Low Risk Options & Income Strategies for the Conservative Investor

12 month ASX - Australian Market Outlook

2010-07-19T19:03:00.000-07:00

Despite the recent pull back the market over the past few weeks the economic outlook here in Australia remains robust.

Here are some of the key reasons why I think there is significant upside over the next 12 months;

· Uncertainty in the international markets will fade over the next 12 months, which will restore investor confidence. The global economic growth picture, notably in Europe, will become much clearer once all the austerity measures have flushed through the system. This will also flow through to confidence in the recovery of the US markets.

· An improvement in private consumption expenditure over the next 12 months on the back of solid employment growth, and personal income tax cuts from 1 July 2010.

· A marked improvement in business investment, especially in the resources and resources-related sectors.

· Much stronger growth in export volumes as our trading partner’s economic growth improves - the latest figures released by the RBA show the trade surplus was the highest for 14 months and the third highest on record at $1.645 billion. That was three times the market economists' forecast.

· The recent reporting season confirmed that the earnings recovery is underway for the Australian market.

The majority of the leading investment strategists also agree with my view. See attached article from the Australian Financial Review. In summary, these leading share market strategists are tipping the Australian share market or the ASX 200 to reach 5302 points by June 2011. If these forecasts play out as expected investors have at least 1000 points of upside to look forward to over the next 12 months, that’s over 24%.

These same strategists are tipping the ASX200 to reach 5332 by December 2010, that’s over 25% of upside from current levels in less than 6 months.

If the 12 month target forecast by Deutsche Bank of 6250 points is reached, the market will have moved 2050 points, or 49%!

Strategists June 2011 forecasts for the S&P/ASX 200
Deutsche Bank	6250
UBS	5800
Citigroup	5500
Goldman Sachs	5375
Macquarie	5068
JP Morgan	5000
Morgan Stanley	5027*
Credit Suisse	5000*
Merrill Lynch	4500*
Average	5302 points

Source: AFR 1 July 2010.

*December 2010 forecasts – no June 11 forecasts provided

Great opportunities arise when strong investor emotions, rather than fundamentals, drive the share market. You just need to ensure you are the investor who is looking to the fundamentals rather than the short term market noise.

“Profit from market folly rather than participate in it”

-- Warren Buffett.

I believe investor emotions are driving the current fall in the market, rather than sound fundamentals. The fundamentals remain strong so the recent pull back in the market means you should review your long term investment goals to analyse how you can take advantage of the great opportunity the current pull back has created.

Australia: ASX Outlook

2010-07-14T05:46:00.000-07:00

The All Ordinaries is headed for another test of the new resistance level at 4500. Respect would confirm the primary down-trend, while breakout above 4650 would signal a reversal. Momentum (21-day) bearish divergence favors a reversal.

A completed Money Flow (13-week) trough above zero on the ASX 200 would indicate strong buying support, suggesting a reversal.

* Target calculation: 4300 - ( 4600 - 4300 ) = 4000

Top 10 ASX Covered Call Premiums

2010-07-14T05:05:00.000-07:00

Top 10 ASX Covered Call Premiums

Call Option Strike	Credit	Return(%)
TAH Aug10 6.75	0.115	6.42
QBE Aug10 18	0.435	6.09
TAH Aug10 7	0.050	5.36
TLS Aug10 3.4	0.030	5.23
QBE Aug10 18.5	0.250	4.97
WDC Aug10 13	0.150	4.95
AXA Aug10 5.5	0.160	4.86
TAH Aug10 7.25	0.015	4.8
TAH Aug10 7.5	0.015	4.8
QBE Aug10 19	0.170	4.49

Global Financial Crisis 2.0?

2010-05-25T17:16:00.000-07:00

There are many commentators saying that the European debt and banking crisis could be the second round of the Global Financial Crisis. The usual doom and gloom merchants have come and told their listeners that stock markets around the world could sell off a further 20%. You know the usual "world coming to end" stuff. Well, these are the same people who said the US$ would never recover from the crisis in 2008 and the Euro would become the world's reserve currency. Oops! These guys were 100% wrong about the US$, US economy, and stock markets in 2008, why would you believe them now?

You shouldn't.

The current crisis that centres on Greece and hasn't spread further, despite a lot of hysterical reports trying to involve all of Europe, is a drop in the ocean compared to what happened in the US in 2008/9. I see the sovereign debt problems as more an after-shock after the GFC earthquake rather than a whole new crisis. This is definitely not a GFC 2.0. Sure it will restrain GDP growth in the EU a little, but it won't go much further than that.

For all their bickering the EU will get the current situation under control in coming weeks I'm quite sure and the markets will respond accordingly.

When markets "tank" they throw up great opportunities.

Some of my very favourite stocks have now come back into my buying range. In fact, two of them I would classify as two of the very best stocks you could ever own. Both companies have sales and profits at record levels and have predicted more to come in the coming year. Every time they report they beat expectations by a wide margin. The analysts can't keep up with their growth. Right now, investors have a fabulous opportunity to buy these companies at "panic selling" levels.

Last night's rally from a poor start on Wall Street is an indication that bargain hunting professional investors have entered the market, as they did back in March 2009 when the world was again coming to an end. This time it may be a mini rerun of the same situation.

The market in Australia is down over 12% for 2010 and the US market is also in negative territory for the year. As I predicted six months ago, 2010 would be a difficult and challenging year as the economic recovery gathered traction. However, I feel the bottom of the current correction is very close if not already passed - it's always hard to say exactly, until after it has definitely passed.

As investors we should try and cut out as much market noise as possible and concentrate on the fundamentals of individual investments and make sound decisions based on facts rather than speculation. Unfortunately, so many people get caught up in the emotion of the situation and forget that "this shall soon pass" as all crises do leaving the smart investor with profits.

By buying when everyone else is selling (and panicking), I have consistently beaten the markets year after year without making a loss even in 2008. This year will be no different. To make money at a time like this, you have to remain calm, look at the longer term situation, weigh up the facts rather than the speculation, ignore emotive opinion and ensure you buy the very best stocks at the right price and at the right time and have trading strategies that will protect you from the "unknown factor".

It's a fact of life that investors have to take the good with the bad. The problem for so many, is that they make the "bad" worse by not making "good" decisions. The majority make losses or mediocre returns, why is that? How do the small minority always seem to come out on top? The secret is the successful minority do the opposite to the mediocre majority. They see opportunity when others see disaster.

Bad situations always end up being great opportunites in hindsight. How will you handle this "opportunity"?

Top Ten ASX Covered Calls

2010-04-23T09:14:00.000-07:00

Call Option	Credit	Return(%)
MAP Jun10 3.21	0.070	6.69
SGP Jun10 4.25	0.055	5.55
MAP Jun10 3.46	0.020	4.93
MAP Jun10 3.7	0.015	4.76
NAB Jun10 29	0.525	4.51
ANZ Jun10 25.5	0.585	4.25
SGP Jun10 4.5	0.003	4.21
WBC May10 27.5	0.540	4.1
NAB Jun10 29.01	0.390	4.01
NAB Jun10 29.5	0.355	3.88

Covered Call of the Week for 03/04/2010

2010-03-03T03:49:00.000-08:00

Ctrip.com Intl. Ltd. (CTRP)

Sector: Services

Industry: Consumer Services

Ctrip.com International, Ltd., together with its subsidiaries, provides travel services for hotel accommodations, airline tickets, and packaged tours in the People's Republic of China. It also sells independent leisure travelers bundled package-tour products, which include transportation and accommodations, as well as guided tours covering various domestic and international destinations. In addition, the company offers Internet-related advertising, aviation casualty insurance, and other related services. Further, it sells travel guidebooks, which provide information for independent travelers, and VIP membership cards that allow cardholders to receive discounts from various restaurants, clubs, and bars. The company was founded in 1999 and is headquartered in Shanghai, the People's Republic of China.

We use a combination of Fundamental & Technical analysis in deciding to establish a position, so we first needed to find out that CTRP was ‘value’ at its current level, i.e. is the company’s stock worth what we were willing to pay for it. Our analysis reveals that CTRP was worth $78.84 based on current EPS and next years projected EPS. CTRP closed at $37.93 when we compiled the position which makes the stock undervalued by 51.89%.

Next we wanted to find out if there was any growth in the company and that the reported EPS (Earnings Per Share) was a true reflection of the health of the company. We establish this by comparing the reported EPS (Earnings Per Share) against the OPS™ (Operational-cashflow Per Share). Our research showed us that CTRP had a growth rate of 42.7% in the most recent quarter (MRQ - Q4 2009, Ending 12/31/2009). The OPS was at $0.03 when they actually reported an EPS of only $0.02.

OPS™ was created by StockDiagnostics.com

The final piece of fundamental analysis that we carry out is to check the financial stability of the company and predict the probability of bankruptcy. To do this we use the Springate score*. The Springate score for CTRP is 1.48 which indicates that the company is unlikely to go bankrupt.

*A single number score measuring the likelihood of corporate bankruptcy. Studies have shown that the following values have significance:
S < 0.862 the firm is likely to go bankrupt
S > 0.862 is a passing value

To view a chart for CTRP please CLICK HERE

Trade Details:

Stock:	Ctrip.com Intl. Ltd. (CTRP)
Call Option: (View Chain)	APR10 37.00 QCT100417C37 (Expires on 17th April 2010, 23 days)
Action:	Buy-To-Open CTRP @ LMT $37.95; Sell-To-Open QCT100417C37 @ LMT $2.45
Return Assigned:	4.23% (Stock is trading above the strike price at options expiration date)
Downside Protection:	6.46%
Breakeven Stock Price:	$35.50

To construct a Covered Call position, one Call contract is sold for every 100 shares of stock that are purchased. E.g. Buy 500 shares, sell 5 Call contracts. The returns quoted above are based upon purchasing the stock without using margin, and they do not take into account broker commissions. All prices are from sources deemed reliable but you should always double-check quotes before placing trades.

Profit/Loss Chart

Australian Market Overview

2010-02-23T14:30:00.000-08:00

The All Ordinaries broke through 4700 to signal another test of 5000. Bullish divergence on Money Flow (21-day) indicates buying pressure; recovery above zero would confirm the advance. Expect some resistance at 4800. Reversal through support at 4500 is unlikely, but would warn of a primary down-trend.

The ASX 200 is headed for a test of 5000 after breaking short-term resistance at 4650. Twiggs Money Flow (13-week) recovery above the descending trendline would confirm. The long-term picture, however, shows a bearish right-angled broadening wedge pattern; breakout below the base (at 4500) would offer a target of 4000*.

* Target calculation: 4500 - ( 5000 - 4500 ) = 4000

End Of The Correction?

2010-02-23T14:26:00.000-08:00

The correction appears over, with the Dow and other major markets recovering above recent highs. Long-term momentum, however, is slowing and we are unlikely to see a repeat of the heady gains from 2009. Short- and medium-term trading systems are likely to out-perform long term traders for the foreseeable future — until the global financial system returns to a sound footing, with no artificial support from central banks. It may be some time before we witness another bull market.

USA

Dow Jones Industrial Average

The Dow broke through resistance at 10300 to signal a bear trap, with a target of the January high at 10750. Reversal below 9900 is now unlikely, but would signal correction to 9000 — the base of the long-term broadening wedge. Money Flow (21-day) respect of the zero line indicates buying pressure.

Covered Call Writing An Income Generation Investment Strategy

2010-02-21T17:10:00.000-08:00

Essentially this is an income-generating strategy. For the novice, the analogy is that of receiving an extra dividend each contract period. In Australia, the majority of the well-known blue chip Australian stocks have monthly or three-monthly contract periods. When purchasing a stock with the intent of writing covered calls as soon as the investor/trader has the buy is confirmed is known as a buy-write.
Covered Calls are generally considered as a conservative income generating strategy because the potential loss is limited. Covered Call writing involves a call option being sold (or written) against a holding of the underlying shares.

Writing covered calls gives another party the right to buy the stock at the option strike price. When writing
covered calls, the investor/trader is selling the upside potential of a stock to speculators. Since their focus is on monthly income and not long-term capital gain when writing covered calls, it is advantageous if the stock price goes up and the stock gets called away.

When writing Covered calls the investor/trader must be prepared to do one of the following:

1. Allow the stock to be sold (assigned or called) at the option strike price at anytime before the covered calls expire.
2. Buy the covered calls back on the open market before they are exercised.
3. Let the covered calls expire unexercised (on the third Friday of the month)

To Write Covered Calls - The basic steps

A. Have your broker buy the stock you've selected for covered calls in marketable parcels of usually 1,000
shares. (Check with your broker as some stocks require more)
B. Then have the broker sell the covered calls. If you don't want the stock to be called, you could roll up or roll forward, or roll the covered calls up and forward. You could keep writing covered calls and collecting option premiums each month until the stock is called.
This is a good strategy if you have the view that the stock has had a good run and looks likely to plateau for a
period of time. In today's market, think of stocks like the banks. They have enjoyed a strong upward momentum over the past few months and seem likely to trade within a band range in the coming months. Writing the call at the top of this range will provide maximum premiums, whilst lowering the probability of your stocks being called away; allowing you to write once again after the contract expires.

The Downside:
If the stock pushes up well past the strike price, the investor/trader will not gain the benefit of the capital gain as the stock is called away at the strike price the call is written at. Additionally, selling stock at ad hoc times has tax implications that may not be beneficial to the investor/trader.
In theory, if the investor/trader believes the share price has reached a temporary peak, selling covered calls gives them some protection against a pullback in the share price. The premium received compensates for the temporary fall in the price of the share.

Practical example of Covered Call writing
In May 2003 BHP was channelling. This is a step-by-step walkthrough of a covered call writing
strategy that was conducted using Margin lending.

9th May 2003:
Buy 10,530 BHP shares (10 contracts) at $8.55 - $90,031
at 75% margin means committing $22,112.50 brokerage (0.14%) - $126.53

22nd May – Wrote Covered Call
Sell $9.02 May Call Option @ $0.35 - received; $3,685.50, brokerage; $63.50

2nd June – Wrote Covered Call (last one expired worthless)
Sell $9.02 June Call Option @ $0.11 - received; $1,158.30, brokerage; $66.20

13th June – Buy Put contract for Insurance purchase
Buy $9.02 July Put option @ $0.22 - Cost; $2,316.60, brokerage; $66.20

24th June – extend the covered call
Buy back $9.02 June Call Option @ $0.02 - Cost; $210.60, brokerage; $66.20
Sell $9.02 July Call Option @ $0.17 - received; $1,790.10, brokerage $66.20
(cont.)

25th June – change Put contract strike price (insurance)
Sell $9.02 July Put option @ $0.35 - received $3685.50, brokerage $66.20
Buy $8.54 July Put options @ $0.13 - Cost $1,368.90, brokerage $66.20

3rd July – Buy back the Covered Call
Buy $9.02 July Call Option @ $0.025 - Cost; $263.30, brokerage $66.20

22nd July – sold 10,053 BHP shares @ $9.22 – received $97,086.60
brokerage $135.90

31st May – Interest charged for May; $191.58
30th June – interest charged for June $205.41
31st July – Interest charged for June $65.77

So a sum total profit of $12,029.28 was received from committing an initial margin of
$22,112.50

Warning Signs That Tell You When To Dump A Stock

2010-02-15T19:42:00.000-08:00

It's really hard to sell stocks. Especially the ones you've owned for a while. They become like old friends you never want to say goodbye to. Hey... They're just stocks. Not even pieces of paper anymore. Just bits and bytes of electromagnetic energy on some computer somewhere. When it's time to dump a stock, push the button and get rid of it.
But how do you know when to let those stocks go? You can't just buy a stock and let it sit in your portfolio forever. Even stocks that look rock solid today (remember Pulman Sleeper Car, Enron, Kmart). Whenever you sell a losing stock you can always let it drop further then buy it back and ride it up again (watch out for the IRS wash sale rule).

