Bear Put Spread On CSL Limited

By Karo Cornips | More Articles by Karo Cornips

Today we are applying a Bear Put spread on CSL Limited (CSL) which has recently bounced from its short term downtrend line and showing bearish signals.

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

Analysis:

CSL is currently trading at $99.12.

After a strong run from mid-December last year, CSL has had a strong pull back creating a short term down trend. It recently had a ‘breather’ coming back to the downtrend line to bounce off it and continue lower. This strengthens the trend line and creates a trading opportunity down to the next support level of ~$97.00.

Considering the fall it had today, CSL may have another ‘breather’ and track sidewards to return to the down trend line before bouncing off it again. Considering this, the Bear Put spread is appropriate because it not only profits from a bearish movement, but also sidewards movement. This provides flexibility on timing to wait for the move.

The Strategy:

There are many different types of options strategies used in different market conditions. But the key reasons why we would trade a Bear Put in this scenario is:

  • It benefits from a falling market. Can be used as a short term trade as the stock doesn’t need to move down much to make a profit.
  • Time decay can work in our favour to generate profit form sidewards movement.
  • Is a directional trade that we can get out of quickly, but gives the benefit of being able to wait for the move.