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Trade of the Week – Long put on BHP Group Limited

June 8, 2022

Trade of the Week – Long put on BHP Group Limited

Over the past month, BHP Group Limited (ASX: BHP) has bounced off its 200-day MA support (10th May) and broken through the 50-day MA (30th May) to trade near recent highs, closing at $46.76 on 3rd June. The stock is sitting at a major resistance level and may pull back down if the iron ore price fails to break through its current resistance around the 50-day MA.

Over the past month, BHP Group Limited (ASX: BHP) has bounced off its 200-day MA support (10th May) and broken through the 50-day MA (30th May) to trade near recent highs, closing at $46.76 on 3rd June. The stock is sitting at a major resistance level and may pull back down if the iron ore price fails to break through its current resistance around the 50-day MA.

Source: Implied Volatility

While there is a chance the stock will break out further in the positive direction, from a technical view the stock has moved towards recent highs and is feeling some resistance at the current price level.

A long put has been selected as it’s a bearish strategy and will benefit from an uptick in implied volatility if the market pulls back quickly and significantly. Implied volatility is currently at relatively low levels, with BHP having an IV rank of 27, meaning long positions are relatively cheap to buy.

 

Source: Implied Volatility

Consider setting the strike price of the long American put to $45.48 with an expiry on 21st July 2022. Also by setting the expiry out to July should allow some time for the stock to pull back. By trading an American-style option, it may make the most of beneficial downward movements prior to the expiry date.

Source: Implied Volatility

The breakeven point is around $44.03 on expiry. The maximum loss is the upfront premium paid to enter into the position. You could consider closing the position if the market quickly moves to the $44 level, where the 50-day MA is expected to provide some support on the way down. This will allow you to retain much of the time value remaining. If you are more bearish on the stock, you could hold until it falls towards the $40 or 200-day MA support levels.

 

Source: Implied Volatility

For further information on using the Implied Volatility platform you can follow this link, here.

To try trading for yourself using the most powerful Options Trading technology in Australia, click here for a trial for our Implied Volatility platform.

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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General Advice Warning

Any advice provided by Reach Markets including on its website and by its representatives is general advice only and does not consider your objectives, financial situation or needs, and you should consider whether it is appropriate for you. This might mean that you need to seek personal advice from a representative authorised to provide personal advice. If you are thinking about acquiring a financial product, you should consider our Financial Services Guide (FSG) including the Privacy Statement and any relevant Product Disclosure Statement or Prospectus (if one is available) to understand the features, risks and returns associated with the investment.

Please click here to read our full warning.

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