Bear Call Spread On Coca-Cola Amatil

By Karo Cornips | More Articles by Karo Cornips

Today we are applying a Bear Call spread on Coca-Cola Amatil (CCL), which recently broke out of a triangle pattern and showing bearish entry signals.

If you would like view a short educational video on how a Bear Call spread works, please view the above article.

Analysis:

CCL is currently trading at $10.06

CCL has experienced quite a strong drop in the past couple of days following a bounce from a key resistance level at $10.26.

Since early December, like the rest of the market, CCL has experienced immense growth. This has formed a strong up trend line to form an ascending triangle with the key resistance level. Two days ago, CCL broke that triangle pattern by breaking the uptrend line to the downside. This further adds to the bearish view of CCL, and coupled with such a strong rise it makes sense that CCL is perhaps ready for a correction or at least a short term pull back.

The next support level is perhaps at $9.90, which is plenty of room to make a profit, but considering the strong bearish move that CCL has experienced; don’t be surprised to see some consolidation before reaching that level.

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.

The strategy:

There are many different types of options strategy’s 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 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.