Today we are looking at applying a Bull Call on Fortescue Metals Group Limited (FMG)
Analysis:
FMG is currently trading at $25.17.
FMG is trading in a long-term uptrend. Since the beginning of the year however it has also formed a counter trend line, and subsequent pennant pattern. This has forced FMG into the point of the triangle over this period.
Recently, FMG broke the countertrend and therefore the pennant pattern in the direction of the underlying trend. This is a fairly bullish signal.
FMG is also fundamentally cheap, should be expected to report well, and pay a strong dividend soon.
We expect FMG to continue higher to the next key level at roughly $26.20 and even beyond. There are two ways we could trade this. A simple bought Call would profit from a quick snap up. The benefit is a single leg of brokerage, varying choices of leverage, and an uncapped profit. The major con is that the Call would only profit from bullish movement and suffer under any bearish or sideward movement.
Instead, we could trade a Bull Call spread, which doubles the brokerage and caps the profit, but also provides profit from sideward movement as well as bullish. With FMG being a stock that likes to whip around, this is a strategy worth considering if you wanted the possibility of holding the trade for longer.
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 check out our free resources which run through advanced strategies.