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Trade of the Week – Long Call on QAN

November 24, 2021

Trade of the Week – Long Call on QAN

Qantas Airways Limited has seen a significant sell-off over the past 2 and a half weeks after reaching a recent high of $5.92 on the 8th of November 2021. The market has been testing it’s current support levels at $5.20 for the past 2 trading days, representing a fall of over 70c or roughly 12%.

Qantas Airways Limited has seen a significant sell-off over the past 2 and a half weeks after reaching a recent high of $5.92 on the 8th of November 2021. The market has been testing it’s current support levels at $5.20 for the past 2 trading days, representing a fall of over 70c or roughly 12%.

Source: Implied Volatility

This fall has been in line with other leisure stocks like Flight Centre Travel Group Limited (ASX:FLT) which has fallen 13% and Webjet Limited (ASX:WEB) which fell 15% over the same period.

All 3 of these leisure stocks are showing signs of support and look ready to bounce. I have chosen QAN for today’s trade idea as it has better market maker coverage than FLT, and WEB is not optionable. QAN also has a lower IV rank, making it relatively cheaper to buy long positions.

Enter position: Long Call

Source: Implied Volatility

We will enter into an American long call position with the strike set at $5.25, 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 December as we expect a quick move towards the $5.50 level, then potentially further towards the 50 day MA ($5.59) or $5.75 resistance level over the next three 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

Exit position:

We’ll be looking to close the position when the stock trades around the $5.50 level, however if you are very bullish you could hold until it reaches either the 50 day MA (currently at $5.59) or $5.75 level. We expect a strong resistance at $6.00 so if you hold the position and the stock reaches this level it may be a great time to close the position.

 

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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.

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