Oil Search (OSH) – Calendar Spread

This trade idea is a calendar spread, with the trade constructed by selling an at the money Put and buying a longer dated option one strike below.

The aim with this trade is to continually sell options against the longer dated option to return income as the shorter dated options will decay longer than the bought ones. Also we receive a much higher percentage in income (premium) selling each month that what we have to pay for the longer dated option.

Explanation – Calendar Spread

Calendar spreads are also known as time spreads because they involve options with different expiration months. In simplest terms, a calendar spread involves buying longer dated option expiration and selling a shorter dated option with the same strike price.

This strategy works well as the shorter dated options nearly reduces the cost of the bought put. The risk is relatively low, compared to the potential return if the share price moves towards the strike prices. If the trade isn’t successful the bought put can be sold for its remaining value at the sold month’s expiry, or held until its own expiry waiting for a decrease in share price. If the stock remained still, the position would have a profit as the bought put will have remaining time value, when the shorter dated option completely expires. Once the sold position expires we would look at selling another put to further reduce the entry cost/risk.

If you would like the to find our more details about this trade including strike prices and risks, please contact Eden Hage on 1300 368 316 or eden.hage@tricom.com.au.

Tricom Today ASX Stock Market Report 24-2-09

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The market is down 40 doing a bit better than the 78 point fall predicted by the SFE Futures this morning post the significant 3% plus falls in the US overnight. Property down the most again down 3.2% – Goodman Group down 12% early – had its recommendation cut by Macquarie Group yesterday after a recent profit warning. Results tomorrow. BHP and RIO down 1.6% and 1.8%. Industrials down 2.3% – Wesfarmers and Fosters down having gone ex dividend this morning. AMC and ASX also Ex dividend. Sonic Healthcare down 1.5% early on posting 1H NPAT up 21% to $136.5m. Aristocrat Leisure up 2.0% on the open posting FY NPAT of $101.2m down 59.1%, with final dividend to be 10c (already had a profit warning). Spark Infrastructure Ltd down 1.19% after posting a large fall in FY profit. Financials down 1.9% – Suncorp-Metway down 6% early on posting 1H NPAT of $258m, down 33% on-year with the CEO leaving next week. Macquarie Countrywide posted an in-line 1H NPAT loss of $714.1m with an interim distribution of 4c down 12% on the open. Macquarie Media booked a 1H net loss of $127.3m down 2.7% early. CBA is down 2.5% and underperforming the other banks today having announced they’d buy $2.25bn of Wizard Home Loan’s portfolio from GE, less than the $4bn worth previously suggested. Resources down 1.5% – Energy stocks
generally down on the lower oil price – Origin Energy up 0.3% as their 50.4% owned Contact Energy (NZ) posted in-line 1H NPAT down to NZ$25.1m. Oil Search Ltd posted FY NPAT up 128% to US$313.4m down 0.2%. Australian Worldwide Exploration Ltd posted a 15% rise in 1H NPAT up 1.8%. Gold stocks mixed despite lower gold price – Sino Gold Mining posted net loss of $101.4m for the half up 1.6% early. St Barbara down 1.2% as it completes its share placement of $75m at 41c/share and posts 1H NPAT loss of 41.2m.