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Trade of the Week – XJO Iron Condor

January 19, 2022

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Trade of the Week – XJO Iron Condor

The S&P/ASX 200 Index (XJO) has been trading range-bound since June last year. Lows of approximately 7200 have been hit In July, October and November, indicating that this level is a strong support line for this index. The market has also “double topped” at all-time-highs (in August and earlier in this month) at around 7620.

The S&P/ASX 200 Index (XJO) has been trading range-bound since June last year. Lows of approximately 7200 have been hit in July, October and November, indicating that this level is a strong support line for this index. The market has also “double topped” at all-time-highs (in August and earlier in this month) at around 7620.

With this in mind and the XJO currently trading at the midpoint between the highs and the lows, we can look to capitalise on the range being traded with a strategy that makes money in a sideways trend.

Source: Implied Volatility

Iron Condor:

Source: Implied Volatility

The Idea of the Iron Condor trade on the XJO is to assume that the index will continue to trade within its range over the next 30 days.

The Iron Condor is a 4 legged trade, selling both an out-of-the-money Call and Put Option, then buying a Call and Put further out-of-the-money to hedge downside risks. With this strategy, we receive a premium up front for entering the position, and hope for the options to expire worthless to keep the credit we had received. This position is theta positive. This means as time progresses, the value of our position will increase all else being equal. 

Source: Implied Volatility

This position has been set up to receive maximum profit if the XJO trades between 7200 and 7600 over the next 30 days, in which these levels have been seen as support and resistance for this market in the last 7 months.

With 5 Contracts per leg, our credit for entering this trade will be $1,645. Our Maximum loss is set to $3,355.

We will receive maximum profit if the XJO finishes trading on Feb 17th 2022 between 7200 and 7600. Maximum loss will occur if the XJO trades lower than 7100 or higher than 7700 on expiry day.

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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