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Trade Of The Week: Bull Put Spread on ANZ

September 22, 2021

Trade Of The Week: Bull Put Spread on ANZ

This week we have a bull put on one of the big 4 banks. ANZ has bounced off the $26.85 level for the 3rd time since March 2021. The stock is also trading around the 200 DMA ($27.20). For this trade idea, we hold the view that the stock will bounce further off support and trade above the 200 DMA. We have seen implied volatility rise to 20.80%, giving ANZ an IV rank of 28.

This week we have a bull put on one of the big 4 banks. ANZ has bounced off the $26.85 level for the 3rd time since March 2021. The stock is also trading around the 200 DMA ($27.20). For this trade idea, we hold the view that the stock will bounce further off support and trade above the 200 DMA. We have seen implied volatility rise to 20.80%, giving ANZ an IV rank of 28.

Source: Implied Volatility

Each of the big 4 banks is sitting on support sso we expect an industry wide move if it occurs.

To take advantage of the recent jump in implied volatility and make the most of this anticipated move we can enter into a bull put position. This strategy is a credit spread so you receive an upfront premium when entering into the position.

Source: Implied Volatility

Being a bullish trade, the position will increase in value as the market rises. An decrease in volatility will also increase the value of this position. An ideal outcome for this trade would be for the underlying stock to rally upward with strong momentum (towards the 50 DMA at $28.00), increasing the value of the put option and position the trade to close early out at a profit.

Enter Bull put spread:

Source: Implied Volatility

Based on ASX:ANZ sitting at $27.20 this morning at the time of writing:

We will set the long put’s strike at $26.00 which is out-of-the-money. We will set the strike of the sold put at $28.00 which is in easy reaching distance at the 50 DMA.

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 $29.00 you can consider closing out the position early. If the stock is trading around $28.00 in the week before expiry, you could also close the position to take the gains.

We expect support around $26.85. If the stock breaks below this level, you may consider closing the position early to prevent further losses.

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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