AFR Interview, EU Summit & 3 option ideas

by Raymond Chan

It’s been my pleasure to be interviewed by Australian Financial Review. The interview was published on 30/06 which marked the 15th anniversary of the establishment of Hong Kong Special Administrative Region (HKSAR), signalling the handover of Hong Kong administrative right from UK to China. 
As we headed for a flat end to the week, our market staged a late rally from Friday 12:30 pm after European leaders emerged from the latest EU summit with news they have agreed to use the continent’s bailout funds to recapitalise its struggling banks.The agreement means that banks can be recapitalised directly without the need for austerity programs. This news caused Dow futures to spike and our market jumped by over 1%. EU President Herman Van Rompuy described the agreement as a "breakthrough" for the eurozone with greater flexibility in the use funds of bailout funds to support the banking system. More importantly, it provided evidence that the deeply divided European nations are bridging their differences and finally working towards a unified solution for the region.
Before this announcement, there was little to sway investors one way or the other with most action on our market this week related to company-specific news and events. Major restructures, takeovers and other corporate activity dominated the headlines during the week with a number of significant corporate actions undertaken before the end of the 2011/12 financial year.
As shown on table below, it does feel like the “risk on” trades is now back on with Commodity Index, Oil and Copper all up 6% this week after a tough financial year for Australian Share Investors with ASX 200 down 11.1% over past 12 months.
David Jones announced it has received unsolicited proposal from UK private equity firm EB Private Equity, for the 100% acquisition of the Company for $1.65bn. Fairfax remained in the spotlight after denying mining mogul Gina Rineheart a seat of the Board, sparking speculation that this may prompt a selldown of her 18.7% holding in the company. News Corporation shares rallied after it confirmed it was considering splitting its business into two separate companies in a restructure that would separate its larger entertainment division from its struggling publishing businesses. And to round out the media trifecta, Seven West Media shares slumped following the departure of larger-than-life CEO David Leckie and proposed replacement by ex-Woodside boss Don Voelte. Not to be outdone, our Resources sector also provided some headlines. Fortescue Metals continued with its campaign to challenge the Federal Government's Minerals Resource Rent Tax in the High Court of Australia. Santos shares slipped as it confirmed a $2.4bn cost blowout to Gladstone LNG project. Meanwhile, St Barbara announced a proposed merger with Allied Gold to establish a combined group with a market capitalisation in excess of $1bn that would produce approximately 435,000 ounce per annum. The Offer for Allied Gold shareholders is at a substantial 89.6% premium to the last closing price.
With many share price still depressed following a prolonged period of poor sentiment, we continue to believe that there is compelling value to be found in Australian equities. There is evidence that many in the Australian business community also share our view and we may see an increase in corporate activity in the months ahead 

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

ETO implied volatilities have decreased post the EU summit at the end of last week.
Position One:                Sell NCM July $23.50 Puts at 75 cents (Core Portfolio Stock)
Current Share Price:        $23.68
Research Target Price:        $35.55
Gold was up $20 last night, the market seems to be expecting further monetary policy easing from central banks in the next few days/weeks.
Position Two:                Buy-Write FMG, Buy stock at $4.90 and Sell FMG July $5.25 Calls at 7 cents
Current Share Price:        $4.90
Research Target Price:        $7.37
Last week Twiggy Forrest made a fill or kill bid for 60 million shares at $4.90, he was unsuccessful in his attempt but it is a good sign for the share price.
Position Three:        Sell QBE July $13.50 Puts at 21 cents
Current Share Price:        $13.48
Research Target Price:        $14.97
The stock has seen some buying in recent days with the 1H claims environment being much less volatile than the previous corresponding period.  Other broker research estimates an insurance margin above 14% appears achievable. 

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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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