $12.20/share
Position Three: Sell WOW April $34.16 Calls at 72 cents
Current Share Price: $33.94
Research Target Price: $30.20
Woolworths now trades on a yield of 3.9% and a PE of 18 times FY13. We like the stock but feel it is expensive at current prices. 
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Federal Election, China and Three Option Ideas
Posted By:Raymond Chan On:07/02/2013 09:26

Federal Election – Saturday 14 September 2013

As pointed out by Alan Kohler over the weekend, “Last year I thought a Labor win was a vague possibility; now I think it is very much the Coalition’s election to lose. That is, the only way there won’t be a change of government in September is because Tony Abbott and/or his team stuff up the campaign in some way, perhaps by making some big basic mistake with arithmetic. But I’d say we are going to have not only one of the longest campaigns in history, but also one of the most certain results in history.”

Overall, if Coalition reclaims the control of government, the key implication will be (1) Removal of Hung Parliament, (2) Removal of MRRT and Carbon Tax, (3) Holding back on the Superannuation Reform (proposed by Labor limiting the tax deductibility via Super for high income earners).  Remember the last bear market began when Labor government took control of Federal Government in December 2007. Stock market, in anticipation of a change of government, enjoyed a broad based rally this week.

ChinaPMI figures

PMI (Purchasing Managers’ Indexes) are accurate and timely economic indicators deviated from monthly surveys of private sector companies  (wikipedia.org). In US, the most popular measures are Markit Group and ISM (Institute of Supply Management). In China, the widely used figures are from HSBC (i.e. HSBC China PMI) and Government Authority (i.e. China Official PMI).

Our strategist suggests that the official Chinese PMI survey rests a fraction above 50, compared with the average 52.8 over its post-2005 history. We follow the orders/inventory ratio as a better lead indicator for IP, and note that it troughed in May/June, and picked up from July. However, the level of both the overall index and the crucial orders/inventory index suggest no strong recovery in 1H13. From which, we think it’s still appropriate to maintain neutral weighting (rather than overweighting) on resource stocks. Besides, the bottoming of Chinese economy should mean further upside in China A shares (e.g. AGF)

From our Option Desk, here are our three ideas for the week:

Reporting season is underway, these events usually provide good trading opportunities, please call for dates or forecasts.

Position One: Sell BHP February $36/$38 strangle at 40 cents
Current Share Price: $37.37
Research Target Price: $37.71
BHP will report their half-year result on 20 February, consensus estimates are for a profit of around $5.6bn and DPS of 57 cents. The break-even levels for this trade are $35.60 and $38.40.

Position Two: Covered call- Sell NAB March $27.50 calls at 103 cents
Current Share Price: $28.09
Research Target Price: $29.84
NAB will provide a 1st quarter trading this morning. The current share price (improvement from $25/share or 11% in January) has probably captured any recent improvement in trading conditions for the bank.

Position Three: Sell MQG February $37.01 calls at 60 cents
Current Share Price: $36.74
Research Target Price: $29.52
On Monday Macquarie bank upgraded their 2013 profit forecast by 10% to $803m, the market was under-whelmed and the stock closed down 4% on the day.
The analyst believes the next leg of share price appreciation will need to come from revenue growth and this will likely require a greater increase in capital market activity levels

 

This article is made without consideration of any specific client’s investment objectives, financial situation or needs. Those acting upon such information without first consulting one of RBS Morgans investment advisers do so entirely at their own risk. It is recommended that any persons who wish to act upon this report consult with an RBS Morgans investment adviser before doing so. This email does not constitute an offer or invitation to purchase/sell any securities and should not be relied upon in connection with any contract or commitment whatsoever. 





 
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Sky News Interview, NCM, ASX, WPL
Posted By:Raymond Chan On:31/10/2012 13:22
Media

We appeared on Sky Business “Market Moves” last Tuesday 5:30 pm with Liz Tilley and look to do more works with the network, alongside with SBS, 2CR, AFR and other media group.

 
Weekly Wrap (RBS Morgans)

The Aussie market eased lower throughout the week with defensive sectors holding their ground while the cyclicals and resources generally weakened. Asian markets outperformed their US counterparts with conflicting economic data and corporate earnings from both regions. We suffered a real slowdown in momentum to finish down 2.2% for the week. Having said that, ASX 200 still up 2% in the month of October.
 
Chinese manufacturing activity showed signs of a recovery and expectations of additional support for asset prices from the Bank of Japan, helped support Asian markets whilst the US lead the declines on the back of disappointing corporate earnings.
 
European markets had a more volatile week with positive results from Nordic banks and Unilever NV offset by poor earnings results on both sides of the Atlantic.
 
In commodities, base metals were the worst performers this week with West Texas oil also lower. Gold remained relatively flat while iron ore prices hit US$120/t to support a recovery in some of iron ore miners. Meanwhile, price weakness in coal, our other major bulk commodity export, has been well publicised and has lead to series of profit downgrades and cautious outlook statements by many of our miners. Major producers such as Whitehaven Coal and Yancoal have been in the headlines for all the wrong reasons as corporate activity and a persistent squeeze of margins still affecting the sector.
 
In economic news, our Treasurer unveiled the worst kept secret in Federal politics, revising Budget revenue forecasts downward in FY13, mainly due to lower than expected company tax (A$2.3bn) and resource rent tax receipts (A$1.8bn). Whilst this has inevitably lead to spending cuts, we expect only a minimal impact on the economy's performance over the next eight months and note the Government still expects the surplus to be 0.1% of GDP. Nonetheless, this puts the onus on the RBA to continue to support growth and downward pressure on the Australian dollar.

