Sunday 11 April 2004
table of contents . . .
summary of recommendations
summary of recommendations
1
Stock
Recommendation Current Price Target
Stop Loss
Time Frame
how to use this newsletter
1
GGN
Buy
29.5 cents
55 cents
21 cents
12 months
sample page
2
TNE
Buy
55 cents
85 ents
43.5 cents
12 months
HVN
Trade Dividend
$2.84
See pg 9
See pg 9
2-4 weeks
CBA
Trading SELL
$32.45
See pg 11
See pg 11
1 week
QBE
Lock in Profits
$11.29
See pg 12
See pg 12
1 month
STOCK ON THE MOVE
gallery gold limited
3
technology one limited
3
portfolio management
4
stock on the move distributions
13
INSTALMENT INVESTOR
how instalment warrants work
7
harvey norman limited
9
OPTION/WARRANT TRADING
technical analysis
10
commonwealth bank of australia
11
WRITING COVERED CALLS
qbe insurance group limited
DISCLAIMER
HOW to use this newsletter
The quick guide on how to use the Investment Wise newsletter.
There are 2 categories, the novice stock market trader (please follow steps on
the left hand column) and the advanced stock market trader (please follow steps
on the right hand column).
novice trader
advanced trader
step 1
step 1
Read the sample page – How to
interpret our Stock on the Move
picks on page 2
Read pages 7 to 12. These are
relevant to your level of trading
12
17
step 2
step 2
Read pages 2 to 6. These are relevant
to your level of trading
Read the Disclaimer on page 17
step 3
Read the Disclaimer on page 17
A Publication of PPS Investments Pty Ltd A.C.N 097 446 369
Australian Financial Services Licence no. 246670. © Copyright 2001-2004
1
Investment Wise
The Stockmarket Edge
HOW to interpret our Stock on the Move picks
Investing in Small-Mid Cap Stocks to achieve Big Returns
Expected Knowledge:
Level of Difficulty:
None
All Levels (i.e. Beginner, Intermediate and Advanced)
Every week emerging stocks that are about to make a big move are highlighted
with a suggested investment strategy. Even in the worst Stock Market conditions,
there are always stocks that will appreciate in value. Traditionally, this has been
the aim of Fund Managers around the World – To Find Market
Outperformers. Now, you too can access recommendations that have a proven
record of success. The sample shown on the right is the typical format of a
“Stock on the Move” recommendation. Refer to the explanations below on how
to interpret the information provided.
SAMPLE Stock on the Move Recommendation
Peptech Limited
Stock Exchange Code
PTD
Recommendation
BUY
First Recommended
05-01-2001
Current Share Price
$1.87
A unique code used by the Australian Stock
Exchange to identify listed companies
12 Month Price Target
$3.50
Suggested Stop Loss
$1.54
Intended investment advice placed on a
particular stock
Earnings per Share (cents)
21.20
Market Capitalisation ($)
278.6 M
Date at which the stock is/was first
recommended as a “BUY”
How many shares do I buy ?
Current Share Price
Price that the stock last traded at the time of
writing
Trade
Size
12 Month Price Target
The expected level of that the stock is
expected to reach within the next 12 months
Stock Exchange Code
Recommendation
First Recommended
Suggested Stop Loss
Amount ($) you are prepared to lose
=
Market Price − $1.53
PTD
3.0
Price at which investors should sell their
shares if the stock trades below indicated level
2.5
2.0
Earnings per Share (cents)
Market Capitalisation ($)
How many shares do I buy ?
Measures the earnings that are attributed to
each equivalent ordinary share over a 12
month period
The total number of shares on issue multiplied
by their market price. This can be applied to
work out the market value of one company
Decide the dollar amount you are prepared to
lose if the stock trades below the Suggested
Stop Loss (typically 2-3% of the total amount
of money you have to invest). If you can
afford to lose $350, then the maximum
number of shares which should be purchased
is:
$350 ÷ (Market Price − Stop Loss Sell Price)
1.5
1.0
0.5
1994
1995
1996
1997
1998
1999
2000
2
Peptech (PTD) researches, develops, produces and
markets peptides, antibodies and related products for
the pharmaceutical, veterinary and agricultural
industries. The Company's peptide-based products are
used for the treatment of diseases in the areas of
cancer, inflammation and infection in humans and the
management of animal health and fertility.
This report was produced by PPS Investments Pty Ltd (ACN 097 446 369), which holds an Australian Financial Services Licence (Licence no. 246670). PPS Investments Pty Ltd believes that the information and
material contained in this report has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of this information and it should not be relied upon as a substitute
for the exercise of independent judgment. Except to the extent required by law, PPS Investments Pty Ltd does not accept any liability for any loss arising from any use of the material contained in this report.
DISCLOSURE: PPS Investments Pty Ltd may hold and/or effect or have effected a transaction upon its own account in the investments referred to in this report or any related investment before the material is
published. Additionally, PPS Investments Pty Ltd may, within the previous twelve months, have provided advice or investment services to the companies mentioned in this report. WARNING: This report is
intended to provide general securities advice only. It is not prepared having regard to any particular investor’s investment objectives, financial situation and/or particular needs. This report may not be reproduced,
distributed or published for any purpose, unless the person or entity seeking to do so is expressly authorised in writing to do so by PPS Investments Pty Ltd.
Sunday 11 April 2004
© Copyright 2001-2004
2
Investment Wise
The Stockmarket Edge
Stock on the Move
Technology One Limited
Gallery Gold Limited
Stock Exchange Code
GGN
Stock Exchange Code
TNE
Recommendation
BUY
Recommendation
BUY
First Recommended
11-04-2004
First Recommended
11-04-2004
Current Share Price
29.5 cents
Current Share Price
55 cents
12 Month Price Target
55 cents
12 Month Price Target
85 cents
Suggested Stop Loss
21 cents
Suggested Stop Loss
43.5 cents
Earnings per Share (cents)
-2.27
Earnings per Share (cents)
2.57
Market Capitalisation ($)
107.9 M
Market Capitalisation ($)
164.3 M
How many shares do I buy ?
