Today we are looking at applying a Bull Put Spread on BHP Group Ltd (BHP).
BHP is currently trading at $ 36.73
BHP looks oversold at these levels. It has recently held the key support at roughly $36. Commodities prices are weighing on the miners, but the recent fall in the AUD is helping them remained buoyed. BHP is also relatively cheap at these prices.
Instead of doing an outright bullish trade, we suggested a Bull Put to our clients. The Bull Put does profit from a move higher, but it can also profit from sideward movement. We chose a late November expiry with a sold leg underneath the key support at $36. Provided BHP remains above $36, we will continue to hold the position and come expiry make maximum profit. If we see a rally in BHP prior to then, we can look to close the trade early for a decent profit. We like this strategy because even though we believe BHP is cheap at these prices, the volatility in this space could keep it whipping up and down, and so utilising the Bull Put we can play defensively and keep any risk underneath the floor at $36.