Another sector that has been in the spotlight this week has been mining services with the giant mining supplier Caterpillar slashing 2012 guidance and providing a very cautious outlook for near term revenue growth. Comments from Worsley Parsons and Bradken reiterate concerns that the recent slowdown has been perhaps deeper and faster than originally expected. We have seen weakness persist in the sector with many of our mining services stocks falling sharply.
 
Refreshingly, we heard from Bernie Ridgeway, Managing Director of Imdex who gave us a timely reminder that in his decades of experience in the industry these downturns are common and will continue to be seen in coming years. Importantly the long term fundamentals for these businesses remain intact and we believe good buying opportunities will emerge. 

From our Option Desk

Position One:                          Sell NCM November $26 puts at  72 cents
Current Share Price:                 $26.16
Research Target Price:  $25.92
 
NCM's Sept 2012 production numbers were slightly below the RBS analyst's expectations. The share price has retreated from the $30 mark in mid September to finish yesterday at just above $26.
 
Position Two:                          Sell ASX November $29.50 puts  at 36 cents
Current Share Price:                 $29.73
Research Target Price:  $30.25
 
Whilst cash equities and IPO activity remains weak, secondary market raisings are still running ahead of weak pcp numbers. At current levels the stock is yielding 6% fully franked.
 
Position Three:                       Buy/Write in WPL - Buy shares at $34.30 and Sell December $37.22 Calls at 14 cents
 
Current Share Price:                 $34.30
Research Target Price:  $40.50
 
The WPL share price has been range trading between $33 and $36 since the start of August 2012. If assigned on the above position, the return (before trading costs) is roughly 8%. 
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ASX 200 short term direction, ANZ, CSL and RIO
Posted By:Raymond Chan On:24/10/2012 13:28
In my interview at Sky News Business Channel yesterday, I've been asked to comment on short term direction of ASX 200 .... Technically speaking, the Australia S&P/ASX 200 (XJO) and the major US indexes are in overbought territory, which suggests that a short-term pull back to unwind the overbought conditions is likely. We believe that the pull back would be shallow and will present a good buying opportunity. The medium term outlook for global equity markets remains bullish and we favour a 4th quarter rally.
 
 
From our Option Team
 
Position One:                            Sell ANZ November $26 calls at 20 cents
Current Share Price:                 $25.71
Research Target Price:  $24.01
 
ANZ will report this Thursday -  25 October 2012. Having seen recent weakness in the Bank of Qld result and after NAB last week announcing a "$250m economic cycle provision" there may be negative implications for the other Australian banks.  Please note this position will need to be monitored prior to the ex-dividend date in November.
 
 
Position Two:                           Sell CSL November $48 calls at 50 cents
Current Share Price:                 $46.64
Research Target Price:  $41.11
 
The CSL share price has enjoyed a strong run from $30 in the last year, it now trades on an FY13 P/E of 21.3 times, this covered call is suggested for those who own shares as a means of increasing the income from the shares.
 
 
Position Three:              Sell RIO November $58 Puts at 165 cents
Current Share Price:                 $57.82
Research Target Price:  $95.78
 
The iron ore spot price has recovered from below $90 in early September to the current level of $119. The RIO share price has underperformed in comparison to the iron ore price recovery. 

This email is made without consideration of any specific client’s investment objectives, financial situation or needs. Those acting upon such information without first consulting one of RBS Morgans investment advisers do so entirely at their own risk. It is recommended that any persons who wish to act upon this report consult with an RBS Morgans investment adviser before doing so. This email does not constitute an offer or invitation to purchase/sell any securities and should not be relied upon in connection with any contract or commitment whatsoever.
 
 
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About Me

Raymond Chan

Raymond joined RBS Morgans in 2003 and established the Asian Desk in 2005. As the #1 revenue adviser in Sydney office, Raymond accepted the challenge to set up the Macquarie Street office in 2011, providing strategic advice and managing portfolio for high net worth individuals and institutions. Prior to the current position, he worked with Merrill Lynch and HSBC Securities.
 
Raymond is often invited to provide commentary for Australian leading media such as SBS TV, SBS Radio, Sydney Morning Herald, The Age, Sunday Telegraph, Herald Sun, The Australian, TVB Jade, 2CR Radio Network and CRI Beijing.
 
Raymond’s successes include:
• Advisory role to a Sovereign Fund, based in Southern China
• A$140 million share portfolio for a Singapore family
• A$100 million asset allocation Advice for Australian shares and properties for a major property developer in Hong Kong
• Share Portfolio Management to a resort island owner in Malaysia and Hordern Properties Group in Sydney.
 
Mr Chan is a JP, qualified Certified Practising Accountant (CPA) and Certified Financial Planner (CFP), CPA Financial Planning
Specialist (FPS). Mr. Chan holds a master degree in commerce (funds management) with distinction average and bachelor degree in
accounting and finance from the University of New South Wales.
 
Professional Associations
Raymond is a JP, CFP, CPA, CPA (FPS) and Fellow Finsia
ASIC Approved Competencies
• Securities
• Managed Investments
• Financial Planning
• Superannuation
• Derivatives Level 1
• Derivatives Level 2
• Life Insurance
• Margin Lending
 

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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