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Today we are looking at applying a Bull Call Spread on Fortescue Metals Group Limited (FMG)

Analysis:

FMG is currently trading at $20.48

FMG has been trading in a strong uptrend since the lows in January 2019. Recently, it pulled back with the materials sector over roughly the past month as metals, particularly iron ore, had a retracement. The past couple of weeks though have seen base metals rally and the materials start to recover.

FMG has bounced off the uptrend line, and broken the counter trend, thereby breaking the pennant triangle pattern.  Technically, FMG looks like it should head back to roughly $25. In addition, the current P.E is 7.2, and future P.E is 5.4 – relatively cheap compared to other miners on our market.

There are a few ways to trade this. You could of course simply buy the stock, or perhaps even do a covered call buy-write. Another way would be to implement a Bull Call Spread. With this strategy we can take a leveraged position where we profit not only from bullish movement, but also sideward movement. Therefore, if FMG takes time to rally, the trade will slowly profit.

If you would like to learn how and when to use this strategy, and other strategies like it, then please contact us here at TradersCircle on 03 8080 5788. Alternately, you can download a free eBook off our website which runs through advanced strategies.