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Today we are applying a Bull Call spread on Westpac Banking Corp (WBC)

Analysis:

WBC is currently trading at $28.21.

As you can see from the chart below, WBC has been trading in a medium term channel between ~$30.25 and ~$27.50 since roughly April.

$27.50 is a particular key level of support and recently it bounced off of it, showing that it potentially wants to continue higher back towards the top of the channel.

In this situation we could apply a Bull Call spread where we can profit from both a rising and side wards share price. If it continues to drift or have a few hiccups along the way, we are protected and therefore have the flexibility to wait for the rising move.

The strategy:

There are many different types of Options strategies 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 can 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.