Indexing Structures in Database Management system.pdf
Citadel Markets Options Report
1. Naked Put Income Report 18th July 2011
MARKET OVERVIEW
S&P 500 Index
Intermarket Overview (1 Month)
S&P 500 44.64 DJIA 475.37 $US INDEX 0.68 GOLD 55.85
1,316.14 +3.51% 12,479.73 +3.96% $75.13 -0.90% $US1,594.50 +3.63%
NASDAQ 173.32 VIX 2.23 10YR BOND OIL 4.55
2,789.80 +6.62% 19.53 -10.62% 2.91% -0.03% $US97.49 +4.90%
Sovereign-debt issues in Europe continue to be at the forefront of the financial markets headlines with Ireland
becoming the third Eurozone nation to have its credit rating downgraded to junk status, amid growing fears
Spain and Italy are headed the same way. Greece avoided a near default when it was bailed out for a second
time as the debt ridden country agreed to austerity measures in order to meet its debt obligations. The result
is increased volatility in markets worldwide as investors fear that a default of any of the Eurozone nations
would send world markets into a tailspin.
The US is also under pressure to cut its spending back as rating agencies warned of downgrading the AAA US
credit rating, the highest investment rating, if Congress is unable to come up with a credible solution to the
rising US government debt burden in the foreseeable future. A downgrade would raise borrowing costs for the
country making debt repayments harder to make. Also fund managers that are only allowed to invest in AAA-
rated assets would be forced to dump US Treasury bonds, which could trigger disruption throughout global
financial markets. Currently the US debt is at $14.5 trillion, ($14,509,280,885,641.98) and is increasing at a rate
of $2 million per minute. It is not until you look at the debt written out in full that you begin to fathom how
much of a shambles the US economy is in.
Also in the US consumer confidence and sentiment both hit a near two and a half year low in early July as
manufacturing output stalled in June, further hindering expectations of a quick economic growth rebound for
the second half of the year. With mixed data coming through and so much pessimism in the market, creates an
2. opportunity for greater upside potential, as investors sit on the sidelines and analysts lower their forecasts.
With earnings season just around the corner there is a high probability that actual earnings will beat estimates,
which could trigger a rally for the bulls.
It is also worth noting how resiliently the top 500 US companies (S&P 500) rebounded over the past weeks
from its seven week losing streak following the lead of gold which is now trading at an all time high just under
US$1,600/oz. Gold continues to rise and is set to start another super-cycle rally brought about by both the US
and European debt crisis as they continue their out of control money printing devaluing paper currencies and
appreciates hard currencies such as gold and silver.
Copper, which is usually a leading indicator of the health of the economy is trading near its multi year high as
industrial metals such as steel are also trading near multi-year highs. The question is if the world economy is in
such bad shape and “slowing down”, as the media would have you believe, why is it then that industrial metals
and energy commodities continue to rise?
“The financial markets generally are unpredictable. So that one has to have different scenarios... The idea
that you can actually predict what’s going to happen contradicts my way of looking at the market”
– George Soros –
The July Monthly Naked Put Report continues to choose fundamentally strong, large cap stocks from the S&P
500 to write naked puts on for the August expiry. The recommendations that have been chosen are weighted
more towards industrial metals and energy companies as they should endure the current market conditions
whilst volatility remains high. The recommendations provide strong returns with significant margin’s of safety
to the strike price to reduce risk. Our greatest risk on this strategy is a sharp decline in the share price and
increasing volatility once the trade has been entered. You should only write Naked Puts on fundamentally
strong stocks at prices which you would be happy to own if exercised.
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3. July Naked Puts
(Expiry: August 19th)
Code Stock Share Strike Premium Initial Margin Return on Break Buffer to
Price (per naked put) (per naked put) Margin Even Strike
AEM Agnico-Eagle Mines $65.05 57.50 $49 $624 7.85% $57.01 11.61%
Ltd.
DE Deere & Company $81.69 75.00 $100 $1065 9.39% $74.00 8.19%
DOW Dow Chemical $34.95 32.00 $43 $447 9.62% $31.57 8.44%
Company
GILD Gilead Sciences $41.00 37.00 $39 $459 8.50% $36.61 9.76%
OXY Occidental Petroleum $105.34 95.00 $96 $1169 8.21% $94.04 9.82%
Corp
VLO Valero Energy Corp $25.26 22.00 $26 $246 10.57% $21.74 12.91%
*N.B Please read the ‘Disclaimer’ found on the last page of this report before trading. Prices can change from the release date of this
report to when trades are placed on entry resulting in different prices and returns to the above stated. It is ideal that orders are
placed whilst the market is open to ensure orders are filled as close as possible to the desired price.
