FMG - Fortescue Ltd

[over9k]

I'm starting to get a FOMO feeling.

That usually means it's time to sell.

 

[basilio]

I bought 50 call options a week ago for September between 23-26.50. It's run up has been generous the last couple days.

It's future is heavily linked to iron ore prices but I don't think that means its overvalued. I said it in another thread earlier this year but these iron ore companies are priced as if the iron ore price is going to head downhill rapidly in the near future so the risk is very measured.

This time last year FMG paid a dividend yield of 5.3% of the share price before ex-div August 28 2020. Earlier in the year they paid a 6.1% half year dividend based on the sp on 26 Feb.

FMG is widely projected to pay a final dividend between $2-2.50 (and should be on the higher side IMO). That represents 7.9% to 9.9% yield on the current share price of $25.23. Figures before franking credits of course.

Timing for options is tricky and I hope it continues this trend, but long term I think there are a few resource stocks that are heavily undervalued on fundamentals. FMG in particular I think has negative value and sentiment attached for FFI and Iron Bridge due to capital concerns of the former and multiple delays of the latter. Iron Bridge even at long term iron ore prices should offer spectacular returns.

All IMO.

FMG has gone on tear this week. The 6 months earning figures are imminent and, as noted, a franked final dividend of probably $2.50 a share is on the table. I think the $2 jump in SP since last Friday reflects investor interest in this dividend.

 

[Gunnerguy]

My August 25.5 covered calls look to be threatened. I could always ladder up and sell some 27 or 28.
Gunnerguy
(slowly slowly catchy monkey)

 

[striek]

FMG has gone on tear this week. The 6 months earning figures are imminent and, as noted, a franked final dividend of probably $2.50 a share is on the table. I think the $2 jump in SP since last Friday reflects investor interest in this dividend.

Also the fact the iron ore price is still stubbornly trending upwards.

I don't think FMG is the best investment in miners right now. There are a bunch of junior miners that have recently started their first shipments, or are about to, and are not priced appropriately. If IO prices remain elevated many will quickly generate profits equal to many times their EV that they could return to shareholders (ie. timeframes of 1-2 years) whilst still being good value even at lower revenues.

Iron ore prices will go back down eventually. Finding companies early that sit well on the cost curve and hold good tenements for the future will make for long term profitable buy and hold trades.

IMO

My August 25.5 covered calls look to be threatened. I could always ladder up and sell some 27 or 28.
Gunnerguy
(slowly slowly catchy monkey)

It depends on what your outlook is and if it has changed since you sold the covered calls. If you expect FMG to trade sideways or range-bound you can simply hold and take a profit on assignment or buy back the calls at or near expiry for peanuts as theta decays to nothing. If your opinion has changed significantly and you think it might cross your new covered call targets then rolling for a debit might not be in your best interest and you should buy back your calls and realize a loss.

I had a 22-23.5 bull call spread for July not expecting it to pop so soon. After I realised it had begun I actually bought 24 calls, and later bought back the 23.5 calls last week for a loss (it was almost entirely intrinsic though) so I could let the 22's run further.

 

[Value Collector]

FMG has gone on tear this week. The 6 months earning figures are imminent and, as noted, a franked final dividend of probably $2.50 a share is on the table. I think the $2 jump in SP since last Friday reflects investor interest in this dividend.

Can I take this opportunity to toot my own horn again and say that all the way back on May 4th I mentioned that I thought FMG would head towards $30 before the end of August before it goes ex Div.

 

[Value Collector]

My August 25.5 covered calls look to be threatened. I could always ladder up and sell some 27 or 28.
Gunnerguy
(slowly slowly catchy monkey)

I did mention to be cautious about selling calls dated before the ex div in august.

maybe roll it puts to September, the share price drop after ex dividend might protect you then.

look for a European style, rather than American so it can’t be exercised early.

the European puts are normally 1cent higher in strike.

eg if American is $25.00 strike, the euro with be $25.01

 

[Value Collector]

Also the fact the iron ore price is still stubbornly trending upwards.

I don't think FMG is the best investment in miners right now. There are a bunch of junior miners that have recently started their first shipments, or are about to, and are not priced appropriately. If IO prices remain elevated many will quickly generate profits equal to many times their EV that they could return to shareholders (ie. timeframes of 1-2 years) whilst still being good value even at lower revenues.

Iron ore prices will go back down eventually. Finding companies early that sit well on the cost curve and hold good tenements for the future will make for long term profitable buy and hold trades.

IMO

It depends on what your outlook is and if it has changed since you sold the covered calls. If you expect FMG to trade sideways or range-bound you can simply hold and take a profit on assignment or buy back the calls at or near expiry for peanuts as theta decays to nothing. If your opinion has changed significantly and you think it might cross your new covered call targets then rolling for a debit might not be in your best interest and you should buy back your calls and realize a loss.