Trade Size
How many shares do I buy ?
Amount ($) you are prepared to lose
=
Trade Size
Market Price − 20.5 cents
Note. Amount ($) you are prepared to lose is typically 2-3%
of the total amount of money you have to invest
=
Amount ($) you are prepared to lose
Market Price − 43 cents
Note. Amount ($) you are prepared to lose is typically 2-3%
of the total amount of money you have to invest
GGN
TNE
0.40
1.50
1.20
0.30
0.90
0.20
0.60
0.30
0.10
2000
2001
2002
2003
2004
1999
2001
2002
2003
2004
Gallery Gold Ltd (GGN) is an emerging gold exploration and
producing company primarily focused on the Mupane Project in
Botswana. With production of 100,000oz of gold expected to
start in October 2004 from the Mupane Project, GGN is in a
strong position to leverage this profitable mine. Strong cash
flow is expected which will help the exploration of a number of
different areas and metals including nickel, platinum, copper
and diamonds. The recent merger with Spinifex has increased
GGN’s exploration portfolio immensely and the Buckreef
Rwamagaza Project in Tanzania is scheduled for a bankable
feasibility study after already confirming resource estimates of
1.1m ounces of gold. GGN has strong institutional support and
with major shareholder Lion Selection Group at the helm, GGN
deserves a market re-rating as it goes from explorer to producer
Technology One Ltd (TNE) is focused on the design,
development, implementation and support of software
applications for the corporate and government sectors. TNE has
two main divisions, Software Engineering and Service Delivery
and judging by the amount of R&D spend (20% of revenues),
TNE is committed to delivering the leading solutions to its
customers using Client Server, Internet and eBusiness
Technologies. TNE has as an impressive list of customers
including, Australian Broadcast Authority, Melbourne Water
Corporation and the Department of the Senate. The financials
of TNE are solid, recently producing a 16% increase on net
profit before tax of $5.5m for the half year ending December
2003. With a pick up in the IT sector expected in 2005, TNE
has strong fundamentals, including a dividend yield of 5% to
in the second half of this year. A ‘speculative buy’
ensure its continued growth in the next 24 months.
Sunday 11 April 2004
© Copyright 2001-2004
3
Investment Wise
The Stockmarket Edge
Portfolio Management
How to manage recommendations from Stock on the Move like the Professionals
The key to successful trading is cutting losses quickly and holding
onto winning trades. Very often investors sell out of winning
trades, only to see the stock trade a lot higher. However, it is more
disturbing to see an unrealised profit of 60% turn into a losing
trade. It is very difficult to pick market tops and bottoms. We use
“Profit Stops” to help investors manage their investments. Profit
Stops are like Safety Nets that protect unrealised profits. The
chart on the right demonstrates our use of Profit Stops. The Initial
Stop Loss is raised as the stock trades higher to lock in profits.
Notice that as the stock trades higher, the Profit Stop is revised to
a higher level. Finally, as the stock trades below the Revised
Profit Stop, we sell the stock to realise a profit of 16%.
CEY
1.1
1.0
Revised Profit Stop
P
0.9
Sell
Profit Stop Setup
to Protect Gains
0.8
O
Buy
Initial Stop Loss
0.7
0.6
This Portfolio Management section is how we help you manage
your investments in Stock on the Move. New Stock on the Move
picks featured this week have also been included and updated Stop
Loss and Profit Stops are highlighted. The Profit Stop always
starts off as the Initial Stop Loss. We recommend that investors
Volume
300
x1000
2000
November December2001
February March
April
May
June
sell the stock should the share price trade below the Stop Loss or
Profit Stop indicated in the table below.
Buy Date
Stock
Model Qty
Buy Price
Stop Loss
Profit Stop
Target
Last Trade
Profit/Loss
% Return
22-12-02
GRR
9,000
$0.220
−
$0.590
$0.400
$0.670
+$4,050.00
+204.55%
17-01-03
ALK
3,000
$0.415
$0.345
−
$0.650
$0.355
-$180.00
-14.46%
14-02-03
BLD
1,600
$4.510
−
$6.020
$6.000
$6.370
+$2,976.00
+41.24%
14-02-03
COA
1,700
$2.230
−
$3.160
$3.000
$3.300
+$1,819.00
+47.98%
14-03-03
HLY
840
$5.380