Strategy Notes:
1 Put Contract = 100 US Shares
To open the trade we sell a put option at the strike price and to close the trade we either buy back the
same put option or we let it expire.
Premium (per naked put) is the unrealised cash return we receive from writing a naked put at the
current price, which will become realised upon expiry.
Initial Margin (per naked put) is the amount of security, or collateral that Interactive Brokers requires
you to deposit or commit to the trade, which will be returned upon expiry or once the trade is closed.
If the share price is below the strike price upon expiry we will be exercised and have to buy 100 share’s
per naked put contract written, at the strike price.
If the share price is above the strike price upon expiry we will NOT be exercised, our naked put(s) will
expire worthless and we keep the premium.
4. Agnico-Eagle Mines Ltd. (NYSE)
Code Share Strike Premium Initial Return on Break Buffer to
(per naked put) Margin Margin Even Strike
Price
(per naked put)
AEM $65.05 57.50 $49 $624 7.85% $57.01 11.61%
ORDER Example:
- Sell 2 AEM 57.50 Strike August PUT @ $0.49 -
COMPANY OVERVIEW:
Agnico-Eagle is a mid-tier gold miner operating six mines in Canada, Mexico, and Finland, which currently
produce more than 1 million ounces of gold annually. At the end of 2010, Agnico’s gold reserve totalled 21.3
million ounces.
FUNDAMENTALS:
Market Capitalisation $11.00 Billion Sales Growth past 5 Years 42.06%
EPS (past 12 months) 2.11 Return on Equity 10.85%
EPS Growth next 5 Years 10.25% Net Profit Margin 22.23%
TRADE PROFILE:
Over the past several years Agnico-Eagle has invested in an ambitious growth program, bringing five new gold
mines on line between 2008 and 2010. With the price of gold continuing to soar, recently closing at a new all
time high of US$1594.50 per ounce, Agnico is set to reap the benefits while many other gold producers are still
scrambling to increase output. The past 12 months have seen the company’s revenue increase to $1.60 Billion
with a net profit of $355.05 Million. Agnico has not traded at $57.50 since mid 2010 with strong support at the
$60 share price. The 57.50 strike has good downside protection whilst returning 7.85% for the month.
5. Deere & Company. (NYSE)
Code Share Strike Premium Initial Return on Break Buffer to
(per naked put) Margin Margin Even Strike
Price
(per naked put)
DE $81.69 75.00 $100 $1065 9.39% $74.00 8.19%
ORDER Example:
- Sell 1 DE 75.00 Strike August PUT @ $1.00 -
COMPANY OVERVIEW:
Deere & Company designs and manufactures agricultural, landscaping, construction, and forestry equipment.
In addition, the firm typically finances a large portion of these sales through its Deere Credit subsidiary.
FUNDAMENTALS:
Market Capitalisation $34.29 Billion Sales Growth past 5 Years 4.18%
EPS (past 12 months) 5.82 Return on Equity 38.11%
EPS Growth next 5 Years 10.04% Net Profit Margin 8.55%
TRADE PROFILE:
Deere and Company’s brand name has permeated the agricultural equipment industry for nearly 175 years as
its strong dealer network supports its high-quality products. Deere’s recent second quarter earnings posted a
65% increase in profit and raised its outlook for the coming quarter’s earnings announcement. With a return
on equity of 38.11% and earnings consistently beating estimates over the past years has ensured the
dominance and stability of the company against competitors. The recent weakness in the share price should
be seen as a buying opportunity as the 75.00 strike sits below the support of the June low, while a naked put
written at this level returns just over 9%.
6. Dow Chemical Company. (NYSE)
Code Share Strike Premium Initial Return on Break Buffer to
(per naked put) Margin Margin Even Strike
Price
(per naked put)
DOW $34.95 32.00 $43 $447 9.62% $31.57 8.44%
ORDER Example:
- Sell 3 DOW 32.00 Strike August PUT @ $0.43 -
COMPANY OVERVIEW:
Dow Chemical is one of the largest chemical producers in the world. The firm produces a wide array of
products ranging from raw materials used in semiconductor manufacturing, to plastics, to agricultural seeds.
FUNDAMENTALS:
Market Capitalisation $41.09 Billion Sales Growth past 5 Years 3.00%
EPS (past 12 months) 1.85 Return on Equity 12.02%
EPS Growth next 5 Years 7.33% Net Profit Margin 4.53%
TRADE PROFILE:
In 2009, Dow acquired specialty chemical producer Rohm and Haas for an enterprise value of $16.5 billion,
which has bolstered sales and synergy, cementing itself as the largest chemical producer in the world. With
more than 25% of the firm's sales generated in emerging geographies in conjunction with demand remaining
robust in emerging markets have seen Sales over the past twelve months top $55 Billion with a net profit of
$2.13 Billion. Dow chemical has now achieved eight consecutive quarters of margin growth, enhanced
flexibility by paying down $2.5 Billion in debt and recently announced a dividend increase to enhance value for
shareholders. A 32.00 strike returns 9.62% for a naked put written at this level with 8.44% downside
protection.
