Technology always seems to changing, and many consumers are always trying to keep themselves ahead of the curve. Here is a debit spread trade idea on a company that is known for technological advances that might just put traders ahead of the trading curve.
Apple (AAPL — $497.91): Call Debit Spread
The trade: Buy the Aug 30 500/510 Bull Call Spread (buying the Aug 30 500 call and selling the Aug 30 510 call) for $3.90 or less.
The strategy: The maximum potential profit for this trade is $6.10 ($10 – $3.90) if AAPL is trading above $510 at Aug. 30 expiration. The maximum loss is $3.90 (or what was paid for the spread) if AAPL is trading below $500 at expiration. Breakeven is $503.90 at expiration based on a cost of $3.90.
The rationale: Apple stock still is and probably always will be one of the most popular stocks out there. There always seems to be rumors swirling around the company, and the latest gossip is about a lower-cost iPhone using chips from Qualcomm (QCOM) that’s expected to be released next month. AAPL just recently moved higher after investor Carl Icahn said he has a large stock stake in the company, and he also urged CEO Tim Cook to increase the company’s share buyback program.
Click to Enlarge Taking a look at the chart, prior to the Icahn announcement, Apple stock had been moving up since the end of June. AAPL has crashed through several pivot areas that have acted as resistance in the past. The stock even broke through the daily 200-simple moving average, which is an area it has not traded above since November 2012.
The $500 mark — which Apple stock currently is flirting with — is another resistance area AAPL looks like it wants to mow down next. If it does, it might not look back, making this debit spread look like a bargain of a trade.
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities. Get a free trial of John’s live options trading room here.