A Relatively Safe Bull Spread

 

Today, we are looking at Carlisle Cos Inc (CSL).

 

 

The line chart shows a relatively strong bullish trend, at least in the long term. It’s the short term where things look interesting, and why I’ve chosen this stock as the underlying for this bull spread.

 

The Candlesticks and Technical Analysis for Carlisle Cos Inc

We see two significant candlesticks for CSL. Both are Doji patterns. Both of these Doji candlesticks are northern and long-legged. Either of these, alone, would mean little. But put together, especially considering the previous upward gap on April 22, a strong bullish trend is likely imminent.

 

Oddly, standard technical analysis would state that this candlestick pattern implies a strong bearish trend. I strongly disagree with such a sentiment. First of all, the gap on April 22 has already been filled, which means that the stock is more likely to go upward now than downward. Second, the upward trend along with the fact that these Doji candlesticks are very high in terms of the moving average and have relatively average shadows; I believe this adheres to a general upward trend, rather than a breakout or a reversal.

 

My Prediction for CSL

Looking at the supports and resists for CSL, you’ll find that the supports keep moving up. No strong resist exists. Yet this does not mean an unbridled upward trend. In fact, if you look the period from April 21 to to 24, you’ll see that CSL does appear to hit a resist at around 83, which CSL is currently below.

 

Thus, I believe the two most likely possibilities are:

1. CSL continues moving upward, as the past pattern implies.
2. CSL hits a resist at around 83.

 

My Move | CSL Bull Spread

 

I’m going with a Bull Spread on this stock. My logic goes like so: CSL has a strong upward trend and the candlesticks and gap that support a farther upward trend. Yet the possibility of a resist makes me hesitate in putting up the funds to buy a naked call. Instead, I’ll opt for a Bull Spread to save some money on my call option.

 

My hope is that CSL continues to move upward. If it doesn’t at least I’ve saved some money by going with a bull spread instead of a naked call. I’ll be buying one in-the-money call at 80 and selling one out-of-the money call at 85.

 

Cost to buy 1 call at 80: ($520)

Profit on sale of 1 call at 85: $140

Net cost of bull spread: ($380)