Today we are applying a Bull Put spread on Bendigo and Adelaide Bank Ltd (BEN:ASX)
Analysis:
BEN is currently trading at $9.95.
The chart below shows how BEN has been rallying since its lows in September last year. Recently, along with the rest of the market, pull back to sit on the trend line. It also held a key support at roughly $9.60. The last couple of days show that BEN is willing to hold both these levels and the stock is likely to continue in the direction of the underlying trend.
A Bull Put spread would allow profit if the stock tracks sidewards and/or goes up. The risk of the trade can be placed below the key level of support at roughly $9.61 and provided BEN stays above this level come expiry then maximum profit is achieved. If the market remains uncertain and tracks sideward then the Bull Put remains profitable and the amount of bullish movement needed to close early is less.
The Strategy:
There are many different types of options strategies used in different market conditions. The key reasons traders use this style of strategy is that:
- Benefits from time decay (as time progresses, our trade increases in value).
- A very popular strategy used in a rising to sideways market.
- Allows for some upward movement.
- Can be used by busy people as the risk can be managed from afar.
- Has the possibility to close out for zero brokerage.