Today we are applying a Bear Put spread on Bank of Queensland (BOQ) which is currently breaking out of a triangle pattern and showing bearish entry signals.
BOQ is currently trading at $11.77
BOQ has been trading in a channel between ~$12.40 and ~$11.30 since the start of the year. It recently rose to the top of the range, and has fallen, creating a short term downtrend. BOQ has fallen significantly after breaking out of a triangle pattern today, showing signs that it is likely to continue lower the downtrend and head to the bottom of the channel.
Considering this, the Bear Put spread will allow a strong profit if BOQ falls to the bottom of the range, and provides the ability to wait for BOQ to fall further if it stalls at those levels as the strategy profits from time decay.
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.