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Trade Of The Week: Iron Condor on Oz Minerals Limited (ASX:OZL)

October 20, 2021

Trade Of The Week: Iron Condor on Oz Minerals Limited (ASX:OZL)

Oz Minerals Limited (ASX:OZL) is a South Australian based copper miner which has been moving in line with the copper price. Today it has been flagged by our iron condor trading scanner. It has been trading around both the 50 and 200 day MA’s from mid-July to mid-October and has recently made a jump higher to the pre-July range.

Oz Minerals Limited (ASX:OZL) is a South Australian based copper miner which has been moving in line with the copper price. Today it has been flagged by our iron condor trading scanner. It has been trading around both the 50 and 200 day MA’s from mid-July to mid-October and has recently made a jump higher to the pre-July range.

Implied volatility has jumped to 42.10% giving this stock an IV rank of 60.

‘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

Enter Iron Condor Strategy:

Source: Implied Volatility

  • We will set the strike price for the sold Call Option at $27.39.
  • We will set the strike for the sold Put Option at $24.41.
  • Protection will be bought at a strike price of $28.89 on the upside and $22.91 on the downside.
  • 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 $393 will be received.

The best outcome is for the position to expire worthless with the ASX:OZL share price between the sold legs ($24.41 and $27.39). This will allow you to keep the upfront premium.

The worst outcome is for the position to expire with the share price at $28.89 and above, or $22.91 and below, delivering the maximum loss of $507

The strategy breaks even at $23.75 and $28.05 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:OZL 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 $25 and $27 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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