The Canadian stock market has moved back and forth in a fairly narrow range (between $16.50 and $17.50 on the S&P/TSX 60 iShares (symbol XIU, Friday’s close $17.16). That said, there have been periods where the market has moved sharply higher or lower. Which is to say, volatility is high relative to the actual trading range of XIU.

Interestingly, the Canadian market has traded tightly around its 20-day moving average. No momentum. Typically strong upward moves – as we saw in early June – are followed by sharp sell-offs (witness the middle of June to early July).

Of course, markets eventually break out of a range. The question is when. And to this point I see nothing that suggests a serious break out in either direction until perhaps, the beginning of the fourth quarter.

With that in mind, traders might look at selling September straddles. Specifically selling the XIU Sept 17.50 calls at 30 cents and the XIU September 16.50 puts at 30 cents. The net premium received from the sale of the straddle is 60 cents.

This trade will be profitable if XIU is between $15.90 and $18.10 at the September expiration. The maximum profit occurs if the XIU closes anywhere between $16.50 and $17.50 at the September expiration.