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Trade Of The Week: Long Call on XJO

August 25, 2021

Trade Of The Week: Long Call on XJO

The XJO has pulled back and is now showing signs of a short term recovery back towards it’s reversion point. With IV relatively low (IV rank of 9) we will be looking at a single legged long call this week.

The XJO has pulled back and is now showing signs of a short term recovery back towards it’s reversion point. With IV relatively low (IV rank of 9) we will be looking at a single legged long call this week.

Source: Implied Volatility

From a technical viewpoint the XJO has been experiencing higher lows and higher highs since late March 2021 and reverting around the upward sloping trend line. Price action has mostly been above the 50 DMA with a quick bounce higher if the market trades below this level. In the most recent pullback we have seen the XJO trade close to the 50 DMA but not quite hit it. Trading technicals is not an exact science so for the sake of this trade, we will treat this as a bounce. The buyers may have jumped in early expecting a repeat of the last two bounces as on the 20th of May and 21st of July 2021.

Seeing the XJO is looking bullish we will just select a ‘long call’ which is expected to deliver a strong payoff if the market rises. This position will also capture the upside if the market pushes through all-time highs.

Source: Implied Volatility

Enter position:

Long XJO 7450 16 September 2021 Call (A)

(Note that with upcoming dividends this month, the XJO September options futures price is currently around 70 points below the XJO index price. With many stock’s ex-dividend dates lying within this months expiry, the index will be expected to fall as the dividends are paid out, ceteris paribus. Holders of index options are not entitled to dividends. The XJO index and September options futures pricing will converge as we approach expiry).

We will select the September monthly expiry as we expect a quick market move, and the monthly expiry should have good liquidity.

Initially we will be looking for the XJO index to make a quick move towards the 7600 resistance, then a potential 2nd break towards the 7625 to 7650 resistance. If there is enough buying pressure we could see the market trade into all-time highs.

You could close your position around any one of these major resistance levels. If the market hits 7600 in the next week, you can close the position to lock in a quick profit. Alternatively you could hold the position closer towards expiry in the hope the market reaches new all-time highs. Without knowing where the resistance levels will lie above all-time highs, you could be trading blind.

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.

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