Trading HSBC Ranges with Put & Call Options

Trading HSBC Ranges with Put & Call Options
August 3, 2015

 
The banking giant HSBC (NYSE:HSBC), has announced that it is selling its loss-making Brazilian division in what looks like the continuation of a reorganizing process the group had started some time ago.

After cutting thousands of jobs in search of profitability, the banking group still seeks to reach economies of scale by more than five billion dollars, as its main focus is on Asian markets rather than Britain and Europe.

The banking system looks to be an interesting one in light of the possible rate hike by Federal Reserve of the United States. Over the last few years, even though stock markets around the world are in record territory, banks have suffered the most.

In a way, that was expected. The financial crisis had its roots in the banking system and profit margins were becoming smaller as central banks all over the world cut interest rates to the zero level, (and in some cases, even into the negative territory!).

Take the NYSE HSBC share prices for example. As of 2008 when the crisis started, and until present time, it has stayed in a $20 range between the $40 and $60 marks. As you know, whenever a range can be identified, it becomes a source of trading opportunities, and finding the perfect striking price becomes much easier.

The way to take advantage of this is to define the range in four equal parts, and this gives us four 5$ small ranges that may/should act as a support/resistance and be considered striking prices for trading binary options.

Currently the market is at $45.07/share. I would advice waiting for the $50 mark to be reached, and as soon as it touches it, buy a put option with one-month expiration date. Then watch the price as it is supposed to be rejected from that area. By the time the 46.5-47 area comes, buying call options would be indicated with one month expiration date as that would be the perfect striking price for a move designed to break the $50 mark and to go for the $55, where the same principle should apply: put options on the first touch and then call options on a move into $51.5052.

Future actions of the Federal Reserve and other global central banks will be key to adding a bit of volatility in the banking system. Again, having a range still offers a lot of trading opportunities, and HSBC’s range is a classic example.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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