−
$6.520
$7.700
$6.650
+$1,066.80
+23.61%
11-04-03
ADB
1,200
$7.600
−
$8.300
$9.200
$8.360
+$912.00
+10.00%
02-05-03
BWP
3,500
$1.440
$1.430
−
$1.700
$1.600
+$560.00
+11.11%
09-05-03
EPT
8,300
$0.170
−
$0.730
$0.350
$0.790
+$5,146.00
+364.71%
16-05-03
SPC
1,800
$1.380
$1.120
−
$2.000
$1.340
-$72.00
-2.90%
06-06-03
ALZ
1,600
$1.650
$1.360
−
$2.000
$1.700
+$80.00
+3.03%
20-06-03
MGI
2,500
$1.630
$1.440
−
$2.000
$1.720
+$225.00
+5.52%
27-06-03
WTP
5,200
$0.440
$0.350
−
$0.800
$0.730
+$1,508.00
+65.91%
04-07-03
ARQ
3,500
$0.690
$0.560
−
$1.300
$0.910
+$770.00
+31.88%
11-07-03
HCN
1,700
$0.800
$0.520
−
$2.000
$1.200
+$680.00
+50.00%
11-07-03
KYC
2,600
$1.290
$1.110
−
$2.500
$1.460
+$442.00
+13.18%
11-07-03
NLX
4,100
$0.340
$0.225
−
$0.750
$0.295
-$184.50
-13.24%
11-07-03
PLF
1,300
$2.420
$2.060
−
$3.500
$2.420
$0.00
0.00%
Sunday 11 April 2004
© Copyright 2001-2004
4
Investment Wise
The Stockmarket Edge
Buy Date
Stock
Model Qty
Buy Price
Stop Loss
Profit Stop
Target
Last Trade
Profit/Loss
% Return
18-07-03
AHD
820
$2.650
$2.050
−
$4.500
$3.400
+$615.00
+28.30%
25-07-03
SYM
2,300
$1.120
$0.920
−
$1.600
$1.250
+$299.00
+11.61%
01-08-03
IFM
1,800
$0.990
$0.730
−
$1.500
$0.890
-$180.00
-10.10%
08-08-03
APN
1,060
$3.820
$3.360
−
$5.500
$3.840
+$21.20
+0.52%
15-08-03
CTO
7,500
$0.165
$0.100
−
$0.350
$0.160
-$37.50
-3.03%
15-08-03
PRG
1,200
$2.380
$2.000
−
$3.250
$2.860
+$576.00
+20.17%
22-08-03
LCL
2,200
$0.890
$0.680
−
$1.500
$0.820
-$154.00
-7.87%
29-08-03
BTC
2,400
$0.530
$0.330
−
$0.900
$0.460
-$168.00
-13.21%
29-08-03
SGN
830
$3.340
$2.750
−
$4.500
$3.260
-$66.40
-2.40%
05-09-03
OKN
1,160
$1.240
$0.820
−
$2.300
$1.230
-$11.60
-0.81%
05-09-03
SRL
2,400
$0.650
−
$0.980
$1.500
$1.170
+$1,248.00
+80.00%
12-09-03
MAH
4,100
$0.270
$0.155
−
$0.600
$0.295
+$102.50
+9.26%
19-09-03
CPB
1,100
$5.690
$5.250
−
$7.500
$6.130
+$484.00
+7.73%
26-09-03
RBK
2,500
$0.500
$0.305
−
$1.100
$0.700
+$500.00
+40.00%
03-10-03
HER
1,900
$0.570
$0.320
−
$1.500
$0.950
+$722.00
+66.67%
10-10-03
NDC
7,600
$0.190
−
$0.355
$0.450
$0.400
+$1,596.00
+110.53%
17-10-03
CAB
870
$3.110
$2.550
−
$4.000
$3.320
+$182.70
+6.75%
17-10-03
SOL
610
$6.650
$5.850
−
$9.000
$6.420
-$140.30
-3.11%
24-10-03
VGL
1,300
$1.260
$0.900
−
$2.300
$1.290
+$39.00
+2.38%
31-10-03
HIG
3,300
$0.365
$0.220
−
$0.900
$0.430
+$214.50
+17.80%
07-11-03
SMC
5,000
$0.265
$0.170
−
$0.600
$0.250
-$75.00
-5.66%
14-11-03
DOW
400
$3.800
$2.640
−
$6.000
$3.290
-$204.00
-13.42%
14-11-03
TEN
1,000
$2.780
$2.310
−
$4.000
$2.820
+$40.00
+1.44%
21-11-03
LNN
740
$5.860
$5.200
−
$6.800
$6.000
+$103.60
+2.39%
28-11-03
MNR
1,400
$1.090
$0.760
−
$1.800
$1.190
+$140.00
+9.17%
05-12-03
MCW
2,600
$1.760
$1.580
−
$1.900
$1.740
-$52.00
-1.14%
05-12-03
MIA
4,500
$0.700
$0.600
−
$1.110
$0.750
+$225.00
+7.14%
12-12-03
SGS
1,600
$1.250
$0.950
−
$2.500
$1.050
-$320.00
-16.00%
19-12-03
CCL
890
$6.150
$5.600
−
$7.500
$6.740
+$525.10
+9.59%
19-12-03
RHC
710
$4.600
$3.910
−
$6.500
$5.080
+$340.80
+10.43%
09-01-04
IRE
1,300
$2.650
$2.300
−
$4.500
$3.040
+$507.00
+14.72%
09-01-04
MCC
1,500
$1.420
$1.100
−
$2.500
$1.540
+$180.00
+8.45%
16-01-04
MPI
8,700
$0.120
$0.064
−
$0.250
$0.120
$0.00
0.00%
16-01-04
SMX
7,100
$0.265
$0.200
−
$0.550
$0.250
-$106.50
-5.66%
23-01-04
PDN
15,000
$0.059
−
$0.125
$0.100
$0.135
+$1,140.00
+128.81%
23-01-04
VPE
38,000
$0.025
$0.013
−
$0.050
$0.021
-$152.00
-16.00%
30-01-04
EXS
5,800
$0.250
$0.170
−
$0.400
$0.265
+$87.00
+6.00%
30-01-04
TBC
7,700
$0.220
$0.160
−
$0.400
$0.215
-$38.50
-2.27%
06-02-04
ABI
4,000
$0.360
$0.240
−
$0.800
$0.370
+$40.00
+2.78%
06-02-04
FLX
19,000
$0.072
$0.047
−
$0.150
$0.076
+$76.00
+5.56%
13-02-04
EOS
980
$2.830
$2.300
−
$4.500
$2.600
-$225.40
-8.13%
Sunday 11 April 2004
© Copyright 2001-2004
5
Investment Wise
The Stockmarket Edge
Buy Date
Stock
Model Qty
Buy Price
Stop Loss
Profit Stop
Target
Last Trade
Profit/Loss
% Return
13-02-04
PMM
2,100
$1.520
$1.300
−
$2.500
$1.510
-$21.00
-0.66%
20-02-04
MOS
6,200
$0.250
$0.175
−
$0.500
$0.240
-$62.00
-4.00%
20-02-04
OIL
3,800
$0.475
$0.350
−
$1.000
$0.440
-$133.00
-7.37%
27-02-04
BBG
890
$7.430
$6.880
−
$9.500
$7.600
+$151.30
+2.29%
27-02-04
IRI
5,200
$0.270
$0.175
−
$0.650
$0.275
+$26.00
+1.85%
05-03-04
AMM
7,700
$0.190
$0.130
−
$0.400
$0.160
-$231.00
-15.79%
05-03-04
