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Today we are looking at applying a Bull Put Spread on Wesfarmers Ltd (WES:ASX).

Analysis:

WES is trading at $55.30.

Recently WES returned to the uptrend line and a key level of support at roughly $54. It stalled here a few days ago, and yesterday it clearly bounced from it. Over the past year or so, WES has not liked to stay below the 200 day MA for too long. The short term stochastic also look oversold.

We can trade a Bull Put here – although today’s entry signal wasn’t the best so tomorrow may prove better. Regardless, the Bull Put is a defensive strategy where we place our risk at or below a key level of support. In this case it would be roughly $54.

The payoff matrix below gives a good idea as to the payoff of this trade per on per cent share price movement, over three day time increments.

Provided WES stayed above $54.16 (the sold leg – pink line above) by the 3rd of Feb, maximum profit would be made (roughly $1300). So, if WES tracks sideward, or even goes down, it just needs to roughly hold that support level for the next couple of weeks.

If WES does go up over the next week or so, an opportunity to close early for a decent profit is presented at roughly $56.50 to $57.00.

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