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Trade Of The Week: LITT Long on CPU

November 3, 2021

Trade Of The Week: LITT Long on CPU

Computershare Limited (ASX:CPU) is continuing to set new highs after initially breaking through $18.40 resistance on the 27th of October 2021. The stock is now trading around $19.40 and is setting new 52 week highs. 

Computershare Limited (ASX:CPU) is continuing to set new highs after initially breaking through $18.40 resistance on the 27th of October 2021. The stock is now trading around $19.40 and is setting new 52 week highs. 

The stock is likely to be flagged again by our trade scanners for a LITT Long trade in the coming days. 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 (red)
  • The 50 Day MA is above the 200 Day MA (blue)
  • The 50 Day MA is trending upwards
  • The share price is above the 52 week high
  • The ADX is above 20

CPU has OK market maker coverage which means there will be a spread.

A ‘LITT Long’ is an at-the-money bull put spread. This is a credit spread which means we receive an upfront premium for entering the position. It benefits from time decay and reduction in volatility. This is a bullish position, so we are hoping for the stock to rise before expiry.

Enter position: 

As per the LITT Trading rules, we will select options series with 30 to 60 days to expiry. We will select monthly expiries for greater liquidity.

Manage position:

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 (currently $17.47), 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.

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.

Exit position:

This is a longer term trading strategy, where the best outcome is for the position to expire worthless allowing the trader to keep the up front premium. We will be hoping for a jump towards the $21.50 level over the next 6 weeks. If the stock reaches $21.00 before expiry, you can close the position and keep most of the upfront premium.

Alternative Position:

Seeing IV is at 24.4% and has an IV rank of 34, you may consider a long call position. This would allow you to take advantage of the relatively low IV rank.

You will be able to participate in the entire upside if there is a large move in the underlying, and if IV jumps, benefit from the increase in IV.

You could consider exiting the long call strategy at the same level as the Litt Long strategy at $21.50.

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. 

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.

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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