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Trade Of The Week: Bull Call Spread on NAB

September 1, 2021

Trade Of The Week: Bull Call Spread on NAB

This week we have another bull call on one of the big 4 banks. NAB has been trading near recent highs for most of August and has managed to hold price action at this level as the rest of the market has fallen on the open. If there is a quick recovery in the XJO we may see an increase in the NAB share price as well as it joins in for the ride.

This week we have another bull call on one of the big 4 banks. NAB has been trading near recent highs for most of August and has managed to hold price action at this level as the rest of the market has fallen on the open. If there is a quick recovery in the XJO we may see an increase in the NAB share price as well as it joins in for the ride.

With price action being so stable recently we have seen implied volatility fall to 17.14%, giving NAB an IV rank of 4.

Source: Implied Volatility

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.

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

 

Based on ASX:NAB sitting at $27.65 at the time of writing:

We will set the long call’s strike around closing highs at $26.50 which is slightly in the money. We will set the strike of the sold call at $28.50 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 $29.50 you can consider closing out the position early. If the stock is trading around $28.75 in the week before expiry, you could also close the position to take the gains.

We expect support around $27.00. If the stock breaks below this level, you may consider closing the position early.

 

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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