Apple (AAPL) stock had a nice day yesterday, finishing 2.45% higher and closing at the high of the day.
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If AAPL stock can get back above the 21-day moving average, there could be further upside in store. Apple stock is currently 14.5% below the high set in January.
Counting against Apple stock is a mediocre Composite Rating of 74 and an RS Rating of 52. The EPS Rating is a little better at 84.
Traders wanting to take some bullish exposure in a risk defined way could look at a bull call spread.
A bull call spread is created through buying a call and then selling a further out-of-the-money call. Selling the further out-of-the-money call reduces the cost of the trade but also limits the upside.
Going out to May expiration gives the trade plenty of time to work out. Yesterday, a 125 strike call option was trading around $7.25 and the 130 call was around $5.25.
Buying the 125 call and selling the 130 call would create a bull call spread. The cost of the trade would be $200 (difference in the option prices multiplied by 100) and the maximum profit potential would be $300 (difference in strike prices, multiplied by 100 less the premium paid).
AAPL Stock Bull Call Spread
A bull call spread is a risk-defined strategy. If AAPL stock closes below 125 on May 21, the most the trade could lose is the roughly $200 premium paid.
Potential gains are also capped above 130, so no matter how high AAPL stock might go, the most the trade could profit is $300. Trading a bull call spread can be an easier way for smaller traders to gain a bullish exposure to AAPL stock using options.
In terms of trade management, if the spread dropped from $2.00 to $1.00, I would consider closing early for a loss, otherwise I would hold to expiry.
Apple earnings are set for April 28, so there would be earnings risk toward the end of this trade. Implied volatility for AAPL stock is at 33% which is toward the lower end of the 12-month range.
It’s important to 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.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
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