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Trade Of The Week: Long Call on AWC

March 24, 2021

Trade Of The Week: Long Call on AWC

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.

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 is currently deciding whether it will sustain price action 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.

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.

 

 

Enter position:

Buy 660 AWC $1.65 15 April 2021 Calls @ $0.05

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 trade will cost $94.38 in ASX fees 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:

We’ll be looking to close the position when the stock trades around the 50 day MA at $1.71 or when it meets resistance at $1.75. This could be a quick trade. 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

 

Or click here to book into the next instalment of The Trading 360 Summit. Wrapping up the March 2021 Trading 360 Summit, Ivan Tchourilov from one of the busiest option trade desks in Australia will be showcasing the most successful strategies seen in the ASX Options Game, and our panel of professionals will be answering any questions from the floor.

 

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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