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Trade Of The Week: Bull Call Spread on CBA

August 18, 2021

Trade Of The Week: Bull Call Spread on CBA

This week we have another bull call on one of the big 4 banks. CBA has just gone ex-dividend and has pulled back below the $100 level which is a nice round technical level. With the market pulling back over the past couple of days this could present a buying opportunity for CBA, now that it is trading roughly $9 below all-time highs.

This week we have another bull call on one of the big 4 banks. CBA has just gone ex-dividend and has pulled back below the $100 level which is a nice round technical level. With the market pulling back over the past couple of days this could present a buying opportunity for CBA, now that it is trading roughly $9 below all-time highs.

ASX:CBA has broken through the 50 DMA ($100.81) which has acted as a reversion point in the past. If the stock can push through the $100 level then we may see a strong rebound back above the 50 DMA over the short term, and towards all-time highs over the mid term.

Source: Implied Volatility

 

Implied volatility currently sits at 18.24% which equates to an IV rank of 25.

To take advantage of the relatively low implied volatility and make the most of this anticipated move we can enter into a bull call position. This strategy is a debit spread so you pay an upfront premium to enter into the position.

To profit from a rising market, we can enter into a Bull Call Spread position.

Source: Implied Volatility

The goal is for the position to rise in value so you can sell it back to the market at a higher price, locking in the value.

Being a bullish trade, the position will increase in value as the market rises.

Enter Bull Call spread:

Source: Implied Volatility

We will set the long call’s strike around closing highs at $97.00 which is slightly in the money. We will set the strike of the sold call at $102.00 which is in easy reaching distance.

Source: Implied Volatility

The coloured lines on the payoff diagram describe the time decay of the position. If the stock rises, time decay will work in favour of the position. If the market falls, time decay will work against the position.

If the stock hits $105.00 you can consider closing out the position early. If the stock is trading around $103.00 in the week before expiry, you could also close the position to take the gains.

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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