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Trade Of The Week: LITT Long on LYC

August 4, 2021

Trade Of The Week: LITT Long on LYC

Lynas Rare Earths Limited (LYC) has been experiencing another round of break out moves after bouncing off the 50 Day MA on 20/7/21 (hitting a low of $5.66 that day).

Lynas Rare Earths Limited (LYC) has been experiencing another round of break out moves after bouncing off the 50 Day MA on 20/7/21 (hitting a low of $5.66 that day).

The stock ended yesterday’s session at $7.68, over $2.00 higher than it’s low on 20/7/21 and a return of 34% over two weeks based on closing prices.

The stock was flagged by our trade scanners for a LITT Long trade. 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

Be careful when trading LYC options – It has poor market maker coverage resulting in wider spreads when entering and exiting positions.

A ‘LITT Long’ is an at-the-money bull put spread. This is a credit spread which 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:

  • Short LYC 8.50 16 Sep 21 2021 Put (A)
  • Long LYC  7.75 16 Sep 21 2021 Put (A)

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, 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.

Just be aware that the 50 Day MA is a long way down in LYC’s case. You may decide to set a different support level as the trigger for managing the 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 $8.50 to $8.75 level over the next 6 weeks. If the stock reaches $9.25 before expiry, you can close the position and keep most of the upfront premium.

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. 

 

All trade pricing based on market prices end of day 3rd August 2021.

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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