VTI
2,300
$0.590
$0.380
−
$1.000
$0.500
-$207.00
-15.25%
12-03-04
CIY
750
$4.450
$3.800
−
$6.500
$4.900
+$337.50
+10.11%
12-03-04
MPH
2,500
$0.670
$0.480
−
$1.200
$0.690
+$50.00
+2.99%
19-03-04
HPX
1,900
$1.620
$1.370
−
$2.300
$1.550
-$133.00
-4.32%
19-03-04
ITE
2,800
$0.330
$0.160
−
$0.800
$0.325
-$14.00
-1.52%
26-03-04
CLT
1,400
$1.260
$0.930
−
$2.500
$1.310
+$70.00
+5.38%
26-03-04
KZL
2,000
$1.130
$0.890
−
$1.700
$1.050
-$160.00
-8.99%
02-04-04
CKR
3,300
$0.700
$0.560
−
$1.000
$0.710
+$33.00
+1.43%
02-04-04
HWE
1,900
$1.000
$0.750
−
$1.800
$1.040
+$76.00
+4.00%
08-04-04
GGN
5,500
$0.295
$0.210
−
$0.550
$0.295
$0.00
0.00%
08-04-04
TNE
4,100
$0.550
$0.435
−
$0.850
$0.550
$0.00
0.00%
NOTE. Sto cks that trade b elo w th e Stop Loss (or Profit Stop) are removed from
the above table. The Model Qty is based on $500 initial stop losses and there is
no guarantee that the above returns can actually be achieved. Returns may be
under-stated since dividends and other distribution income are not included in
the above calculations. Divid end s and o ther distrib utio n in co me are listed o n
page 13.
THIS CONCLUDES THE SECTION FOR NOVICE INVESTORS.
PLEASE READ THE DISCLAIMER ON PAGE 17.
Sunday 11 April 2004
© Copyright 2001-2004
6
Investment Wise
The Stockmarket Edge
Instalment Investor
!! WARNING !!
EXAMPLE
This section is intended for INTERMEDIATE-TOADVANCED INVESTORS ONLY. Instalment warrants are
derivative products and are extremely risky. The listed products
have been sorted in order of gearing. Investors should be aware
that the products listed at a greater discount incur more interest
charges and there is no guarantee that investors will profit from
investing in these products. Investors should also seek advice
from an Accredited Derivatives Adviser and a Tax Specialist.
Two investors are considering a $10,000 investment in National
Australia Bank. Investor-A decides to invest in the shares and
Investor-B decides to invest in the instalment warrants to take
advantage of the enhanced dividend yield and franking credits.
Assuming National Australia Bank is trading at $30.00 and
pays an annual dividend of $1.35 consider the scenarios below.
National Australia Bank Instalment
Second Payment (Loan Amount)
Capital
Interest (8.00% pa)
Borrowing Fees
Instalment Warrant Price
Blue Chip Stocks – UP TO 80% OFF !
Level of Difficulty:
Expected Knowledge:
Intermediate-to-Advanced
ASX Instalments Booklet
(Enjoy dividends before paying
for your shares)
$16.00
$14.00
$1.28
$0.40
$15.68
At January 20X1, say NAB is trading at $30.00:
Blue Chip stocks have always been preferred investments due
to their ability to produce solid earnings even in the worst
economic conditions. Investors can use Instalment Warrants to
gain exposure to Blue Chip stocks without the high capital
outlay that is normally required. Instalment warrants are like
buying shares on lay-by but the investor receives the full
dividend and franking credits. Investors pay approximately 50%
of the current underlying share price, which means the
remaining portion is borrowed from the issuer. A pre-paid
interest component is built into the initial price and depreciates
over the life of the instalment warrant.
•
Investor-A buys 333 NAB shares at $30.00
Dividend Yield = ($1.35 ÷ $30.00) x 100% = 4.56%
•
Investor-B buys 637 NAB instalments at $15.68
Dividend Yield = ($1.35 ÷ $15.68) x 100% = 8.61%
At January 20X2, say NAB is trading at $33.00:
•
Investor-A sells 333 NAB shares at $33.00
Profit = Capital Gain + Dividend Income
= ($33.00 − $30.00) x 333 + $1.35 x 333
= $1,448.55 or 14.49%
•
Investor-B sells 637 NAB instalments at $17.00
Profit = Capital Gain + Dividend Income
= ($17.00 − $15.68) x 637 + $1.35 x 637
= $1,700.79 or 17.00%
NOTE. Pre-Paid interest is initially built in to the price of the
instalment warrant and deducted in the form of time decay over
its trading life. At maturity, all interest has been repaid (i.e. no
time value) and the price of the instalment warrant is worth
($33.00 − $16.00) = $17.00.
Sunday 11 April 2004
© Copyright 2001-2004
7
Investment Wise
The Stockmarket Edge
Instalment Trading Strategy
Trading the Dividend of Blue Chip Stocks
Blue Chip stocks generally pay dividends to their shareholders.
