Daily Murmur 28/07/11

by Gary Glover

RIO has recently rallied 8 days up after following an impulsive move down that lasted only 4 days.  This looks like some sort of consolidation and should move lower to retest the recent lows.
The low volume on the climb shows a lack of commitment from the buyers so we favour a move lower from here.  A move above yesterday’s high of 83.33 would cause us to reassess our position.
Markets often trade 1:1 or 2:1 in terms of days up vs down, so 8 vs 4 is a common set up.

RIO - a strategy we looked at yesterday  
An options trade to consider is a  RIO Bear Put Spread
B RIO Sep 82.01P @ 2.22
S RIO Sep 76.01P @ 0.73                cost 1.49 / 6.00 spread
Max loss = 1.49
Max gain = 4.51                 4:1 risk reward
B/even = 80.52
Max profit if RIO closes below 76.01 by September 29


Gary Glover is an Authorised Representative (Rep No. 259215) of Novus Capital Limited ("Novus"). Novus is a holder of Australian Financial Services Licence No 238 168. Novus, its directors, officers, associates and employees each declare that they, from time to time, may hold interests in financial products and/or earn brokerage, commission, fees or other benefits from financial products mentioned in this e-mail or attached documents. Unless specifically stated within this page or an attached document, any information communicated by this e-mail constitutes unsolicited general financial product advice which has been compiled without regard to any investor's individual objectives, financial situation or needs. It is not specific advice for any particular investor. Before making any decision about the information provided, you need to consider the appropriateness of this information having regard to your individual objectives, financial situation and needs and consult your adviser. Any indicative information and assumptions used here are summarised and also may change without notice to you, particularly if based on past performance or relate to a future matter.

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