Today we are applying a Bull Call spread on Coca-Cola Amatil Ltd CCL
Analysis:
CCL is currently trading at $9.49.
CCL has been trading in an ascending channel since December last year. Recently it was rocked by its end of year report, but settled at its key support level at $9.25. The chart below shows that $9.25 is both a horizontal support that was tested at least three times, and also roughly where the uptrend line (the bottom of the channel) comes in.
The chart also shows that CCL has clearly bounced from these levels, and looks bullish towards the top of the ascending channel. CCL can have periods where it travels sidewards, and therefore we would prefer to be in a position where we can profit both time decay and bullish movement. This is where the Bull Call comes in. We can set this up in a way where if CCL rises we can close for a profit, but because we can profit from sidewards movement, it gives us the flexibility to wait for the move.
The strategy:
There are many different types of options strategy’s used in different market conditions. But the key reasons traders use this style of trading is that:
- Benefits from a rising market. Can be used as a short term trade as the stock doesn’t need to move up much to make a profit.
- Time decay can positively affect the trade
- Is used by directional traders that want a trade they and get out of quickly but gives the benefit of being able to wait for the move.
With some options strategies time decay works against you, so not only do you need to get the directional movement right but the timing has to be perfect. With this strategy you get a generous profit if you get the move right with flexibility on the timing.