Today we are looking at applying a Bull Put Spread on the XJO.
Analysis:
XJO is roughly trading at $6,830.
The XJO also known as the ASX200 is an index of the top 200 companies on the Australian market (weighted by market cap). It is essentially “our market”. Unlike equity, we can trade the XJO using derivatives like warrants and options through the ASX. That’s what we will be looking at today.
The XJO looks like it might be trading in a pennant triangle pattern. Recently both the SP500 and the XJO completed their own reversal patterns. The U.S completed a small head and shoulders pattern by falling to their key support at roughly 3,900. They are also flirting with both their 100 and 500 day MAs, though remain below both. Our market typically follows theirs, though we don’t tend to rally or fall as aggressively. Our own market has completed a small double top and found an equivalent base at roughly 6,800 – a key support and roughly where our 50 day MA comes in. Our short term indicators point to an oversold market, and unless further shocks come about (likely from price data like CPI readings or Powell talks) markets should hold around here.
To take advantage of this, instead of doing a directional trade, we can look to trade a defensive position by implementing a Bull Put spread. We can place all the risk underneath the key support at 6,800 and provided the market remains above the support come expiry we make maximum profit. It’s a great strategy to use when you think the security will either rise or go nowhere or simply hold a particular level.
Let’s have a closer look:
Max Risk: $4,290
Max Reward: $1,210 (premium received).
Assumes a fill of 11 points.
As the matrix below shows, provided the XJO stays above the key support at 6,800 come expiry (15th Sep) we make maximum profit. There is also an opportunity to close early if we see a rally back towards the next resistance at 6,950.
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