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RHC is currently trading at $63.40

A couple of weeks ago a Bull Put spread was suggested on RHC, and if you had done a December expiry you would be in a good profit.

RHC today is showing another signal for a Bull Put spread, except it is recommended that a January expiry is implemented as the December expiry is now too close.

Analysis:

You can see from the chart below that RHC has been trading in a broad channel pattern since roughly April. There are two key levels of resistance and support that are keeping the stock traveling sideward.

Recently, it fell from the top of the channel to the first key level of support at roughly $63. Today shows RHC bouncing from this key level. Considering the strength of this support but also the bottom of the channel at roughly $61.50, we can look to implement a Bull Put where we use these levels defensively.

A Bull Put spread, if set correctly, can profit from both bullish and sideward movement. This is appropriate despite expecting gradual bullish movement, as RHC’s sideward trend could cause it to drift as we saw since we first suggested the strategy two weeks ago.

We can look to place all the risk below $61.50 support. Provided that the stock is trading above this level come expiry on January 21st, maximum profit is achieved. Therefore, we can use both $63 and $61.50 defensively as they may stop the stock from falling into our risk area.

If we do see a run back towards the top of the channel, the trade can be closed early for a profit, and the closer the trade gets to expiry in January, the less bullish movement is needed for an early close.

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.