Today we are looking at applying a Bull Put Spread on BHP Group Ltd (BHP).
Analysis:
BHP is currently trading at $37.94
BHP has found a floor at roughly $36 after falling off following a crash in Iron Ore prices, news of a delisting overseas, and plans to spin off its oil production with WPL. Recently Iron Ore has retraced, and oil has surged. This has led to a recovery over the past few days in the miners.
We could look at doing a Bull Put on BHP with a sold leg at $36 – the support level, and a bought leg at $35.50 with a November expiry. Provided the share price remains above $36 by the November expiry, the trade makes maximum profit. If BHP does push higher as commodities continue to appreciate, the trade can be closed early. Roughly 25% profit can be made if the share price reaches roughly $40. If it never gets there though and continues to consolidate, provided it stays above $36 come November expiry, maximum profit is still obtained.
