Options for low volatility stock

by Raymond Chan

Current Price: $1.67

AIO has weaken off from the recent high of just under $1.80 reached in early April. With the culmination of the market pulling back from the almost 5000 points since mid April and the threat of potential industrial actions at its container ports division, AIO is currently sitting at $1.67.

With its FY12 EBITDA at 8.1x, it is trading below its global port and rail peers (which are at 11.7x and 8.8x respectively). It is now sitting at an attractive price level.

There is a chance for AIO to trade back up to the $1.80 level.

To take advantage of this move and with relatively low volatility on the stock, investors can look at selling a put spread of the stock to earn income.

Suggested options strategy:
Sell Jun $1.70 put and buy Jun $1.60 put for a net 4c credit.

Maximum loss on each contract of put spread is 10c.

For an investor who is prepared for a $5k maximum loss, he/she is able to sell 50 contracts for an income of $2k (before costs).

Possible scenarios:
1 should AIO finishes above $1.70 end June, then $2k income is earned
2 should AIO finished below $1.60 $5k is lost
3 should AIO finished between $1.60 and $1.70, spread can be closed with a loss under $5k

Alternatively, the put spread can be exited separately with the sold put profit taken first.

Happy Trading!



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

Subscribe to our Daily Newsletter?

Would you like to receive our daily news to your inbox?