Today we are applying a Bear Call spread on Ansell Limited (ANN), which recently broke out of a triangle pattern and showing bearish entry signals.
ANN is currently trading $24.68
ANN has been in an uptrend since the middle of the year, accelerating to highs that haven’t been experienced since mid-last year. ANN does look toppy at these levels and with such a strong recent rise, it could be expected to have a short term pull back before continuing on.
Today we have seen ANN provide a strong bearish entry signal helping confirm that it is time for either a pull back or at least a breather resulting in sidewards movement.
Considering this analysis, a Bear Call spread seems the most appropriate because it not only benefits from a fall in share price, but also from sidewards movement. In addition, with the ability to place all the risk above the resistance level, it reduces the risk of the trade going against us.
There are many different types of options strategies used in different market conditions. The key reasons trader’s 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 falling to sideways market.
- Allows for some upward movement.
- Can be used by busy people as the risk can be managed from a far.
- Has the possibility to close out for zero brokerage.