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Buy LG Display Put Options, Morgan Stanley Strategists Say

June 19, 2011

(Adds profit in fifth paragraph.)

June 20 (Bloomberg) -- Investors should buy LG Display Co.’s bearish options because the world’s second-largest maker of flat screens may extend losses as television demand slows, Morgan Stanley equity derivatives strategists said.

Viktor Hjort and Gaurav Rastogi recommended buying three- month over-the-counter put options giving the right to sell LG shares at 10 percent below the current level. Shares of the Seoul-based company slumped 6.8 percent to a two-year low of 28,200 won on June 17 after UBS AG cut its rating on the liquid- crystal-display industry.

LG faces slowing TV demand, industry “overcapacity’ and lower panel prices, the strategists said in a June 17 report citing stock analyst Keon Han’s expectation that the company risks missing 2012 analysts’ earnings estimates. Han rates LG at ‘‘underweight” and has a one-year share-price forecast of 23,000 won, or 18 percent below the last close, according to the report. LG has a “buy” or equivalent rating from 35 of 44 analysts tracked by Bloomberg.

Implied volatility, the key gauge of option prices, for at- the-money options expiring in three months is 32, the strategists said. That’s close to its average over the past year and about the same as realized volatility over the past month, they said.

“Sluggish” television demand stems from an economic slowdown in the Europe and the U.S., and a recovery won’t come in the near term, Shinyoung Securities Co. said in a June 17 report. LG Display had a net loss of 115.4 billion won ($107 million) in the three months ended in March.

The company’s shares have tumbled 29 percent this year, compared with a 0.3 percent drop in the benchmark Kospi Index. LG Display rose 0.5 percent today, halting an eight-day, 17 percent decline. It was the stock’s longest losing streak since September 2006.

--With assistance from Saeromi Shin in Seoul. Editors: Joanna Ossinger, Darren Boey

To contact the reporter on this story: Jeff Kearns in New York at

To contact the editor responsible for this story: Nick Baker at

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