Tuesday, December 11, 2007

APPLE-C1 & EXMOBIL-C1 listed

Today, we have the listing of 4 CWs from OSK, i.e. APPLE-C1, CHOLAND-C1, EXMOBIL-C1 and PINGAN-C1. I do not intend to cover the CWs of the Hong Kong-listed CHOLAND and PINGAN, for now. Instead, I shall look at APPLE-C1 and EXMOBIL-C1. The main terms are highlighted below (together with GOOGLE-C1).

Based on yesterday's closing price of the underlying shares & this morning price (at 9.30 am) for the CWs, their premium are computed & shown in the above table. It is unfair to compare EXMOBIL-C1's premium with those of APPLE-C1 & GOOGLE-C1, since the latter 2 CWs should command a higher premium because of their higher volatility. One may prefer APPLE-C1 over GOOGLE-C1 as the former instrument is trading at a lower premium than the latter.

The Valuation Measures for the 3 underlying stocks are presented below. You may note that both APPLE & GOOGLE are currently trading at PE of about 50-56 times their trailing earning, while EXMOBIL trades at 13 times its trailing earning.

Data provided by Capital IQ

I have presented below the daily charts for all 3 stocks. We can see that all 3 stocks have risen quite significantly since their August low. The price gain are very substantial for APPLE & GOOGLE (at 75% and 53%, respectively), while EXMOBIL has risen by 18% during that period.

Chart 1: APPLE's daily chart as at December 10 (courtesy of Yahoo Finance)

Chart 2: GOOGLE's daily chart as at December 10 (courtesy of Yahoo Finance)

Chart 3: EXMOBIL's daily chart as at December 10 (courtesy of Yahoo Finance)

Based on the rising trend of all 3 stocks, one may expect this trend to continue. If so, the aggressive approach is to position ourselves in the CWs of these stocks. This is a high risk trading strategy in a very volatile period, where one should not be surprise if the price of the underlying stocks were to adjust downward sharply. If this were to occur, the drop in the price of the CWs would be even sharper.

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