Here are eighteen warning signs to watch for:

1. When a stock's price drops 10% to 15% from a recent high.
2. If some problem arises in the industry or the company.
3. If the stock price has stagnated. Why not sell it and buy something else that might shoot up?
4. The stock's P/E is higher than others in the same industry...and you can't explain why it's out of sync.
5. In general, earnings are falling for the company or the industry.
6. The company has cut its dividend.
7. A key manager leaves and the new manager seems lost. (i.e. Can't clearly articulate the vision for company growth and profitability, reluctant to make needed changes, from a totally different industry)
8. The stock price falls below $10 a share.
9. The company's sales margins and return on equity look bad compared to other similar companies.
10. The company is about to embark on a large "boneheaded" acquisition. i.e. AOL acquires TimeWarner. 11. The company itself has been acquired and the acquisition makes no sense.
12. You discovered the stock sometime ago and enjoyed a nice price run-up but now the stock has been discovered by the world. Now where will new buyers come from to drive up the price?
13. Key managers in the company start to sell a huge amount of stock. Or they start to buy puts to protect their stock if the price falls.
14. When the company's sales are on the decline and key management tries to revise their bonus plan. Fire the bums or sell the stock.
15. Declining earnings growth. The company's earnings growth has drastically slowed from the previous year. An EPSG% less than 20%.
16. The company continues to or has started to burn cash. When a company uses more cash than it makes, it's just a matter of time before the ACE BOARDUP trucks arrive and the company shuts down.
17. The company is just too big sustain stellar growth...once a company explodes past the ten billion sales mark, it's hard to grow at the same pace it did in the pre-ten billion dollar years. It might be time to find another rising star unless it is pretty obvious the company can hit at 15% EPSG. (i.e IBM, HPQ, AMZN)
18. A boneheaded new product announcement. i.e A leading personal computer operating system company decides to make a foray into operating systems for copy machines. If your stock shows more than a few of these warning signs, then you need to ask yourself why you're holding onto the shares?

Correction Or Reversal?

2010-02-02T02:57:00.000-08:00

Global markets are undergoing a secondary correction, signaled by large bearish divergence on (13-week) Money Flow. The Hang Seng Index, however, reversed to a primary down-trend, warning of weakness in China, and a number of other indexes now threaten to follow.

Australia: ASX

The ASX 200 found support at 4500. Expect retracement to 4800, followed by another test of primary support. Money Flow (21-day) respect of the zero line from below would warn of a primary down-trend; confirmed if support at 4500 is penetrated.

The All Ordinaries broke out of its long-term trend channel, indicating trend weakness. Money Flow (13-week) bearish divergence on both the All Ords and ASX 200 confirms the secondary correction; reversal below zero warns of heavy selling pressure. Failure of support at 4500 would indicate a primary down-trend.

Australian Weekly Market Overview

2010-02-01T03:23:00.000-08:00

The market has fallen 8% in the last 2 weeks. It has been great for trading as I have managed to close out of 3 trades for a profit each time. The beauty of trading options is that you don't need to worry about which way the economy is going; as long as you have the trend identified the rest is easy (so to speak). I always cop criticism when the market begins a new trend especially a down trend because the majority of people don't want to accept the fact. It is not my job in this article to try and change anyone's mind or to make them feel cranky or upset, I am merely pointing out that if you rely on the mainstream idea of investing and trading you will lose money.

On Friday the market lost over 100 points for the first time since last February. This is an indication of 'panic selling' and it fits in nicely with my view that a small rally may develop over the next few days. When a market gets to an extreme we need to be looking for opportunities that go against the herd.

OK so what does it mean for us? Well let's put it this way; we can trade with a lot more confidence because any rallies will be unsustainable and will allow us to get set for the credit spread trades. We can also look for the opportunity to make some longer term directional trades so we can lock in any long term trends. Of course nothing is 'easy' in trading and we will be making careful plans to ensure we don't over-extend our trades. Risk management is always a priority.

We will be on the lookout for a potential Put spread on BHP and maybe the gold stocks. The bank stocks are still overpriced and it was an interesting day for CBA as it was sold pretty hard all day on Friday. I still think the banks will give us the best chance to sell spreads on so I'll wait for the rally to finish before I enter trades over them.

Last April when the market began the rally that lasted throughout the entire year, very few people were saying it was a good time to buy. In fact a well known commentator at the time said it was a sucker rally and to sell into it because the market was just letting off steam.

On April 13 2009, I stated: "That doesn't alter my stance on us being at the start of a decent rally that should last for months."

Following on from that I also stated that: ", I would use any sell-off as an opportunity to trade for the upside ."

The reason I made these comments is because the market was overwhelmingly negative and the general public was exhibiting herd mentality.

On January the 18th this year I stated: "Watch out for some swift and sudden price falls to come out from the US and to be felt around the world. The price action on Friday in America tells me that the market has had enough rallying now and the trap is set."

The key to successful trading is being able to stay ahead of the herd!

Options Writing Explanation

2010-01-31T02:16:00.000-08:00

What Exactly is Options Writing?

Well, if writing options is simply "shorting" options, why call it options writing and not simply "shorting" like in stock trading? Even though the effects of writing an option is the same as shorting a security such as a stock, the internal process and logic is actually quite different, which justifies the different terms used.

The term "writing" actually comes from the insurance industry where insurers underwrite policies. Indeed, options are a form of "insurance" for stocks when used for hedging purpose. When you write an insurance policy, a new policy is created just for you which did not exist before. That is also what happens when you write an option. When you write an options contract, you are playing "insurer" and creating brand new an options contract that did not exist in the marketplace before. Its exactly like you writing up a new contract for sale to the holder, hence the term "writing an option". When one contract of an option is written in options trading, the open interest for that options contract increases by one, informing all options traders that there are now one more active options contract in the market.

In contrast, when you short a stock, you are not creating a new share of stock in the marketplace but rather BORROWING shares from the broker and selling it when you don't own it. Hence a short sale. As you can see, the process of shorting is totally different from the process of writing an option, which is why the terms are different.

How Do You Write Options?

Anyone with an options trading account can write options in the Stock Market as long as you have enough cash to cover margin requirements. Margin is cash you need to have in your account before you are allowed to write options or perform credit spreads. Its like having the capital to start selling options as a business.

You can write options simply by using the Sell To Open order. Your options trading broker would do all the internal processes of creating a new options contract and selling it in the marketplace. The process is really invisible to the trader and the effect is exactly like shorting a stock.

Options Writing Example:
XYZ company shares are trading at $50 right now. $50 strike price Call Options are trading at $2.00.

In order to write its $50 call options, you need to Sell To Open those $50 strike price call options and receive $200 in your account for each contract written.

Conversely, in order to close out options positions that you wrote, you need to use the Buy To Close order.

Options Writing Example:
XYZ company shares are trading at $50 right now. $50 strike price Call Options are trading at $2.00.

In order to close the $50 call options position that you wrote, you need to Buy To Close those $50 strike price call options. Doing so buys back that options contract you wrote and closes the trade.

When you write call options without owning the underlying stock, your position is not covered and hence a "Naked Write". This means that you are writing a call option, giving someone the right to buy the stock from you when you do not have the stock in the first place. This is why margin is required for naked writes. Margin makes sure that when the call options are exercised, you have the cash to buy the stock from the market in order to deliver to the person who bought your call options. When you own the underlying stock, the call options you wrote would be considered a "Covered Write" as in the Covered Call options trading strategy.

This is why some people refer to the Covered Call strategy as the Covered Write strategy.

Why Write Options?

When you write an option, the buyer of your options contract pays you an amount of money for the risk that you are undertaking. This is known as the options premium. Upon expiration of the options contract, if the option is not exercised, you get to keep that premium as profit.

Options Writing Example:
Following up on the example above, you get to keep the $200 of options premium if XYZ stock closes at or below the strike price of $50.

Yes, this means that by writing call options instead of shorting the stock itself, you not only profit when the stock goes down but also when the stock does not move at all! Doesn't that sound like playing bookmaker? That is why options writing is playing bookmaker to traders who wants to do a directional bet.

Another advantage of options writing is that it puts Time Decay in your favor. Time Decay is the number one enemy of options buyers. It is the phenomena where options become cheaper as expiration date draws nearer. When options become cheaper over time, it becomes more profitable for the options writer to buy back those options they wrote in order to close the position.

Options Writing Example:
Following up on the example above, 10 days after you write those call options, XYZ stock remained stagnant and its $50 strike price call options is now asking at $1.10. You can now buy to close the call options you wrote at $1.10, making a profit of $0.90 (since you sold it for $2.00).

Options Writer (left) Selling An Option

Disadvantages of Options Writing

The clear disadvantage of options writing is the fact that you are liable to the fulfillment of the terms of the options that you wrote. If you wrote a call option, you are liable to selling the stock at the strike price no matter what the prevailing market price of the stock is.

Options Writing Example:
Following up on the example above, assuming XYZ stock rises to $80 upon expiration of the $50 strike price call options. The call options you wrote gets assigned and you need to buy the stock at the market price of $80 and sell it to the holder of your call options at the strike price of $50, incurring a loss of $30 per share.

As you might have noticed by now, writing options subject you to unlimited loss liability, putting you deeper into loss as long as the underlying stock move against your favor. As such, even though options writing has the ability to profit from 2 of the 3 possible directions, the disfavorable direction would subject you to unlimited liability.

Options writing also requires significant margin, which means that you need a lot of cash in your account before you are allowed to write a single options contract. In some cases, you need as much as $100,000USD in your account before you are allowed to write a single options contract. This high margin requirement usually stop options writing from being a strategy for options trading beginners or traders with very small accounts.

Secondary Correction ??

2010-01-27T13:41:00.000-08:00

Global markets appear headed for a secondary correction, with only Japan and South Korea showing any resilience. All others reviewed display a large bearish divergence on (13-week) Money Flow. And the Hang Seng Index signals a primary down-trend, warning of further weakness in China.

USA

Dow Jones Industrial Average

The Dow is headed for a test of 10000. Clear breakout below the lower border of the (rising) broadening wedge formation would offer a target of 9000 — the base of the wedge. Money Flow (21-day) reversal below zero would strengthen the signal. Recovery above 10500 is unlikely, but would indicate another advance.

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2010-01-19T14:09:00.000-08:00

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Dow Warns Of Correction

2009-09-01T19:36:00.000-07:00

Dow Jones Industrial Average

The Dow broke through support at both 9500 and 9400, warning of a secondary correction. The signal will be confirmed if support at 9100 is penetrated. Recovery above 9600 is unlikely, but would signal a further advance with a target of 10000*.

The Strategy Of The Super Rich!

2009-08-27T19:09:00.000-07:00

The Strategy Of The Super Rich

I first learned about writing covered calls in the early 80s from the husband of a very wealthy heiress. You would recognize the family name. If you watch any PBS TV station, you’ll see it listed among those who endowed trusts to underwrite various educational programs.

This strategy has been the secret of the super rich for a long time, but the public hardly ever hears about it. The rich use it to steadily grow their money 15% to 20% per year at very low risk to their considerable fortunes. At 15% per year it only takes 5 years to double your money. At 20%, it takes only 4 years.

There are a lot of gamblers in the stock market. The rich are not among them.

They want to keep their money safe while they grow it. How do they do that? By feeding the bad habits of the gamblers in the market. In effect, writing covered calls is like being the “House” at Las Vegas. You let others take the chances, and you take a piece of every transaction.

When you write calls, you are selling a speculator an option to buy stock. Call BUYERS are hoping to make a killing on large stock advances. But this is a very high risk strategy. Statistics show that, typically, 90% of option contracts written on stocks expire worthless. But while the option buyers are losing their money, those who wrote (sold) the calls on those contracts are almost always making money.

Jack Adamo

Australian Market Report, Friday 28 August 2009

2009-08-27T17:58:00.000-07:00

Australian Market Report

Equities/Fixed Interest	Close	Change	%Change	Currency	Close	Change	%Change
All Ordinaries	4458	-6	-0.14	$A vs $US	0.8387	--	0.04
S&P/ASX 200	4451	-4	-0.08	$A vs GBP	0.5155	--	0.04
10-year Bond Rate	5.45	--	--	$A vs YEN	78.38	-0.01	-0.01
3-yr Bond Rate	4.83	--	--	$A vs EUR	0.5845	--	0.03
90 Day Bank Accepted Bills SFE-Day	3.35	--	--	$A vs $NZ	1.2197	--	-0.07

Shares to Rise in Early Trade

Local stocks are picked to rise slightly this morning after a positive lead from Wall Street, where the Dow rallied late to finish 0.4% higher.

Ahead of the local open the September SPI futures were 4 points (0.10%) higher at 4,453.

Companies trading ex-dividend today (ASX 300):

Hastie Group, Suncorp-Metway, Spark Infrastructure Group, WorleyParsons, Amalgamated Holdings, Probiotec and Cochlear.

Market and Company News | Thursday 27 August 2009 - close

Woolworths (WOW)

Woolworths said that full-year net profit rose 12.8% from a year ago but it flagged slightly slower growth in the coming 12 months as the effect of government stimulus fades. The company reported net profit rose to $1.84bn for the year to June 30, from $1.63bn a year earlier and slightly above analysts' expectations, which had centred on $1.80bn. The prior year included 53 weeks in Woolworths' accounting. With the extra week stripped out, the company's net profit rose 15%, marking the 11th straight year of double-digit earnings growth. The retailer forecast between 8% and 11% net profit growth for fiscal 2010 and indicated margins should strengthen. That guidance excludes its hardware joint venture with US-based Lowe's unveiled earlier this week.

Thus far in fiscal 2010, Woolworths said food and liquor, the group's core business, are performing well, indicating that it so far hasn't been hurt by increased competition from supermarket rival Coles, which is in the process of a turnaround. Woolworths' Australian food and liquor sales were $32.81bn last fiscal year while Coles food and liquor sales were $22.5bn. But Woolworths' discount retailer Big W, consumer electronics chain Dick Smith and the company's hotels division aren't doing as well as in the prior year. Management said consumer confidence is difficult to predict this fiscal year, given there is no more government stimulus money for consumers.

The company's total revenue rose 5.4% to $49.85bn from $47.29bn. Management said overall group sales will grow in the upper single digits in fiscal 2010. Woolworths declared a final dividend of 56 cents a share, up from 48 cents a share last year. Last year, on reporting a 26% rise in full year net profit, the company flagged intentions to expand either globally or domestically. Woolworths made good on that promise earlier this week, unveiling the joint venture with Lowe's to break into Australia's hardware market. Chief Executive Michael Luscombe said there are no "imminent" plans to announce an international acquisition or growth project. Management said its performance in New Zealand continues to improve. WOW firmed 8 cents (0.28%) to $28.78.

Crown (CWN)

Crown has booked deep write downs on its US operations, resulting in a headline net loss of $1.2bn for the year ended June 30. The loss is down from a profit of $3.55bn a year earlier, when the bottom line included sizable gains on disposals and demergers. Despite the large loss and heavy write downs, underlying profit was stronger than expected with Crown's Australian casinos posting earnings growth. The company also said that gaming revenue growth in Australia is continuing in the new financial year. Chief Executive Rowen Craigie said the global financial crisis is having a major impact on the North American casino industry and conceded Crown's investments in the market had been "ill-timed". "Despite the write-downs Crown has one of the strongest balance sheets of any gaming company in the world," he said. "Crown's capability and financial strength places it in a strong position for the future."

The headline loss included non-recurring items of $1.44bn, which the company said mostly related to write downs of the carrying value of its US investments due to the global financial crisis. Excluding these items, normalised net profit was $280.7m, compared with $370.2m a year earlier and higher than analyst expectations of $246.9m. Craigie said Crown's wholly owned Australian casinos continued to perform well in a challenging environment and both the Crown casino in Melbourne and Burswood in Perth had made solid starts to the new financial year. Earnings before interest, tax, depreciation and amortisation was up 7.5% on year for Crown Melbourne and 10.2% at Burswood. The two casinos were continuing to see solid growth in the new financial year, Crown said, with main floor gaming revenue across both properties growing about 5% on year in the seven weeks since July 1. Crown's 35% stake in Melco Crown in Macau posted a normalised loss of $34.3m for the year as the Macau gaming market was hit by the global financial crisis, visa restrictions and economic conditions in China and Hong Kong. However, the group said recent trends in Macau were encouraging with signs of resumption of growth in the market. In the US, Crown has written down the carrying value of its interests in the Fontainebleau, Stations and Harrah's assets to nil, and its Cannery assets to $49.6m. Cannery's Las Vegas casinos will be affected by the US recession for some time and the projections for the permanent Meadows Casino in Pittsburgh have also been adversely impacted, Crown said. Crown also wrote down the carrying values of both its stake in Gateway in Canada and Aspinalls in the UK to nil. The group's net debt as at June 30 was $542m, with total debt $1.1bn.

