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Today we are applying a Bear Call spread on Ramsay Health Care Limited (RHC) which has been consolidating at the top of a broad trading range.

Analysis:

RHC is currently trading at $57.09.

RHC has been trading in a channel between roughly $58 and roughly $53 since mid-June. From a broader perspective, it RHC has been trading in a downtrend since its highs back in August 2016.

The chart below shows RHC nearing the level of not only the $58 resistance level and top of the channel, but also the downtrend line. Both these levels should keep bearish pressure on RHC and likely to lead to further bearish movement.

We can take advantage of this view by trading a Bear Call spread, where we can place our risk above both the $58 level and the downtrend line, so that if RHC continues to trade below it by option expiry, we can make maximum profit.

Because RHC hasn’t exactly given us the entry signals we are looking for, the Bear Call spread can allow with the flexibility on waiting for the bearish move. This is because the strategy if correctly set up, can be time decay positive. So not only do we profit from bearish move, we also profit from time decay.