Taking an option over rising crude with WPL

by Raymond Chan

OPEC and Oil Price

A failed agreement within OPEC members to boost production has given boost to oil price, pushing it above $100/bbl.

Signs of long-simmering divisions are seen between key cartel players Saudi Arabia and Iran, causing one of the most turbulent OPEC meeting in years (Wall Street Journal)

Disagreement seems to be with a group led by Saudi Arabia pushing hard for an increase of oil production of 1.5 million barrels per day arguing that oil demand will pick up in the second half of 2011 due to global economic recovery. This argument was blocked by 6 OPEC members, including Iran, arguing that demand for oil will remain soft due to wekaness in the US economy.

It's interesting to see the dissenting view in not just how much oil to produce but also the differences in views of the global economic recovery.

This tension, though may not push oil price to new high, but at least gives support to current levels.

Play via WPL

1 Since the high of 31 May to 9 June, WPL  has lost some $3 or 6.4%, from $46.71 to $43.71

2 Current level of $43.71 is an attractive entry level

3 56c dividend coming up in mid Aug

4 Feedback of recent progress on Browse project is gaining momentum with some potential positive catalyst (like positive drilling results, third party gas deal) 

5 free ride on potential takeover (no new rumour currently)

Options Strategy

Bull put spread by

Selling Jul $4317 put and buy Jul $4218 put for net credit of around 36c per contract

Risk: Maximum downside $0.99 gross or net of incomee $0.63

Possible outcomes:

1 earning net income of 36c if WPL expires above $43.17

2 buy shares at $42.81if WPL expires below $43.17 and be entitled to 56c dividend going ex in Aug


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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