The group declared a final dividend of 19 cents a share, down from 29 cents last year. Crown said the full year dividend of 37 cents a share represents 100% of normalised net profit for the year. In the future, the company said it plans to pay a full year dividend of either 37 cents per share or 65% of normalised net profit, which ever is higher. It said the dividend is expected to trend towards 65% of normalised net profit over time. Operating revenue for the year rose 2% to $2.26bn from $2.22bn in the previous year. CWN rose 16 cents (2%) to $8.15.

GPT Group (GPT)

GPT Group booked a $1.2bn first half net loss after property valuations fell off a cliff and it was hurt by its involvement in a troubled global property vehicle with failed investment house Babcock & Brown. The company, which has had to launch two large dilutionary equity raisings worth a combined $3.3bn to reduce its crippling debt burden, said it expects further downward pressure on Australian property valuations to occur in the second half. The pace of the devaluation cycle, however, is slowing and values will stabilise "in the near term", Chief Executive Michael Cameron said in a statement. GPT's steep loss for the six months to June 30 compared with a smaller, $67.7m net loss a year ago. First half operating income, excluding asset write-downs, was $183.0m, compared with $234m a year ago. The fall was primarily the result of GPT not recognising any income from the joint venture with Babcock & Brown, GPT said.

GPT stuck to its guidance of achieving full year net operating income of $365m and said it will pay an interim distribution of 2.5 cents, compared with 4.2 cents a year ago, putting it on track to meets its 2009 full year distribution forecast of 4.5 cents. The reported loss included a $1.01bn write-off of the value of its holding in the Babcock & Brown joint venture and a $567.2m impairment on the value of its Australian property portfolio. The losses were offset by a $606.6m gain on financial instruments, GPT said. By quarantining the troublesome assets, GPT is hoping the cleaner part of the company - its Australian office and retail property assets - will attract more investment because its risk profile will be substantially improved. Largely thanks to this year's $1.7bn share issue, last October's $1.6bn share issue, and asset divestments, GPT has cut its "look-through" leverage ratio to 30.5%, against a 55% covenant. GPT said it is still pursuing another $1bn in asset sales, and Cameron said it will consider pursuing "compelling investment opportunities". First half revenue slid to $400.0m, down 21% from $628.7m. GPT rose 2 cents (3.48%) to $0.595.

Toll Holdings (TOL)

Toll Holdings posted a 14% improvement in full-year underlying earnings from a year earlier and said it had a $1.6bn war chest to pursue further acquisitions, particularly in Asia. However the group was cautious on the outlook for trading conditions this year. "Trading conditions in the short term are expected to remain generally flat with some improvement evident across Australia and Asia," said Toll's Managing Director Paul Little in a statement. However, Little told a media briefing that while preparing budgets and forecasts for fiscal 2010 had been a "tough task," he had been "very pleased" with July trading that was above forecasts and pointed to a better year ahead. "There's no doubt in my mind there is no downside left in this tough economic situation we've been through," Little said. "There are some encouraging signs but it's probably too early to call it a strong recovery. We're cautiously optimistic about what we've seen in July, and we believe if there's a continuation of that particularly out of Asia,...India, China and Indonesia for example, then I think we will have a good first six months."

Net profit for the year to June 30 was $270.3m, up from a loss of $694.7m a year ago, when a $952m loss from the distribution of Toll's majority stake in airline Virgin Blue Holdings to its shareholders was incurred. Full-year revenue for the company rose 16% to $6.49bn from $5.60bn a year ago, and Toll said it was well positioned to make further acquisitions. "We are continuing to see real opportunities for acquisitions which match our long-term strategic vision," said Little. "We see some very interesting future growth options both here in the region and around the world." Little said the group's global forwarding operations, or TGF, was a key growth focus, with Toll aiming to triple its revenue from this division to $3bn by 2012. With TGF formed from the merger of Hong Kong based freight forwarder Baltrans and the similar Australian Gluck business, both acquired in 2008, the company said it has since recruited experienced management across Europe, Asia, North America and South Africa to run this business. Chief Financial Officer Brian Kruger said with the firm's gearing levels falling to 12.2% from 37.6% during the year, the group's headroom across its existing facilities and $886m in cash, this gave it nearly $1.6bn with which to pursue acquisitions. "We're currently chasing prospects in three or four outsourcing areas that are very good," Little told an analysts briefing. Little also said the sale last year of the group's stake in global pallet provider Brambles "sends a clearer message to our investors about our strategic intentions."

Net profit from its continuing operations rose 15% to $303m, but fell short of the $316.3m forecast by analysts. The group said net profit before non-recurring items and discontinued operations, a key underlying measure, was up 14% to $298m. The company declared a final dividend of 13.5 cents, up from 11.5 cents a year ago. TOL added 41 cents (5.7%) to $7.60.

OZ Minerals (OZL)

OZ Minerals Chief Executive Terry Burgess said the miner is in no hurry to spend its $1bn cash pile and has vowed to take time to set a new strategic direction for the company. OZ posted a loss of $580.7m for the half ended June 30, compared with a restated profit of $10.9m a year earlier, after booking a one off loss of $553.9m on its company-saving asset sales deal with China Minmetals Non-Ferrous Metals. Burgess took up the job at OZ at the beginning of August and has given himself 100 days to carry out a strategic review of the company. He said the miner has had a turbulent six months and he is now determined to take his time to get its strategy right before deciding how it will deploy its cash. "We need to identify which commodities we are going to be active in and which regional areas of the world we are going to be active in," he told reporters. "There are some opportunities available from time to time and we are happy to assess those, but we want to make sure that whatever we do fits into the overall strategy process." The focus for the company for now is to deliver production from Prominent Hill and to work on developing growth options at the copper gold mine.

OZ plans to spend about $25m on exploration work in the second half of 2009, with most of that to be spent around Prominent Hill. Burgess said the mine is performing well, delivering $19.4m in profit before tax in the two months it has been in operation, and that this was likely to improve as it continued to ramp up. Cash costs are forecast to be at 65-75 US cents per pound for the year and the mine is on track to meet guidance for full year output of between 85,000 and 100,000 metric tonnes of copper and 60,000 to 70,000 ounces of gold. The one off charge on the asset sales to Minmetals reflects the fact that the proceeds of the sale came in $617.9m below the book value of the assets. At the time of the sale, independent expert Grant Samuel found the assets were worth more than Minmetals was offering but that the deal was in the best interests of shareholders, given the company's debt woes. OZ is now back on track, albeit as a much smaller company, and Burgess said it is benefiting from the resurgent copper price and experiencing strong demand. "There is good demand for concentrates at the moment, we certainly have no problem in selling our concentrates, and we are getting interest from certain smelters," he said. "We do sense that there may be a deficit in copper during the second half of 2009." Consolidated revenue for the half climbed to $854.5m from $529.3m in the prior year and the miner said it won't pay an interim dividend where last year it paid 5 cents a share. OZL fell 7 cents (6.09%) to $1.08.

Tatts Group (TTS)

Tatts Group posted a 7.7% rise in its full-year net profit but flagged doubts about the sustainability of the strength of its results in the face of fading government stimulus. The group said full-year net profit rose to $277.4m from a net profit of $257.6m a year earlier. Revenue from ordinary activities rose 5.1% to $3.25bn from $3.09bn. "There is little doubt that the neighbourhood gambling model offered by Tatts is more resilient than many other businesses during a period of falling consumer confidence and rising unemployment," Tatts said in a statement. "The main question is whether the strong performance over the past few years can be maintained." Of particular concern is the sustainability of recent consumer spending patterns, which have over the past 12 months been supported by lower interest rates, lower fuel prices, customer decisions to defer major purchases and government stimulus payments. "As these benefits wash out of the broader economy and unemployment rises, growth rates can be expected to slow," Tatts said.

Tatts' lotteries sales were helped by a large jackpot in its Oz Lotto brand at the end of the financial year, which Tatts said produced the equivalent of three weeks' sales. Tatts Lotteries' earnings before interest, tax, depreciation and amortisation for the year rose 12.7% to $118.8m from a year earlier. However, the company said it is unlikely Tatts Lotteries will be able to reproduce the 2008-09 results in 2009-10. Tatts said the New South Wales government's proposed sale of its NSW Lotteries business presents an opportunity to acquire an operation that "suits the Tatts business model". "The potential acquisition of NSW Lotteries, should it become available, would be the natural extension of this business," it said. The company declared a final dividend of 11 cents. TTS fell 10 cents (3.83%) to $2.51.

Ramsay Health Care (RHC)

Ramsay Health Care said full-year net profit rose 16%, boosted by the first full-year contribution from its UK hospitals. The company's profit in the year ended June 30 rose to $106.5m, from $92.2m a year earlier, while revenue from continuing operations grew 21% to $3.23bn from $2.68bn. The company also announced an institutional share placement to raise about $220m and a share purchase plan to raise an additional $40m to cut debt and increase its flexibility to pursue growth initiatives. "Ramsay is extremely well placed to capitalise upon growth opportunities available in Australia, the UK and Europe," Chief Executive Chris Rex told a briefing on the company's results. "Factors such as population growth, an ageing population and the 'Baby Boomer' effect will drive demand for hospital care over the long term and we believe we are well positioned to capture that projected increase," he said. The company is seeking acquisitions, particularly in one European nation, Rex said, though he wouldn't say which country as this would be "like an open invitation to anybody who wants to sell something to put their prices up." Still, "it is one where we are confident that the market characteristics are such that we could thrive and prosper," he said, adding an acquisition is possible within the next year. He said Ramsay's portfolio of hospitals will continue to generate strong organic earnings growth from its $580m program to expand its hospitals. About $300m has been spent on 20 facilities in the past three years, with about half invested in projects that now are completed, he said. Ramsay also is looking at opportunities to expand the operating capacity of its UK facilities in high-demand areas, Rex said.

Operating revenue in the UK rose 79% to $689.9m last fiscal year from $384.5m a year earlier, reflecting 12 months' ownership of Ramsay UK, the fourth-largest UK private hospitals company, compared with 7.5 months in fiscal 2008. Work for the state-run National Health Service comprised 44% of Ramsay's British admissions, up from 25% in fiscal 2008, Rex said. Revenue from its Australian and Indonesian hospitals rose 10.7% to $2.54bn, from $2.29bn a year earlier, as admissions gained 6% in Australia and 14% in Indonesia. About 40% of Australian patients are treated in private hospitals each year, with admissions growing at 6.3% annually in the past 10 years, compared with 2.3% for public hospitals, Rex said. If similar growth continues, by 2021 private hospitals will be treating more than 50% of all Australian patients, he said. "Barring unforeseen circumstances, Ramsay is targeting core net profit growth of 12%-14%" this fiscal year on last year's $146.4m, Rex said. Core net profit - which excludes one-off items, amortisation of intangibles and divested operations - rose 19% from $123.1m in fiscal year 2008. In fiscal 2009, Ramsay posted specific items and amortisation of intangibles of $39.9m, mostly related to deferred non-cash rent expense from its UK hospitals and some restructuring and integration costs. Ramsay posted full-year core earnings per share of 74.1 cents, 22% up on 60.7 cents a year earlier, and ahead of its May forecast of 20% growth, and 72.8 cents, the analyst consensus estimate.

Goldman Sachs JBWere is the sole manager for its share placement, which will be underwritten at a minimum price of $10.00 a share - a 7.3% discount to Ramsay's last traded price Wednesday of $10.79 - with the final price to be determined by a bookbuild, it said. Paul Ramsay Holdings, a company associated with Chairman Paul Ramsay and its largest investor with a 42% stake, won't participate in the placement, the company said. After the raising, Ramsay's net debt will be about $1.12bn, compared with $1.27bn at June 30, 2008, and its headroom within its senior debt facilities will be about $650m to $750m after allowing for current development commitments in the next three years. A senior debt facility of $1.9bn isn't scheduled to be refinanced until November 2012, Rex said. Ramsay will pay a final dividend of 21.5 cents, up from 17.5 cents a year earlier, bringing the full-year dividend to 38 cents, up from 32.5 cents in fiscal 2008. RHC was halted from trade with a last price of $10.79.

Sino Gold Mining (SGX)

Sino Gold Mining's friendly takeover by largest shareholder Eldorado Gold will help Sino achieve its target of becoming a top-quartile, mid-sized producer, Sino Gold Chief Executive Jake Klein said. Eldorado is offering 0.55 of its shares for each Sino Gold share, valuing Sino at $2.2bn. Given that the Canada-based miner already owns a 19.83% stake in Sino Gold, the Eldorado offer is equivalent to $1.76bn in shares. "Our long-term vision is to become a geographically diversified, intermediate producer. The new Eldorado will have a market capitalisation of about $6bn, similar to (Australia's second largest gold producer) Lihir Gold," Klein said during a conference call. Moving up the ranking to become a mid-size producer would have been difficult to achieve for Sino on its own, and the combination of the two companies represents a merger of two higher-ranked, premium stocks, Klein said.

The offer values Sino Gold shares at $7.24 cents each based on the closing price of Eldorado on the Toronto Stock Exchange on Aug. 25, a 21% premium to Sino Gold's closing share price on the same day of $5.97. Analysts, however, said the premium appeared low, with many having expected a bid premium of 30% and above. Queried on the timing of the proposed deal before Sino Gold could deliver on gold production growth plans over the next one or two years that would have allowed a higher bid premium, Klein said the implied share price was at the higher end of analysts' share price targets. Eldorado operates the Tanjishan mine in China, as well as other mines and projects in Brazil, Turkey and the US, while all of Sino's assets are located in China. The offer turns the tables on recent deal activity involving Chinese entities investing in offshore resources, and shows that China's vast mineral reserves can also be sought by Western investors. A meeting of Sino Gold shareholders to approve the deal is scheduled for late November, with the transaction expected to be completed in early to mid-December, the companies said. Eldorado shareholders will end up with 75% of the combined group, which will apply to be listed on the Australian Securities Exchange. However, Sino plans to delist from the Hong Kong Stock Exchange. The deal, which will also need approval from Australia's Foreign Investment Review Board, includes mutual break fees of $21m. Klein said he doesn't expect FIRB approval to become an issue as all of Sino's assets are located in China. Klein will step down as CEO if the transaction is successful but will stay on as a consultant. The combined group will produce about 540,000 to 560,000 troy ounces of gold, at an average cash cost of US$340/oz. SGX firmed 73 cents (12.23%) to $6.70.

Minara Resources (MRE)

Minara Resources returned a net loss of $3.1m in the six months to June 30, compared with a profit of $50.9m for the same period a year earlier, but said it is hopeful a slow recovery in nickel prices will boost the group's outlook. "The nickel market is slowly recovering, which is reflected in the current nickel price, which has improved in July and August," Managing Director and Chief Executive Peter Johnston said in a statement. "Having achieved a stable production profile with good cash reserves and a strong balance sheet, Minara is well positioned to capitalise on the nickel market recovery," the CEO said, adding the outlook for cobalt remains uncertain. Although the company has implemented cost cutting across the board, it is aiming to maintain its production profile with the full year forecast for Murrin Murrin unchanged at 30,000 to 40,000 tonnes. Crimping its half year revenues has been a strengthening Australian dollar, as Minara's nickel and cobalt revenue is priced in US dollars, while its input costs are priced in the local currency. Revenue for the half year fell to $190.1m from $289.4m. The group skipped paying a dividend and said June cash at hand is $127.2m. MRE remained unchanged at $1.00.

Virgin Blue Holdings (VBA)

Virgin Blue posted a loss of $160.0m for the year to June 30, compared with a net profit of $97.7m a year earlier after facing the toughest operating conditions in its nine year history. The group said based on current market conditions, it expects to break-even this year, with a positive cash-flow even after excluding a $231.4m capital raising launched last month. Despite intense competition continuing on domestic routes, Virgin Blue said yields on its short-haul business had improved from May to July. "Whilst it cannot be considered a recovery at this stage, it does indicate some stabilisation at least in the domestic market," the airline said in a statement. Founding Chief Executive Brett Godfrey, who has said he will leave the airline during 2010, said that cost saving and productivity initiatives, redeployment of excess domestic capacity onto short-haul international routes, and the removal of up to 400 positions, had helped cut the group's variable cost base by 4.5% during the year. "While airlines have been variously impacted by the global economic crisis, our approach was to respond swiftly and definitively to softening domestic demand," said Godfrey in a statement.

