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Trade of the Week – JHX – Iron Condor

June 22, 2022

Trade of the Week – JHX – Iron Condor

Our trade of the week is a neutral JHX Iron Condor Trade that has been flagged by our trading scanners. It is a ‘gold’ quant tested iron condor trade, scoring 92 points. Options over this stock are fetching a relatively high premium due to its high IV rank (currently sitting at 84).

Weekly Trade – Neutral – Iron Condor on James Hardie Industries PLC (ASX:JHX)

Our trade of the week is a neutral JHX Iron Condor Trade that has been flagged by our trading scanners. It is a ‘gold’ quant tested iron condor trade, scoring 92 points. Options over this stock are fetching a relatively high premium due to its high IV rank (currently sitting at 84).

James Hardie Industries PLC has had a difficult 2022 so far having shed 46.38% YTD. The stock has pulled back towards pre-COVID levels where it felt support from mid-November and through December 2019 until January 2022. It acted as a support level briefly during the COVID sell-off in late February / early March 2020, and as a resistance level on the 23rd of June 2020, then a support again from the 1st to the 22nd of September 2022. Implied volatility has risen from around 23% pre-Christmas to 43% currently. With such high implied volatility levels, there is a potential opportunity to profit by selling options while the market takes some time to consolidate around a key support and resistance level.

Source: Implied Volatility

Source: Implied Volatility

Traders use the Iron Condor strategy to generate income in sideways markets by selling the Implied Volatility that is priced into the options and allowing time decay to erode the value of the sold legs, making them cheaper to buy back later, or ideally, allowing them to expire worthless.

With the stock closing around $29.65 yesterday, consider the following strikes:

Source: Implied Volatility

At the close of trading today, it’s looking at around a 64c credit to enter into this trade.

Maximum profit is achieved if both legs expire worthless, meaning you keep the upfront premium received for entering the trade. At 50 units, the theoretical maximum profit is currently $2304 with the theoretical maximum loss $3096. The maximum profit will be achieved if the options expire worthless on the 21st July 2022 with the JHX stock price closing between the strike prices of the sold call ($31.50) and the sold put ($27.50). The maximum loss will occur if the stock closes below the protective put ($26.00) or above the protective call ($33.00). The two break even points are at $26.86 and $32.14.

Time decay on this position will accelerate as it approaches expiry. However you may consider closing the position early if the stock is sitting around the $29.50 level and/or if there is a significant reduction in IV from 43 to around 30 to 35.

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.

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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.

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