Sunday, November 26, 2006

Westfield idea - using options

I have been looking at a play on westfield group for some time and thought I would write about it.

The stock is currently showing a 5.3% dividend yeild which is ok but not the greatest for an income providing security. I think we want to get at least 6% on our money otherwise we could just drop it in a high interest bank account.

Lets assume we are working on the dividends for 2007 which are estimated at 106.9c. They are paid in Feb and Aug.

We first work out the 6% yeild price. This is approx $17.80 The current price is $19.65. This is a fair bit away from our target price.

The only way we can get into WDC out our price is to use options. For this I am looking at my reutrn over the next 7 months as this will take us to the end of the financial year.

If we were to buy WDC we would get a dividend of approx 54c before july and would have the chance for a possible capital gain. This yeilds us approx 2.7% for the 7 months.

Alternatively we could do the following :

Put the money ($19,650) in an ING account at 6.0% for 7 months which would return approx $690. We then sell an option at 18.00 for April at 30c returning approx $300. This means in the time till July we have produced an income of $990 opposed to the dividend of only $540.

We have given ourselves a chance to get into the stock out our own price and we have effectively movedthe yeild from 5.3% to approx 8.6%.

There are numerois other shares you can do this with. The trick is to stick to good shares and have a target price.

Good Luck

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