Reassuring comments on interest rates from Federal Reserve Board Chair Janet Yellen propelled the Nasdaq Composite ahead by 1.7% Tuesday. Yellen’s dovish commentary quelled fears that the Fed would rapidly lift rates. On the contrary, silly stock watchers, Yellen and equities are forever friends.
Leading the charge was tech kingpin Apple Inc. (AAPL), scoring sharp gains amid the buying binge. The lesson for bears? Stop fighting the rising price action! If you take your cues from the daily chart, the message being broadcast is clear — Apple wants higher.
Since late-January, AAPL has been carving out a series of higher pivot lows. Beginning as a subtle uptick in demand for equity in the iDevice-maker, it’s since morphed into an “in your face” love fest, as buyers brazenly snatch up Apple stock on the slightest of pullbacks. Consider Tuesday’s surge the exclamation point capping the bullish narrative.
Click to Enlarge
Apple stock’s budding uptrend has been accompanied by healthy volume patterns. Distribution days have dried up, with all but the stubbornest of bears returning to their cozy dens.
Continued strength should drive the stock above its 200-day moving average in short order. A successful vault above that and the $120 level starts to beckon.
AAPL Call Spreads Look Tasty
Unsurprisingly, the ongoing rally has driven fear from the market. Demand for protection is low, creating a Wall Street fire sale tempting traders one and all to try their hand at some good ol’ option buying. To capitalize on additional upside in the Apple stock price and the cheap cost of options, consider buying bull call spreads.
The Apple June $110/$120 call spread sets you back around $3.37. The vertical spread consists of buying to open the June $110 call, while selling to open the June $120 call. The max loss is limited to the initial $3.37 debit, which will be lost if Apple stock sits below $110 at expiration.
The max gain is limited to the distance between strikes minus the net debit, or $6.63, and will be captured if AAPL can rise above $120 by expiration.
The low-risk, high-reward payout creates an attractive trade to sit on over the coming months.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
