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Trade Of The Week: Iron Condor on Orica Limited (ASX:ORI)

October 27, 2021

Trade Of The Week: Iron Condor on Orica Limited (ASX:ORI)

This week, I will write about one of the trades our trade scanner has flagged. Orica Limited (ASX:ORI) is the world’s largest provider of commercial explosives and blasting systems servicing the mining, quarrying, oil & gas, and construction markets.

This week, I will write about one of the trades our trade scanner has flagged. Orica Limited (ASX:ORI) is the world’s largest provider of commercial explosives and blasting systems servicing the mining, quarrying, oil & gas, and construction markets.

Orica has been flagged for an iron condor trade by the Implied Volatility trade scanners. The platform rates this trade idea 72 points. This will be considered an advanced trade due to several reasons:

  • The stock has recently climbed up to $15.00 and it’s 50 day & 200 day MA’s are moving towards each other. Based on recent price action, there is a chance the stock could continue breaking out, and there is a golden cross forming. So be careful when entering this trade. It is looking very bullish.
  • The expiry date is set for 18th of November 2021. The market may move above or below your strikes over this period, but as long as the position expires between your sold strikes on expiry, it will expire worthless.
  • Be very wary of assignment – with a dividend expected in the coming expiry month you will face a much higher probability of assignment on the final cum-dividend day. Switching to European options will avoid this issue. You can edit the trade idea by clicking on the ‘edit idea’ button on the trade scanner. You will then be able to adjust the position in the strategy builder and switch to European options.
  • Make sure your price reflects the upcoming dividend. If you are not sure how to adjust the price, consider avoiding this trade.
  • The stock has mid range market maker coverage, which will affect spreads when entering and exiting.

Source: Implied Volatility

Orica’s implied volatility is sitting at 31.86%, and has an IV rank of 78, however IV has been falling over the past week.

Enter Iron Condor Strategy:

Source: Implied Volatility

Source: Implied Volatility

  • We will set the strike price for the sold Call Option at $15.50
  • We will set the strike for the sold Put Option at $14.50
  • Protection will be bought at a strike price of $13.75 on the downside and $16.00 on the upside.
  • We will set the expiry date to the 18th of November 2021 to capture 4 weeks of time decay.
  • For entering this position, a premium of $314 will be received.

The best outcome is for the position to expire worthless with the ASX:ORI share price between the sold legs ($14.50 and $15.50). This will allow you to keep the upfront premium.

The worst outcome is for the position to expire with the share price at $16.00 and above, or $13.75 and below, delivering the maximum loss of $512.

The strategy breaks even at $14.21 and $15.79 on expiry.

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:ORI has average market maker coverage, so the spreads should be mid-range when entering and exiting a position before the final week. If the stock is trading around $14.50 and $15.50 between the 11th and 18th of November, it may be worthwhile to lock in your gains by closing the position.

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. 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 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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