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Trade of the Week – WBC – Iron Condor

June 15, 2022

Trade of the Week – WBC – Iron Condor

Our trade of the week is a neutral WBC Iron Condor Trade that has been flagged by our trading scanners. It is a ‘silver’ quant tested iron condor trade, scoring 78 points. Options over this stock are fetching a relatively high premium due to its high IV rank (currently sitting at 84).

Weekly Trade – Neutral – Iron Condor on WBC (Westpac Banking Corporation)

Our trade of the week is a neutral WBC Iron Condor Trade that has been flagged by our trading scanners. It is a ‘silver’ quant tested iron condor trade, scoring 78 points. Options over this stock are fetching a relatively high premium due to its high IV rank (currently sitting at 84).

The stock has recently experienced a significant sell-off due to rising inflation forcing the RBA to rapidly raise cash rates, which may then feed into a slowdown in loan growth and an increase in defaults across mortgages, consumer, and business loans. The stock is now sitting on a key technical level around $20.00.

Source: Implied Volatility

Source: Implied Volatility

Traders use the Iron Condor strategy to generate income in sideways markets by selling the Implied Volatility that is priced into the options and allowing time decay to erode the value of the sold legs, making them cheaper to buy back later, or ideally, allowing them to expire worthless.

With the stock currently trading around $20.00, consider the following strikes:

Source: Implied Volatility

At the close of trading today, it’s looking at around a 42c credit to enter into this trade.

Maximum profit is achieved if both legs expire worthless, meaning you keep the upfront premium received for entering the trade. At 50 units, the theoretical maximum profit is currently $2100 with the theoretical maximum loss $2900. The maximum profit will be achieved if the options expire worthless on the 21st of July 2022 with the WBC stock price closing between the strike prices of the sold call ($21.00) and the sold put ($19.00). The maximum loss will occur if the stock closes below the protective put ($18.00) or above the protective call ($22.00). The two break even points are at $18.58 and $21.42.

Time decay on this position will accelerate as it approaches expiry. However you may consider closing the position early if the stock is sitting around the $20.00 level and/or if there is a significant reduction in IV towards 20 to 24.

Source: Implied Volatility

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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