Woolworth Bear Put Spread

Woolworths has broken a key upward trendline and now is likely to go and retest the previous June 2008 low of $23.00.  Because this is a lower high set up this is likely to go to a clear new low and using the A=C rule gives us a potential target of $19.00.  A more modest target is $22.00 so this should be our minimum target.

A great strategy to consider is buying an out of the money bear spread.  The aim is to spend small and win big if our big move comes off.  It's wise to buy plenty of time to give yourself plenty of opportunity to get it right and if it doesn't move your way you close it out  after half the time has elapsed.  I.e. if you buy an spread with 12 weeks until expiry you should close it out before it reaches 6 weeks to expiry.  The text books suggest you will only lose 1/3 of the value if price hasn't moved too much but if you get back half then you've done well in my experience.

In this case we suggested earlier in the week that our Broking clients Buy WOW Sep 24.00 Put  and Sell WOW Sep 22.50 Put for a net price of 18c dr.   10 contracts will cost just under $2000 after all costs and if it does close below $22.00 by September expiry then it could net you $15000.  You can see that this represents a 7.5 :1 risk reward which is very attractive.  As I suggested if it doesn't roll over within the next 4-6 weeks we should recover at least 50% of your outlay.  If you would like to look at this strategy and others please call me at Novus Capital on 02 93750123.  As an options professional we can teach you the smart ways to trade the market.

Regards

Gary Glover