Today we are looking at applying a Bull Put Spread on Ramsay Health Care Limited (RHC)
RHC is currently trading at $62.90.
RHC has been trading in a broad channel since roughly April last year. Recently it tracked to the lower boundary and stalled near the $63-$62 support levels. Since, it has traded in a tighter range.
We would expect RHC to continue to track sideward, and considering it has been tracking along the bottom of the channel, we would expect the next move to be towards the top of the channel at roughly $69.
Therefore, if our view is that RHC is likely to track sideward and/or push higher, we could employ a Bull Put Spread where all the risk is placed below the support at $63. If the share price remains above this level come expiry (likely August) we would make maximum profit. In addition, if the share price were to rally back towards $69, we would be able to close for a good profit early.
Finally, a Bull Put is half of a short Iron Condor. If we saw RHC continue higher, we could consider placing the other half, a Bear Call, at the top of the channel. This would increase profitability but reduce risk. It would likely only be worth considering if we saw the rally early and not too close to expiry.
If you would like to learn how and when to use this strategy, and other strategies like it, then please contact us here at TradersCircle on 03 8080 5788. Alternately, you can access some free resources off our website which runs through advanced strategies.