BHP Billiton Ltd. (NYSE: BHP) opened at $61.04. So far today the stock has hit a low of $60.35 and a high of $62.02. As of 10:50, BHP is trading at $61.11, down $2.96 (4.6%).After hitting a one year high of $68.88 in July, the stock has taken a couple of big hits over the past month. Trade union Solidarity is threatening a strike over wages beginning this weekend that would disrupt output at mines owned by BHP and several competitors including Anglo American PLC (NASDAQ: AAUKD). Anglo Platinum and Impala Platinum Holdings recently reached a deal with unions that will increase wages by up to 10% for nearly 40,000 employees at the companies' South African mines. Technical indicators for BHP are bullish but deteriorating, while S&P gives the stock a very negative 1 STARS (out of 5) strong sell rating.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $70 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk and leverage returns. For this particular trade, we will make an 8.7% return in just 6 weeks as long as BHP is below $70 at September expiration. BHP would have to rise by more than 14% before we would start to lose money.
BHP has never been above $70 at all this year, and has shown some resistance around $65 recently. This trade could be risky if metal prices soar further, but even if that happens, it could be tough for the stock to get back over the $69 level where it topped out in July.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in BHP or AAUKD.
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Reader Comments (Page 1 of 1)
8-09-2007 @ 12:56PM
Gumby said...
Brent
why are you still aching for bloody foreign miners while we have perfectly good American miners here.?? BHP is not a pure play miner. It is a hodge podge of mines and it is already overvalued . Why are we still hurting around Alcoa which is still the cheapest bet around... Phelps Dodge shot to 250 from 25 just 5 years ago because we are paying $3.50 per pound of copper where we are supposed to long ago. We are getting away with cheap aluminium for too long. We are lying to investors that China is still exporting aluminium. It is a big bloody lie all along. Alcan are being stolen by Rio for cheap at $38 billion because aluinium is supposed to go to $3 a pound. When it happens, Alcan shareholders will feel dumb voting for Rio offer next month. Alcan shareholders can still vote NONONONONONONO to Rio offer and go back to Alcoa offer which is far superior because together Alcoa and Alcan can produce over 8 million tons against only 5 m illion tons by Rio Alcan together. It is not about price offer it is about market share and the flexibility to grow . Alcan CEO Albanese is eager to sell out at shareholders expense in the future. He is not itnereested in superior market share if Alcoa get alcan. Why are you bloggers thinking so differently???
8-09-2007 @ 12:58PM
Gumby said...
I am so thrilled that BHP dropped the idea of buying Alcoa. good riddance, BHP!!!! I dont want BHP to buy Alcoa and bury it into its huge portfolio. I prefer to hold Alcoa or Alcan/Alcoa for pure play opportunities. It is too bad that Alcan accepted Rio offer. Rio is as bloody rotten as BHP . Alcan shareholders will miss the coming aluminium rally that had been intentionally delayed and delayed. We will have rapid growth in demand for aluminium as we will put them in more cars. I dont care if Boeing is using less aluminium for new jets. I really dont care because overall, aluminium will grow and grow in demand forever. I will be content to hold Alcoa or Alcoa/Alcan forever. It is a good stock. Too bad for Alcan shareholders but they can still vote down Rio offer next month. Why cant you write about that?? You can suggest that they can still VOTE DOWN RIO OFFER!!! You hear me???? Why be silent???
8-09-2007 @ 12:59PM
Gumby said...
Go home bloody Brits and Aussies!! Keep your hands off Alcoa!!! and Alcan too... Alcan belonged to Alcoa long time ago and it is suppposed to go back with Alcoa now. You can have the rest of the world to dig mines for all I care.. stay out!! Bloody Brits and Aussies!!