Bull Put Spread on Fortescue Metals

By Karo Cornips | More Articles by Karo Cornips

Today we are applying a Bull Put spread on Fortescue Metals Group Ltd (FMG), which has recently bounced off support, showing bullish entry signals.

If you would like to view a short educational video on how a Bull Put spread works, please view the above article.

Analysis:

FMG is currently trading $6.07.

FMG has been trading in a strong uptrend for the past 12 months. Recently, mainly due to the lighter volumes seen during the Christmas period it has consolidated along with the slow appreciate of the overall market. It did have a fall leading into the Christmas period, but has managed to hold support.

We may continue to see light volumes and inactivity but time decay can work for the Bull Put spread. In addition, the majority of risk can be placed below the support level.


 

The Strategy:

There are many different types of options strategy’s 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 rising 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.