Virgin Blue's revenue rose 13% to $2.64bn from $2.33bn, and the group said its underlying loss excluding one off costs and after tax was $13m. It won't pay a final dividend, consistent with a year ago. At the time of the raising to improve its liquidity and financial flexibility, the carrier said it expected a net loss of between $160m and $165m due to losses on its new long-haul airline V Australia and expenses related to its fuel and currency hedges. The group said a loss of $124m for start-up costs and the first four months of V Australia's operations on the transpacific route reflected "the difficult long haul environment compounded by the US-centric focus of the launch routes." V Australia filled just 62.3% of its seats since its launch in late February, with revenue of $69m. However, the company expressed hope that further route expansion, starting with Phuket in November and Johannesburg in March, and its planned alliance with Delta Airlines - which commenced flights between the US and Australia in July - will help the profitability of its long-haul carrier. VBA remained unchanged at $0.35.

FKP Property Group (FKP)

FKP Property Group reported a net loss of $319.4m for the year ended 30 June 2009. Second half impairments of $269.4m (pre-tax) resulted in a full year statutory loss. Revenues from ordinary activities were $384.2m, up 15.2% from last year. Diluted EPS was (70.3) cents compared to 38.7 cents last year. Net operating cash flow was $114.6m compared to $6.2m last year. The final dividend declared was 1.45 cents, taking the full year dividend to 3.45 cents compared with 31.70 cents last year. Looking ahead, the Company expects higher operating profits and operating cash flow in 2009/2010 with the completion of the Energex transaction and the expected settlement of the first lots at Saltwater Coast, Point Cook. FKP firmed 6.5 cents (11.02%) to $0.66.

Cabcharge Australia (CAB)

Cabcharge Australia said net profit for the 12 months to June 30 was $61.4m, up 4% from a year earlier's $59.0m, as it reiterated its intention to challenge in court charges levelled at the company by the competition watchdog. Cabcharge said that revenue from ordinary activities for the full year was $174.4m, up 1% from fiscal 2008. Flagging a positive outlook for the current fiscal year, which will likely include acquisitions in both taxis and bus operations, Cabcharge said it is awaiting the judicial hearing of its case against the Australian Competition and Consumer Commission. "We trust the ACCC matter will be dealt with expeditiously in the Federal Court. We look forward to presenting our side of the story and being able to challenge some of the assertions made by complainants under cross examination," Cabcharge said in a statement. Earnings per share rose 1.3% to 51.0 cents, with a final dividend of 17 cents taking the full year dividend to 34 cents. CAB strengthened 59 cents (11.03%) to $5.94.

Kingsgate Consolidated (KCN)

Kingsgate Consolidated reported a fall in full year net profit to $32.5m from $36.2m a year earlier but forecast higher gold output. The miner will pay a final 15 cent dividend a share. Revenue for the 12 months ended June 30 was $114.1m, up from $76.5m. It forecast gold output of 120,000 to 140,000 troy ounces for the year ended June 30, 2010. That's up from output of 93,002 ounces for the 2009 financial year, with output set to grow further after Kingsgate was granted mining leases for its Chatree North mine in Thailand. Kingsgate also said it will continue its investigation of a possible float of local subsidiary Akara Mining on the Thai Stock Exchange. KCN added 25 cents (3.78%) to $6.87.

Abacus Property Group (ABP)

Abacus Property Group reported a net loss of $102.41m for the year ended 30 June 2009. The result was principally caused by the property and investment devaluations of $113m and the derivative (interest rate swaps) devaluations of $48m. Revenue from ordinary activities were $138.44m, down 14% from last year. Diluted EPS was (11.81) cents compared to 10.80 cents last year. Net operating cash flow was $65.59m compared to $76.71m last year. The final dividend declared was 0.75 cents, taking the full year dividend to 7.75 cents compared with 13.50 cents last year. ABP added 1 cent (2.9%) to $0.36.

Roc Oil (ROC)

ROC Oil reported a US$14.2m first half net loss on lower oil prices and a fall in the value of derivative investments. Still, the figure was an improvement on last year's first half net loss of US$120.72m. Normalised net profit rose to US$19.6m from last year's US$13.3m loss, excluding unrealised derivative losses of US$34.4m. Revenue fell 43% to $102.1m from US$178.8m. ROC declined 1.5 cents (2.11%) to $0.70.

AJ Lucas Group (AJL)

AJ Lucas Group reported NPAT of $165.15m for the year ended 30 June 2009. Revenue from ordinary activities were $499.18m, up 17.6% from last year. Diluted EPS was 239.7 cents compared to 24.9 cents last year. The net operating cash outflow was $11.9m compared to an inflow of $50.07m in the previous corresponding period. The final dividend declared was 5.5 cents fully franked, taking the full year dividend to 10.5 cents compared with 8 cents last year. AJL weakened 15 cents (3.9%) to $3.70.

Economic News

Business Investment

Private new capital spending on buildings and equipment in Australia rose 3.3% to $24.07bn in the second quarter of 2009 from $23.31bn in the first quarter, the Australian Bureau of Statistics said. Spending rose 4.4% from the second quarter of 2008. Economists on average had expected that spending in the second quarter fell 5.0% on a quarterly basis. A seventh estimate of expenditure shows companies expected to invest $101.13bn in the fiscal year ended June 30, 2009, a rise of 16.9% from the seventh estimate for 2007-08. The seventh estimate for 2008-09 was also 1.4% higher than the sixth estimate for 2008-09. The third estimate for 2009-10 was $90.56bn, down 10.4% from the corresponding estimate for 2008-09. The bureau surveys companies each quarter on their actual business investment and investment plans. It makes seven estimates of spending plans for each fiscal year, beginning six months before the year begins. The bureau also said that the trend estimate of capital expenditure fell 0.6% to $23.93bn in the second quarter from the first.

U.S. & Global Market Report, 27 August 2009

2009-08-27T17:54:00.000-07:00

Friday 28 August 2009

Overseas Market Report

US Stocks Close Higher as Banks Pace Gains | Thursday 27 August 2009 - close

Foreign Equities	Close	Change	%Change	Commodities	US$	Close	Change	%Change
Dow Jones (US)	9581	37	0.39	Aluminium	US$/t 3mth	1895	35	1.88
S&P 500	1031	3	0.28	Copper	US$/t 3mth	6350	60	0.95
NASDAQ	2028	3	0.16	Nickel	US$/t 3mth	19100	0	--
FTSE 100 Index	4869	-21	-0.44	Gold	US$/oz	948.35	4.35	0.46
Nikkei 225	10474	-166	-1.56	Oil - WTI	US$/bbl	72.24	0.81	1.13
HKSE	20243	-214	-1.10	Lead	US$/t 3mth	2035	-20	-0.97
NZ 50	3076	-14	-0.47	Zinc	US$/t 3mth	1835	-5	-0.27

Repeating a process that has been at the crux of stocks' gains in the past week, a series of financial firms - including Citigroup and Bank of America - paced the market higher and dominated the volume again on Thursday, while a rosy update on the much-delayed Dreamliner airplane helped Boeing lead industrials into the green.

Closing higher for the eighth straight session, the Dow Jones Industrial Average tacked on 37.11 points (0.39%) to 9,580.63. The eight-day winning streak was its longest advancing move since the eight days ended April 10, 2007. Within the index, gains were paced by Boeing, up $4 (8.4%) to $51.82.

The airplane maker's gains came as the firm said its 787 Dreamliner airplane is now expected to make its first flight by the end of the year and booked a $2.5bn charge for a program it said would still be profitable.

The Standard & Poor's 500 closed up 2.86 (0.28%) to 1,030.98, including a gain of 0.8% for industrials and 1% for financials. The Nasdaq Composite rose 3.3 (0.16%) to 2,027.73.

For financials, part of the gains in the past week stemmed from a rush of short covering. As the broad market has continued to gain in the past week, short interest in the financial sector has also risen. Pockets of investors are seemingly betting a pullback has to be coming, with financials likely to lead any downtrend.

Moreover, many of these financials dominate the trading desks of several types of high-frequency trading firms. Given the higher volumes being created by speculative traders and others looking to short sell the companies, an opportunity has been provided for high-frequency firms looking to buy and sell quickly.

Among the most traded companies are Citigroup, up 42 cents (9.1%) to $5.05; Fannie Mae, up 7 cents (3.8%) at $1.92; Freddie Mac, up 21 cents (10%) to $2.24; and Bank of America, up 13 cents (0.7%) to $17.92. Combined, all four made up nearly 38% of NYSE Composite volume in Thursday's session. The companies have regularly been above 30% of volume in the past week.

American International Group, another high-volume stock, closed up $10.15 (27%) to $47.84. The insurer's stock was helped by a report that Chief Executive Robert Benmosche has been talking with former CEO Maurice "Hank" Greenberg for months.

Guess rose $3.47 (11%) to $35.62 as its fiscal second-quarter profit climbed 11% on higher sales in Europe. The clothing maker raised its quarterly dividend 25% to 12.5 cents.

Oshkosh increased $6.65 (24%) to $34.20 after a unit of the company was awarded a contract by the US Army to produce 2,568 trucks and trailers.

Navistar International led a decline in truck maker stocks on gloomy numbers on truck deliveries from Swedish giant Volvo AB as well as the loss of a military contract to rival Oshkosh. Navistar closed down $2.47 (5.2%) to $44.80.

Precision Castparts, up $8.20 (9.5%) to $94.97, said it was buying Carlton Forge Works, a fellow maker of parts for the aerospace industry including for Boeing's 787 Dreamliner. The deal should immediately add to Precision's earnings.

For Australian ADRs listed on the NYSE, BHP Billiton firmed $1.01 (1.61%) to US$63.66, Rio Tinto Plc added 32 cents (0.2%) to US$157.36, ResMed dropped 14 cents (0.31%) to US$45.54, Telstra Corporation increased 25 cents (1.79%) to US$14.25, Telecom Corporation of NZ improved 5 cents (0.53%) to US$9.44 and Westpac climbed $3.99 (4.08%) to US$101.80.

In economic news, the US Government untouched its estimate that US 2Q GDP fell 1.0%, saying inventory liquidation was deeper than first thought and consumer spending not as weak. Economists expected a big revision, to a drop of 1.5%. Meanwhile, initial claims for jobless benefits dropped by 10,000 to 570,000 latest week.

Prices of most Treasuries remained lower during Thursday afternoon following decent demand for a $28bn seven-year note auction. At 7:45 AM (AEST), the 10-year Treasury note yield was 3.45% and the five year yield was 2.47%.

European shares lost ground on Thursday, as losses for drinks maker Diageo and weakness for automakers offset gains from Credit Agricole and utilities.

The pan-European Dow Jones Stoxx 600 index fell 0.5% to 235.24, extending Wednesday's decline, which snapped a four-session winning run.

Overall, the French CAC-40 index lost 0.5% to 3,648.53, the German DAX 30 index fell 0.9% to 5,470.33 and the UK FTSE 100 slipped 0.4% to 4,869.35.

Autos were paring gains made this quarter, with Daimler shares down 2.7% and BMW shares down 2.9%.

Food and drink shares were also weak, with Diageo shares falling 4.1%. The firm reported a 7% rise in fiscal-year net profit to GBP1.6bn, but warned that 2010 would be challenging, with its operating profit growth expected to slow.

Elsewhere in the sector, shares of Irish drinks firm C&C Group rose 18.2% in London. The firm said it is buying the Irish, Northern Irish and Scottish businesses of Anheuser-Busch InBev for EUR180m. It also affirmed fiscal-year financial guidance. AB-InBev shares declined 1.9% in Brussels.

Credit Agricole rose 3.7% in Paris. The French bank's second-quarter net profit jumped to EUR201m from EUR76m, beating analyst forecasts as its net banking income rose 40.3% to EUR4.56bn.

Other banks performing well included Natixis, which built on sharp gains made on Wednesday with a 6.9% rise after an upgrade to "buy" from "sell" at a brokerage.

Shares of GDF Suez rose 2%, helping the utility sector put in a strong performance. The firm's first-half net profit fell 6.3% to EUR3.26bn, beating market expectations.

Hotels group Accor jumped 5.7% after saying its board will review the benefits of separating its hotel business from the division that provides employee-benefits services to companies. Accor swung to a first-half net loss of EUR150m.

Mobile phone maker Nokia saw its shares rise 2.3%. It will start a unit called solutions as of Oct. 1 that is designed to more tightly integrate its devices and customer services. Nokia also launched a new Linux-based phone.

On the FTSE 100, Rio Tinto shed 9.50 pence (0.4%) to 2,359.83 pence and BHP Billiton lost 3.50 pence (0.22%) to 1,596.54 pence.

Most Asian markets declined on Thursday with exporters leading Japanese shares lower as increased risk aversion helped the yen gain.

China's plans to assess overcapacities in various industries, meanwhile, raised concerns about the country's economic recovery and hurt shares of metal producers across the region.

Japan's Nikkei 225 Average dropped 1.6% to 10,473.97, with China's Shanghai Composite slipping 0.7% and Hong Kong's Hang Seng Index declining 1.0%.

New Zealand shares ended slightly weaker on Thursday as investor sentiment was weighed down by offshore leads and some disappointing company results. The NZX-50 ended down 0.5%, or 14.5 points, at 3,076.42.

Base metals on the LME finished mixed. Aluminium rose $35 (1.88%) to $1,895 while copper firmed $60 (0.95%) to $6,350 and nickel remained unchanged at $19,100. Zinc fell $5 (0.27%) to $1,835 and lead weakened $20 (0.97%) to $2,035. Comex copper was last quoted at 284.55 US cents per pound.

Gold and silver futures finished slightly mixed but for the most part consolidated while setting up for a break in either direction whenever they get the necessary technical or fundamental catalyst. Spot gold was last quoted at $948.35. Comex gold futures strengthened $1.50 (0.16%) to $947.30. Spot silver was last quoted at $14.24.

Crude oil prices ended higher on a late recovery led by a rebound in equities and weakness in the US dollar. West Texas Intermediate was last quoted at US$72.24 per barrel.

The US dollar was sold off across the board in very thin late afternoon trade.

At 08:05 a.m. (AET) the US dollar was quoted at 0.6971 euros, 93.48 yen, 1.193 AUD and 61.47 pence.

U.S. & Global Market Report, Tuesday 25 August 2009

2009-08-24T20:18:00.000-07:00

Overseas Market Report, Tuesday 25 August 2009

US Stocks Mixed, With Boeing Helping DJIA's Fifth Gain

Foreign Equities	Close	Change	%Change	Commodities	US$	Close	Change	%Change
Dow Jones (US)	9509	3	0.03	Aluminium	US$/t 3mth	1925	-15	-0.77
S&P 500	1026	-1	-0.06	Copper	US$/t 3mth	6375	70	1.11
NASDAQ	2018	-3	-0.14	Nickel	US$/t 3mth	19350	-100	-0.51
FTSE 100 Index	4896	45	0.93	Gold	US$/oz	940.40	-12.70	-1.33
Nikkei 225	10581	343	3.35	Oil - WTI	US$/bbl	73.82	0.53	0.72
HKSE	20536	337	1.60	Lead	US$/t 3mth	2000	125	6.67
NZ 50	3068	33	1.08	Zinc	US$/t 3mth	1840	-5	-0.27

As the Dow Jones Industrial Average rose for its fifth consecutive session, member Boeing assisted after receiving a contract, Advanced Micro Devices was a chip outperformer and stunted HD-TV demand singed Best Buy.

The Dow Jones Industrial Average rose 3.32 points (0.03%) to 9,509.28, its highest close in more than nine months. The Nasdaq Composite Index dropped 2.92 points (0.14%) to 2,017.98. The Standard & Poor's 500-stock index shed 0.57 (0.06%) to 1,025.56. Both the Nasdaq and the S&P 500 snapped four-session winning streaks.

Boeing rose $1.26 (2.7%) to $47.13, the Dow industrial average's best percentage gainer. Canadian airline WestJet said it ordered 14 of the aircraft maker's next-generation 737-700s.

Advanced Micro Devices rose 30 cents (8.1%) to $4, the S&P 500's best percentage gainer. The chip maker is trading at an unwarranted discount to its peers, given its prospects, including the likelihood of better gross margin, said analysts in raising shares to buy from hold and boosting their price target to $5.50 from $4.25.

Best Buy lost $1.68 (4.5%) to $35.81. A twice-monthly consumer survey by Stifel Nicolaus found only 22% of respondents intend to buy a high-definition television set within the next year, down from 27% in early August and making it the worst performing category for the first time in the survey's five-year history.

