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Trade Of The Week: LITT Long on NAB

May 5, 2021

Trade Of The Week: LITT Long on NAB

This week we will be looking at a ‘LITT Long’ trade on NAB. This stock has been flagged several times in early March and as recently as Monday this week, and has been flagged during today’s trading session.

Trade Of The Week: LITT Long on NAB

This week we will be looking at a ‘LITT Long’ trade on NAB. This stock has been flagged several times in early March and as recently as Monday this week, and has been flagged during today’s trading session. I have noted in ‘The Next Big Trade’ webcasts that the major resistance level is at the ‘100% Fibonacci level’ (i.e. the price point the market was trading before the COVID pullback in Feb/March 2020), rather than the general ‘LITT Long’ entry rule of breaking through a ‘52 week high’.

 

NAB’s pre-COVID closing price on the 2 consecutive days prior to the pullback was $27.40 on 20th February 2020 and $27.41 on 21st February 2020. $27.40 has been the major resistance level for NAB.

When the market opened this morning, NAB had gapped this resistance level reaching a high of $27.84. As I write this trade idea, the market has pulled back to land exactly on this pre-COVID level and has been bouncing between the $27.40 level and the $27.50 level (the latter being a somewhat round technical number).

This presents an opportunity to jump in for cheap after a decent pullback following the first attempted break out. The next major resistance is approximately $1.80 higher around $29.20. With the sellers already being cleaned out of the market with this morning’s move it should be easier to reach recent highs going forward.

 

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: 

Long NAB 27.50 17 June 2021 Put (A)

Short NAB 28.51 17 June 2021 Put (E)

 

(When entering this position be aware that there is an upcoming ex-dividend date on the 13th of May 2021. NAB’s half yearly results are to be announced on the 6th of May so be sure to adjust your entry price to offset the upcoming dividend as per the announcement. If you are not sure how to adjust for dividends then you may be better off staying out of the trade – this week there is an additional trade idea below.)

 

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.

We select a European put due to the upcoming ex-dividend date on the 13th of May 2021 – we do not want to be assigned early with an American put option. 

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 $30 level over the next 6 weeks, however this may be optimistic so we have set the sold leg at $28.51. If the stock reaches $30 before expiry, you can close the position and keep most of the upfront premium.

Trade Of The Week: Long Call on APT

With APT sitting on the 200 Day MA it looks ready to bounce. On the 30th and 31st of March 2021 the stock tested this support level then jumped almost 15% in the following 2 trading days.

With this trade we are hoping for a similar bounce. This is a very simple short term trade idea.

 

APT is trading significantly below recent highs and has some room to move in the bullish direction. We expect the stock to feel resistance at the 50 Day MA, however if it can quickly break through this resistance level we see the next major resistance around the $130 level.

 

Enter position: 

Long APT $108.00 17 June 2021 Call (A)

This is a very short term trade. With APT’s IV at 48 currently, it is very expensive to hold this position in a sideways market. We expect the stock to hit the 50 Day MA in 3 trading days. Watch the price action to decide whether you will remain in the position or exit after 3 days. If the stock makes a clean break past the 50 day MA you might see a further rally. If it is struggling at the 50 day MA you can close the position. If it fails to rise then you can decide whether you will continue to hold or not – sometimes it is better to take your losses early rather than hope for the best.

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

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.

 


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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