News

Trade Of The Week: Long Put – FMG

July 14, 2021

Trade Of The Week: Long Put – FMG

This week I have selected a very short term trade on FMG as the stock sits round resistance at the $25.20 level. The stock has felt resistance around this level around 25/1/21, 25/2/21, and 10/5/21. The stock has recently been sitting at this level for the past two trading days.

This week I have selected a very short term trade on FMG as the stock sits round resistance at the $25.20 level. The stock has felt resistance around this level around 25/1/21, 25/2/21, and 10/5/21. The stock has recently been sitting at this level for the past two trading days.

Source: Implied Volatility

There is an expectation of a large move in either direction in the coming days, however a downward move would likely be larger and more volatile. With implied volatility sitting at 28.57% the IV rank is at 4, the market is pricing in low levels of volatility. There is a decent chance the stock could rise instead of fall, however this is not likely to increase IV and the price rises would be slow and steady. For a short term trade, the downside has much more profitability potential.

Enter long put:

Source: Implied Volatility

We will select an at-the-money American put with the next monthly expiry (19th of August 2021) for greater liquidity. As of close of trading today, 36 puts will position our maximum loss around the $2,880 level.

The aim here is to hold a long put position for a week or so and capture the downside from an expected fall towards the $24.00 level. As the stock approaches this level, implied volatility is also likely to rise.When the stock reaches $24.00 to $24.20 we can close out the long put. I have selected this price point as this is above where the 50 day MA will be in one week and it is above support at $24.00. You could hold for a further fall but the view I take in my own trading is a quick and profitable trade is a good trade. If the market still has not moved by the end of the week (or has turned against us) you can review the trade and consider closing out the position and taking the losses.

Using the payoff matrix on the strategy builder in the Implied Volatility platform, you can see if IV jumps 20% and the stock falls to $24.19 in one weeks time, we can see a theoretical profit of $2,178. This would be a strong return for a one week time period, if this view is correct.

Keep in mind there is a chance the stock could break out in the bullish direction so consider if you are comfortable with experiencing some losses in the event this view doesn’t hold.

If you would like some more information on options trading strategies, call 1300 805 795. 

You can also follow this link for a detailed tour of the Implied Volatility platform.

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. Please note, we provide General Advice only and do not take into consideration your own personal circumstances, you must decide if it’s appropriate for you. 

 

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 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.

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.


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.

Morning Market Report

A technical view of the Australian and key international markets

Leave a comment