Warner Chilcott jumped $4.35 (27%) to $20.41. The specialty drug maker plans to acquire Procter & Gamble's prescription-drug business for $3.1bn, a sign that the market for loans on more highly levered deals may be loosening. Dow industrial member P&G shed 24 cents (0.4%) to $53.34.

Toll Brothers lost 93 cents (4.1%) to $21.77. Ahead of the luxury home builder issuing results on Thursday, analysts downgraded shares to hold from buy, saying the stock is trading too high based on their outlook for the housing market.

Dell advanced 29 cents (2%) to $14.78, its highest close in more than 10 months. Seeing an improved outlook for computer demand, one broker raised the personal-computer maker's stock rating to buy from neutral.

Kansas City Southern lost 83 cents (3.5%) to $23.17. Analysts cut the rail carrier's shares to neutral from buy, saying the stock's price had gotten too high.

Valeant Pharmaceuticals declined $2.32 (8.5%) to $24.85. The drug company said its retigabine treatment of painful complications of shingles didn't meet its end goal in a key study.

For Australian ADRs listed on the NYSE, BHP Billiton advanced 85 cents (1.35%) to US$63.91, Rio Tinto Plc increased $3.26 (2.05%) to US$162.51, ResMed increased 33 cents (0.73%) to US$45.53, Telstra Corporation slipped 21 cents (1.43%) to US$14.50, Telecom Corporation of NZ firmed 36 cents (4%) to US$9.36 and Westpac added $2.54 (2.64%) to US$98.69.

In economic news, the US Midwest posted its first monthly increase in manufacturing during July, rising 2.6% to a seasonally adjusted level of 79.7, because of a big jump in auto production, according to data by the Federal Reserve Bank of Chicago.

The Chicago Federal Reserve said that improved production and income indicators helped lift the July National Activity Index to -0.74 from a revised -1.82 in June, providing another sign of stabilisation in the US economy.

At 7:45 AM (AEST), the 10-year Treasury note yield was 3.48% and the five year yield was 2.48%.

European shares hit a fresh 2009 high on Monday amid continued hopes for an improving economy, with gains from miners helping the advance.

The pan-European Dow Jones Stoxx 600 index rose 0.8% to 236.66, a level not seen since early October, building on gains of nearly 3% made last week.

At the regional level, the UK's FTSE 100 index rose 0.9% to 4,896.23, the French CAC-40 index advanced 1% to 3,652.17 and the German DAX index climbed 1% to 5,519.75.

Miners were the best performers in percentage terms on Monday and particular standouts included Rio Tinto, shares of which rose 4.9%, and Xstrata, up 4.3%. BHP Billiton gained 57.50 pence (3.61%) to 1,637.00 pence.

Also higher, shares of French mining firm Eramet jumped 10.8%. Analysts upped their rating on Eramet to buy from neutral, saying the market doesn't appear to widely know that manganese ore prices have increased sharply, citing data from Metal Bulletin and Vale management.

In the oil and gas sector, shares of Repsol advanced 2.5% to EUR17.53. The Spanish oil giant was upped to buy from neutral with a 20 euro price target by one broker, who said production from new projects will add around 300,000 barrels a day, close to the current production level.

BBVA shares climbed 3.1%. The US Federal Deposit Insurance Corp. is selling the banking operations of Guaranty Bank of Texas to the US division of the Spanish bank after assuming most of its losses. BBVA Compass will acquire $12bn in assets and $11.5bn in deposits and entered into a loss sharing agreement with the FDIC that covers all the acquired loans.

In the construction sector, shares of Ireland's Kingspan Group shares advanced 13.8%. The building-materials supplier reported a 71% drop in first-half profit to EUR20.4m but said that demand has stabilised over recent months.

Japanese stocks posted their biggest percentage gain in more than three months as strong economic data from the US and Europe on Friday reinforced investor confidence that an economic recovery is under way.

Japan's Nikkei 225 Average climbed 3.4%, or 342.85 points, to end at 10,581.05, with automobile shares rebounding from Friday's weakness, while cyclical stocks such as commodity producers pacing the advance on economic recovery hopes. Shares of Sumitomo Metal Mining rose 4.4% and Inpex climbed 5.4%.

Hong Kong's Hang Seng Index added 1.7% and China's Shanghai Composite rose 1.1%.

New Zealand shares ended higher on Monday, tracking offshore markets but volume remained light as most investors stuck to the sidelines. The NZX-50 ended up 1.1% or 33 points at 3,067.67.

Lead surged to an 11-month high on the London Metal Exchange on concerns lead poisoning cases may force smelter shutdowns in China.

Base metals on the LME finished mixed. Aluminium fell $15 (0.77%) to $1,925 while copper rose $70 (1.11%) to $6,375 and nickel weakened $100 (0.51%) to $19,350. Zinc dropped $5 (0.27%) to $1,840 and lead firmed $125 (6.67%) to $2,000. Comex copper was last quoted at 291.40 US cents per pound.

Gold futures declined sharply late in the session when chart-based selling accelerated as equities backed down from their earlier highs. Spot gold was last quoted at $940.40. Comex gold futures dipped $11.00 (1.15%) to $943.70. Spot silver was last quoted at $14.13.

Crude oil futures danced up against $75 a barrel on Monday, but never crossed the line in a day of light trading and stability after a week of torrid gains. West Texas Intermediate was last quoted at US$73.82 per barrel.

Major currencies seesawed on Monday, with the late afternoon decline in US equities causing the euro to retrench and the safe-haven yen and US dollar to advance.

At 08:05 a.m. (AET) the US dollar was quoted at 0.6995 euros, 94.49 yen, 1.194 AUD and 60.92 pence.

Find out which stocks the BIG MONEY is buying!

2009-08-24T20:07:00.000-07:00

Stocks being BOUGHT heavily by institutional investors.

Stock Symbol

Price

Price
Chg

Vol % Chng

TLEO

19.57

+0.64

+626

PEGA

32.41

+2.50

+319

NEU

83.54

+4.42

+137

STEC

37.91

+2.94

+112

SXCI

43.40

+0.63

+102

Is the Market showing signs of Recovery?

2009-08-20T18:21:00.000-07:00

US stocks rise, data points to recovery

US stocks rose for the third day running today after data suggested recovery from a long recession.

The Dow Jones Industrial Average climbed 70.89 points (0.76 per cent) to 9350.05 in closing trades. The tech-heavy Nasdaq composite increased 19.98 points (1.01 per cent) to 1989.22 and the Standard & Poor's 500 index, a broad measure of the market, gained 10.91 points (1.09 per cent) to 1007.37, crossing the psychological 1000 barrier.

Yesterday the major indices rebounded strongly on surging oil prices.

After a wobbly opening amid thin volume, the major indices settled into positive territory as investors focused on the latest positive data.

The Conference Board said its index of leading economic indicators, a measure of economic conditions in the coming months, climbed for the fourth month in a row in July, by 0.6 per cent.

"The indicators suggest that the recession is bottoming out, and that economic activity will likely begin recovering soon," said Ken Goldstein, economist at the private research firm.

A Federal Reserve index of the manufacturing sector in the Philadelphia, Pennsylvania region turned positive in August, rising to 4.2, its highest level since November 2007, the month prior to the economy's official entry into recession.

However the market had an unwelcome surprise on unemployment, which is expected to top 10 per cent as the economy struggles toward recovery.

The Labour Department reported new claims for unemployment benefits rose for the second consecutive week, to 576,000 in the week to August 15. Most analysts had expected claims to fall to 550,000.

Three Reasons to Write Calls!

2009-08-20T05:31:00.000-07:00

So, you want to trade options, do you? Luckily, you've come to the right place -- here we're all options, all the time. Of course, trading options is easier said than done, particularly if you're brand-new to the exciting world of derivatives.

There are several different reasons why you might use selling calls in your trading, so read on to learn more.

Generate income on sluggish stock investments

First and foremost, we must turn our attention to the covered call. This is perhaps the most popular incarnation of the call-write strategy, although I have nothing but anecdotal evidence to back up that bold assertion.

Moving right along, a covered call is an option that you sell (or write, if you prefer) on a stock that you're holding in your portfolio. The adjective "covered" simply means that your obligations as an option writer are covered by the shares you own. In other words, should the buyer of your option decide to exercise, you'll have the stock on hand for delivery.

This strategy is best used during periods of consolidation, or generally lackluster price action in the underlying equity. While you're not ready to throw in the towel on the investment, you'd prefer to be making money. Happily, by writing a covered call, you will receive your premium payment upfront -- thereby turning a profit on the stock's sluggishness. It's a neat trick, if you think about it.

To execute the trade, simply take a look at the security in question. You'll need to pinpoint where the shares are hitting resistance, because the strike price of your sold call(s) will need to correlate with this price zone. In the best-case scenario, you want the options to expire worthless, so that you can (a) retain the entire premium received as pure profit; and (b) avoid taking any further action to close out the trade.

Once you've selected your ideal strike price, you'll want to gravitate toward shorter-term options. The shorter the time frame of your trade, the less opportunity the shares have to rally. Plus, the effects of time decay are more pronounced on options that are closer to expiration, and in an option-writing strategy, time decay is your buddy. As the contracts steadily lose time value, your out-of-the-money option will also lose value. This means the calls will be cheaper to buy back in the event that the trade goes awry, and you feel compelled to buy to close.

So, having selected an appropriate strike price and expiration month, your only responsibility now is to place the trade with your broker. In order to make sure this is a covered call, sell only one option contract for every 100 shares of stock you own. (Of course, if you're feeling conservative, you may certainly feel free to write calls against only a portion of your stock investment, rather than the whole schmear.) Pocket your premium, and then sit back and wait for the options to expire worthless, as you predicted.

There are a few possible outcomes here. As stated, the stock will ideally remain pinned beneath resistance, as you predicted, and your calls will expire worthless as a result. This allows you to keep both the stock and the premium payment (which, as you may have surmised, is your maximum potential profit).

Alternatively, the shares could unexpectedly move higher. If you're watching the position closely, you might be agile enough to close out the trade before you can be assigned. In so doing, you'll have to buy back the option at current market prices -- which could easily be unfavorable, unless you're savvy enough to roll up with the market. In this scenario, you could very well end up taking a loss on the premium received but will be offset by the capital gain on the stock.

Finally, the shares could unexpectedly rise far enough and fast enough that your option will go in the money, leaving you at high chance of being assigned. If this happens, you'll be obligated to deliver 100 shares of stock per option contract sold. This is the most desirable outcome for covered call investors, (but maybe not so if you want to hold on to your shares) because this is the maximum profit outcome if you wrote out-of-the-money calls.

This is why we always, always recommend that you do not write covered calls on a stock you wouldn't be willing to part with. (Or, at the very least, don't write calls against your entire investment.) Going into the trade, you should make peace with the notion that the shares could be called away from you. This Zen-like attitude should help to prevent you from making a potentially ill-advised buy-to-close decision. And if you simply can't make peace with this idea, covered call writing might be the wrong tactic for you.

But what if you're more than willing to part with the stock? Well, that's simple!

Unload stock at your desired exit price

Thanks to the ever-present likelyhood of assignment, covered calls are also ideal for unloading stock at your target exit price. The nuts and bolts of the strategy are the same as mentioned earlier in this article, the only difference, really, is your attitude.
So, let's stay that Stock XYZ is in the midst of a lengthy uptrend. You bought in early, so you've already collected some healthy gains. In fact, you've been holding this stock for so long that you're positively itching to put that investment capital to work on some new trading opportunities.
You could simply sell your shares and call it a day. However, if you expect the uptrend to continue during the short term, why not write a covered call? Simply sell one short-term option contract for each 100 shares you'd like to unload. Pick a strike price that corresponds with your desired exit price, and then sit back and cross your fingers that the stock keeps moving higher.
If your option does go in the money, simply wait to be assigned. Then, you'll be obligated -- and happily so -- to sell your shares at the appropriate strike price. As an added bonus, you will have already raked in a premium from selling the options, which is a nice boost to your ROI. Plus, even if you're not assigned, that initial premium you collect will act as a serviceable silver lining.
Make a neutral-to-bearish bet
If you're not writing covered calls, then you must be writing naked calls. Have I mentioned how risky this is? When you write a call option without holding the stock, you open yourself up to unlimited risk. No, seriously -- because the underlying equity could theoretically rally up to infinity. (Yes, the chances of this happening are quite slim, but the fact remains that you could lose a lot of cash by writing naked calls.)
However, if you insist on engaging in such high-risk behavior, the least I could do is educate you about it. The fact is, if you've reached a certain level of success in your trading (as evidenced by your net worth), your broker will likely allow you to write naked calls with a margin account. So, if you're neutral-to-bearish on the underlying equity, you can sell calls in order to speculate on the stock's future price action.
By neutral-to-bearish, I mean that you're not expecting the shares to drop dramatically during the life span of your trade. If you were, a long put would be a more appropriate strategy. However, you're also not expecting the stock to rally, which is why you feel confident enough to write a naked call.
Again, you'll want to err on the side of using shorter-term options, and you'll also want to align your strike price with existing technical resistance. With this approach, you'll maximize your chances for a successful call write.
Since you don't have the stock on hand to cover a potential assignment, you definitely want the option to expire worthless. If and when it does, the initial premium you received can be retained as your maximum potential profit. Take note of this fact: while your potential risk on the trade is unlimited, your potential profit is very severely limited. This is not what we call a favorable risk/reward scenario, and it's why naked call writing is best reserved for only the most savvy and brazen of investors.
Meanwhile, if the stock does go in the money and you're assigned, you'll be obligated to deliver 100 shares per contract sold of the underlying equity. Depending upon the market price of the stock, you could be shelling out quite a bit of dough to meet your obligations -- and, I like to imagine, kicking yourself for not heeding my words of caution.
And that's the wonderful world of call selling, in all its various forms. Remember, whether you're covered or naked, your maximum profit is limited to the initial premium received. So, before you enter the trade, you'd better make sure you're happy with the market price of the options.

Australian Market Report, 19th August 2009

2009-08-18T18:08:00.000-07:00

Australian Market Report

Equities/Fixed Interest	Close	Change	%Change	Currency	Close	Change	%Change
All Ordinaries	4386	-12	-0.28	$A vs $US	0.8262	--	-0.01
S&P/ASX 200	4382	-7	-0.15	$A vs GBP	0.4989	--	-0.02
10-year Bond Rate	5.55	--	--	$A vs YEN	78.25	--	--
3-yr Bond Rate	4.92	--	--	$A vs EUR	0.5846	--	-0.02
90 Day Bank Accepted Bills SFE-Day	3.36	--	--	$A vs $NZ	1.2241	--	-0.05

Markets to Bounce Back

Local markets are expected to bounce back today in line with offshore markets.

Ahead of the local open the September SPI futures were 23 points (0.50%) higher at 4,378.

Market and Company News | Tuesday 18 August 2009 - close

National Australia Bank (NAB) and Challenger Financial Services (CGF)

National Australia Bank said it agreed to buy Challenger Financial Services' mortgage management business for $385m. The bank will acquire mortgage aggregator businesses, Challenger's "white label" product capability and a portfolio of around $4bn of residential mortgages at a discount to face value. NAB will also acquire a 17.5% stake in Homeloans Ltd., with the potential to increase that investment to about 41%, if approved by Homeloans' shareholders. The $385m purchase price includes the roughly 41% investment in Homeloans. NAB said the acquisition will be accretive to earnings in the first year. The purchase will cut the bank's Tier 1 capital ratio by about 15 basis points. The purchase is subject to regulatory approvals and is expected to be completed by the end of 2009.

Separately, Challenger said it expects to report a loss of between $88m and $93m for the year ended June 30. On a normalised basis, the financial services group expects after-tax net profits to be between $215m and $220m. Management expects to pay a dividend of 7.5 cents a share. NAB shed 1 cent (0.04%) to $27.07 and CGF fell 11 cents (3.78%) to $2.80.

