by Tyler Craig | June 13, 2012 12:24 pm
The market movements of recent days are looking more and more like a giant game of ping pong between the bulls and bears. The alternating up-day, down-day, up-day, down-day routine is enough to make most spectators dizzy. Fortunately, underneath the surface, a few select stocks are building constructive bases that could give rise to a renewed advance in prices.
Apple Inc. (NASDAQ:AAPL) in particular has been coiling beneath its 50-day moving average and looks primed for an upside breakout that could propel the stock price to its next resistance level, at $620.
Perhaps the biggest deterrent to investors interested in accumulating bullish exposure to the king of the tech space is its hefty $578 price tag. Fortunately, the options market provides numerous ways to structure AAPL trades for dirt cheap.
The bull call spread provides a straightforward directional bet that AAPL will rise in the coming months. It consists of buying a lower strike call while selling a higher strike call of the same expiration month. The trade is initiated at a debit that represents the maximum risk. The maximum reward is limited to the distance between strikes minus the initial debit.
Currently. the July 575-585 call spread can be purchased for $4.90. Consider it a bet that AAPL rises above $585 by July expiration. If the expected rise does transpire, the call spread could return up to a $510 profit ($5.10 x 100) — over a 100% return. Of course, if AAPL stays beneath $575 at July expiration, the call spread could incur its max loss of $490.
Traders looking to take the more conservative route might consider buying the August 575-585 call spread instead. The extra month provides more time for AAPL to make the expected move.
Click to Enlarge
At the time of this writing Tyler Craig had no positions on AAPL.
Source URL: http://investorplace.com/2012/06/exploit-the-aapl-breakout-with-call-spreads/
Short URL: http://invstplc.com/1aLLyEE
Copyright ©2017 InvestorPlace Media, LLC. All rights reserved. 700 Indian Springs Drive, Lancaster, PA 17601.