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Trade Of The Week: LITT Long – ORI

March 30, 2022

Trade Of The Week: LITT Long – ORI

Orica Limited (ASX: ORI) has been flagged for a LITT Long trade idea as it continues its breakout move. The stock has pushed through resistance around the $15.00 to $15.70 levels and is now expected to trade within a range between $16.00 and $17.50 over the short term and potentially break higher in the coming weeks. A LITT Long trade idea was first flagged on 25th March when the stock broke through the $15.70 level.

Orica Limited (ASX: ORI) has been flagged for a LITT Long trade idea as it continues its breakout move. The stock has pushed through resistance around the $15.00 to $15.70 levels and is now expected to trade within a range between $16.00 and $17.50 over the short term and potentially break higher in the coming weeks. A LITT Long trade idea was first flagged on 25th March when the stock broke through the $15.70 level.

Source: Implied Volatility

Looking back, the stock was stuck trading around its moving averages between 26th November 2021 and 31st January 2022. The stock made a clear break from the 50-day and 200-day MAs in early February 2022, then felt resistance around the $15.00 level. ORI pushed through this level on 16th February, then experienced five consecutive days of red candles as resistance was experienced around $15.50. On 24th March, the stock broke through $15.50 and has continued rising, experiencing five consecutive days of rises. Prior to this breakout move, the 52-week high was set on 27th October 2021 and tested again on 17th March 2022 at a price of $15.70.

Source: Implied Volatility

Setting up the trade involves selling an in-the-money put option, and buying at-the-money put option as protection. By selling an in-the-money put, you receive an upfront credit for entering the position. Your best outcome is for the whole position to expire worthless, so you can keep the upfront premium.

To follow the LITT Trading strategy, you will enter the position when the following criteria have been met:

  • The share price is above the 50-day MA
  • The 50-day MA is above the 200-day MA
  • The 50-day MA is trending upwards
  • The share price is above the 52-week high
  • The ADX is above 20

To enter into a LITT Long strategy today with ORI, we will sell a put option at a strike price of $17.50 and buy a put option as protection at a strike price of $16.50. The expiry date will be between 30 and 60 days to expiry, which narrows down to 19th May 2022.

Source: Implied Volatility

Entering into this strategy will generate $5985 of upfront premium, with a theoretical maximum loss of $3015, before brokerage and ASX fees.

The best outcome (maximum profit) is for GMG to trade and expire above $17.50, which will render the contracts worthless on expiry, allowing you to keep the upfront premium.

The worst outcome (maximum loss) is for the stock to trade and expire below $16.50. Your sold put will expire in-the-money, however your bought put will offset any further losses if the price falls below its strike price of $16.50.

The breakeven point is at a stock price of $16.84.

The great thing about the LITT Long trading strategy is that you have room to move if the market turns against you. Based on the LITT trading rules, if the stock experiences enough selling pressure to pull back below the support level at the 50-day MA, you can manage the trade by closing out the sold put and remain in a long put position. This allows you to profit from the falling share price as it continues to fall lower.

And if the market then rebounds, pushes back above the 50-day MA, and trades above recent five-day highs, you can repair the trade by re-entering the sold put position.

With this trade, you may use your own discretion and choose another major support level to manage the trade and repair the position. We expect a major support level around the $15.00 to $15.50 levels.

Join Reach MD Patrick Nelson tomorrow, Thursday 31st March, at 1pm (AEDT) for a live online trading session on ‘How to trade the current market’. Patrick will discuss useful trading strategies and habits, and offer insights into how volatility is increasing and what to expect from markets. To book yourself in, click here.

If you would like some more information on our LITT Trading strategy, call 1300 805 795.

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. From 5 October 2021, under Design and Distribution Obligations, anyone opening a trading account will be required to meet the Target Market Determination criteria of Phillip Capital and subject to an assessment the results of which will determine your eligibility for a trading account, for further information please see here.

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Any advice provided by *Reach including on its website and by its representatives is general advice only and does not consider your personal objectives, financial situation or needs, and you should consider whether it’s appropriate for you. This might mean that you need to seek personal advice from a representative authorised to provide personal advice. Please click here https://reachmarkets.com.au/general-advice-warning/ to read our full general advice 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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