Australian Reporting Season (II) and 3 Option Ideas

by Raymond Chan

As the financial year reporting season draws to a close, key themes are being digested in the market include;

1) Our major banks taking more inwardly looking stances in a tough credit growth market, but rewarding shareholders lifting payout ratios and dividends;
2) The major miners taking a more and more cautious view on China;
3) The retail sector reporting disappointing earnings and likely declines; and
4) Our utilities also reporting some fairly flat numbers.

One the more topical stories during the week was news from BHP Billiton that the Olympic Dam expansion would be on hold and that no new projects would get approved in FY13. This further affected sentiment towards our mining services sector with evidence that project deferrals are a very real risk to future earnings. Meanwhile, we saw strong results from Downer EDI, Decmil, Mondalpheous and Mermaid Marine during the week.

Gold stocks outperformed with the precious metal extending its rally throughout the course of the week. Major gold miners rebounded strongly which is likely the combination of short covering and an increasing likelihood of QE3 supporting higher gold prices in the short term. In stark contrast, the iron ore price fell below US$100/t for the first time since 2009. Senior Resource Analyst James Wilson highlighted during the week that seasonally low prices have been exacerbated by weaker steel demand from Chinese steel mills.

From our Option Desk, we have the following three option ideas:

Position One:                Sell RIO September $50 Puts at 145 cents
Current Share Price:        $50.47
Research Target Price:        $96.54

The RIO share price has retreated from around $56 on 9 August to just over $50 today. The shares appear to be technically oversold.

Position Two:                Sell WES September $35.00 Calls at 39 cents
Current Share Price:        $34.50
Research Target Price:        $30.06

Wesfarmers are trading ex-dividend, (unlike Woolworths) the stock has moved quickly from $33 to its current level.  You may only wish to consider this position if the underlying WES shares are held.

Position Three:        Sell ANZ September $25.50 Calls at 17 cents
Current Share Price:        $24.81
Research Target Price:        $23.94
ANZ has benefitted from the Australian stockmarket's recent flavour for stocks with yield.  If you are exercised at expiry the annualised return would be over 40%. You may only wish to consider this position if the underlying ANZ shares are held. 


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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