For this reason, Blue Chip stocks are very popular amongst
investors when the stock is close to paying a dividend. To be
eligible for the dividend, investors must own the stock before
the ex-dividend date. This requirement often creates a lot of
interest in the shares as investors buy the stock in order to
receive the dividend.
!! WARNING !!
This section is intended as a CASE STUDY ONLY. The
example discussed here is historical and is not an indication of
future returns. All prices have been backdated and are
theoretical results. There is no guarantee that such returns can
actually be achieved. Instalment warrants are derivative
products and are extremely risky. Investors should also seek
advice from an Accredited Derivatives Adviser and a Tax
Specialist.
The Trading Strategy - ANZIPF
ANZIPF is an Instalment Warrant that can be used to take
advantage of leverage, enhanced dividend yields and possibly
franking credits (see your Tax Adviser). The second payment of
ANZIPF is $10.00 and expires on 26 June 2003. The instalment
trading strategy is as follows.
•
Buy ANZIPF leading up to the ex-dividend date
•
Receive entitlement to the dividend of 39 cents
•
Hold ANZIPF for a maximum of 2 weeks after the
ex-dividend date in anticipation that ANZ will recover
its dividend (i.e. Appreciate to share price levels prior
to the ex-dividend date)
•
Sell ANZIPF on dividend recovery (or if ANZ does
not recover its dividend within 2 weeks)
ANZ
SELL
P
ANZ Banking Group Limited
On 17 May 2002, ANZ was expected to trade ex-dividend and
pay a fully franked dividend of 39 cents. This meant that
investors who wished to receive the 39 cent dividend had to
own the shares before 17 May 2002. ANZ was trading at
$19.13 on 8 May 2002 and creating an opportunity to trade the
stock leading up to the ex-dividend date.
O
BUY
V
EX DIVIDEND
The Trade - ANZIPF
•
On 8 May 2002, ANZ was trading at $19.13
ANZIPF Bid:
$9.98
ANZIPF Ask: $10.00
•
On 17 May 2002, ANZ trading ex-dividend for 39cents
•
On 31 May 2002, ANZ trading $19.50
ANZIPF Bid:
$10.30
ANZIPF Ask: $10.32
•
Profit = Capital Gain + Dividend
= ($10.30 − $10.00) + $0.39
= $0.69 or 6.9%
Sunday 11 April 2004
© Copyright 2001-2004
8
Investment Wise
The Stockmarket Edge
Instalment Investor
Harvey Norman Limited (HVN)
HVN last traded $2.81 (at the time of writing). The next exdividend date is expected on 14 April 2004. We believe this
creates a great opportunity to trade instalments to take
advantage of enhanced dividend yields and potentially franking
credits (see your Tax Adviser). Instalment investors may
consider trading the period leading up to the ex-dividend date
and holding for no more than 2 weeks after the ex-dividend date
in anticipation that the stock may recover its dividend.
NOTE. All figures below are quoted in cents. For simplicity,
time decay is assumed constant. Investors should be aware that
cheaper (more geared) products have greater Weekly Interest
Decay. We prefer instalments that are 50% of the share price,
since the interest on the outstanding loan is significantly less.
HVN
3.50
3.00
2.50
2.00
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2004
Feb
Mar
Apr
Code
Strike
Price
Expiry
Bid
Offer
Intrinsic
Value
Pre-Paid
Interest
Weekly Interest
Decay (in cents)
Discount
HVNIMC
125
20-May-04
159
160
156
4
0.7
43.06%
HVNIDA
125
15-Jun-04
158
160
156
4
0.4
43.06%
HVNIYE
200
25-Sep-06
149
154
81
73
0.6
45.20%
HVNIMF
175
18-Nov-04
118
119
106
13
0.4
57.65%
HVNIWF
200
25-May-05
108
110
81
29
0.5
60.85%
HVNIWG
200
06-Dec-04
98
99
81
18
0.5
64.77%
HVNIMT
275
27-May-04
21
22
6
16
2.4
92.17%
Sunday 11 April 2004
© Copyright 2001-2004
9
Investment Wise
The Stockmarket Edge
Option/Warrant Trading
How to Profit from a Rising and Falling Market
Level of Difficulty:
Advanced
Expected Knowledge: ASX Options Booklet (Understanding Options Trading)
ASX Warrants Booklet (Understanding Trading Warrants)
Each day, money moves in and out of the Stock Market. This is the reason why
share prices move up and down. The table below shows our short-term view on
each stock based on Technical Analysis. The highlighted stock is our pick of the
week and a trading strategy is presented in the Option/Warrant Trading Strategy.
!! WARNING !!
This section is intended for ADVANCED
INVESTORS ONLY. Options and warrants are
derivative products and are extremely risky. The
warrants below have been chosen based on our own
selection criteria and there is no guarantee that
investors will profit from investing in the products
listed. Investors should also seek advice from an
Accredited Derivatives Adviser.