Amcor (AMC) and Rio Tinto (RIO)

Amcor said that it will buy parts of Rio Tinto's Alcan Packaging unit for $2.44bn (US$2.03bn) to expand its business in Europe and in emerging economies. The company will acquire Alcan Packaging's European and Asian food, and global pharmaceuticals and tobacco businesses, and will fund the acquisitions by raising $1.61bn through an offering of shares and establishing a committed bank facility of US$1.20bn. The transaction, along with an earlier sale of other Alcan businesses to Bemis, takes the total raised by Rio through asset sales in the past 18 months to US$6.6bn, further strengthening the miner's balance sheet and helping ease lingering market concerns about Rio's debt. After the acquisition, Amcor will be among the world's largest packaging companies with a leading position in flexible packaging, folding cartons for tobacco and custom PET containers, it said. "Now is the right time in the economic cycle to be making acquisitions as asset values are substantially lower than they have been for many years," said Chief Executive Ken MacKenzie. The purchase price will represent 5.5 to 5.7 times the adjusted earnings before interest, tax, depreciation and amortisation of the Alcan businesses.

The acquisition, which Amcor first foreshadowed a year ago, complements the company's existing packaging assets and will enhance its platform for further expansion in growth regions of eastern Europe, Russia and Asia, MacKenzie said. After the purchase 85% of Amcor's sales will be from outside Australia, up from 80%, with western Europe accounting for 37% of its revenue, he said. MacKenzie declined to comment on whether Amcor will need to sell some assets to satisfy competition concerns. The deal is expected to add to earnings per share next fiscal year and from fiscal year 2012 deliver strong operating cash flows, Amcor said. The company forecasts pretax earnings synergies of $200m to $250m a year within three years, through reduced overheads, improved operating efficiencies and procurement benefits. About 35% of these synergies will be achieved in the first year after the purchase with a further 45% expected in the second year. To integrate the acquisition, Amcor will incur total one-off pretax cash restructuring costs of about $300m over two years after completing the acquisition. Amcor plans to sell new shares at $4.30 each, or a 24% discount to its last traded price Friday of $5.65, in a 4-for-9 non-renounceable entitlement offer. Rio Chief Financial Officer Guy Elliott said the packaging sale delivers good value to Rio shareholders. The miner is still trying to find a buyer for Alcan's beauty products packaging assets and is planning to float its US coal assets.

Amcor also reported its full-year net profit fell 18% to $211.7m, from $258.8m a year earlier, as its sales in the year ended June 30 rose 3.3% to $9.54bn, from $9.23bn in fiscal 2008. The company's profit, before one-off items, in fiscal 2009 was $360.5m, down 2.3% from $369.1m a year ago. Amcor booked significant items of $148.8m, primarily relating to the acquisition costs associated with the Alcan Packaging assets and planned restructuring. "This is a very creditable performance achieved during difficult economic conditions and demonstrates the defensive nature of our business," MacKenzie said. Amcor will pay a final dividend of 17 cents, unchanged from a year earlier. AMC was halted from trade with a last price of $5.65 and RIO lost 20 cents (0.35%) to $56.90.

Origin Energy (ORG)

Origin Energy said its liquefied natural gas joint venture with ConocoPhillips has selected a construction site for its proposed LNG terminal at Gladstone in Queensland. The joint venture had always planned to build its terminal at Gladstone but said it will centre on Laird Point on Gladstone's Curtis Island. Although lagging some of its rivals in the rush to export Australian coal seam gas, the site selection at least shows that the JV's making some progress. Analysts were expecting an announcement about a site selection some time before Christmas and have said it could be a possible share price catalyst for Origin. Finding customers is still the biggest hurdle the JV will have to overcome and it's something the rival Gladstone LNG projects being built by BG Group and Santos/Petroliam Nasional, or Petronas, have already done. An Origin spokesman said that offtake discussions are still progressing well, after saying in July they're "well progressed". Origin said the venture is still planning to make a final investment decision on its project at the end of 2010, with the first production train to be completed by the end of 2014. ORG weakened 39 cents (2.53%) to $15.00.

Santos (STO)

Santos added a third liquefied natural gas terminal to its growth agenda and netted up to US$370m in the process by selling some of its undeveloped gas interests offshore Northern Australia to France's GDF SUEZ. Santos has sold 60% of its Petrel, Tern and Frigate fields in the Bonaparte Basin to the global integrated energy heavyweight for a cash consideration of US$200m. It will get another US$170m when a final investment decision is made on a proposed floating LNG platform, which would use the fields' gas as feedstock. The timing of the investment decision hasn't yet been specified, a Santos spokesman said.

The deal is a big win for Santos, which said when it launched a $3bn equity raising earlier this year that it was considering selling assets in the Timor Sea. Analysts and media had speculated it could get around $500m from the auction. The GDF SUEZ deal covers just 30% of Santos' Timor Sea assets and the Santos spokesman said the company is "considering its options" in regard to its Evans Shoal, Barossa and Caldita gas fields, also in the Bonaparte Basin. The deal gives GDF SUEZ its first foothold in the Australian exploration and production sector and enables it to extend its LNG portfolio, already strong in Europe, Africa and the Middle East, into the fast-growing Asia Pacific region. It also provides Santos with more capital to help fund its other two LNG initiatives. These include participating in the construction of massive onshore terminals at Gladstone in Queensland and Papua New Guinea. Santos said the floating LNG platform will produce 2m metric tonnes a year. It said the floating LNG project will allow GDF SUEZ to capitalise on the considerable work it's already committed to floating LNG terminals. Floating LNG is increasingly being considered as an effective way to commercialise stranded gas resources too small to support the construction of onshore LNG terminals and their associated pipeline infrastructure. STO remained unchanged at $14.50.

Stockland (SGP)

Stockland said it has paid $56.5m for a 124 hectare residential development site in Victoria. Settlement of the purchase of the site at Leakes Road, Truganina, 20 kilometres southwest of Melbourne, is conditional upon rezoning and expected to occur in early fiscal 2011, Stockland said in a statement. Stockland plans around 1300 residential lots and a community incorporating parks, schools and commercial facilities for the site in a key Victorian growth corridor. SGP strengthened 10 cents (2.94%) to $3.50.

CFS Retail Property Trust (CFX)

CFS Retail Property Trust said it recorded a full year net loss, reflecting property and derivatives revaluations. But the group said its businesses are holding up in line with its peers and it targets higher distributions to unitholders in the year ahead. The group recorded a net loss of $366.9m for the year ended June 30, compared to a net profit of $669.1m a year earlier. "While it is disappointing to report a negative total return for this year, it is pleasing to note that the portfolio...has continued to perform and hold up against peers," CFS Retail Property Trust Fund Manager Michael Gorman said in a statement. CFS Retail said revaluations of its shopping centres resulted in a $548.6m loss.

"In its 15 years of operation, the CFS Retail Property Trust has navigated significant challenges but none more dramatic and demanding than those evident during the past financial year," the company said. Annual revenue slumped 45% to $552.0m from $999.5m amid a slowdown in retail spending. However, stimulus cash handouts from the government along with lower interest rates and gasoline prices helped to avoid a more material downturn in retail sales, the company said. CFS Retail Property Trust expects overall Australian retail sales growth to slow to around 3% in the year ahead. "The impact of the global financial crisis and the potential it has to create unemployment and hence affect retail sales is the key concern for our management team," the group's Head of Property Darren Steinberg said in a statement.

The company's closely watched annual distributable income rose to $297.8m from $261.1m a year earlier, in line with market expectations. CFS Retail was expected to post distributable income of $294.3m, according to analysts' estimates. The company said in June that it planned to pay a final distribution of 6.3 cents, up from 6 cents a year earlier. "While there is still some uncertainty in the economic environment, we are targeting an increase in underlying distribution per unit of 3%," Gorman said. "Assuming a performance fee is payable and there is no unforeseen material deterioration to economic conditions, this equates to a distribution of approximately 12.5 cents per unit for the year ending 30 June 2010," he said. CFX remained unchanged at $1.77.

OneSteel (OST)

OneSteel said full-year net profit fell 6% on the back of a deteriorating steel and iron ore market. The company's profit in the year ended June 30 fell to $230m, from $244.9m a year earlier, as total revenue dropped 2% to $7.31bn from $7.49bn. Faced with weaker demand, lower steel prices and higher costs, OneSteel cut raw steel output by 26% to 2m metric tonnes, lowered its inventory levels and shaved 5% from its workforce. Chief Executive Geoff Plummer said the company was encouraged by improvements in the past quarter in the outlook for steel and Australian market conditions but "only a modest improvement in activity levels (is) expected in the near term." "In the last several months, we have had a steady improvement off a low base," Plummer told reporters on a conference call. "We describe it as a steady improvement, not a dramatic improvement, but the signs for most segments are encouraging." He declined to provide earnings guidance because of the high level of uncertainty around the movement and impact of key factors, such as foreign exchange rates, domestic and international prices and the rate of economic recovery in Australia and overseas.

OneSteel posted underlying net profit of $215m, above its April guidance of $200m but down 32% from $315m reported in fiscal 2008. The company's annual iron ore sales rose to 5.1m tonne, from 4.4m tonnes a year earlier. Despite the increase in volume, OneSteel's revenue from iron ore was little changed at $560m compared with fiscal 2008 due to lower prices. For most of its first half, OneSteel's steel production was running at or near record levels to meet demand, which slowed significantly over the remainder of the fiscal year. To brace itself for lower demand, OneSteel strengthened its balance sheet by raising $789m to refinance maturing debt early, lowered its capital expenditure and cut its dividends. Plummer said that destocking in the domestic market appeared to be complete and demand was rising. The company will boost the output of its Whyalla mill, in South Australia, to a rate of 1.1m tonne a year this year, from 460,000 tonnes in its second fiscal half. OneSteel also plans increasing the capacity of its Sydney and Laverton electric arc furnaces to 65% this half, up from 240,000 tonnes, or a utilisation rate of about 35%, in its second half. The company expects non-residential and engineering construction to continue to be weak but expects an improved level of activity in home building. While the mining industry has stabilised, the manufacturing and rural sectors are expected to remain soft, OneSteel said. OneSteel expects continued overcapacity in global steel output in the short term, which will affect prices and margins, but there were indications that steel and raw material prices have bottomed and were recovering, Plummer said. The company will pay a final dividend of 4 cents, down from 13.5 cents a year earlier. OST rose 12 cents (4.03%) to $3.10.

Dexus Property Group (DXS)

Dexus Property Group posted a full-year net loss of $1.46bn on property devaluations. The company had net profit of $438.3m a year ago. Its total revenue from ordinary activities in the year ended June 30 rose 11% to $775.4m, from $699.7m in the same period a year earlier, it said in a statement. Chief Executive Victor Hoog Antink said that Dexus is well-positioned to respond to the current market conditions, which he expected to continue to be challenging in the coming year. Dexus had operating earnings of $526.3m, up 5.7% from $498.0m a year earlier. The company wrote down its entire property portfolio by $1.6bn, together with mark to market derivative losses of $244m and a $130m deferred tax benefit primarily arising from U.S. property devaluations. Dexus said in June that it planned to pay a final distribution of 3.5 cents, down from 6 cents a year earlier. This year, Dexus expects to post a distribution of 5.1 cents a security. DXS dipped 6 cents (7.14%) to $0.72.

James Hardie Industries (JHX)

James Hardie beat market expectations with its first quarter results but warned it will be unlikely to replicate the strong result over the remainder of the year. The company, which is in the process of moving its domicile to Ireland, said the residential construction market in the US appears to be nearing the bottom of a downturn, but that the recovery phase looks set to be drawn out. James Hardie posted a first quarter net operating loss of US$77.9m, compared to a net profit of US$1.4m in the same quarter a year earlier. The headline loss includes unfavourable asbestos adjustments of US$119.8m relating to currency movements, and James Hardie said its net operating profit, excluding asbestos and other expenses, was up 4% on year to US$41.6m from US$40.0m last year.

"We weren't expecting to (start) out the year in such good shape this year - it is a very strong result," he said. The result was driven by higher prices and lower input costs, but Gries warned that the company doesn't expect to be able to replicate it in coming quarters as a seasonal downturn in the US will impact earnings in September and October. That cautious tone is reflected in the company's earnings guidance, which is for operating profit, excluding asbestos, close to the top of the range of analyst forecasts of between US$39m and US$67m. This means the group expects to make less in the remaining three quarters of the year than it did in the first. Gries said there are signs the US residential construction market is nearing the bottom, but that the recovery phase looks set to be drawn-out due to expiry of a tax credit for first home buyers in November, a recent upturn in interest rates, a continuing lack of credit for home buyers, and a deteriorating US employment market. In Australia, further declines in addressable housing starts are expected and residential construction in New Zealand is expected to remain at historic lows, Gries said. Sales for the quarter were down 22% on year to US$284.5m from US$365.0m and the company said this reflected weakness in housing construction activity in the US and general economic conditions. JHX rose $1.29 (22.32%) to $7.07.

United Group (UGL)

United Group posted record full year earnings and despite forecasting flat earnings this year, said it was well positioned for the future with a record order book. Net profit for the year to June 30 rose 8.7% to $142.5m, from $131.1m a year earlier, while underlying net profit - a figure widely watched by analysts - rose 10% to $150.3m, from $136.1m. This was largely in line with consensus forecasts of $148m, according to analysts' estimates, and the company's guidance for earnings to grow at the lower end of a range of 10%-20%. Sales rose 37% to $4.75bn from $3.48bn, with record six month sales for the half year to June.

"United Group is in very good shape, with a strong order book and balance sheet, and exposure to compelling markets," said Chief Executive Richard Leupen in a statement. "There is scope for us to expand through acquisition, while we also see growth opportunities in existing markets such as rail transport, outsourcing of property services, liquefied natural gas and clean power and water projects," he said. With gearing of 22% well below its target rate of 30%-40%, Leupen said the group has the "financial and strategic ability to pursue growth options, both organic and through acquisitions" and "continue to assess opportunities that make sense for our shareholders." The firm's order book stood at a near record $8.2bn at June 30, with a further $2bn of work for which the group is preferred tenderer. However Leupen said the firm expects revenue for this year to be flat at around $4.5bn and adjusted net profit to remain little changed at around $150m. "We now have a solid foundation in place to grow revenue and earnings from 2011 onwards and pursue our long term growth objectives," he said. United Group declared a final dividend of 35 cents, up from 34 cents a year earlier. UGL firmed 40 cents (3.15%) to $13.10.

Riversdale Mining (RIV)

Riversdale Mining said its full year net profit was $300,000, down from $92.4m last year when earnings were boosted by the sale of part of its coal ground in Mozambique to Tata Steel. The developer said a feasibility study on its Benga project in Mozambique has confirmed that it exceeds the company's required rate of return and the study is now being reviewed with a view to an investment decision being taken in 2009. The company said it had net assets of $506.7m at June 30, up from $484.2m at the same time last year, with $290.3m in cash on hand. RIV declined 25 cents (3.95%) to $6.08.

Monadelphous Group (MND)

Monadelphous Group said that its full year net profit rose 6.8% to $74.2m, from $69.5m a year before, in line with market expectations. Monadelphous had been forecast to post net profit of $74.2m, according to analysts' estimates. The company had revenue in the year ended June 30 of $1.13bn, up 18% from $959.0m in fiscal 2008, it said in a statement. Monadelphous said it has entered fiscal 2010 with a healthy order book as industry conditions began to ease and normalise. In the past year, many of its customers cut capital expenditure and operating costs but most are proceeding with planned projects, the company said. Although uncertainty remains, Monadelphous' broadening market exposure in the oil and gas and infrastructure sectors is providing a relatively healthy pipeline of opportunities. The company also is seeking acquisition opportunities, it said. The company said it will pay a final dividend of 44 cents, up from 43 cents a year earlier. MND firmed 81 cents (7.16%) to $12.12.

iSOFT (ISF)

iSOFT Group reported NPAT of $35.09m for the year ended 30 June 2009. Revenues from ordinary activities were $540.12m, up 50% from last year, as the Company strengthened its global footprint with significant contracts in markets such as the U.K, the Netherlands, Germany, Spain and Australia, and entered new markets in Latin America, Italy and Africa. Diluted EPS was 4.26 cents compared to 2.06 cents last year. Net operating cash flow was $64.25m compared to $76.20m last year. The final dividend declared was 1 cent, taking the full year dividend to 1 cent compared with nil last year. The Company expects sales growth of 10%, almost five times the forecast industry average, in FY10, with margins at FY09 levels. Interest expense is forecast to be substantially lower ($10-$12m), boosting NPAT in FY10. ISF added 5 cents (5.85%) to $0.91.