7. Gilead Sciences Inc. (NASDAQ)
Code Share Strike Premium Initial Return on Break Buffer to
(per naked put) Margin Margin Even Strike
Price
(per naked put)
GILD $41.00 37.00 $39 $459 8.50% $36.61 9.76%
ORDER Example:
- Sell 3 GILD 37.00 Strike August PUT @ $0.39 -
COMPANY OVERVIEW:
Gilead Sciences engages in the discovery, development, and commercialisation of therapeutics for the
treatment of life threatening infectious diseases as well as pulmonary and cardiovascular diseases and cancer.
FUNDAMENTALS:
Market Capitalisation $32.27 Billion Sales Growth past 5 Years 31.41%
EPS (past 12 months) 3.19 Return on Equity 40.60%
EPS Growth next 5 Years 15.41% Net Profit Margin 34.47%
TRADE PROFILE:
Gilead Sciences’ HIV franchise continues to dominate a growing, global market and drive impressive
profitability. However, management has turned to acquisitions to help diversify the company’s risk by
acquiring Myogen in 2006 for $2.5 Billion and CV Therapeutics in 2009 for $1.4 billion giving it advantage over
competitors. Over the past 12 months Gilead has generated $2.77 Billion free cash from $7.95 Billion in
revenue illustrating its fundamental strength. A 37.00 Naked Put is positioned 9.76% below the current share
price, which looks to continue its upward trend.
8. Occidental Petroleum Corp. (NYSE)
Code Share Strike Premium Initial Return on Break Buffer to
(per naked put) Margin Margin Even Strike
Price
(per naked put)
OXY $105.34 95.00 $96 $1169 8.21% $94.04 9.82%
ORDER Example:
- Sell 1 OXY 95.00 Strike August PUT @ $0.96 -
COMPANY OVERVIEW:
Occidental Petroleum is an energy company specializing in the exploration and production of crude oil and
natural gas through enhanced oil recovery, primarily in the United States, Latin America, and the Middle East.
In 2010, production was 753,000 barrels per day and proven reserves stood at 3.36 billion barrel of oil
equivalent.
FUNDAMENTALS:
Market Capitalisation $85.63 Billion Sales Growth past 5 Years 4.73%
EPS (past 12 months) 6.02 Return on Equity 15.39%
EPS Growth next 5 Years 14.20% Net Profit Margin 23.05%
TRADE PROFILE:
Occidental Petroleum Corporation continues its strong growth with higher oil prices in addition to oil and gas
production increasing 4% year over year, boosting the company’s first-quarter earnings with net income rising
to $1.55 Billion, or $1.90 a share, from $1.1 Billion a year ago. OPEC recently raised its forecast of world oil
demand in 2011 to 88.08 Million barrels per day as demand growth would be fuelled by non-OECD countries
like China, India, Latin America and the Middle East. This in conjunction with the Federal Reserve’s recent
Quantitative Easing program, devaluing the US dollar is placing upwards pressure on commodities such as oil
benefiting companies such as Occidental. A significant buffer of 9.82% with the 95.00 strike put sits below
strong support levels as the share price continues its gradual up trend.
9. Valero Energy Corporation. (NYSE)
Code Share Strike Premium Initial Return on Break Buffer to
(per naked put) Margin Margin Even Strike
Price
(per naked put)
VLO $25.26 22.00 $26 $246 10.57% $21.74 12.91%
ORDER Example:
- Sell 5 VLO 22.00 Strike August PUT @ $0.26 -
COMPANY OVERVIEW:
Valero Energy is engaged in the refining and retail marketing of refined petroleum products. As the largest
independent refinery in the US, Valero operates 14 refineries with a total capacity of 2.64 million barrels of oil
per day.
FUNDAMENTALS:
Market Capitalisation $14.40 Billion Sales Growth past 5 Years 0.40%
EPS (past 12 months) 1.94 Return on Equity 7.41%
EPS Growth next 5 Years 8.66% Net Profit Margin 1.23%
TRADE PROFILE:
Valero system of 15 refineries is more complex than competitors’, which allows the firm to process lower-
quality feedstock into a high-value product. Due to this advantage Valero has historically delivered higher
margins that its competitors. With the price of oil on the rise again after a recent speculator sell off and
continued increasing world oil demand ensure Valero’s earnings remain profitable. Valero is not trading that
much significantly higher than it was at the start of the year so a 22.00 strike naked put is well positioned to
withstand any short-term volatility whilst returning 10.57% for the month.
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