With Apple Earnings Around The Corner, Here’s How To Play The Upside w/ Minimal Risk | IBD | Summary and Q&A

TL;DR

Apple stock has been showing signs of strength and could potentially move higher, making it a good candidate for a bullish option strategy.

Key Insights

• 😵 Apple stock has been consolidating but recently crossed above its 50-day moving average.
• ☄️ Earnings for Apple are coming up, which could be a major catalyst for the stock.
• 🙃 A bullish diagonal call spread strategy can allow investors to gain upside exposure on Apple with limited risk.
• 🧑‍🤝‍🧑 The strategy involves buying a call option with a lower strike price and a later expiration date, while selling a call option with a higher strike price and a closer expiration date.
• 🪐 The net debit paid for the spread is the maximum potential loss, and the profit potential can be estimated by subtracting the net debit from the width of the strikes.
• 💨 This strategy is a way to potentially profit from an expected price move without risking too much if the move doesn't happen.
• ✳️ Investors should be aware that Apple is due to report earnings, which could introduce additional risk to the trade.

Transcript

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Questions & Answers

Q: What is a bullish diagonal call spread strategy?

A bullish diagonal call spread strategy involves buying a call option with a lower strike price and a later expiration date, while simultaneously selling a call option with a higher strike price and a closer expiration date. This strategy allows investors to profit if the stock price moves up within a specified range.

Q: Why is Apple considered a good candidate for a bullish option play?

Apple has been showing signs of strength, with the stock closing near its daily high and forming higher lows since late June. Additionally, earnings are coming up in eight days, which could potentially be a catalyst for a price move.

Q: How does a bullish diagonal call spread limit risk?

The bullish diagonal call spread strategy involves buying a call option and selling a call option, which creates a spread. The net debit paid for the spread is the maximum potential loss. This strategy allows investors to gain upside exposure on a stock without risking too much if the expected price move doesn't materialize.

Q: What is the profit potential of a bullish diagonal call spread?

The profit potential of a bullish diagonal call spread can be estimated by subtracting the net debit paid from the width of the strikes. In the example given, the estimated profit potential is around $10 per share per contract.

Summary & Key Takeaways

• Apple stock has been consolidating for a while but recently crossed above its 50-day moving average.

• Earnings for Apple are coming up in eight days, which could be a major catalyst for the stock.

• A bullish diagonal call spread strategy in Apple is being suggested as a way to gain upside exposure with limited risk.