Today we are applying a Bull Call spread on Coca-Cola Amatil Ltd (CCL).
Analysis:
CCL is currently trading at $8.72.
CCL has been trading in a strong uptrend, with its most recent movement seeing it retrace back to the uptrend line. Today we have seen a strong bounce form the uptrend line, indicating that CCL is likely to continue the trend and travel higher.
CCL can be whippy day to day, so we may not see an immediate rise and could take time for it to head back to resistance.
We can apply a Bull Call spread to take advantage of the uptrend and an eventual rise. A Bull Call spread is also time decay positive, so if takes time, we can profit from both sidewards movement and a slow drift upwards.
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 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.