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Trade of the Week -Long Call on MQG

May 18, 2022

Trade of the Week -Long Call on MQG

Macquarie Group Limited (ASX: MQG) has pulled back from $210.95 in Mid-April 2022 to $180.49 on Tuesday’s close. On the 16th of May 2022, the stock traded ex-dividend after announcing a $3.40 final dividend at 40% franking.

Macquarie Group Limited (ASX: MQG) has pulled back from $210.95 in Mid-April 2022 to $180.49 on Tuesday’s close. On the 16th of May 2022, the stock traded ex-dividend after announcing a $3.40 final dividend at 40% franking. This dividend is a small component of the $30.45 drop (14.44%) in price over the past 4 weeks, and even with the stock trading ex-dividend it has held price action around the $180 major support level.

With strong support showing we expect a bounce in the coming days, and the next major resistance level is around the $190 level and the 200 day MA resistance ($191.61). The stock displayed similar price action in late-January and early-March 2022. With the XJO appearing to bounce back, a bullish short term view of the market overall lines up with a short term bullish view on MQG.

Source: Implied Volatility

Enter position: Long Call

Source: Implied Volatility

We will enter into an American long call position with the strike set at $182 which is at-the-money and has decent liquidity, which can help with tighter spreads when entering and exiting the position. We will set the expiry date to the 16th of June 2022, as we expect a quick move towards the $190 level.

Source: Implied Volatility

This long call position will be theta negative, which means the longer you hold it the more it will decrease in value. The rate of theta decay will increase as the option approaches expiry. 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

Exit position:

We’ll be looking to close the position when the stock trades around the $190 level and the 200 day MA. We expect strong resistance where these two levels overlap so you may want to exit the position before the market tests these levels. A holding period of 2 weeks is ideal, however you can allow for further time after re-evaluating the stock’s price action.

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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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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