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Trade of the Week: Long Call on AWC

November 17, 2021

Trade of the Week: Long Call on AWC

Since late August AWC has had a great bullish run, breaking through the price resistance level around $1.80 to $1.83 that rejected the stock’s price action in March, April and May of 2021.

Since late August AWC has had a great bullish run, breaking through the price resistance level around $1.80 to $1.83 that rejected the stock’s price action in March, April and May of 2021. When the stock broke through this level on the 1st of September, the stock continued it’s strong breakout trade past $2.00 on the 6th of September, then tested $2.20 between the 10th and 14th of September, and finally felt resistance $2.30 between the 13th to 19th of September 2021. The stock peaked at post-COVID highs of $2.33 on the 15th of October 2021.

The stock has since pulled back rapidly and is approaching it’s previous major resistance around $1.80. This level is expected to act as a major support on the way down. If the stock breaks this support, we see the next support level at the 200 day MA (currently at $1.80),  a short distance away. The 200 day MA has recently acted as a major support level for the stock throughout 2021, in February, March, April and May, before the market finally broke through this support level in mid-June. After this break, the 200 day MA acted as a resistance level in July and August, until it’s major recent breakout move began on the 30th of August 2021.

Source: Implied Volatility

With the stock sitting around the $1.80 level today, this could be a great opportunity to capture the upside of a bouncing stock, should it happen.

Seeing that 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.

Enter position: Long Call

Source: Implied Volatility

We will enter into an American long call position with the strike set at $1.90, to match the higher open interest at that level indicating greater liquidity and tighter spreads when entering into and exiting out of the position. We will set the expiry date to the 16th of December as we expect a quick move close to the $2.00 level, over the next two weeks.

Source: Implied Volatility

This long position will be theta negative. This means the longer you hold it, the more it will decrease in value, ceteris paribus. The maximum loss on the position is the upfront premium paid. The maximum profit is unlimited, as there is no maximum price a stock could theoretically move to.

Source: Implied Volatility

The trade will cost $78.65 in ASX fees when entering and when exiting the position, which adds up to a significant portion of the at-the-money trade value.

Exit position:

We’ll be looking to close the position when the stock trades around the $1.95, however if you are very bullish you could hold until it reaches either the $2.00 level, or the 50 day MA (currently at $2.08).

 

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. 

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Any advice provided by *Reach including on its website and by its representatives is general advice only and does not consider your personal objectives, financial situation or needs, and you should consider whether it’s appropriate for you. This might mean that you need to seek personal advice from a representative authorised to provide personal advice. Please click here https://reachmarkets.com.au/general-advice-warning/ to read our full general advice 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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