Today we are applying a Bear Put on Alumina Limited (AWC).
AWC is trading at $2.35
AWC has been trading in a broad descending triangle since its highs in October last year. The chart shows the strong downtrend line and the key support that make up the triangle pattern. Recently AWC rallied back towards the downtrend line, and looks to potentially have bounced. It is also looking to hold the 200 and 100 MA’s which often act as resistance levels as well. Regardless, doing a bearish trade would be trading with the downtrend line, and more often than not stocks tend to stick with the trend.
Instead of shorting the stock and having infinite risk, we can instead use a much smaller amount of capital and cap our risk by trading a Bear Put spread. This strategy can also have time decay working in its favour, so if AWC whips around either prior or during its decent, we will profit.
It’s a great strategy to have in your arsenal which brings a greater flexibility to your trading.