Code
Last Trade
Technical Comment
AMP
$5.64
After reaching new highs of $5.80, stock taking a breather before another likely attempt at $6.00
ANZ
$19.05
As long as $18.67 can hold, stock is likely to continue breaking new highs
BHP
$12.35
As long as $11.77 can hold, all time high of $12.79 in reach
BIL
$5.74
With price finally breaking out on strong volume, look for a test of the $6.00 level soon
CBA
$32.45
A break of $32.15 is likely to lead to a fall to the $31.00 level
CML
$8.07
As expected the break of the $8.00 level should leave prices headed towards the $8.50 level
FGL
$4.48
Stock range trading with resistance remaining at $4.60
LLC
$10.27
Volatility starting to increase, look for a breakout in either direction soon
NAB
$31.40
The $31.00 level remains the key support with a future breach likely to lead to a fall the $30.00 level
NCP
$12.43
Stock appears to have broken upwards from triangle formation but looking slightly stretched
QAN
$3.51
Reversal from the $3.40 level is likely to see the stock test the $3.80 level next
RIO
$35.21
The $34.40 level need to hold for stock to resume its bullish scenario
SGB
$21.05
As long as $21.00 can hold, stock likely to continue higher towards $22.00
TLS
$4.54
As long as the $4.50 level can hold, stock is likely to test the $4.70 level next
WBC
$17.65
A break of $17.45 could lead to a likely fall to $17.00 with a small descending triangle forming
WOW
$11.65
Any reversal from these levels should be used as a good buying opportunity as stock looks oversold
Sunday 11 April 2004
© Copyright 2001-2004
10
Investment Wise
The Stockmarket Edge
Warrant Trading Strategy
Woolworths Limited
Stock Exchange Code
CBA
Recommendation
Trading SELL
Current Share Price
$32.45
Short Term Support
$32.15
Short Term Resistance
$32.80
Trading Horizon
1 week
Preferred Warrant
CBAWSV
Suggested Trade Size
6,000 units
CBA
Abandon above $32.80
33
32
Short below $32.15
Stop above $32.45
31
30
Our technicals indicate that CBA is looking bearish in the short
term. With short-term support at $32.15 and resistance at
$32.80, traders looking to gain exposure to the underlying share
price may consider the warrants below. Scenario results below
have been calculated using constant delta, volatility and 5 days
time decay. Traders may use the indicated support and resistance
levels to initiate and/or abandon the trade. (i.e. If CBA trades
below $32.15 – Go Short with a potential target of $31.25 and
use $32.45 as your stop loss. If CBA trades above $32.80
before trading below $32.15, abandon the trade completely).
2
19
27
2
9
February
16
23
1
8
March
15
22
29
5
April
12
19
26
3
10
May
1
!! WARNING !!
This section is intended for ADVANCED INVESTORS ONLY.
The calculations below assume that delta; time decay, interest and
volatility remain constant. The figures and returns are indicative only
and there is no guarantee that indicated returns can actually be
achieved. Investors should seek advice from an Accredited
Derivatives Adviser.
The following table shows the expected movement of each warrant if the stock trades to the TARGET in 5 days.
Type
Code
Strike Price
Expiry
Offer
Put
CBAWSV
$33.00
27-May-04
Put
CBAWSX
$32.00
Put
CBAWMX
$30.00
CBA
$0.90
Return
$0.230
+$0.085
+36.96%
27-May-04
$0.115
+$0.055
+47.83%
29-Jul-04
$0.079
+$0.015
+18.99%
The following table shows the expected movement of each warrant if the stock trades to the STOP LOSS in 5 days.
Type
Code
Strike Price
Expiry
Offer
Put
CBAWSV
$33.00
27-May-04
Put
CBAWSX
$32.00
Put
CBAWMX
$30.00
Sunday 11 April 2004
$0.30
Return
$0.230
–$0.045
–19.57%
27-May-04
$0.115
–$0.030
–26.09%
29-Jul-04
$0.079
–$0.010
–12.66%
© Copyright 2001-2004
CBA
11
Investment Wise
The Stockmarket Edge
Writing Covered Calls
How to Make Regular Income on Your Existing Blue Chip Shares
Level of Difficulty:
Expected Knowledge:
Intermediate-to-Advanced
ASX Options Booklet
(Understanding Options Trading)
Investors who own Blue Chip Stocks can earn a regular income
in the Options Market. This is simply done by Writing Covered
Calls over your existing stock. A Covered Call is a Call Option
sold/written when the investor already owns the stock. One
Option Contract normally equates to 1,000 shares. The risk
involved in writing covered calls is the underlying share price
trading significantly higher than the strike sold. In this instance,
the investor forgoes the opportunity to sell the stock at a higher
level. This risk allows Blue Chip Stock holders to earn regular
income on Call Premium sold.
!! WARNING !!
This section is intended for INTERMEDIATE-TO-ADVANCED
INVESTORS ONLY. Options are derivative products and are
extremely risky. The Call Options below have been chosen based on
our own selection criteria and it is assumed that the investor is
holding a minimum of 1,000 shares for every Call Option contract
sold/written.
Writing Covered Calls is an income generating strategy. Investors
selling Calls at recommended strikes must be willing to sell the stock
at these levels. Investors should also seek advice from an Accredited
Derivatives Adviser.
QBE Insurance Group Limited (QBE)
QBE last traded $11.30 (at the time of writing) and has traded
from a low of $6.05 to a high of $11.50. We believe the stock is
looking very attractive for existing shareholders to lock in
profits. Investors holding a minimum of 1,000 shares may
consider selling the QBE $11.50 July 2004 Call Options at a
premium of $0.41 (at the time of writing) for income. If the
stock closes above $11.50 at expiry, you will effectively be
selling at $11.91 (i.e. $11.50 + $0.41).
NOTE. When an investor sells a Call Option over a stock the
investor does not already own, this is known as Writing Naked
Calls. Investors should note that Writing Naked Calls exposes
the seller/writer to unlimited losses and we strongly advise
AGAINST such practices.
