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Analysis:

CBA is trading at roughly $104.36.

CBA has been tracking sideward since roughly mid March. Recently it returned to the top of the channel at roughly $107.50. Today shows CBA rebounding from resistance and breaking both the short term uptrend line and the 50 day MA. The short-term stochastic are also pointing down, coming out of the overbought area. The next key target is near the bottom of the channel at roughly $101.5, which is also where the 200 and 100 day MAs converge.

Calendar Bear Put

To trade this, we can implement a Calendar Bear Put.  Here is the setup:

Total risk: $4,988

What makes the Calendar Bear Put unique is the differing expiring months. The bought leg is out in August, but the sold leg is the 16th of June (just over two weeks away). With out getting into the intricacies of why, lets simply look at the payoff matrix and the other benefits.

First off, we can see that with a move down to roughly the next key support at $101.23 we can profit pretty comfortably – $952 (~20%). Otherwise even with a small move down to $102.27 by the 9th of June we would still make a similar profit thanks to how we profit from sideward movement.

Outside the obvious benefits, if the share price were to remain about the sold strike at $102.01 come it’s expiry on the 16th of June (refer to the setup), the Option would expire worthless. This means we would keep the full value of the $900 received on entry. In addition, we would be left with a bought leg because its expiry is in August (refer to the setup). This means we could sell another Put for perhaps July or August around a similar strike for further credit. By receiving more credit (for example another $1000), we would be both increasing the profitability of the trade reducing the risk.

This is a great longer-term strategy, not limited to August. It is also best done with guidance from an experienced Options trader like those that sit on our trading desk and our mentors in our education.
If you would like to learn about this strategy, or other Options strategies please get in touch.