I had a 22-23.5 bull call spread for July not expecting it to pop so soon. After I realised it had begun I actually bought 24 calls, and later bought back the 23.5 calls last week for a loss (it was almost entirely intrinsic though) so I could let the 22's run further.

When iron ore prices are high, the small high cost producers will see the biggest returns as the move from being loss making or marginally profitable to being decently profitable.

however, when the low prices return these junior players are normally wiped out.

to me it’s always a better strategy to stick to the low cost producers, that become super profitable in good times, while also being able to survive during low prices.

 

[striek]

When iron ore prices are high, the small high cost producers will see the biggest returns as the move from being loss making or marginally profitable to being decently profitable.

however, when the low prices return these junior players are normally wiped out.

to me it’s always a better strategy to stick to the low cost producers, that become super profitable in good times, while also being able to survive during low prices.

Couldn't agree more. Thats why I mentioned costs and tenements. Owning a lot of rocks you can ship cheaply is a guaranteed long term winning strategy.

 

[basilio]

Couldn't agree more. Thats why I mentioned costs and tenements. Owning a lot of rocks you can ship cheaply is a guaranteed long term winning strategy.

Indeed it is However as VC pointed out it would be surprising if the new smaller miners will have the cost efficiencies created by, say FMG. It would be interesting to see their figures on production costs, transport costs in comparison to others.

I also suspect they would be carrying some decent capital repayment costs which would weigh on their profitability.

Having said all that, the small iron ore miners have done exceptionally well in the last 12-18 months in terms of SP so clearly those investments have done very well.

 

[againsthegrain]

How does fmg dividend work, is there paperwork to fill out once the dividend is issued as in to reinvest or have it paid out? I picked up just under 500 shares 2 or 3 months ago

 

[Gunnerguy]

Also the fact the iron ore price is still stubbornly trending upwards.

I don't think FMG is the best investment in miners right now. There are a bunch of junior miners that have recently started their first shipments, or are about to, and are not priced appropriately. If IO prices remain elevated many will quickly generate profits equal to many times their EV that they could return to shareholders (ie. timeframes of 1-2 years) whilst still being good value even at lower revenues.

Iron ore prices will go back down eventually. Finding companies early that sit well on the cost curve and hold good tenements for the future will make for long term profitable buy and hold trades.

IMO

It depends on what your outlook is and if it has changed since you sold the covered calls. If you expect FMG to trade sideways or range-bound you can simply hold and take a profit on assignment or buy back the calls at or near expiry for peanuts as theta decays to nothing. If your opinion has changed significantly and you think it might cross your new covered call targets then rolling for a debit might not be in your best interest and you should buy back your calls and realize a loss.

I had a 22-23.5 bull call spread for July not expecting it to pop so soon. After I realised it had begun I actually bought 24 calls, and later bought back the 23.5 calls last week for a loss (it was almost entirely intrinsic though) so I could let the 22's run further.

@striek
Thanks for you great comment. This is exactly the wonderful ASF community provides !!
I looked at buying the calls back and incurring a loss but they are very expensive compared to my credit ?, obviously.
I could just be happy and be assigned, incur the trading costs, but overall with my held shares I would be happy with the profit. I’m gonna just hold a little longer and see what happens.
Thanks
Gunnerguy

 

[Go Figure]

How does fmg dividend work, is there paperwork to fill out once the dividend is issued as in to reinvest or have it paid out? I picked up just under 500 shares 2 or 3 months ago

How to Participate
You may elect to participate by completing a Dividend Reinvestment Plan Application or Variation Form (DRP Form) and returning it to the Fortescue Share Registry. Additional DRP Forms may be obtained from the Fortescue Share Registry.
You may participate in the DRP at any time. Your participation will commence with the first dividend paid after receipt of a valid DRP Form. However, the DRP Form must be received before 5:00pm (Perth time) on the first business day following the Record Date to participate in that dividend.

If possible perhaps also notionally consider pocketing the Dividend and Franking Credit and purchase shares Ex Div.

If IO price averages remain over $150 leading up to Ex Div date, there is certainly a case for a further healthy interim dividend for 21/22 and may not have the dramatic SP drop seen after the interim dividend for 20/21.

 

[Gunnerguy]

I did mention to be cautious about selling calls dated before the ex div in august.

maybe roll it puts to September, the share price drop after ex dividend might protect you then.

look for a European style, rather than American so it can’t be exercised early.

the European puts are normally 1cent higher in strike.

eg if American is $25.00 strike, the euro with be $25.01

Value Collector,
Thanks for your comment and idea. I have looked at buying some September puts around the current share price. I looked back to see how much the share price has dropped in the past at XD. It seems to vary a bit. If the dividend is 'minimum' $2 then 'conventional theory' would suggest that the share price would drop by the equivalent.
With the SP at 25.72 today. Quarterly results on 29th July, FY results on 30th August, (XD date ??). If SP rises to say, 28 by XD, buying a September 26 ($2.715) put now I guess would be an idea and the SP dropping back down to (28 - 2.5) = 25.5.
Buying a put (Debit, BTO), I presume with the hope the SP goes lower after the XD date and the put value increases and I sell (STC).
Gunnerguy.
(strategy learner)

 

[againsthegrain]

How to Participate
You may elect to participate by completing a Dividend Reinvestment Plan Application or Variation Form (DRP Form) and returning it to the Fortescue Share Registry. Additional DRP Forms may be obtained from the Fortescue Share Registry.
You may participate in the DRP at any time. Your participation will commence with the first dividend paid after receipt of a valid DRP Form. However, the DRP Form must be received before 5:00pm (Perth time) on the first business day following the Record Date to participate in that dividend.

