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Trade Of The Week: LITT Long on MQG

March 17, 2021

Trade Of The Week: LITT Long on MQG

This week I have picked Macquarie Group Limited (ASX:MQG) for a bullish trade idea. The trade is an at-the-money bull put spread, also known as a ‘LITT Long’.

This week I have picked Macquarie Group Limited (ASX:MQG) for a bullish trade idea. The trade is an at-the-money bull put spread, also known as a ‘LITT Long’.

The stock has been feeling plenty of resistance around its pre-COVID highs since mid-February which has pushed the stock sideways and lowered its ‘Average Directional Index’ measure to 13. An ADX more than 20 is usually required for a trade to be flagged for a ‘LITT Long’ trade idea. However in Macquarie’s case, I believe this can still present a great bullish breakout opportunity as the low ADX can be justified due to the stocks strength over the last year and outperformance of the other financial stocks. Basically, Macquarie has been waiting for the rest of the market to catch up, and recent price action has been sideways.

Source: Implied Volatility

 

The stock has been feeling resistance around $147 to $149 from mid-January to mid-February 2020, then met the next level of resistance around $152 on the 20th and 21st of February 2020.

The stock then experienced the COVID-19 pullback along with the rest of the market and the stock did not trade near at these levels until it gapped higher on the 9th of February 2021 and felt resistance at $148 on the 10th of February 2021.The market continued feeling resistance until the 8th of March when it pushed through and closed above this level. The following the MQG gapped higher and closed just shy of Pre-COVID and all-time highs. The next morning the stock opened above all-time highs but failed to consolidate at these levels during intraday trading.

With the stock trading around the $148 to $152 range for the past week, it looks like it is getting ready to test resistance around all-time highs, and we may see a more convincing breakout and subsequent consolidation this time round.

 

Trigger to enter the trade:

The stock closes above the $152 resistance level and consolidates, or the stock convincingly trades through the $152 resistance during intraday trading. (Basically, we are looking for a sustained increase in buying pressure that is strong enough to break through all the sellers sitting at a major resistance level).

Source: Implied Volatility

 

The Litt Long trade:

Sell MQG $158.00 strike put option

Buy MQG $152.00 strike put option

 

We will set the expiry date on the day we enter the trade, with the ‘days to expiry’ between 30 and 60 days from this date (monthly expiry preferred for liquidity purposes).

This trade will be theta positive, and will also benefit from the decrease in implied volatility that usually corresponds with an increase in the stock price.

 

We will be looking for a steady move towards $158 to $160. When the stock hits this level, you can decide on closing the position to lock in the gains, or holding until expiry to potentially realise maximum profit.

 

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

Or click here to book into next week’s ‘Trading 360 Summit’ on the 24th March. Proprietary trader and high-level strategist Greg Tolpigin will join the panel to share his proven trading systems, strategies he’s currently deploying, and how new and experienced traders can get on top of market trends.

 

The Trading 360 Summit – Level Up Your Trading Game

Date: Wednesday, 24th March
Time: 7pm AEDT
Format: Online, 60 minute presentation + Q&A

 

This is a free event. Click here to book your spot.

 

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. If you are thinking about acquiring a financial product, you should consult our Financial Services Guide (FSG) at www.reachmarkets.com.au first. 

 


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