All My Net Biz

In Wednesday’s report this column touched upon IBD 100 stock Research In Motion (). Observations on somewhat high implieds levels after its earnings release were offered. One catalyst not mentioned, but also potentially affecting the pricing of the longer-term options is the company’s announcement of a 3-for-1 stock split payable on August 20.

While many traders are familiar with the splitting of shares, many more haven’t been involved with the process as it relates to having positions in the options. In the following two-part series, I’d like to touch upon some of the basics and try to clear up some possible anxieties related to the process.

The most common and easiest to understand is the 2-for-1 stock split. As with a position in the underlying stock, an option position will double. At the same time the premium or contract price and strike involved, will both be halved. For instance, if a position consists of +3 XYZ July 45 Calls at 1.10 on the eve of the split, the next morning when pulling up the account, we should find that in its place we have +6 XYZ July 22.50 Calls at 0.55.

If one is unsure of the math, just remember that the aggregate value of the ‘new’ position must match the value of what was previously in the account. In this instance both (3 x 1.10) and (6 x .055) result in $330 in premium. If this wasn’t the case, investors should notify their broker and the Options Clearing Corp.

A 3-for-1 split, which is what will occur in RIMM, is another common split type. Because of its denominator of 1, this too makes for mostly easy math. For illustration purposes lets look at what +4 September 200 Puts at 9.90 would look like, were RIMM’s ex-split to occur tomorrow. The new position would consist of +12 Sept 66.67 Puts for 3.30. Again, by multiplying we can confirm that the same aggregate value is in our account and that Santa’s Elves have done a good job overnight while traders rest.

How about, a bit more of a complicated split involving a dreaded “non-one” denominator? Let’s look at Brookfield Asset Management (), which early last month did a 3-for-2 split. First, investors might have an easier time by realizing that this ratio is the same as 1.5-for-1 and figuring the math that way. That in of itself, though, may be seen as presenting a problem. Now our ratio maintains a non-whole number. The question of how are we going to split our existing contracts might seem like a dilemma. For instance, if a position consisted of +3 Calls pre-split, will we now have +4.5 Calls in our account? In Friday’s conclusion we’ll move through the answer to this “odd” split problem.

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Forget fall leaf tours or autumndayson a cottage dock vacationers aresigning up fora September trip to frolic inAlberta’s oilsands.

Classic Canadian Tours will fly passengers from Calgary to Fort McMurray to get a first-hand glimpse of what isdriving theprovince’s economy.

Brenda Trockstad, a spokeswoman for the Calgarytravel company,saidcustomers willtour the Oil Sands Discovery Centre, visit Suncor’ssite “to get a close up view of what it takes to extract oil from the tar sands,”and see a park reclaimed from past developments.

Geologists aren’t the only people plunking down more than $500 for the one-day trip, she said.They’ve taken bookings from professors, retirees, farmers, andeven investors who want to see what energy companies are doing.

“We kind of thought of it as being for a man, the equivalent of a woman going to a spa,” she said. “I must say that more than half of our people coming on this tour so far are women.”

A view of the Suncor Energy plant north of Fort McMurray.
(Canadian Press)

Marius Vos, a retired engineer who lives on Vancouver Island, has booked his ticket. He recalls a university professor speaking decades ago about the northern oilsands and he’s just curious to see what’s happening there.

“I would like to see what equipment they have up there and how they work it,” he said. “They’re spending billions of dollars up there, several different companies.It’s mind-boggling, I’m quite sure, butI can’t imagine it from here so I’d like to see it first hand.”

Trockstad says based on the interested calls from customers, the company will be offering more one-day trips in the future.

Pacific Century Group, a company controlled by Canadian Richard Li, confirmed that it is involved with a consortium led by Cerberus Capital Management looking at buying BCE Inc.

“Discussion with the consortium is still at an early stage with the level of participation by PCG still undecided, but it is likely to be a minority stake,” the firm said in a brief news release.

