News

Trade Of The Week: Long Call on AWC

May 26, 2021

Trade Of The Week: Long Call on AWC

Once again we are looking at a long call on AWC, for the same reasons as our 24th of March 2021 trade of the week.

Once again we are looking at a long call on AWC, for the same reasons as our 24th of March 2021 trade of the week.

AWC has a history of bouncing off its 200 day MA when approaching from the top. From April 2016 until September 2019, the stock bounced every time it touched the 200 Day MA.

  

Source: Implied Volatility

From October 2018 until November 2020 the stock did not convincingly maintain price action above the 200 day MA, which justifies why it did not bounce off it.

With the large bullish move in November 2020 the stock had to decide to sustain above the 200 Day MA or continue trading below this level.

Source: Implied Volatility

With the stock sitting on the 200 day MA today, this is a great opportunity to capture the upside of a bouncing stock, should it happen. Implied Volatility is relatively low as well which makes it cheaper to enter a long position. This was a very profitable short term trade back in March 2021.

Seeing AWC stock trades at such a low price, and ASX fees are charged on a per contract basis, we will enter our bullish position at-the-money and trade a single leg to reduce contract quantities and ASX fees. With a slight positive slope in the 200 day MA, we will select a slightly higher strike price for this trade.

Enter position:

Buy 750 AWC $1.70 17 June 2021 Calls (A) @ $0.04

This long position will be theta negative. This means the longer you hold it, the more it will decrease in value, ceteris paribus. The trade will cost $107.25 in ASX fees inc GST when entering and when exiting the position, which adds up to a significant portion of the at-the-money trade value.  If you expect a long term recovery in this stock, it may be worth extending the expiry date further out.

Exit position:

You could close the position when the stock meets resistance at $1.75, which could happen quickly. If you are very bullish or if you have extended the expiry date, you could hold until $1.80.

 

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.

Live Investor Briefing

Learn how regenerative farming is transforming the agriculture industry

Leave a comment