Trade Of The Week: Long Call or Long Put on the XJO?
The market has been range trading between 5800 and 6200 since June, but has experienced a strong bullish run following the federal budget trading around the 6200 level for seven consecutive days.
The market has been range trading between 5800 and 6200 since June, but has experienced a strong bullish run following the federal budget trading around the 6200 level for seven consecutive days. This week we will run over some basic options trading strategies that can be profitable if the market rises (long call) or falls (long put).
If you expect the market to push through its current resistance level around 6200 and experience a break out move, you can enter into a long call position to profit from this move.
If you expect the market to pull back from this resistance level and trade back towards 5800, you can enter into a long put position to profit from the trade.
The profit from these trades will depend on the strike price you set. OTM options have their strike price set away from the current share price and have zero intrinsic value. At-the-money options (ATM) have a strike price set close to the current share price. In-the-money (ITM) options have a large intrinsic value as the share price trades above the strike (for a call option) or below the strike (for a put option).
OTM options carry more leverage than ATM options, and ATM options carry more leverage than ITM options.
To enter into a long call on the XJO you can start in the ‘Strategy Builder’, type in ‘XJO’ in the upper LHS of the page, then select the ‘Options Cookbook’ and select ‘Long Call’
Set the strike at a level that you believe the market will soon trade above. Set the expiry date to a date that allows enough time for your market view to play out.
To enter into a long put on the XJO you can start in the ‘Strategy Builder’, type in ‘XJO’ in the upper LHS of the page, then select the ‘Options Cookbook’ and select ‘Long Put’.
Set the strike at a level that you believe the market will soon trade below. Set the expiry date to a date that allows enough time for your market view to play out.
Click the ‘execute strategy’ button to enter the trade into the market, set your limit price and follow the prompts. You can view your order status under the ‘Order’ screen.
Once your order has been executed, it will appear in the ‘Portfolio’ screen. When you wish to close the position, you can click on the legs you wish to close then click ‘close selected’ and follow the prompts.
You can follow this link for a detailed tour of the Implied Volatility platform. If you would like some more information on options trading strategies, call 1300 805 795. Please note we provide General Advice only.
The new round of the ASX Options Trading Game is now open so make sure to create an account (or login if you already have one) to start playing for a chance to win yourself weekly cash prizes, brokerage, education and much more.
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.
Past performance is not a reliable indicator of future performance.
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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