Richard Li is the son of Hong Kong billionaire Li Ka-shing. The Li family controls Husky Energy Inc.

BCE confirmed on May 23 that New York-based Cerberus and its consortium had entered into takeover discussions.

Last month, BCE also confirmed that it was in privatization talks with a consortium led by the Canada Pension Plan Investment Board. That consortium included the Caisse de dpt et placement du Qubec, Canada’s Public Sector Pension Investment Board and Kohlberg Kravis Roberts and Co., a New York-based private equity firm.

BCE’s biggest shareholder, the Ontario Teachers’ Pension Plan, has also signalled that it may lead a bid for BCE.

Canada’s housing market is heading for gradual cooling, while changing demographics will influence the types of shelter that will be in demand, an economist with Scotiabank said Monday.

Economist Adrienne Warren said that a slower period for the home market is on the horizon as affordability wanes, supply improves and demand for housing eases.

At the same time, slower population growth is expected to also ease housing demand.

“This less favourable demographic trend does not in itself pose a major risk to the housing outlook,” Warren said as part of the release of Scotiabank’s latest real estate trends outlook.

Warren said that with historically low birth rates and slow population growth, immigration willbe an increasingly important factor in the housing market.

Immigration has been the dominant source of household formation since the early 1990s, she said, adding that the trend will only increase while natural population growth ebbs.

“More than one-third of foreign-born residents in Canada’s largest urban centres have been in Canada for10 years or less,” she said. “This suggests a significant pool of potential homebuyers ready to enter the Canadian real estate market.

“The ‘typical’ homebuyer in the coming decade will not be as traditional as in the past, having more diverse social and demographic characteristics.”

U.S. crude futures ended more than 3% higher on Wednesday after government data showed that crude stocks fell last week as refinery usage rose.

Crude touched off a short-covering rally around midday after weakening earlier as refined products fell in the initial reaction to data showing gasoline and distillate inventories rose last week.

Gasoline futures recovered from session losses to post strong gains as some traders took the day’s price dip as a buying opportunity, some analysts said.

Heating oil futures also recouped losses to end higher.

Electronic trading of NYMEX energy futures in the Chicago Mercantile Exchange’s Globex platform suffered a technical glitch late morning and was down for more than an hour.

On the New York Mercantile Exchange, September crude settled up $2.32. or 3.1%, at $75.88 a barrel, after trading after trading from $73.10 to $75.92. After settlement, September crude continued to rise, hitting $76.13.

While crude stocks fell within market expectations, some analysts attributed the rally to a big drop in supplies stored in the Cushing, Okla., delivery point for NYMEX-traded crude.

At the Midwest hub, crude stocks fell 1.4 million barrels, or 6.2%, to 21.2 million barrels, the data showed.

“The market is generally concerned about that draw in Cushing. Regardless of the supplies we see elsewhere in the United States, we are still seeing draws at Cushing. I think that has underpinned the market.” said Stephen Schork, president of the Schork Report.

In London, September Brent was up $1.27, or 1.7%, at $76.35 a barrel, trading from $74.23 to $76.40.

In New York, NYMEX August RBOB gasoline gained 4.02 cents, or 2%, to settle at $2.0879 a gallon, after trading $2.02 to $2.0958.

“There is nothing bullish about the EIA report on gasoline, but a lot of people may have covered shorts,” said Eric Wittenauer, analyst at A.G. Edwards in St. Louis, Missouri.

“Also, we’ve seen that recently people like to add longs over dips and this is probably a case where they saw the dip as a buying opportunity,” he added.

The U.S. Energy Information Administration said for the week ending July 20, U.S. crude stocks fell 1.1 million barrels to 351 million barrels, against forecasts in a Reuters poll for a draw of 1.2 million barrels.

Domestic production dipped 17,000 bpd, or 0.3 %, to 5.18 million barrels per day while imports were nearly static at 10.38 million bpd.

Refinery utilization rose 0.7 percentage point to 91.7% of production, just below the average forecast for a 0.8 percentage point increase.