Toll Holdings Ltd (TOL) will go ex dividend on 18/9/2012. The current dividend payment is 13.5 cents and it is 100% franked. The record date is 24/9/2012 and the dividend will be paid on 22/10/2012. Based on the full year payment the dividend yield is 5.4%.
*Current Yield: 2.9% Franking: 100% DRP Discount: 2.5%
*Yield has been calculated on the closing price on the 13/9/2012. Current yield is based on the current dividend payment only.
Qube Logistics Holdings Limited (QUB) announced that Prixcar Services Pty Limited has entered into a binding agreement to acquire the vehicle distribution business presently owned and operated by Toll Limited through its Toll Global Logistics business. Qube owns 25% of Prixcar indirectly through its 50% shareholding in “K” Line Auto Logistics Pty Ltd with Kawasaki Australia owning the other 50% of KLAL. KLAL and Toll Limited each own 50% of Prixcar. Qube’s pro-rata share of the equity funding for the transaction is expected to be $20 million. The transaction is strategically important for Prixcar, however is not expected to have a material impact on Qube’s earnings. Further information is contained in the attached announcement released today by Toll.
Toll Global Logistics, a division of Toll Group, has announced a restructure that will combine its finished vehicle distribution service with automotive storage, processing and rectification specialist, PrixCar, the 50-50 joint venture between Toll and K-Line Auto-Logistics Pty Limited. Toll is selling down its finished vehicle distribution service – part of its Toll Global Logistics, Automotive business (formerly Toll AutoLogistics) – to establish a more sustainable and competitive business model that will produce stronger outcomes for both companies. The change will provide customers with a fully integrated, end-to-end supply chain management service, and comes in response to broader automotive industry trends, such as the decline in local manufacturing and the increase in vehicle imports. PrixCar performs strongly in vehicle importing and commissioning, and the restructure will ensure it will be well positioned to continue its growth. Following the restructure, Toll will account for its 50 per cent share of PrixCar’s earnings as associate earnings. Toll Global Logistics, Automotive will retain its parts logistics service in Australia and Asia, as well as its finished vehicle distribution service in Asia.
Investors who are currently in the market may be sitting on some handsome profits, especially if they were astute enough to have started buying late last year.
The S&P/ASX 200 is approaching the key 4350 resistance level. This level has been a barrier of resistance since last July and investors should be looking to protect their profits. Profit protection can be obtained by outright selling the position, or by buying a protective put, as discussed last year in the article Options Trading (Part 1): The Protective Put.
However there can be reasons why a long term investor may not want to cash out at this time, such as capital gains tax or perhaps an upcoming dividend. A cheaper alternative to buying a Protective Put would be to enter into a Bear Put Spread, which limits the cost of the protection, but also limits the degree of protection.
A Bear Put Spread is an options strategy that can be used to buy put options at a discount and can be particularly useful when you have an existing stock position that you want to protect. It is a debit spread that can be an effective way of hedging an underlying share position, as it allows investors to purchase put options at a relatively cheaper cost than an outright put purchase.
The Bear Put Spread is an option strategy that makes its maximum profit when the underlying stock declines to the short strike and has its maximum risk if the stock rises in price to the long strike. The strategy is to be implemented using puts, where an option with a higher striking price is purchased and one with a lower striking price is sold simultaneously, both options generally having the same expiration date.
The Bear Put Spread option strategy is established by selling to open an Out of the Money (OTM) put option, which effectively reduces the cost of the In the Money (ITM) or At The Money (ATM) Put options. This reduces the upfront payment and therefore the risk of the position, making it an ideal option trading strategy for investors who want protection from falls in a down market, while holding on to their existing position (hedging).
Standalone, the Bear Put Spread is a bearish option strategy that profits when the underlying stock price falls. The Bear Put Spread involves simultaneously buying to open and selling to open options of the same expiration month, making it a Vertical Spread and because you need to pay money to put on this position, resulting in a net debit, this is also known as a Debit Spread.
A debit spread profits from a move in the share price through the purchase of an option near at-the-money (ATM) (or ITM), whilst reducing the cost of the trade by selling an option further out of the money (OTM). The advantage of the debit spread is that the cost of purchasing the option is lowered, while the downside to this strategy is that the profit is capped by the sold options, and this is why the investors must choose their option strikes carefully, so as to attain a good risk reward trade.
The debit spreads are directional trades as they benefit with an increase in volatility, and as such, a directional move in the share price. Note that if the trader expects a short sharp move in the near-term, then they would be better off simply buying a protective put.
