Today, we are using some moving average filters to find bullish stocks and then looking at a couple of different trade ideas.

First the stock scanner:

Which produces these results:

Now that we have some bullish stock candidates, let’s analyze three different option ideas.

Adobe Bear Call Spread

The first trade we will look at is a Bear Call Spread on Adobe (ADBE).

First, let’s run our Bear Call screener for Adobe:

Let’s evaluate the first ADBE bear call spread example. 

Selling the July 18 call with a strike price of $405 and buying the $415 call would create a Bear Call spread.

This spread was trading for around $1.67 yesterday. That means a trader selling this spread would receive $167 in option premium and would have a maximum risk of $833.

That represents a 20.05% return on risk between now and July 18 if ADBE stock remains below $405.

If Adobe closes above $415 on the expiration date the trade loses the full $833.

The breakeven point for the Bear Call spread is $406.67 which is calculated as $405 plus the $1.67 option premium per contract.

Merck Bear Put Spread

A bear put spread is a vertical spread that aims to profit from a stock declining in price. It has a bearish directional bias as hinted in the name. Unlike the bear call spread, it suffers from time decay so traders need to be correct on the direction of the underlying and also the timing.

A bear put spread is created through buying an out-of-the-money put and selling a further out-of-the-money put.

The maximum profit is equal to the distance between the strikes, less the premium paid. The loss is limited to the premium paid.

Running the bear call spread screener shows these results for Merck (MRK):

Let’s use the first line item as an example. 

Using the August 15 expiry, this trade involves buying the $90 put and selling the $65 put.

The price for the trade is $11.66 which means the trader would pay $1,166 to enter the trade. This is also the maximum loss. The maximum gain be calculated by taking the width between the strikes and subtracting the premium paid:

25 – 11.66 x 100 = $1,334.

The breakeven price for the trade is equal to the long put strike, less the premium. In this case, that gives us a breakeven price of $78.34.

The profit probability is 50.2%, although this is just an estimate.

Conclusion

There you have two different bearish trade ideas on two different stocks. Remember to always manage risk and have stop losses in place.

Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.