Western Areas (WSA)

Western Areas reported a net loss of $35.2m for the 2008-09 financial year ending June 30, with the dramatic fall in the nickel price the main contributor to the loss. The miner will pay no dividend for the year. A second contributing factor to the net loss was the lack of nickel sales between February and May this year, when an offtake agreement with Russia's Norilsk Nickel terminated. Since May, Western Areas has had an offtake agreement with BHP Billiton. "This break in nickel sales, however, is expected to have a positive impact on earnings in 2009-10," said Western Areas Managing Director Julian Hanna, with about 3,500 metric tonnes of nickel stockpiled in ore and concentrate now being sold into a much stronger nickel market. Western Areas curtailed mine development of a number of projects last financial year in light of plummeting metal prices but nickel's strong recovery to one-year high last week means the company is now considering to resume project development. WSA slid 48 cents (8.3%) to $5.30.

GWA International (GWT)

GWA International booked an expected modest rise in annual profit on lower redundancy payouts and said it's continuing to assess a number of acquisition opportunities. GWA said there are signs of a recovery in the housing market and that it expects some improvement in profitability this fiscal year. It said redundancy costs fell to just $2.9m in fiscal 2009 from $14.3m in fiscal 2008. Net profit for the year to June 30 rose 5.3% to $48.3m from $45.9m in the previous year, in line with the company's guidance in July for an approximate 5% rise in profit. However, underlying net profit, which excludes restructure and impairment charges, fell 12% to $87m, which is also in line with internal guidance. GWA was hurt by a slow down in the housing sector, although it said the tough trading conditions were partially offset by product developments in its water heating division and sales into the do-it-yourself market.

Managing Director Peter Crowley said a number of positive signs have emerged in the housing market, with improved housing finance volumes and increased first home buyer activity. "However we do not believe we will see a sustained recovery in dwelling and non-dwelling construction until business confidence improves and financing is more freely available for developers, builders and investors," Crowley said. However, increased sales of solar water heating products and cost improvements following the redundancies are expected to result in "some improvement" in profitability this financial year, Crowley said. GWA said in a presentation that it has the capacity to fund acquisitions up to $100m through debt and $300m-$400m through debt and equity. It said "a number of specific opportunities are still being progressed". Group revenue rose 4.5% to $678.3m from $648.9m. GWA declared a final dividend of 8.5 cents per share, up from 8 cents in the previous corresponding period. GWT added 4 cents (1.39%) to $2.92.

Grange Resources (GRR)

Grange Resources said it will raise $167m by issuing new shares, mostly to its existing Chinese backers. Chinese shareholders of Grange will contribute around $115m of the total to restructure debt and shore up the company's Savage River pellet operation in Tasmania, Grange said. Jiangsu Shagang Group, China's largest private steel mill, will maintain its current 47.1% stake in Grange as a result of the deal, Grange said. The support of Shagang and other Chinese shareholders represents a "strong vote of confidence in the future of Grange and the iron ore market", said Grange Chief Executive Russell Clark. He believes the iron ore market is rebounding from a major downturn earlier this year and Grange is receiving "numerous enquiries to purchase spot product at a significant premium to the current benchmark". The funding deal comprises a discounted rights issue to raise $123.9m from all shareholders, along with a $28.9m share placement to Shagang and other cornerstone Chinese investors. The placement is subject to approval from Australia's Foreign Investment Review Board. A further $13.8m share placement will be made to UK-based steel trader Stemcor, the previous owner of Savage River, to restructure "onerous" royalties into a more favourable arrangement, Grange said. The deal will see Grange's future liabilities "almost halved", with payment terms on some remaining debts extended, Clark said. Grange will be left with around $76m in cash, mostly to fund ongoing operations at Savage River. Some funds will also be applied to Southdown, the company's long-term development project in Western Australia, Clark said. Grange became majority Chinese-owned after its merger early this year with China-backed Australian Bulk Minerals. GRR fell 10 cents (16.95%) to $0.49.

Global Market Report, 19 August 2009

2009-08-18T18:06:00.000-07:00

Wednesday 19 August 2009

Overseas Market Report

US Stocks Paced Higher By Home Depot, Target and AmEx | Tuesday 18 August 2009 - close

Foreign Equities	Close	Change	%Change	Commodities	US$	Close	Change	%Change
Dow Jones (US)	9218	83	0.90	Aluminium	US$/t 3mth	2000	20	1.01
S&P 500	990	10	1.01	Copper	US$/t 3mth	6080	-15	-0.25
NASDAQ	1956	25	1.30	Nickel	US$/t 3mth	18920	-480	-2.47
FTSE 100 Index	4686	41	0.87	Gold	US$/oz	937.45	4.05	0.43
Nikkei 225	10285	16	0.16	Oil - WTI	US$/bbl	69.19	2.44	3.66
HKSE	20306	169	0.83	Lead	US$/t 3mth	1810	0	--
NZ 50	3072	-14	-0.47	Zinc	US$/t 3mth	1785	-15	-0.83

A string of better-than-expected quarterly reports from retailers, including Home Depot and Target, and an American Express-led bounce-back for financials helped stocks close higher on Tuesday.

In the wake of steep declines in the past two sessions, consumer stocks had a solid move higher on Tuesday. While concern about the health of the US consumer remains, largely thanks to a still weakened labour market, some within the industry were able to quell some investor fears on the session.

Notably, Home Depot increased 82 cents (3.1%) to $26.93, as its fiscal second-quarter earnings fell a smaller-than-expected 7.2% and the world's largest home-improvement retailer by sales raised its fiscal-year earnings outlook.

In addition, Target tacked on $3.11 (7.6%) to $44.32. The discount retailer's fiscal second-quarter profit fell 6.4%, but came in well above analysts' expectations.

After losing more than 250 points in the last two sessions, the Dow Jones Industrial Average increased 82.60 points (0.9%) to 9,217.94, on Tuesday. The Standard & Poor's 500 gained 9.94 (1.01%) to 989.67. The Nasdaq Composite closed up 25.08 points (1.3%) at 1,955.92, marking its first gain in three sessions.

Helping pace both indexes higher, American Express rose $1.30 (4.3%) to $31.69. Analysts upgraded AmEx to outperform, saying improving delinquency rates at the company in July suggest the worst credit hits may be behind the credit-card company.

Despite the broad market bounce-back on Tuesday, both traders and investors preached caution. Volume has fallen off in the last few sessions, and a lack of earnings and economic news in the coming weeks could keep the market range-bound.

TJX posted second-quarter earnings up 31% on stronger sales and margins. However, the lower end of its third-quarter earnings guidance fell below Wall Street expectations. TJX finished down $1.05 (3%) at $34.33.

Agilent Technologies swung to a fiscal third-quarter loss, but the maker of testing and measurement equipment's results topped Wall Street's expectations and it gave a more optimistic fiscal fourth-quarter forecast than analysts estimated. Agilent closed up $1.85 (7.9%) at $25.41.

Health-care services company Cardinal Health increased 85 cents (2.6%) to $34.21, as its fiscal fourth-quarter income dropped 14%, though earnings matched and revenue beat Wall Street's expectations. The company also raised its fiscal-year earnings view and gave a stronger-than-expected projection for revenue growth.

Perrigo tacked on $1.38 (5.2%) to $27.88, after posting fiscal fourth-quarter earnings up 0.4%, helped by higher sales and strength in its prescription-drug business, prompting the maker of store-brand pharmaceutical and nutritional products to issue a fiscal 2010 earnings outlook above analysts' estimates.

For Australian ADRs listed on the NYSE, BHP Billiton added $1.63 (2.71%) to US$61.83, Rio Tinto Plc strengthened $4.70 (3.17%) to US$153.10, ResMed weakened 11 cents (0.24%) to US$45.07, Telstra Corporation improved 37 cents (2.53%) to US$15.00, Telecom Corporation of NZ climbed 12 cents (1.34%) to US$9.07 and Westpac increased $2.06 (2.12%) to US$99.21.

In economic news, after climbing strongly in the previous two months, home construction registered a surprising 1.0% drop in July. Meanwhile, producer prices dropped 0.9% in July, proving that inflationary risks are skewed to the downside.

The weeklong rally in the Treasury market took a break as a solid performance in US stocks stole flows from low-risk government debt. At 7:45 AM (AEST), the 10-year Treasury note yield was 3.51% and the five year yield was 2.46%.

European shares regained some poise on Tuesday, with banks and miners among the best performers, as firms took back a portion of the previous session's sharp losses.

The pan-European Dow Jones Stoxx 600 index rose 1.1% to 226.61.

Newfound optimism about the economy was evident in Europe, with the German ZEW economic expectations index rising more than expected to 56.1 from 39.5 in July.

On a regional level, the UK FTSE 100 index rose 0.9% to 4,685.78, the German DAX index climbed 0.9% to 5,250.74 and the French CAC-40 index gained 0.9% to 3,450.69.

Banks and miners, which are viewed as closely tied to economic growth, took the brunt of the selling in Europe on Monday but recouped some of those losses on Tuesday, with the banking sector up 1.9% and miners up 1.8% in the Stoxx 600.

Shares of Europe's biggest bank by market capitalisation, HSBC Holdings, climbed 2.8% after it was upgraded to buy from neutral.

Of miners, Rio Tinto shares rose 1.7% after Australia's Amcor said it will pay $2.03bn for the majority of Rio Tinto's Alcan Packaging business, marking its biggest-ever acquisition. Amcor will acquire Alcan Packaging businesses, including global pharmaceuticals, tobacco and European and Asian food divisions. The assets being acquired encompass operations in 28 countries and about 14,000 employees.

Companies updating investors on Tuesday included real-estate developer British Land, down 2.7%. It said its first-quarter net loss narrowed to GBP273m from GBP565m in the year-earlier period. The value of its portfolio fell by 3.7% in the quarter to GBP8.2bn, with net-asset-value per share down 9% at 361 pence.

Genmab shares tumbled 30.2% in Copenhagen after the Danish biotech firm reported that patients suffering from non-Hodgkin's lymphoma showed a lower-than-expected 10% overall response rate in a trial of the firm's Arzerra drug. The firm, which is developing the drug along with GlaxoSmithKline, cut its 2009 revenue guidance to around 750m Danish kroner, from a previous estimate of DKK1.2bn, because it will miss a milestone payment from GlaxoSmithKline. It also cut its 2009 operating loss forecast to DKK650m, from DKK400m ahead of its second-quarter earnings due later on Tuesday. GlaxoSmithKline shares inched 0.3% higher in London.

Chinese shares clawed back some gains after a roller-coaster ride on Tuesday as investors looked for bargains in metals stocks after the previous session's losses.

The bounce in Shanghai helped some other major Asian markets end higher after falling into negative territory during the session. Japanese stocks nudged slightly higher in modest volumes.

China's Shanghai Composite ended up 1.4% at 2,910.88 a day after it suffered the biggest percentage loss of 2009, although it seesawed through the session as analysts remained divided over the market's outlook.

Japan's Nikkei 225 Average gained 0.2% and Hong Kong's Hang Seng Index advanced 0.8%.

New Zealand's share market fell for a second straight session, although damage was limited by a strong performance by blue-chip construction firm Fletcher Building Ltd. The NZX-50 Index, which on Monday fell 2.1% in its biggest tumble since March 3, fell 0.5%, or 14.50 points, to 3,071.58.

Base metals on the London Metal Exchange traded mixed, easing from earlier gains after a drop in US home construction data, and traders and analysts said they expect a pause after the recent speculative rally.

Base metals on the LME finished mixed. Aluminium rose $20 (1.01%) to $2,000 while copper fell $15 (0.25%) to $6,080 and nickel weakened $480 (2.47%) to $18,920. Zinc dropped $15 (0.83%) to $1,785 and lead remained unchanged at $1,810. Comex copper was last quoted at 275.95 US cents per pound.

Gold futures gained marginally in a consolidative session, helped by a weaker US dollar and rising oil prices. Spot gold was last quoted at $937.45. Comex gold futures added $3.40 (0.36%) to $939.20. Spot silver was last quoted at $13.96.

Crude oil prices were led by a rebound in US equities. West Texas Intermediate was last quoted at US$69.19 per barrel.

The euro and UK pound bounced back on Tuesday against the safe-haven dollar with a turnaround in US stocks and risk appetite.

At 08:05 a.m. (AET) the US dollar was quoted at 0.7077 euros, 94.69 yen, 1.211 AUD and 60.40 pence.

When Out-Of-The Money Covered Call Writing Fails

2009-08-18T04:56:00.000-07:00

Incredible things have been promised by many websites and e-books regarding investment training strategies. One of the more common stock market trading strategies taught is to sell covered call options on stocks. These websites promise that you can earn up to 10% monthly returns using that very strategy. Sound good? Read on.

I will be the first to admit that selling out-of-the-money covered calls can bring lucrative monthly returns under the right circumstances. I have successfully used this very strategy. However, this strategy is not without its disadvantages. Website and e-book marketers of this strategy fail to educate you properly. They market this strategy as conservative with little risk. They also leave you hanging when it all goes wrong.

Selling out-of-the-money covered calls works when the stock market is going up in value. They also work when the stock market is neutral, meaning the market trades sideways with little swing up or down. I don't know about you, but when was the last time the stock market traded sideways for any length of time?

We are currently in the midst of an extremely volatile market. We have recently seen swings in the Dow as much as 200 points in either direction on any given day. Hardly a profitable market for an out-of-the-money covered call writer. Once that stock you are holding starts to decline, so do your profits. I can assure you that profits can evaporate very quickly. I have seen stocks fall from $10 per share to $1 per share over night! There is never enough premium on an option sale to cover that kind of decline.

The key to out-of-the-money covered call writing is to select stocks that will get called. Too many advocates of this strategy do not want the stock to get called. They want you to keep the stock so you can sell a covered call option on it the next month. This is a flawed strategy. You need to select stocks that are trending up in value, hence, a rising market. Those are the stocks that will maximize your profit. If the stock gets called, I know I ended up making my maximum anticipated return.

What happens if the stock goes way up in value? The stock simply gets called away if it rises up past the strike price and stays there through expiration. Isn't that what you wanted in the first place? Because you did not participate in those gains you may feel like you left money on the table. If you feel that way just buy the stock outright and don't sell covered call options on it. Why not just let the stock get called away, take your profit and move on? Then look for stocks to buy and sell calls on for the next month.

Remember, selling out-of-the-money covered calls can provide an excellent source if income in a rising stock market. However, this strategy is less than ideal in a stock market like the one we find ourselves in today. There are, however, other strategies that will offer significant protection in a volatile or declining stock market.

Covered Call Trade Idea for 17th August 2009

2009-08-18T04:17:00.000-07:00

Covered Call Trade Idea for 17th August 2009

October Expiry

Stock: Amgen Inc. (AMGN): 59.84

October 57.50 call: $4.50 bid

Assigned Return: 3.79%

Downside Protection: 7.51%

Breakeven Stock Price: $55.40

Index Membership: S&P 100, S&P 500, S&P 1500 Super Comp, Nasdaq 100

Sector: Healthcare

Industry: Biotechnology

Amgen Inc., a biotechnology company, engages in the discovery, development, manufacture, and marketing of human therapeutics based on advances in cellular and molecular biology. The company markets human therapeutic products primarily in the areas of supportive cancer care, nephrology, and inflammation. Its principal products include Aranesp and EPOGEN that stimulate the production of red blood cells to treat anemia; Neulasta and NEUPOGEN, which selectively stimulate the production of neutrophils, a type of white blood cell that helps the body fight infections; and ENBREL that blocks the biologic activity of tumor necrosis factor by inhibiting TNF, a substance induced in response to inflammatory and immunological responses, such as rheumatoid arthritis and psoriasis.

The company has a joint venture with Kirin Holdings Company, Limited to manufacture and market darbepoetin alfa; a co-promotion agreement with Wyeth for marketing and selling of ENBREL; and John son & Johnson to commercialize recombinant human erythropoietin as a human therapeutic. It markets its products to healthcare providers, including physicians or their clinics, dialysis centers, hospitals, and pharmacies primarily in the United States, Europe, and Canada. The company was founded in 1980 and is based in Thousand Oaks, California.

Profit/Loss Chart

Dow Signals Correction

2009-08-18T04:06:00.000-07:00

The Dow broke out of its trend channel and through short-term support, warning of a secondary correction.

