Using ASX as an example

Today we are applying a Bear Put on ASX Ltd (ASX)


ASX is trading at $77.31.

To be clear, the ASX is a company that trades on itself. So today we are looking at the company, not the broader ASX200 (the XJO).

The ASX has been trading in a descending triangle since the highs back in late November last year,  characterised by both the downtrend line and the key support at roughly $78.70.

Today has the ASX breaking lower with solid entry signals. There is also plenty of room to the next key support at roughly $74.70.

ASX Ltd 1

To trade this, we could buy Put Options, mini shorts, or we could look at a more sophisticated strategy: the Bear Put Spread. Here is one setup:

Max Risk: $4,900.

Max Profit: $5,100.

ASX Ltd 2

The payoff matrix below shows the profit and loss at different prices (Y axis) on different days (X axis). The current share price in the matrix is $77.29. If the share price were to fall to the next key support at roughly $74.70 we would profit roughly $1,500 (~30%). Equally, if the share price rose back through the key resistance roughly $78.70, by the time we closed we would likely lose something similar. The great thing about this strategy is though, that if the stock drifts sidewards we slowly profit from time decay.

ASX Ltd 3

There are other ways to set up these strategies. If you would like help with your trading, or want to learn how to implement these strategies alongside other sophisticated options positions, then consider getting in touch.