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Trade Of The Week: Long Call on XJO

April 28, 2021

Trade Of The Week: Long Call on XJO

We have seen a strong rise in the market following the release of Australia’s CPI figures that hit the “goldilocks spot”. Not too high that there is pressure on rates, and not too low that deflation is a concern, but just right to show stable and gradual increases in consumer price pressure across the economy.

We have seen a strong rise in the market following the release of Australia’s CPI figures that hit the “goldilocks spot”. Not too high that there is pressure on rates, and not too low that deflation is a concern, but just right to show stable and gradual increases in consumer price pressure across the economy.

Source: Implied Volatility

 

From a technical viewpoint the XJO has experienced higher lows since last week’s pullback, and looks ready to achieve higher highs in the coming days. The market attempted to form a double top however buying pressure returned at the 7000 support level. We are also seeing the big end of town lining up along major resistance levels, which means a directional move is likely to move the whole market in unison.

Source: Reach Trading


CBA, which has the largest market capitalisation on the ASX, is sitting on a major resistance level which was acting as a major support in Feb/March 2015. The stock is also trading near it’s pre-COVID highs. ANZ, NAB, and WBC are also sitting on major resistance levels. In the mining space BHP, FMG, and RIO are all sitting on major pivot points, ready for a big move in either direction.

A straddle could be suitable to capture the upside or downside of the upcoming move, however, the market isn’t currently pricing much leeway in a straddle. It would require a very large move to be profitable if holding for the short term and even larger if holding until expiry.

Source: Implied Volatility

 

Seeing the XJO is looking bullish we will just select a ‘long call’ which is expected to deliver a much better 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 7025 20 May 2021 Call (E)

We will select the 20th of May 2021 expiry as we expect a quick market move, and the monthly expiry should have good liquidity.

Initially we will be looking for a quick move towards the 7130 resistance, then a potential 2nd break towards the 7190 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. Alternatively you could hold the position in the hope the market reaches new all-time highs.

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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