Bear Call on the XJO (ASX200)

Today we are applying a Bear Call on the XJO (ASX200) index.


The XJO is currently trading at 6,800.

The XJO has been trading in a solid downtrend and broadening wedge since the recent highs back in late August. Recently the index rallied back towards the downtrend line and consolidated sidewards in a tight channel. The top of the consolidation range coincides with the downtrend line at roughly 6,800 to 6,825. This is also where the 50 and 100 day MAs come in.

For us to break this key level of resistance, we would need a continued move higher in the U.S whom haven’t even reach their own 50 and 100 day MAs.

XJO chart 25 10

Considering the bearish pressure yet sideward consolidation, we can use a bearish to sidewards strategy called a Bear Call spread. The point of this trade is to place all the risk above a key level of support – in this case 6,800.

Lets have a look:

Max Risk: $3,300.

Max Profit: $1,700.

XJO strat 1

The payoff matrix below shows the profit and loss at different prices (Y axis) on different days (X axis). The current share price in the matrix is 6,802. If the share price were to fall to the next key support at roughly $6,650 we would profit roughly $1,100 (~33%). The beauty of this strategy is though, that time decay does most of the heavy lifting. Provided the share price remains below the sold leg (pink line above) at 6,875 come expiry on the 3rd of November, the trade makes maximum profit. In the payoff matrix below, in a weeks’ time, even if the share price has not shifted, we make a profit.

XJO strat 2

There are other ways to set up these strategies. If you would like help with your trading, or want to learn how to implement these strategies alongside other sophisticated options positions, then consider getting in touch.