Covered Call Trade Idea, August 13, 2009

2009-08-12T18:46:00.000-07:00

I.T.M. COVERED CALL TRADE - September Expiry

Tessera Technologies, Inc. (TSRA): 26.36

September 25.00 call: 2.80 bid

Assigned Return: 5.5%

Breakeven Point: 23.56

OPTIONAL PROTECTION

96% Protection

September 22.50 Put: 0.75
Net Premium: 2.05

Net Return: 2.6%

86% Protection

September 20.00 Put: 0.30

Net Premium: 2.50

Net Return: 4.3%

Tessera Technologies, Inc., invests in, licenses and delivers innovative miniaturization technologies for next-generation electronic devices. The company's micro-electronics solutions enable smaller, higher-functionality devices through chip-scale, 3D and wafer-level packaging technology, as well as high-density substrate and silent air cooling technology. Tessera's imaging and optics solutions provide low-cost, high-quality camera functionality in electronic products and include image sensor packaging, wafer-level optics and image enhancement intellectual property. The company also offers customized micro-optic lenses, from diffractive and refractive optical elements to integrated micro-optical subassemblies. Tessera licenses its technologies, as well as delivers products based on these technologies, to promote the development of the supply chain infrastructure. The company is headquartered in San Jose, California.

Earnings Per Share Rating: Top 5 %
12-Month Relative Strength Top 10 %
Trend: Higher since December 2008
The stock is trading above its 50-day moving average which is 26.28
The stock is trading above its 200-day moving average which is 16.80
Industry Group: Semiconductor Equipment & Materials
Estimated Earnings Date: October 30

fred

U.S. Market Report, August 12, 2009

2009-08-12T18:44:00.000-07:00

Market-friendly economic and corporate news helped the U.S. stock market snap a two-day losing streak. Luxury homebuilder Toll Brothers (TOL) said that its number of signed contracts increased for the first time since 2006. The company also said that revenues would not drop by as much as expected in the third quarter. Its stock soared by 2.94 points, or 14.36 percent, to 23.42 on nearly four times its normal volume.

The market also benefited from a continued benign monetary policy when the Federal Reserve said that it decided to leave interest rates "exceptionally low" for an "extended period" after a two-day policy meeting. The Fed went on to say "economic activity is leveling out" and "conditions in financial markets have improved further in recent weeks." In prior meetings it had noted that the economy continued to contract, so the phrase about "leveling out" was interpreted positively by Wall Street.

The major U.S. stock indexes had an interesting ride today. They opened flat, but quickly turned higher and continued in that direction for 90 minutes. They moved sideways until the 2:15 p.m. EDT Fed announcement. They pulled back for around 30 minutes after the announcement, but regrouped and charged to session highs by 3:00 p.m. A minor bout of selling in the final 25 minutes caused them to finish with gains of more than 1 percent, but well off their intraday highs.

The Nasdaq Composite, which has been the weakest of the three in recent sessions, was the leader today when it rebounded by 28.99 points, or 1.47 percent. The Dow logged a gain of 120.16 points and missed finishing at a new high for the rally by less than 9 points. It had been up by as much as 182 points during the final hour of trading. The S&P 500 advanced by 11.46 points and missed being at a new rally high by just 4.67 points.

With technology and financial stocks weak during yesterday's session, it appeared that the U.S. market was finally going to have a chance to experience a pullback that lasted more than two days. But the "buy the dips" crowd stepped up today and chased the indexes higher once again. An index of financial companies in the S&P 500 that had lost 3.5 percent yesterday had a gain of 2 percent today. With volatile action like that there is no way to tell which way the next 5-percent to 10-percent move will be for financials.

The same holds true for the S&P 500 and the other major indexes. They could benefit technically from some kind of pullback, but if the fear of being left out (by money managers with too much cash) continues to dominate, it might be a while before the market is allowed to correct some and work off its excesses. Despite today's rebound, we still think that it would be prudent for covered call investors to consider taking partial profits early if some of their stocks have moved sharply higher since the market began another leg of the rally a month ago. We also like the tactic of using inexpensive puts as insurance for covered call trades.

Covered Call Trade Idea, August 12, 2009

2009-08-11T17:33:00.000-07:00

O.T.M. COVERED CALL TRADE - August Expiry

Walter Energy (WLT): 54.05

August 55 calls: 1.70 bid

Non-Assigned Return: 3.1%

Assigned Return: 4.9%

OPTIONAL PROTECTION

96% Protection

August 50.00 Put : 0.85
Net Premium: 0.85

Net Return: 3.3%

For 86% Protection

August 45.00 Put : 0.25
Net Premium: 1.45

Net Return: 4.4%

Walter Energy, based in Tampa, Fla., is a leading U.S. producer and exporter of premium metallurgical coal for the global steel industry and also produces steam coal and industrial coal, metallurgical coke and coal bed methane gas. The Company has revenues of approximately $1.2 billion and employs approximately 2,100 people.

Earnings Per Share Rating: Top 23 %
12-Month Relative Strength Top 8 %
Trend: Higher since December 2008
The stock is trading above its 50-day moving average which is 40.08
The stock is trading above its 200-day moving average which is 26.98
Industry Group: Industrial Metals & Minerals
Estimated Earnings Date: October 28

Covered Call Trade Idea, August 11, 2009

2009-08-11T17:17:00.000-07:00

I.T.M. COVERED CALL TRADE - August Expiry

STEC, Inc. (STEC): 30.53

August 30.00 calls: 1.90 bid

Assigned Return: 4.5%

Breakeven point: 28.63

OPTIONAL PROTECTION

88% Protection

August 25.00 Put: 0.20
Net Premium: 1.70

Net Return: 3.8%

STEC, Inc. designs, manufactures and markets enterprise-class solid state drives, or SSDs, for use in high performance storage and server systems, and high density dynamic random access memory, or DRAM, modules for networking, communications and industrial applications.

Earnings Per Share Rating: Top 3 %
12-Month Relative Strength Top 1 %
Trend: Higher since December 2008
The stock is trading above its 50-day moving average which is 26.13
The stock is trading above its 200-day moving average which is 11.58
Industry Group: Data Storage Devices
Estimated Earnings Date: November 10

Covered Call Trade Idea, August 7, 2009

2009-08-06T16:46:00.000-07:00

I.T.M. COVERED CALL TRADE - August Expiry

MercadoLibre, Inc. (MELI): 33.32

August 32.50 calls: 1.95 bid

Assigned Return: 3.4%

Breakeven point: 31.37

OPTIONAL PROTECTION
96% Protection

August 30.00 put: 0.55
Net Premium: 1.40

Net Return: 1.7%

Founded in 1999 and headquartered in Buenos Aires, Argentina, MercadoLibre, Inc. is Latin America's leading e-commerce technology company. Through its primary platforms, MercadoLibre.com and MercadoPago.com, it provides solutions to individuals and companies buying, selling, advertising, and paying for goods online.

Earnings Per Share Rating: Top 9 %
12-Month Relative Strength: Top 10 %
Trend: Higher since November 2008
The stock is trading above its 50-day moving average which is 26.05
The stock is trading above its 200-day moving average which is 19.03
Industry Group: Business Services
Estimated Earnings Date: November 11

U.S. Market Report, August 6, 2009

2009-08-06T16:43:00.000-07:00

The major U.S. stock indexes finished modestly lower yesterday after a pair of weak employment-related reports. They got off to a positive start today due to a better than expected weekly employment report. The government said that initial claims for unemployment benefits fell by 38,000 to 550,000 in the week ended August 1. That was a much bigger drop in initial jobless claims than the 580,000 figure Wall Street was looking for.

An increase of 69,000 in the number of continuing claims for unemployment benefits to 6.31 million helped to dampen the enthusiasm generated by the better than expected initial claims number. Stock indexes climbed by around half a percent in the first few minutes. That proved to be their highs for the day and all three of the major indexes were in negative territory by around 25 minutes into the trading session. With the exception of the Dow, which spent a few minutes in positive ground late in the morning, all three toiled for the rest of the day in the minus column.

Like the gains early in the day, the losses were not very large. The Nasdaq Composite was the only one among the major indexes that fell by 1 percent or more at any time during the session. With its final decline of 19.89 points, it gave up exactly 1 percent on the day. The Dow cut an afternoon loss of 72 points down to 24.71 points by the close. The S&P 500 slipped by 5.64 points.

All three of the major indexes have now fallen two straight days. The last time they did that all together was back on June 15-16. It was the first time the Nasdaq has experienced back-to-back losses in almost a month. The Dow and the S&P 500 have only seen a pair of two-day selloffs in that period. With economic data starting to show signs of improvement, traders and money managers have been aggressively buying any and all dips in the stock market on fears of getting left behind.

Wall Street participants will be tuned in tomorrow for the biggest economic number on the calendar this month, the July nonfarm payroll jobs report. The U.S. economy shed 467,000 jobs in June. That number is expected to have shrunk to 325,000 in July. If the number of jobs lost turns out to be smaller than that, the stock market could see another strong rally tomorrow. If the employment report is worse than expected, any selloff in the market could be used as an opportunity for traders with too much cash on the sidelines to try to buy stocks at lower prices. A positive finish on the heels of a bad employment number would probably not surprise many on Wall Street.

While we would not be aggressive buyers on weakness, we think that covered call investors might want to have exposure to this market due to the positive technical action since July 10. Covered call investors who do have open positions should consider using puts as protection in case the rally finally experiences a correction.

Sick & tired of losing money in the markets?

2009-08-06T13:57:00.001-07:00

Well, there is a flexible Strategy for All Situations!

For a long time, I've felt like the cat who caught the canary. I've been using stock options this past decade, and realized years ago what a strategic, useful, and profitable tool they can be -- even for a long-term stock investor. While options earn returns in the near term, measured in months or a few years, your stocks can be left alone to generate returns over many years, so you have the best of both investing worlds: near-term and long-term gains.

But that's not all. With sensible options strategies, you can earn extra returns on your favorite stocks whether they go down or stay in a range for months. You can also set up strategies to buy more shares of your favorite companies at lower prices, and get paid a profit if your buy price doesn't come along. On the flip side, when you're ready to sell a stock, options can net you a higher sell price on your shares, or pay a profit even if your desired sell price hasn't materialized yet. These are just two simple examples -- there's actually an options strategy for just about any situation imaginable.

Stocks, meanwhile, are a binary investment: They only go up or down. And they're meant to be long-term investments. Options are a more flexible tool, offering profits in a wide variety of situations, usually measured in months. Still have doubts? Let's run through a few examples.

Buying a stock cheaper

Oracle (Nasdaq: ORCL) was recently trading above $21 per share. Assume you would like to buy shares of the software giant, or add to your existing shares, but only at a lower price. Rather than sit and hope that a better deal comes along, you could write ("sell to open") put options expiring in January 2010 with a $20 strike price. These options will pay you about $1.50 per share today, and that money is yours to keep. If you write one contract, you'll be paid $150 before commissions because each option contract represents 100 shares of the stock.

So, you write the option, get paid the premium, and then wait. If Oracle is below $20 by your option's January expiration date, you'll be "put" the shares into your account -- in other words, you get to buy the shares and own them for the long haul. You still keep the $1.50 per share you were paid to write the options, so your actual buy price on the stock is just $18.50, or more than 10% below today's price. Well done!

Now, if Oracle is above $20 by expiration, you just keep the $1.50 per share (which equates to a 7.5% return on your potential $20 buy price in under six months), the option expires, and you can consider your next move -- perhaps writing more put options for more income and another shot at buying Oracle cheaper. As long as you believe in Oracle and the valuation you're targeting, you can do this strategy repeatedly. But if you think Oracle is going to keep trending higher, you may want to own some shares, too.

There's nothing unusually risky about this put-writing strategy as long as you have the means to buy the stock if it declines. Mathematically, put-writing is less risky than buying a stock outright at today's higher price. The strategy is simply a way to buy a company you like if it declines to your desired price or lower by your option's expiration, or to be paid income if not. If you think, for example, that Procter & Gamble (NYSE: PG) is a good business at a good price, then writing puts on the stock is a sensible strategy, one that will could pay you regularly, or (if P&G declines enough) end up netting you shares of P&G at a lower, better buy price.

The two main risks: The stock you're targeting soars, and you don't own any shares yet (which is why we often suggest owning at least a partial position, along with writing puts); or, the stock tanks far below your net buy price. So selling puts might not be a great strategy for purchasing binary outcome stocks -- startup biotechs like Dendreon (Nasdaq: DNDN) and solar stocks such as SunTech Power (NYSE: STP) come to mind.

Ready to sell a stock

For this example, let's say you're ready to sell a stock if the right price comes along. Assume you own at least 100 shares of Amazon.com (Nasdaq: AMZN), recently trading at $85. If shares were to reach $95 soon, you'd think they were overpriced, and you'd happily take your profit and go. Today, you could write $95 strike price call options on Amazon that expire in January 2010, and be paid $5 per share. That money is paid to you now and yours to keep.Assume the stock ends the January expiration date anywhere below $95. You keep that $5 per share (which equates to a nearly 6% yield on the stock's current price, earned in under 6 months), and you keep your shares, too. As the options expire, you can consider your next move, perhaps writing new covered calls for another payment.

However, if Amazon is at or above $95 by the expiration date your shares are "called" away from your account, sold at $95. You still keep the $5 per share, so your effective sell price is $100, a price you believe overvalues the stock. You've actually earned additional profits while selling a stock you wanted to sell anyway. The main downside to covered calls: If Amazon.com soars to any price above $100 by January, you would still be on the hook to sell your shares at a net $100. But if Amazon.com goes down, at least your covered calls earn you a profit while you wait for it to recover.

Options are strategic tools, not speculation

If you use the handle of a screwdriver to attempt to turn a screw, you won't be happy with the results. Like any tool, your outcome with options depends on how you use them. Options are great tools when used strategically, utilizing what you already know about a good business and its valuation. Warren Buffett has written put options (just like our first example on Oracle) to buy shares of Coca-Cola (NYSE: KO) cheaper long ago, and recently he was writing puts on Burlington Northern (NYSE: BNI) to buy more shares.

U.S. Market Report, August 5, 2009

2009-08-05T18:06:00.001-07:00

Weak economic reports kept the major U.S. stock indexes in negative territory for most of the day. Before the market opened ADP said that 371,000 private-sector jobs were lost in the U.S. last month. That was more than the decline of 335,000 Wall Street was expecting. Another firm that monitors employment conditions, Challenger, Gray & Christmas, reported that planned job cuts increased 31 percent in July. Those reports spooked investors ahead of the July nonfarm payroll job report that will be released by the Labor Department before the stock market opens on Friday. It is expected to show a loss of 320,000 jobs in July after a loss of 467,000 the month before.

With stocks already trading lower on the open, there were two more economic reports a half-hour into the session. One of them was positive, with June factory orders showing a gain of 0.4 percent instead of an expected loss of 0.8 percent. But traders focused more on the negative one, the July Non-Manufacturing Index calculated by the Institute for Supply Management. At 46.4, it was well below the 48 reading economists were expecting to see. In the press release, the ISM said that comments from a majority of the companies that responded to its survey "reflect a sense of uncertainty and cautiousness about business conditions."

Investors were showing sense of uncertainty today, as they drove the Dow lower by as much as 114 points in the first 50 minutes and trimmed 31 points from the Nasdaq Composite. The major indexes spent the rest of the day moving back to the upside. The S&P 500, which was down by 11 points this morning, turned positive for a short period with a half-hour to go. It retreated again and ended the day with a loss of 2.93 points. The Dow trimmed its loss to single digits, but weakened late to close down by 39.22 points. The Nasdaq lost 18.26 points on the day.

Today's pullback was normal after the recent gains. The attempt to turn moderate to large losses into gains showed that there are still a lot of market participants who are looking to buy any dips in the indexes. Some of that buying power is coming from money managers who have had too much parked on the sidelines during the recent historic run-up in stocks. The S&P 500 has gained 48 percent since slumping to a 12-year low on March 9. That's its fastest run-up in a five-month period since the days of the Great Depression.

If there is some bad economic news and the market sells off for a day or two, there could still be plenty of willing buyers. If the government employment report on Friday morning is better than expected it could help to propel stock indexes even higher. We think that covered call investors who are in the market right now should consider insuring all positions with puts in case the buying pressure suddenly turns into selling pressure, for whatever reason.


Stock Symbol	Price	Price Chg	Vol % Chng


TLEO	19.57	+0.64	+626


PEGA	32.41	+2.50	+319


NEU	83.54	+4.42	+137


STEC	37.91	+2.94	+112


SXCI	43.40	+0.63	+102