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Trade Of The Week: Iron Condor on Woodside Petroleum Limited (ASX:WPL)

July 7, 2021

Trade Of The Week: Iron Condor on Woodside Petroleum Limited (ASX:WPL)

With the OPEC+ meeting unable to meet an agreement on oil supply we have seen a small volatility increase across the oil sector. Woodside’s Implied Volatility has jumped from the low 20’s in mid April to 31 today. This change in IV and the alignment of Woodside’s moving averages and share price has triggered our quant tested iron condor trade scanner to present this trade.

With the OPEC+ meeting unable to meet an agreement on oil supply we have seen a small volatility increase across the oil sector. Woodside’s Implied Volatility has jumped from the low 20’s in mid April to 31 today. This change in IV and the alignment of Woodside’s moving averages and share price has triggered our quant tested iron condor trade scanner to present this trade.

Our quant tested iron condor trade ideas come in 3 classifications:

    1. Gold – 85 points and above
    2. Silver – 75 points and above
    3. Bronze – 70 points and above

These classifications are based on the risk/reward profile of the position using quant-tested data. (But keep in mind past performance is not a reliable indicator of future performance). Anything under 70 will not flag our trade scanners.

Coming in at 75 points, this trade is classified as a ‘silver’ iron condor trade idea.

The stock is at the upper end of it’s recent $21.50 to $24.00 trading range where it has been since mid-April 2021. Prior to this the market was trading between $24.00 and $26.00 since February 2021. The stock is currently trading near it’s 50 day and 200 day MA’s (both meeting at $22.90) which suggests the short term, medium term, and long term price action is somewhat aligned.

Source: Implied Volatility

 

For those subscribers on the IV Complete version of the platform, you can find this trade by clicking on ‘Home’ along the orange strip at the top of the platform. On the lower RHS of the page, the trade idea is listed. You can click ‘Place Trade’ to enter it straight into the market, or ‘edit idea’ to make your own changes.

Source: Implied Volatility

Enter Iron Condor Strategy:

Source: Implied Volatility

  • The trade scanner has selected American options for the sold legs. You may edit and choose European options if you wish to avoid risk of assignment prior to expiry.
  • The strike prices are set around recent price action and the 50 and 200 DMA’s.
  • We set the expiry date to between 30 and 60 days on a monthly expiry, which result in the 19th of August as the expiry date.

The best outcome is for the position to expire worthless with the ASX:WPL share price between the sold legs ($22.50 and $24.50). This will allow you to keep the upfront premium.

The worst outcome is for the position to expire with the share price at $26.00 and above, or $21.00 and below, delivering the maximum loss of $2376.00.

The strategy breaks even at $21.84 and $25.16 on expiry.

Source: Implied Volatility

 

The trade idea is based on holding the position until expiry to receive maximum profit. However, you may choose to close out the position before expiry to lock in any gains resulting from time decay or a decline in implied volatility levels. Most time decay will occur in the final week before expiry, however markets may lose liquidity as we approach expiry. ASX:WPL has good market maker coverage, so the spreads should be reasonable when entering and exiting a position before the final week. If the stock is trading around $23.00 to $24.00 between the 12th and the 13th of August and there has been a fall in IV, it may be worthwhile to lock in your gains by closing the position.

If you would like some more information on options trading strategies, call 1300 805 795. 

You can also follow this link for a detailed tour of the Implied Volatility platform.  

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. Please note, we provide General Advice only and do not take into consideration your own personal circumstances, you must decide if it’s appropriate for you. 

 

Past performance is not a reliable indicator of future performance. 

The opinions expressed in this article are our personal views. 

Trading options is not suitable for everyone. There is a risk that you can lose more than the value of a trade or its underlying assets. You should only trade if you are confident that you fully understand what you are doing. 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.

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.


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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