A recent trade that our clients took was to buy Toll Holdings around $4.50 in late January. The stock surged 17% in the subsequent couple of weeks. Clients were then faced with the dilemma of taking profits now or holding on for the dividend in early March.
We suggested that they could hedge their position using a bear put strategy – by buying a ATM Put & Selling an OTM Put.
In this trade with TOL trading at $5.20, the bear put strategy was established by Buying to Open TOLL 525 MAR12 Put for 23.5c and Selling to Open TOLL 476 MAR12 Put 7c, for a total outlay of 17.5c (ie. Net debit= 23.5c – 7c).
Note if you were more pessimistic and expected TOL to fall to $4.50 by expiration, you would have sold the 450 MAR12 Puts.
The Bear Put Spread profits when the stock price falls towards the short strike, as the long put option will rise in price along with the underlying stock price, while the short put options continue to decay in premium. The maximum profit potential of a bear put spread is when the price of the underlying stock drops down to the strike price of the out of the money (OTM) short options, as beyond that price any gain in the long put options is matched exactly by a loss in the short put options.
Profit Calculation of the TOL Bear Put Spread:
Maximum Return = (Difference in strikes – Net Debit) ÷ Net Debit
Following up from the recent trade example:
Buy to open 10 TOL MAR12 525 Put for 23.5c per contract and sell to open 10 TOL MAR12 476 Put for 7c per contract.
Maximum Return = (525 – 476 – (23.5 – 7)) ÷ (23.5 – 7) = 31.5 ÷ 17.5 = 180%
Maximum Risk = Net Debit = 23.5c – 7c = 17.5, if TOL share price is > $5.25
Break Even = Higher Strike – Net Debit = 525 – 17.5 = $5.075
In summary the Bear Put Strategy offers a maximum risk limited to the Net Debit Paid, while the maximum loss is limited and the maximum upside profit is also limited. These risk/rewards are shown in the Payoff diagram.
Note this strategy can be used in order to hedge an underlying Toll Holdings stock position, while the investor is still eligible for the dividend payment in early March.
Options can be used in order to reduce/hedge your risk, while still participating in potential profits from a significant move by the underlying stock. We have explained the Bear Put Spread strategy which can be used to allow you to protect an existing share position, while maintaining the benefits of ownership of the underlying stock.
In future articles we will talk about the High Yield Covered Call strategy and the Covered Call Stock Reversal strategy which is particularly relevant to this market.
Utilise the features in the Market Analyser software to plan your options trades for a particular options strategy using your specific trade selection criteria. You will save time and potentially reduce your trading risk.
By Michael Hevern
Trading Desk
** Please note your may need to refer to a tax profession regarding eligibility of franking credits.
See Also:
Options Trading for All Types of Market Environments (Part 1): The Protective Put
Options Trading for All Types of Market Environments (Part 2): The Covered Call
Options Trading for All Types of Market Environments (Part 3): The Covered Call Collar
Options Trading for All Types of Market Environments (Part 4): The Stock Repair Strategy
Options Trading for All Types of Market Environments (Part 5): Limited Risk Short Selling Strategy
Options Trading for All Types of Market Environments (Part 7): Dividend Capture Covered Call Collar
For Buy and Sell recommendations on ASX listed companies register for a FREE trial of MDS Financial Research.
MDS Financial Advisory Service offers general advice on trading options to generate consistent steady income on your investment portfolio. For further information please call 1300 610 024.
Toll Holdings Ltd (TOL) will go ex dividend on 7/3/2011. The current dividend payment is 11.5 cents and it is 100% franked. The record date is 11/3/2011 and the dividend will be paid on 1/4/2011. Based on the full year payment the dividend yield is 4.1%.
*Current Yield: 1.9% Franking: 100% DRP Discount: 2.5%
*Yield has been calculated on the closing price on the 27/2/2011. Current yield is based on the current dividend payment only.
The Aussie market has had a strong run since the early July trough, with the recent peak in the S&P ASX 200 rising 18%. Traders are finally starting to take profits and appear to be heading for the exits as the deterioration in the global macro economic environment starts to bite. We are seeing a turn in the momentum for the ASX market near-term, and this has given rise to a number of bull traps being triggered.
Traders have been pushing stock prices higher since the Santa Claus rally materialised in November. Up until this week traders have chosen to ignore the global headwinds that have been simmering in the background, such as geopolitical tensions in the Korean Peninsular, political unrest and violence in the Middle East, the continuing issues of European sovereign debt in the so-called PIIGS economies, global concerns over food inflation, struggling consumer spending, and China’s struggle to control its runaway inflation.
