News

Trade of the Week – Bull Put Spread on CSL

May 11, 2022

Trade of the Week – Bull Put Spread on CSL

CSL has managed to trade positive on 2 consecutive days when the rest of the market was selling off. The stock initially followed the XJO down on Friday, but did not follow through with further sell-offs on Monday or Tuesday as the XJO did. The stock instead found support on its 50 day MA – a key support that the stock has been trading on since the 16th of March 2022.

CSL has managed to trade positive on 2 consecutive days when the rest of the market was selling off. The stock initially followed the XJO down on Friday, but did not follow through with further sell-offs on Monday or Tuesday as the XJO did. The stock instead found support on its 50 day MA – a key support that the stock has been trading on since the 16th of March 2022.

Source: Implied Volatility

With the significant sell-off on the XJO looking to take a quick breather, there may be room for a short term gain with a bull put spread on CSL. A bull put spread will benefit from a bullish move in the stock. If the share price rises above the strike of the sold put and implied volatility levels also decrease, the value of the sold put option can decrease considerably allowing you to close the position early and keep most of the upfront premium.

Source: Implied Volatility

Because this is a short term position we will be conservative with the sold leg which will have a strike price of $274.01. To ensure we do not get assigned early, the sold leg will be a European option. The long put will have a strike of $258 and we will choose an American put option. The expiry date for both legs will be on the 19th of May 2022 so the position can experience relatively rapid time decay.

Source: Implied Volatility

If you are bullish on this stock and expect it to trade towards the 200 day MA resistance (sitting around the $284 level) as the XJO bounces, you could choose this level to close the position. If you are a bit more conservative in your bullish view, you could choose an exit around the $278 level for a tidy profit. In the payoff matrix below, I have assumed a decrease in volatility of 20%, as the recent IV levels of 31.6% are relatively high (IV rank 75). A bullish move and a decrease in volatility will allow you to close this position early while retaining a significant portion of the maximum profit.

Source: Implied Volatility

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. From 5 October 2021, under Design and Distribution Obligations, anyone opening a trading account will be required to meet the Target Market Determination criteria of Phillip Capital and subject to an assessment the results of which will determine your eligibility for a trading account, for further information please see here.

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 including on its website and by its representatives is general advice only and does not consider your personal objectives, financial situation or needs, and you should consider whether it’s appropriate for you. This might mean that you need to seek personal advice from a representative authorised to provide personal advice. Please click here https://reachmarkets.com.au/general-advice-warning/ to read our full general advice warning.


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.

Lombok Property Group

Ideal opportunity for investors in a growing property and tourism market

Leave a comment