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Analysis:

WPL is currently trading at $34.79

WPL has been trading in a strong uptrend since roughly the middle of March creating higher peaks and troughs. Recently it pulled back to the uptrend line and today shows it bouncing off of it, breaking the short term counter-trend, and therefore breaking out of the pennant pattern.

Considering this, WPL looks like it could head higher to continue the uptrend and go on to break the local resistance of $36.50.

To take advantage of this we could consider trading a Bull Call spread where we can profit from both bullish and sidewards movement. This would provide the opportunity to wait for the directional move to occur and actually profit from just being in the trade provided we don’t see too much bearish movement. The uptrend line and the local support level which roughly come in around $34.15 should help prevent WPL from falling too much before continuing higher.

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.