Central banks around the world have been taking measures to address the economic issues including: the US Fed Reserve’s commitment to another round of quantitative easing (QE2); the ECB in Europe committing to support the indebted PIIGS economies; and in China the central bank has moved to raise the capital reserve requirements for its banks and increase rates in an attempt to reign in its inflation.
Traders have been looking for an excuse to take profits, and the violence and unrest in Egypt, Libya and the Middle East has provided the trigger to sell. The spike in the crude oil price has the potential to derail the global economic recovery, if energy prices remain at these elevated levels for any length of time.
A number of stocks in our local market have set up and/or triggered “bull traps” as they have recently backed off key levels. Traders have used this reporting season to reassess their view on particular stocks, and use any positive move in the stock resulting from their earnings report as a chance to liquidate part or all of their positions.
A bull trap occurs when investors take on a long position when a stock is breaking out to new highs, only to have the stock reverse and shoot lower. This counter-move produces a trap for the bulls and often leads to sharp sell-offs.
The criteria for a bull trap set-up:
1. A prevailing long-term down
2. A sharp correction that has moved quickly from its lows
3. Resistance where investors look for price rejection setting up a long squeeze
The bull trap set-up is fairly basic. Look for a trading range to be broken to the upside, preferably with high volume. The stock will need to get back below resistance within five trading periods, then explode out of the bottom of the range. The last component of the bull trap chart pattern is that the stock should have a wide price trading range. This increases the odds that the stock will have room to trend lower in order to book quick profits.
Selling in the first wave will occur when the most recent swing low is exceeded. This occurs because of the number of shorter-term traders who have their stops slightly below the most recent swing low. The second wave of selling comes into play once the medium term traders realise that this is not just a slight retracement and the move is likely to be more protracted. This produces the second round of selling.
There are a number of prime examples of recent bull traps, including Toll Holdings (TOL) in October, IAG Insurance (IAG) in December, Cochlear (COH) in January and WesFarmers (WES) in February.
Figure 1: Bull Trap – Toll Holdings (TOL) October 2010
Back in October Toll Holdings (TOL) broke to the upside to a 3-month high, but the bears then stepped in sending the price through the recent trading range within a few trading sessions, completing the bull trap. The volume did not provide confirmation for this trap but the selling continued with the stock dropping -20 percent in the following 3 months.
Figure 2: Bull Trap – IAG Insurance (IAG) December 2010
IAG Insurance (IAG) recently broke to the upside to a 4-month high in December, but the bears then stepped in sending the price through the recent trading range within a few trading sessions, completing the bull trap. The stock has dropped -11 percent in past couple of months. The sellers persisted until the stock broke the key trading range support and the bears appear to be firmly in control now.
Figure 3: Bull Trap – Cochlear (COH) January 2011
Cochlear (COH) recently broke to the upside to close at a 2-month high in January, then saw follow-through buying the next day as the bulls pushed the price higher. But then the bears stepped in, sending the price through the recent trading range within a few trading sessions, completing the bull trap. The stock has dropped -8 percent in the past month. The sellers have pushed the stock below its key support level and the bears appear to be in control.
Figure 4: Bull Trap – WesFarmers (WES) September 2010 and February 2011
WesFarmers (WES) recently broke to the upside trading at a 2-year high in February, then saw sharp pullback as the bears stepped in, sending the price through the recent trading range within a few trading sessions, completing the bull trap. The stock has dropped -5 percent in six trading sessions. The sellers have pushed the stock below a key support level and the bears appear to be in control at these levels.
The Market Analyser software offers Pre-Alerts which are proprietary indicators that identify impulses in volume accompanied by a decline (D) in price. As shown in the accompanying charts these Pre-Alerts, used in conjunction with the standard Bollinger Bands, are very accurate for identifying bull traps.
Bull traps can develop in markets where there is panic buying or overconfidence, as the stock prices move into key resistance levels. The bulls are trapped because they are typically chasing the big moves in the market and are buying new highs as the price meets resistance. Once the market starts to fall, these new bulls try to extract themselves from the trap by selling. That selling pressure feeds back into the bear market and amplifies the subsequent move back to the downside.
The question of course is whether a given reversal is really a bull trap or a legitimate reversal to the upside. The way to trade these set-ups is rather than attempting to pre-empt the market by shorting or covering immediately, you should typically wait for the market to begin rolling over to the downside.
Use the Market Analyser’s proprietary Pre-Alert Distribution Indicator to identify when a setup is imminent (refer to the sample charts for examples).
