Option Investor

Option Writer Portfolio - July

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BHP Billiton Ltd ADR (Symbol: BHP) together with its subsidiaries, operates as a diversified natural resources company. The company operates 10 customer sector groups (CSGs), aligned with the commodities that the company extracts and markets, which includes Aluminium, Base Metals, Uranium, Diamonds and Specialty Products, Energy Coal, Iron Ore, Manganese, Metallurgical Coal, Petroleum, and Stainless Steel Materials.

Sector: Basic Materials

Industry: Industrial Metals and Minerals

EPS Date: August 18th

We are selling a larger position in BHP due to the relative strength of the stock. If it is too aggressive for your risk tolerance then do half the position. For instance, if you normally allocate $5,000 per position and would therefore trade 4 contracts then do the 2 contracts. If you normally allocated $2,000 per position then do one contract. The initial return is about 15% based upon the initial premium divided by the Initial Cash Requirement.

Our short term technical support is derived from the $82.71 low established on Friday. However, the technical stop level we are using for this trade is from $79.22 as the chart shows. If that is broken the next level of suppot will most likelt come from the 200 day moving average. The stock has some room to go on the upside as well. Assuming BHP can fill in the gap down from Friday the next resistance is at $87.90. At some point we will sell the calls as a hedge against the aggressive put position. We will be looking at a few more positions today so stay alert.

Risk Management for BHP
Strike Stop = $ 80.00
Cost Basis Stop = $ 78.23
Technical Stop = $ 79.22

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