Sunday 11 April 2004
QBE
12.0
10.5
9.0
7.5
6.0
M
J
J
A
© Copyright 2001-2004
S
O
N
D
2003
M
A
M
J
J
A
S
O
N
D
2004
M
A
12
Investment Wise
The Stockmarket Edge
Stock on the Move Distributions
Ex-Date
Stock
Distribution per Share
Shares Held
09-03-01
HSP
$0.0200
3,800
$76.00
13-03-01
SSE
$0.0225
6,600
$148.50
14-03-01
CEY
$0.0250
7,100
$177.50
09-04-01
ILU
$0.1200
1,200
$144.00
23-05-01
JHX
$0.0950
1,200
$114.00
25-06-01
MTT
$0.0150
2,300
$34.50
25-06-01
SWD
$0.0525
12,500
$656.25
04-07-01
PRG
$0.0400
2,000
$80.00
03-09-01
HIL
$0.0740
2,100
$155.40
10-09-01
HSP
$0.0250
3,800
$95.00
17-09-01
PLW
$0.0675
2,500
$168.75
20-09-01
DGD
$0.0400
2,000
$80.00
24-09-01
FFL
$0.0250
2,300
$57.50
03-12-01
ALZ
$0.0300
8,300
$249.00
18-02-02
CRG
$0.2000
1,100
$220.00
25-02-02
FFL
$0.0400
2,300
$92.00
04-03-02
BHL
$0.0492
800
$39.36
04-03-02
FWD
$0.0500
1,300
$65.00
06-03-02
SSX
$0.0250
2,700
$67.50
13-03-02
PRT
$0.0400
1,600
$64.00
13-03-02
COA
$0.0400
2,600
$104.00
18-03-02
BRZ
$0.0850
3,800
$323.00
18-03-02
MIA
$0.0150
4,500
$67.50
22-03-02
HWI
$0.0500
2,100
$105.00
02-04-02
SKE
$0.0400
2,300
$92.00
05-04-02
DVN
$0.0300
14,200
$426.00
08-04-02
FKP
$0.0500
7,100
$355.00
09-04-02
PMM
$0.0600
2,900
$174.00
15-04-02
GUD
$0.0750
3,100
$232.50
10-05-02
APE
$0.1500
2,900
$435.00
04-09-02
CTL
$0.0250
1,300
$32.50
10-09-02
HIL
$0.1000
2,900
$290.00
12-09-02
GWT
$0.0750
2,500
$187.50
16-09-02
CLT
$0.0500
2,100
$105.00
16-09-02
IIN
$0.0200
2,700
$54.00
16-09-02
IIN
$0.0200
2,700
$54.00
20-09-02
GAP
$0.0300
2,600
$78.00
20-09-02
CDR
$0.0275
5,000
$137.50
Sunday 11 April 2004
© Copyright 2001-2004
Distribution Income
13
Investment Wise
The Stockmarket Edge
Ex-Date
Stock
Distribution per Share
Shares Held
23-09-02
MXI
$0.0100
10,000
$100.00
23-09-02
ANE
$0.0700
2,000
$140.00
23-09-02
SKE
$0.0600
1,300
$78.00
24-09-02
BSG
$0.0075
20,000
$150.00
24-09-02
FUN
$0.0150
7,100
$106.50
01-10-02
RIC
$0.0250
3,500
$87.50
04-10-02
FKP
$0.0500
3,500
$175.00
11-10-02
MCP
$0.0600
1,600
$96.00
14-10-02
CWP
$0.0500
6,200
$310.00
14-10-02
ASB
$0.0500
2,600
$130.00
16-10-02
OMP
$0.1200
1,100
$132.00
21-10-02
FBU
$0.0765
3,100
$237.15
21-10-02
OPS
$0.0950
700
$66.50
21-10-02
SKN
$0.0100
8,400
$84.00
21-10-02
VWD
$0.0500
5,000
$250.00
08-11-02
ENV
$0.0570
4,500
$256.50
03-12-02
APA
$0.0300
5,500
$165.00
23-12-02
AIP
$0.0490
10,000
$490.00
23-12-02
SGP
$0.1560
3,300
$514.80
20-01-03
CRS
$0.0200
3,800
$76.00
12-02-03
KRS
$0.0200
10,000
$200.00
13-02-03
JBM
$0.0800
2,200
$176.00
20-02-03
UEL
$0.1000
2,380
$238.00
21-02-03
MXI
$0.0100
10,000
$100.00
24-02-03
BLD
$0.1100
1,600
$176.00
26-02-03
ALN
$0.1400
1,900
$266.00
03-03-03
ION
$0.0525
1,600
$84.00
05-03-03
THG
$0.0250
5,500
$137.50
07-03-03
TSE
$0.0600
1,300
$78.00
11-03-03
RIC
$0.0250
3,500
$87.50
12-03-03
GWT
$0.0250
2,500
$62.50
12-03-03
GWT
$0.0750
2,500
$187.50
14-03-03
SKN
$0.0150
8,400
$126.00
17-03-03
BDS
$0.1000
1,300
$130.00
24-03-03
COA
$0.0500
1,700
$85.00
31-03-03
FUN
$0.0350
7,100
$248.50
01-04-03
BRS
$0.0900
1,300
$117.00
01-04-03
SKE
$0.0600
1,700
$102.00
09-04-03
ENV
$0.0380
4,500
$171.00
10-04-03
FAN
$0.0330
1,200
$39.60
Sunday 11 April 2004
© Copyright 2001-2004
Distribution Income
14
Investment Wise
The Stockmarket Edge
Ex-Date
Stock
Distribution per Share
Shares Held
17-04-03
SDI
$0.0300
620
$18.60
06-05-03
GTP
$0.0200
3,200
$64.00
08-05-03
RKN
$0.0100
6,200
$62.00
24-06-03
AIP
$0.0500
3,300
$165.00
24-06-03
BWP
$0.0536
3,500
$187.60
24-06-03
HLY
$0.0830
840
$69.72
24-06-03
MGI
$0.0307
2,500
$76.75
24-06-03
MTT
$0.0460
1,500
$69.00
18-08-03
SPC
$0.0300
1,800
$54.00
22-08-03
ALZ
$0.0300
1,600
$48.00
25-08-03
ALS
$0.1200
1,200
$168.00
26-08-03
BLD
$0.1200
1,600
$192.00
29-08-03
AHD
$0.0650
820
29-08-03
ALN
$0.1200
1,900
$228.00
02-09-03
IFM
$0.0190
1,800
$34.20
02-09-03
WTP
$0.0050
5,200
$26.00
03-09-03
SYM
$0.0400
2,300
$92.00
05-09-03
SGN
$0.0430
830
$35.69
08-09-03
CTX
$0.0400