A change in market momentum and sentiment appear to be underway and bull traps are not just an opportunity for swing traders looking for a trigger to trade the short side of the market. They are useful for longer term traders as a signal to apply some risk coverage to their long positions, either through hedging their positions or stepping to the sidelines.
Click here for a 14 day trial of Market Analyser!
By Micheal Hevern
Head of Research
Toll Holdings Ltd (TOL) will go ex dividend on 7/10/2010. The current dividend payment is 13.5 cents and it is 100% franked. The record date is 13/10/2010 and the dividend will be paid on 27/10/2010. Based on the full year payment the dividend yield is 3.8%.
*Current Yield: 2.0% Franking: 100% DRP Discount: Not Available
*Yield has been calculated on the closing price on the 23/9/2010. Current yield is based on the current dividend payment only.
Asciano (AIO) today announces the signing of a long term contract with Toll Holdings (TOL) for the haulage of Intermodal rail freight. The contract is expected to generate revenues of up to $1 billion over the next five years.
Under the contract, Asciano’s Pacific National Intermodal division will supply rail haulage services to Toll for the interstate movement of containers and cars. The initial contract term of five years includes options to extend for up to another 10 years.
Asciano Managing Director and CEO, Mark Rowsthorn commented; “Asciano is very pleased to have signed this long term agreement with Toll our largest customer. ” “This contract reinforces the long standing relationship between Asciano and Toll, one of Australia’s largest freight forwarding companies,” Mr Rowsthorn said.
Pacific National has also granted Toll a lease over land within its Perth Freight Terminal precinct, where it intends to develop a freight forwarding facility immediately adjacent to the rail terminal (subject to ACCC approval). “Locating the facility at the rail terminal will introduce greater efficiencies and will reduce costs associated with the pick up and delivery of freight at the rail terminal. It will also reduce truck movements and traffic congestion in the Kewdale vicinity,” Mr Rowsthorn said. “The benefits of co-locating rail and freight forwarding facilities are becoming increasingly important and may become a model for the development of Intermodal freight in Australia.”
Toll Holdings Ltd (TOL) will go ex dividend on 5/3/2010. The current dividend payment is 11.5 cents and it is 100% franked. The record date is 12/3/2010 and the dividend will be paid on 2/4/2010. Based on the full year payment the dividend yield is 3.6%.
*Current Yield: 1.6% Franking: 100% DRP Discount: 2.5%
*Yield has been calculated on the closing price on the 26/2/2010. Current yield is based on the current dividend payment only.
Toll Group (TOLL), the Asian region’s leading provider of integrated logistics services, today announced the conclusion of negotiations for the supply of relocation services to the Australian Department of Defence.
“We are pleased to announce that Toll Transitions, the Toll Group’s specialist relocations business, has been notified they have successfully tendered for the contract with the Department of Defence for the provision of both Removal Services (RS) and Relocation Administration Services (RAS),” said Toll Group Managing Director, Paul Little. “This Defence contract is comprised of an initial five year period, followed by up to 4 one year extensions, which are at the discretion of Defence. The initial five year period is expected to generate revenues of more than $1 billion, and if the extensions are granted total revenue of around $2 billion would be expected.” Mr Little said.
Toll Holdings (TOL) announced that it has entered into an agreement with Chevron Australia Pty Ltd to manage the Barrow Island Supply Base and Logistics Services Contract for the Gorgon LNG construction project. The Barrow Island Supply Base and Logistics Contract also includes the management of waste generated from construction of the LNG plant on Barrow Island.
Tox Free (TOX) will supply waste management services to Toll Holdings. The scope of Tox Free’s contract with Toll includes the collection, segregation, consolidation, treatment and disposal of waste generated on Barrow Island. Tox Free is excited about the opportunity to work with Toll on the Gorgon Project and this is a significant milestone in Tox Free’s development. The Gorgon Project is a joint venture between the Australian subsidiaries of Chevron, ExxonMobil and Shell, to develop the Greater Gorgon gas fields, located between 130km and 200km off the north-west coast of Western Australia. The Greater Gorgon gas fields contain resources of about 40 trillion cubic feet of gas, Australia’s largest-known gas resource. The opportunities for Tox Free moving forward are extremely positive and securing this contract will assist in positioning Tox Free as a leading national provider of integrated industrial and waste management services.
Tox Free Solutions Ltd (TOX) is one of the largest integrated industrial waste and environmental management businesses in Australia. The Company offers a full range of services through its national network of industrial, hazardous, liquid and solid waste treatment facilities. In addition Tox Free are fast becoming the leaders in onsite industrial services, waste minimisation, recycling and contaminated site remediation.
