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Trade Of The Week: LITT Short on ANN

October 13, 2021

Trade Of The Week: LITT Short on ANN

This week’s trade of the week comes from the trading scanner built into the Implied Volatility (Elite) platform. It is a bearish ‘LITT Short’ trade on Ansell Limited (ASX:ANN)

This week’s trade of the week comes from the trading scanner built into the Implied Volatility (Elite) platform. It is a bearish ‘LITT Short’ trade on Ansell Limited (ASX:ANN)

The stock has been trading at the lowest price in 52 weeks and has been flagged by our trading scans for a ‘LITT Short’ trade idea.

Source: Implied Volatility

The closing price on 12/10/21 was $32.27. The stock is trading below the 50 and 200  Day Moving Averages ($36.78 and $38.44 respectively). The 50 Day MA is sloping downward, suggesting an ongoing bearish sentiment. The ADX of 36.7 is above 20, which suggests a directional bias in recent price action. Implied Volatility (IV) is sitting at 29.

Why a LITT Short?

A LITT Short is a bearish position which is theta positive and benefits from the relatively high implied volatility. It can be successful if one or more of the following happen:

  • The market falls.
  • Volatility drops (and you can buy back the position at a lower cost).
  • Theta (Time) decay erodes value of the sold position.

 

Source: Implied Volatility

Enter LITT Short:

Our systems suggest a monthly expiry between 30 and 60 days. With November’s expiry 36 days away, we will select November for the expiry month.

For maximum profit, you hold the LITT Short position to expiry and have it expire worthless (with ANN closing below $31), allowing you to keep the upfront premium received. If you experience a large bearish move early on, you can consider closing the position before expiry. Keep in mind the theta decay will accelerate quickly in the last 2 weeks before expiry.

Managing the Trade

If the stock price of ANN trades higher and breaks through the 50 Day MA resistance at the $36.78 level, we will manage the bearish position into a bullish position to ride the turnaround.

Close sold call:

Buy ANN $31.00 18 Nov 21 Call (A)

Repairing position:

If the stock’s turnaround does not eventuate, and the price starts to fall again, we can repair the position if the following criteria are met:

  • The share price is trading below the recent low (5 days+)
  • The share price is trading below the 50 Day MA again

Re-enter sold call:

Sell ANN $31.00 18 Nov 21 Call (A)

We want to make sure that the sold call is still in-the-money (ITM) so you can make some profit in the bearish move. If you choose a new strike price for the sold call, the easiest way to open the position with the correct strike price is to create a ‘LITT Short’ trade again using the options cookbook, then delete the long leg so you only have a sold leg remaining. Read our LITT Short guide here.

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. 

 

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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