Posted 12th October 2009

Trade Idea

WES – Wesfarmers

• Over the next couple of months Wesfarmers looks like it has legs to reach the broader price target of $29.50 - $30.00. Around a 12% upside.
• Key leading indicators for global demand (both US consumer confidence and the Philly Fed Manufacturing Expectations Index) are improving.
• Strengthening domestic economic recovery puts positive bias on AUDUSD through increased rate differentials
• This is a Net Positive for Aust. Resources (commodity prices)
• Also increases buying power for importers.
• The stock has recently undergone two price consolidations; the patterns are clearly discernable below.
• The symmetrical triangle is a broad based continuation pattern which confirmed its status early July 09.
• The price target of $26.50 was reached quick smart with the price consolidating over the past two and half months.
• This head and shoulder pattern now looks almost complete and appears ripe for an entry on the break of the neckline.

We would anticipate the recent low of  $25.35 to hold and as such would set stops just below at $25 on close. (ie. To within 1% of prior low)

Straight Stock

• Delta 1.
• Buy Stock at current levels in anticipation of broader move or on confirmation of a break through with conviction.
• Target $30 ie. profit 12%. Margin for leverage.
• Could even write calls above if stock moves in the short term to generate extra cash.

Options

Aggressively Bullish:

• Straight Call, Buy WES DEC 2760,
• Delta 0.40, Theta 1.0,  66 days till expiry. (a week before Xmas)
• Estimated Cost: $0.80c,
•  If one assumes the move occurs by mid Nov then estimated value would be around $2.40 - $2.60

1. At $30, call would be $2.40 in-the-money + half a percent (15c) time value if that, ie $2.55
2. Or a move of 323c with an ave delta over that period of 0.6 is 194c increase in value over the initial premium of 80c less 30c in time decay
3. Ie. 80c + 194c – 30c = $2.44
4. All this is subject to constant volatility, rates, of course….highly unlikely, but an increase in rates by the RBA or volatility is favourable on the calls anyway.
5. $0.80c to $2.40+  I’d like that any day of the week. Stock has to move of course.

Moderately Bullish:

• A bullish Call Spread (buy/sell Nov Calls)
• Feature: limited downside, no margin requirement, and cheaper entry because second leg sale partially funds initial buy.
• Ring to discuss strikes 

Posted  Friday, 23 October 2009


Subject: Trade Idea - WESfarmers. Follow Up.


As a follow up to our Wesfarmers trade idea on Monday. A good quarterly report released today has been received well by the market pushing the price up 7% today.

The aggressive call buy  WES DEC 2660 was the most rewarding as it had the most leverage. At 80c on Monday it is currently around $1.50 - $1.65 (stock basis 28.37).  A move of around 90%.

Options

Aggressively Bullish:

• Straight Call, Buy WES DEC 2760,
• Delta 0.40, Theta 1.0,  66 days till expiry. (a week before Xmas)
• Estimated Cost: $0.80c,
•  If one assumes the move occurs by mid Nov then estimated value would be around $2.40 - $2.60

1. At $30, call would be $2.40 in-the-money + half a percent (15c) time value if that, ie $2.55
2. Or a move of 323c with an ave delta over that period of 0.6 is 194c increase in value over the initial premium of 80c less 30c in time decay
3. Ie. 80c + 194c – 30c = $2.44
4. All this is subject to constant volatility, rates, of course….highly unlikely, but an increase in rates by the RBA or volatility is favourable on the calls anyway.
5. $0.80c to $2.40+  I’d like that any day of the week. Stock has to move of course.

Important Notice

This publication has been prepared for on behalf of and issued by Alpha Equities & Futures Limited (ACN 131 376 415) (AFSL 327075) (referred to as Alpha).  Alpha makes the statements in this Important Notice Section for itself and on behalf of each of its related bodies corporate and their respective officers, agents and employees from time to time (collectively, Alpha).  This publication is provided only on the following basis.  If you retain and use this publication, each member of Alpha relies on your acceptance on this basis. 

References in this publication to data may rely on third parties over which Alpha has no control and for which Alpha accepts no responsibility.  Whilst all of the information and statements contained in this publication have been prepared with all reasonable care, no responsibility or liability is accepted by any member of Alpha for any errors or omissions or misstatements however caused or arising.

Any opinions, forecasts or recommendations reflect the judgment and assumptions of Alpha on the basis of information as at the date of publication and may later change without notice.

This publication is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.  This information might contain unsolicited general information only, without regard to any investor’s individual objectives, financial situation or needs.  It is not specific advice for any particular investor.  Before making any decision about the information provided, you must consider the appropriateness of the information in this document, having regard to your objectives, financial situation and needs and consult your adviser.  Alpha is not aware that any recipient intends to rely on this publication and Alpha is not aware of the manner in which a recipient intends to use it.

Investment in financial products involves risk.  Past performance of financial products is no assurance of future performance.  Investors should take specific advice on the basis of current information relevant to their particular circumstances, and have regard to the risk that the future performance of investments will differ from past performance.

This publication is not for public circulation or reproduction whether in whole or in part and is not to be disclosed to any person other than the intended recipient, without obtaining the prior written consent of Alpha.

Each member of Alpha excludes to the full extent permitted by law all liability of whatever kind, whether in negligence, tort, contract or under fiduciary duties strict liability or otherwise, for any loss or damage of any kind (including without limitation indirect, incidental or consequential loss or damage, whether reasonably foreseeable or not) however arising in relation to the publication of this document, including any reliance on it or making any transaction in respect of any financial products or strategy mentioned in it. 

Each member of Alpha may, from time to time hold positions in any financial products included in this report (or derivatives of them) and may buy or sell such financial products or derivatives or engage in other transactions involving such financial products or derivatives, as principal or as agent for clients. A member of the Alpha from time to time may earn brokerage, fees or other benefits from financial products mentioned in this publication or derivatives of them.  These will be disclosed, as required, in the ordinary course of providing financial services

No member of the Alpha Group has, or will receive, whether directly or indirectly, any commission, fee, benefit or advantage, whether pecuniary or otherwise in connection with making any recommendation contained in this report.  A member of Alpha or a consultant to it may, from time to time perform paid services for the companies whose financial products are the subject of recommendations in this report. Under no circumstance, however, has any member of Alpha been influenced, either directly or indirectly, in making any recommendation contained in this report.

All intellectual property rights in this report are, and at all times remain, the property of Alpha Equities & Futures Limited, unless otherwise attributed.


© Alpha Equities Limited 2009