If possible perhaps also notionally consider pocketing the Dividend and Franking Credit and purchase shares Ex Div.

If IO price averages remain over $150 leading up to Ex Div date, there is certainly a case for a further healthy interim dividend for 21/22 and may not have the dramatic SP drop seen after the interim dividend for 20/21.

thanks for the info, yes it does seem like a good idea to pocket the dividend then enter when it settles a bit.

So if I take no action does the dividend come through to my broker? I assume I need to somehow provide my bank details and tfn

p.s first time I am holding a dividend paying stock, the time has come to start transforming into a more respectable gentleman as I near my 40s rather then only playing with dirty questionable specs

 

[Go Figure]

thanks for the info, yes it does seem like a good idea to pocket the dividend then enter when it settles a bit.

So if I take no action does the dividend come through to my broker? I assume I need to somehow provide my bank details and tfn

p.s first time I am holding a dividend paying stock, the time has come to start transforming into a more respectable gentleman as I near my 40s rather then only playing with dirty questionable specs

If your FMG holdings are valued less than $50,000 you could go to linkmarketservices.com.au follow prompts and have your SRN/HIN: Xxxxxxxxxxxx handy and add or update your TFN or ABN, Bank Details and make a DRP Election if you wish to.

 

[striek]

Value Collector,
Thanks for your comment and idea. I have looked at buying some September puts around the current share price. I looked back to see how much the share price has dropped in the past at XD. It seems to vary a bit. If the dividend is 'minimum' $2 then 'conventional theory' would suggest that the share price would drop by the equivalent.
With the SP at 25.72 today. Quarterly results on 29th July, FY results on 30th August, (XD date ??). If SP rises to say, 28 by XD, buying a September 26 ($2.715) put now I guess would be an idea and the SP dropping back down to (28 - 2.5) = 25.5.
Buying a put (Debit, BTO), I presume with the hope the SP goes lower after the XD date and the put value increases and I sell (STC).
Gunnerguy.
(strategy learner)

I believe he meant roll it out.

If you think the share price will be $25.50 ex-div on Sept 1 then the $26 put will probably be worth about 80 cents by then. Quite a loss.

 

[againsthegrain]

If your FMG holdings are valued less than $50,000 you could go to linkmarketservices.com.au follow prompts and have your SRN/HIN: Xxxxxxxxxxxx handy and add or update your TFN or ABN, Bank Details and make a DRP Election if you wish to.

Thanks for that, will do exactly that.

 

[frugal.rock]

Thanks for that, will do exactly that.

Not sure if you're planning to do DRP, but if you do, there's usually a discount applied to the reinvested money.
You could look back at past announcements to see what approx discount they may give if interested.

 

[Value Collector]

Value Collector,
Thanks for your comment and idea. I have looked at buying some September puts around the current share price. I looked back to see how much the share price has dropped in the past at XD. It seems to vary a bit. If the dividend is 'minimum' $2 then 'conventional theory' would suggest that the share price would drop by the equivalent.
With the SP at 25.72 today. Quarterly results on 29th July, FY results on 30th August, (XD date ??). If SP rises to say, 28 by XD, buying a September 26 ($2.715) put now I guess would be an idea and the SP dropping back down to (28 - 2.5) = 25.5.
Buying a put (Debit, BTO), I presume with the hope the SP goes lower after the XD date and the put value increases and I sell (STC).
Gunnerguy.
(strategy learner)

Sorry, I meant Roll your August Calls to September calls. (I said puts by mistake) by doing that the share price drop after Ex dividend might drop back below your strike, you might also be able to collect a net credit.

 

[Gunnerguy]

Value Collector
Thanks for clarifying.
You know .... even having invested in shares for 30 years, being a Math and excel geek, and having 2 types of degrees in finance, this options stuff is still tricky. You have to be a bit Schizophrenic ....... there are credits and debits, calls and puts. You can be on one side of the trade, or the other. You have to look at it from the writers side and the sellers side. What you are 'selling' and how that exposes oneself, and buying if you want to. And then ttheres time decay.......... **** man this takes a twisted brain to work it out. I guess I better put the bottle of red wine away .....
Gunnerguy.
(If it was easy everybody would do it. 5 weeks trading options ....... 5 cases of beer 'realised' so far)