1,400
$56.00
08-09-03
TSE
$0.0700
1,300
$91.00
09-09-03
GFD
$0.0150
5,800
$87.00
09-09-03
HIL
$0.1050
1,200
$126.00
09-09-03
EQI
$0.0300
2,700
$81.00
10-09-03
APN
$0.0650
1,060
$68.90
12-09-03
GWT
$0.0800
2,500
$200.00
15-09-03
CSM
$0.0275
3,500
$96.25
15-09-03
FFL
$0.0500
8,300
$415.00
16-09-03
JBM
$0.2000
2,200
$440.00
16-09-03
PRT
$0.0600
1,600
$96.00
19-09-03
PHY
$0.0250
1,100
$27.50
22-09-03
COA
$0.0600
1,700
$102.00
23-09-03
ADB
$0.2100
1,200
$252.00
24-09-03
FUN
$0.0200
7,100
$142.00
24-09-03
MGI
$0.0332
2,500
$83.00
29-09-03
SDI
$0.0450
620
$27.90
02-10-03
SOT
$0.0050
1,700
$8.50
03-10-03
GRD
$0.0300
1,600
$48.00
03-10-03
LCL
$0.0150
2,200
$33.00
09-10-03
FAN
$0.0440
7,100
$312.40
09-10-03
OKN
$0.0300
1,160
$34.80
Sunday 11 April 2004
© Copyright 2001-2004
Distribution Income
$53.30
15
Investment Wise
The Stockmarket Edge
Ex-Date
Stock
Distribution per Share
Shares Held
13-10-03
ALZ
$0.0300
1,600
$48.00
20-10-03
NUF
$0.1300
1,300
$169.00
22-10-03
DVC
$0.0300
1,400
$42.00
24-10-03
SOL
$0.1000
610
$61.00
31-10-03
MGW
$0.1100
870
$95.70
11-11-03
ENV
$0.0570
4,500
$256.50
25-11-03
MTT
$0.0500
1,500
$75.00
28-11-03
CPB
$0.1400
1,100
$154.00
08-12-03
LNN
$0.1400
740
$103.60
02-01-04
PRG
$0.0550
1,200
23-02-04
CCL
$0.1300
890
$115.70
24-02-04
BLD
$0.1400
1,600
$224.00
27-02-04
AHD
$0.0600
820
$49.20
01-03-04
HCN
$0.0100
1,700
$17.00
02-03-04
IRE
$0.0800
1,300
$104.00
03-03-04
IFM
$0.0190
1,800
$34.20
05-03-04
SYM
$0.0200
2,300
$46.00
05-03-04
VGL
$0.0400
1300
$52.00
09-03-04
DOW
$0.0400
400
$16.000
09-03-04
SPC
$0.0300
1,800
$54.000
10-03-04
ADB
$0.1900
1,200
$228.000
15-03-04
WTP
$0.0200
5,200
$104.000
15-03-04
CAB
$0.0650
870
$56.550
15-03-04
MIA
$0.0150
4,500
$67.500
22-03-04
COA
0.06000
1,700
$102.00
23-03-04
BBG
0.12500
890
$111.25
25-03-04
ALZ
0.04000
1,600
$64.00
25-03-04
HPX
0.06000
1,900
$114.00
25-03-04
MGI
0.03375
2,500
$84.38
30-03-04
LCL
$0.0170
2,200
$37.40
01-04-04
PMM
$0.0400
2,100
$84.00
02-04-04
NUF
$0.0800
1,300
$104.00
05-04-04
APN
$0.1180
1,060
$125.08
06-04-04
OKN
$0.0375
1,160
$43.50
Sunday 11 April 2004
© Copyright 2001-2004
Distribution Income
$66.00
16
Investment Wise
The Stockmarket Edge
DISCLAIMER
This report was produced by PPS Investments Pty Ltd (ACN 097 446 369), which holds an Australian Financial Services
Licence (Licence no. 246670). PPS Investments Pty Ltd believes that the information and material contained in this report
has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of this
information and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent
required by law, PPS Investments Pty Ltd does not accept any liability for any loss arising from any use of the material
contained in this report. D ISC LOSUR E: PPS Investments Pty Ltd may hold and/or effect or have effected a transaction
upon its own account in the investments referred to in this report or any related investment before the material is published.
Additionally, PPS Investments Pty Ltd may, within the previous twelve months, have provided advice or investment
services to the companies mentioned in this report. WARNIN G: This report is intended to provide general securities
advice only. It is not prepared having regard to any particular investor’s investment objectives, financial situation and/or
particular needs. This report may not be reproduced, distributed or published for any purpose, unless the person or entity
seeking to do so is expressly authorised in writing to do so by PPS Investments Pty Ltd. NOTES: AUG recommendation
replaced by ABX as a result of the merger (05-02-03). UEL shareholders received $3.15 from Alinta Limited takeover (2507-03). AIP off-market takeover by MGI (07-10-03). HRT stock code changed to LRX (30-10-03). FAN 11:10 Share Split
(28-10-03). DOW 1:4 Reconstruction (20-11-03). ARL stock exchange code changed to NLX (11-12-03).
Sunday 11 April 2004
© Copyright 2001-2004
17