Today we are applying a Bear Call spread on Harvey Norman Holdings Limited (HVN)
HVN is currently trading at $4.14.
HVN for the past few months has been trading in a channel pattern between key resistances at ~$4.20 and key support at ~$3.80.
Recently HVN went back towards the key resistance and the top of the channel. Today shows it stalling at this level and breaking the short term up trend line. This indicates that HVN is likely to continue lower and continue the channel pattern.
Instead of just shorting the stock, instead, we can trade a Bear Call. The reason why we may prefer this is that HVN could easily go sidewards instead of falling straight away. We can take a defensive position and place our risk above the $4.20 resistance level, so that if HVN remains below it until the expiry of the trade we can make maximum profit.
In addition, if HVN does fall, then we can look to take an early profit as well.