News

Trade of the Week – LITT Long – GMG

December 1, 2021

Trade of the Week – LITT Long – GMG

Goodman Group Limited (ASX: GMG) has been flagged for a LITT Long trade idea as it continues to break 52-week highs. 

Goodman Group Limited (ASX: GMG) has been flagged for a LITT Long trade idea as it continues to break 52-week highs.

The stock has experienced 11 days of green candles out of the previous 13 trading days which shows there is buying pressure in the market. This stock was an outperformer after the COVID-19 pullback in February/March 2020, reaching pre-COVID highs ($16.78) again by the end of July 2020. The stock has recently been experiencing strong bullish momentum since experiencing a double bottom around pre-COVID highs in February/March 2021.

The stock is now trading close to $25.00, having closed at $24.69 on the 30th of November 2021.

Source: Implied Volatility

Source: Implied Volatility

Setting up the trade involves selling an in-the-money put option, and buying at-the-money put option as protection. By selling an in-the-money put, you receive an upfront credit for entering the position. Your best outcome is for the whole position to expire worthless, so you can keep the upfront premium.

To follow the LITT Trading strategy, you will enter the position when the following criteria have been met:

  • The share price is above the 50 Day MA
  • The 50 Day MA is above the 200 Day MA
  • The 50 Day MA is trending upwards
  • The share price is above the 52 week high
  • The ADX is above 20

Goodman Group (GMG) is a potential ideal candidate for this trade in the current global economic environment due to its service offering in the real estate sector. Goodman is a global property expert in logistics and business. As a business, they own, develop and manage industrial property in 17 countries. This includes warehouses, large scale logistics facilities, business and office parks globally.

Demand for their warehousing products and storage facilities has risen during this economic downturn, as businesses are forced to suspend operations and require storage for their unutilised assets. The COVID-19 pandemic has created further demand as global businesses that are worried about logistics and supply chains buy up food and other staples to ensure steady local supply – all of which needs to be stored until it is used. As supply chains have been disrupted, global trading businesses have been looking for extra storage space and logistics services for any excess shipments that may be delayed. This all points to an increase in demand for GMG’s services, which has been reflected in the stock’s great performance.

Source: Implied Volatility

To enter into a LITT Long strategy today with GMG, we will sell a put option at a strike price of $25.50 and buy a put option as protection at a strike price of $24.50. The expiry date will be between 30 and 60 Days to expiry, which narrows down to the 20th of January 2022.

Source: Implied Volatility

Entering into this strategy will generate $4200 of upfront premium, with a theoretical maximum loss of $2800, before brokerage and ASX fees.

The best outcome (maximum profit) is for GMG to trade and expire above $25.50 which will render the contracts worthless on expiry, allowing you to keep the upfront premium.

The worst outcome (maximum loss) is for the stock to trade and expire below $24.50. Your sold put will expire in-the-money, however your bought put will offset any further losses if the price falls below it’s strike price of $24.50.

The breakeven point is at a stock price of $24.905.

The great thing about the LITT Long trading strategy is that you have room to move if the market turns against you. Based on the LITT trading rules, if the stock experiences enough selling pressure to pull back below the support level at the 50 Day MA, you can manage the trade by closing out the sold put and remain in a long put position. This allows you to profit from the falling share price as it continues to fall lower.

And if the market then rebounds, pushes back above the 50 Day MA, and trades above recent 5 day highs, you can repair the trade by re-entering the sold put position.

With this trade, you may use your own discretion and choose another major support level to manage the trade and repair the position. We would expect a major support level around the $23.50 to $23.75 levels. When the stock broke through the $23.75 level on the 18th of November, an initial LITT Long trade idea was flagged by our trade scanners.

 

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.

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 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.

Live Investor Briefing

Gain exposure to Warren Buffett’s international investment opportunity

Leave a comment