Parallel Trendlines

Upper and Lower Trendline

When a lower trendline is drawn together with a upper trendline, at times, these trendlines are parallel. That is, both lines have the same gradient or nearly the same gradient. When these trendlines are drawn on a chart, it resembles a channel. The price  of the security trades within the channel unless a breakout occurs.

With these parallel trendlines drawn, option traders can determine the target price for exiting a position.

Trendlines

Source: Yahoo Finance

How option traders can make use of trendlines?

Option traders can use the lower trendline as a guide to initiate bullish positions such as a bull put spread or a bull call spread. The spread can be exited when the upper trendline is reached. Similarly, the upper trendline can be used as a guide to initiate bearish positions such as a bear call spread or a bear put spread.

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