Last week was a good one for equities - with the dramatic exception of the insurer Prudential, that is.  Prudential shares have suffered a calamitous week, slumping by 14% to 518p after announcing an ambitious expansion move.  The company plans to buy the Asian life insurance business of AIG for US$35bn, and because AIG needs to repay money to the government, it will largely be a cash transaction.  This means a record US$21bn rights issue for Prudential, which is asking a lot of its investors, who are unsure of the merits of the deal.  This is why the shares have been sold off so sharply.  The PRU_6.00_Put_18-Jun-10 (SW74) series of covered warrants has risen by 80% in response, and some out-of-the-money puts have risen even more strongly.

Fortunately for the market indices, the move in Prudential was very much against the prevailing trend, which was up.  The FTSE 100 Index is flirting with the 5600 level now, having started the week barely over 5400.  That’s a good rise, and has provided a timely boost to call covered warrants on the index such as the FTSE 100_5600_Call_19-Mar-10 (SV32) series, up by a dramatic 246% over the week.
 

Mining stocks were back on good form this week as metals prices rose on news that China is sticking with its economic stimulus programmes.  BHP Billiton shares were up by almost 10% to £21.96, tantalisingly close to the strike price of the BLT_22.00_Call_19-Mar-10 (SU71) series, up by 306% on the week.  Good gains were also recorded by call covered warrants on Xstrata, Anglo American, and Rio Tinto.
 

The other main feature of the week was the oil giant BP, which pleased the market with an operational strategy update.  The company’s chief executive Tony Hayward outlined plans to increase annual profits by more than US$3bn over the next two to three years.  Analysts received the news with some enthusiasm, and BP shares finished the week with a near-6% gain to 612.8p.  In response the BP_6.00_Call_19-Mar-10 (SV80) covered warrants rose by 136%.

Andrew McHattie