News

Trade Of The Week: Iron Condor on Macquarie Group Limited (ASX:MQG)

June 23, 2021

Trade Of The Week: Iron Condor on Macquarie Group Limited (ASX:MQG)

Macquarie Group Limited (ASX:MQG) has been trading sideways since mid-May and is currently trading between it’s 50 day and 200 day MA’s. The stock is trading within its recent range of $155.50 on the upside and $148 on the downside.

Macquarie Group Limited (ASX:MQG) has been trading sideways since mid-May and is currently trading between it’s 50 day and 200 day MA’s. The stock is trading within its recent range of $155.50 on the upside and $148 on the downside.

Implied volatility has jumped up to 20, which is not very high for an individual stock but is still above MQG’s pre-COVID levels. Macquarie Group’s current IV rank is 13 which can be justified given the comparison year is the post-COVID pullback period.

‘Implied volatility’ is a measure of how much volatility the market is pricing into an option. The value is calculated based on the premiums paid/received for entering into option positions. It is a forward looking measure of expected future volatility over the life of the option. As time goes on, the actual ‘historical volatility’ measured can be very different to the ‘implied volatility’ calculated when entering into a position.

‘IV rank’ is a comparison of a stock’s implied volatility today ranked against the stock’s implied volatility over the past 52 weeks. A value of 1 means lower implied volatility today. A rank of 100 means high implied volatility today. Higher volatility means more premium paid/received to enter a position.

Source: Implied Volatility

 

Reasons for the iron condor on ASX:MGQ:

  • The current stock price is at $153.40.
  • The stock is trading within it’s recent trading range of $148 to $155.50.
  • The stock is between 50 and 200 day MA’s ($155 and $143) suggesting short term, medium and long term pricing is becoming aligned.
  • Between the 10th of November 2020 and 25th of January 2021, the stock traded sideways.

 

Enter Iron Condor Strategy:

Source: Implied Volatility

 

  • The sold legs will be European style options to avoid assignment if the price action jumps out of its trading range over the short term to mid term
  • We will set the strike price for the sold Call Option at $156.01 which is above MQG’s major resistance level of $155.50.
  • We will set the strike for the sold Put Option at $148.01 which is a major support level.
  • Protection will be bought at a strike price of $160.00 on the upside and $144.00 on the downside.
  • We will set the expiry date to the 15th of July 2021 to capture 3 weeks of time decay.
  • For entering this position, a premium of $2106 will be received.

The best outcome is for the position to expire worthless with the ASX:MQG share price between the sold legs ($148.01 to $156.01). This will allow you to keep the upfront premium.

The worst outcome is for the position to expire with the share price at $160.00 and above, or $144.00 and below, delivering the maximum loss of $3107.

The strategy breaks even at $146.39 and $157.63 on expiry.

 

Source: Implied Volatility

 

You may choose to close out the position before expiry to lock in any gains resulting from time decay or a decline in implied volatility levels. Most time decay will occur in the final week before expiry, however markets may lose liquidity as we approach expiry. ASX:MQG has good market maker coverage, so the spreads should be reasonable when entering and exiting a position before the final week. If the stock is trading around $151 to $152 between the 5th and the 9th of July, it may be worthwhile to lock in your gains by closing the position.

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 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.

Lombok Property Group

Ideal opportunity for investors in a growing property and tourism market

Leave a comment