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Trade Of The Week: Bear Call on TWE

June 9, 2021

Trade Of The Week: Bear Call on TWE

This week’s trade is a range trade on ‘Treasury Wine Estates Limited’ (ASX:TWE). It is a bearish ‘Bear Call Spread’.

This week’s trade is a range trade on ‘Treasury Wine Estates Limited’ (ASX:TWE). It is a bearish ‘Bear Call Spread’.

The stock has been trading at the $12.00 level, testing this major resistance level for 4 consecutive days but failing to sustainably break through this level. After today’s attempt it may be time for the stock to take a breather and trade closer towards it’s 50 day MA.

Chart: Bear Call on TWE

Source: Implied Volatility

The current price is at $11.91 which is above the 50 day MA ($10.67) and 200 day MA ($9.90). While these moving averages are sloping upwards, and the ADX is rising, volumes have been relatively low since trading near the $12.00 level. We expect the sellers to take control causing the stock to drop over the short term.

The ADX is currently at 31.3 and IV is at 29.12%.

Why a Bear Call Spread?

The position is a bearish position which is theta positive and benefits from the recent jump in volatility. It can be successful if one or more of the following happen:

  • The market falls.
  • Volatility drops (and you can buy back the position at a lower cost).
  • Theta decay erodes the value of the position.
Bear Call on TWE

Source: Implied Volatility

Enter Bear Call Spread:

Spread: Bear Call on TWE

Source: Implied Volatility

We will select a monthly expiry between 30 and 60 days, the 15th of July 2021.

Closing the position:

For maximum profit, you hold the bear call position to expiry and have it expire worthless, allowing you to keep the upfront premium received.

However we expect a large move over the short term, so you can consider closing the position before expiry if the stock hits the $11.20 support level.

Keep in mind the theta decay will accelerate quickly in the last 2 weeks before expiry.

 

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. 

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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