With the XJO experiencing a series of sell-offs in September, the market may hit some key support levels in the coming sessions. For this week’s trade of the week, I will be writing about entering a long call position when the XJO hits the 200 DMA.

If you watch ‘The Next Big Trade’ webcasts you would have heard me talking about my expectation around XJO hitting the 200 DMA. Basically, seeing the market has not tested this level since the 3rd of September 2020, we expect there will be many buyers lining up their trades at this level. If the market tests this level in the coming days we expect the subsequent buying pressure to push the XJO higher over the short term.

Source: Implied Volatility

From a technical viewpoint the XJO has been experiencing lower highs and lower lows during the month of September 2021, and has broken through to the underside of the 50 DMA. We say the market test the 7200 level on the 21st of September 2021 and quickly rebound in the following days. We expect the same thing to happen when the market tests the 200 DMA, potentially with a stronger and higher bounce.

Seeing we are expecting a bullish move after hitting the 200 DMA we will just select a ‘long call’ which is expected to deliver a strong payoff if the market rises, and won’t cap our gains.

Source: Implied Volatility

Enter position:

Long XJO 7150 21 October 2021 Call (A)

If the market hits the 200 DMA over the next 3 weeks, we will select the October monthly expiry as we expect a quick rebound, and the monthly expiry should have good liquidity. Our position will be slightly out-of-the-money, roughly 50 points above the 200 DMA.

If the market does behave how we expect, we see the major resistance levels after the bounce at 7200, 7340, and around the 7400 and 50 DMA levels. If you want to play it safe, you can choose to close the position after a small short term bounce. If you expect a stronger rebound, you can hold until the market trades near the 50 DMA.

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We wish you good luck with your trading, and as always if you have any questions, please feel free to contact our trading desk on (03) 8080 5795. Please note, we provide General Advice only. 

Past performance is not a reliable indicator of future performance. 

The opinions expressed in this article are our personal views. 

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