Today we are applying a Bear Call spread on Crown Resorts Ltd (CWN), which has recently broke out of a triangle pattern and a continuation of the downtrend.
Analysis:
CWN is currently trading $12.16.
CWN has been trading in a downtrend since April categorised by the lower peaks and troughs. Recently, it broke the short term uptrend, and therefore the pennant pattern, in the direction of the downtrend. This helps indicate that CWN is ready to continue lower.
Instead of shorting the stock which has unlimited risk, margin calls and funding costs, we can instead look at using a Bear Call spread. The Bear Call (if set up correctly) has limited risk, limited margin and will benefit from time. We can place our risk above the local resistance at $12.40, so if CWN stays below that level we can make maximum profit by the maturity of the trade.
This also means if CWN drifts sidewards we are profiting the closer we get to the expiry day. Finally, with time on our side, we gain the flexibility of waiting for a bearish move, which if occurs, provides an opportunity to close early for a good profit.
If you have a bearish view of a stock, we believe Options are a great way to trade your view, with the Bear Call spread being a great tool for stocks that seem to drift for periods of time prior to moving down.
