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Trade Of The Week: Iron Condor on XJO

July 21, 2021

Trade Of The Week: Iron Condor on XJO

This week our focus shifts to the XJO as it is pushing towards all time highs. After a recent spike in Implied Volatility, we see now as a good opportunity to place an Iron Condor on the XJO. On the top side of the Iron Condor  XJO has seen strong resistance at 7400 after failing to close above that level three times in June.  

This week our focus shifts to the XJO as it is pushing towards all time highs. After a recent spike in Implied Volatility, we see now as a good opportunity to place an Iron Condor on the XJO. On the top side of the Iron Condor  XJO has seen strong resistance at 7400 after failing to close above that level three times in June.  

Source: Implied Volatility

There is an expectation that XJO will see some consolidation before a move higher, as XJO has already traded up nearly 10% YTD.  With low interest rates and ongoing stimulus we believe there will be strong support at the 50 day MA as the market has consistently traded above the 50 day MA, after the COVID pull back last year.  

Enter Iron Condor Strategy:

Source: Implied Volatility

  • The strike prices are set at all time highs for the calls and the 50 day MA for the puts.  
  • We set the expiry date to between 20 and 40 days on a monthly expiry, which results in the 19th of August as the expiry date.  

The best outcome is for the position to expire worthless with the XJO price between the sold legs (7225 and 7475). This will allow you to keep the upfront premium of $301 and claim maximum profit.

The worst outcome is for the position to expire with the price at 7475 and above, or 7175 and below, delivering the maximum loss of $199.

The strategy breaks even at 7195 or 7455 on expiry.

Source: Implied Volatility

The trade idea is based on holding the position until expiry to receive maximum profit.  There is a strong chance that the market will continue to consolidate sideways for the foreseeable future.  You can and 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. XJO has good market maker coverage, so the spreads should be reasonable when entering and exiting a position before the final week.

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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