Apple stock broke out above recent highs yesterday, finishing with an impressive 5% gain. A bull call spread could be an option play to participate in upside while limiting your risk.
Leading Action By Apple Stock
Apple (AAPL) is ranked No. 1 in the Telecom-Consumer Products group with a Composite Rating of 88, an EPS Rating of 81, and an RS Rating of 83.
In the previous few weeks, Apple stock has beautifully retested the 21-day moving average and looks primed for the next leg of the rally.
AAPL reports earnings on Jan. 28. Many times we will see strong stocks such as Apple stock rally into the earnings date on the expectation of positive news.
While there is no guarantee that will happen this time, a bull call spread is an easy, risk-defined strategy that will benefit from further upside in the stock.
Bull Call Spread Option Play
A bull call spread strategy starts with buying a call and then selling a further out-of-the-money call with the same expiration date.
Selling the further out-of-the-money call reduces the cost of the trade but also limits the upside.
Going out to the February expiration, a 130 strike call option traded yesterday around $7.25 and a 135 call was around $5.40.
Buying the 130 call and selling the 135 call would create a bull call spread. The cost of the trade, at those prices, is $185 and the maximum profit potential is $315 (difference in strike prices less the premium paid).
Apple Inc. designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players.
The Company sells a range of related software, services, accessories, networking solutions, and third-party digital content and applications.
The Company’s segments include the Americas, Europe, Greater China, Japan and Rest of Asia Pacific.
The Americas segment includes both North and South America. The Europe segment includes European countries, India, the Middle East and Africa.
The Greater China segment includes China, Hong Kong and Taiwan.
The Rest of Asia Pacific segment includes Australia and the Asian countries not included in the Company’s other operating segments.
Its products and services include iPhone, iPad, Mac, iPod, Apple Watch, Apple TV, a portfolio of consumer and professional software applications, iPhone OS (iOS), OS X and watchOS operating systems, iCloud, Apple Pay and a range of accessory, service and support offerings.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 117.34.
The projected upper bound is: 135.76.
The projected lower bound is: 120.45.
The projected closing price is: 128.10.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 29 white candles and 21 black candles for a net of 8 white candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 78.1810. This is not an overbought or oversold reading. The last signal was a sell 5 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 65.68. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 72 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 11 period(s) ago.
Rex Takasugi – TD Profile
APPLE INC closed down -0.070 at 127.810. Volume was 32% below average (neutral) and Bollinger Bands were 23% narrower than normal.
Open High Low Close Volume 127.410 128.370 126.560 127.810 98,208,592
Technical Outlook Short Term: Overbought Intermediate Term: Bullish Long Term: Bullish
Moving Averages: 10-period 50-period 200-period Close: 123.82 118.44 97.34 Volatility: 34 42 58 Volume: 94,436,352 113,033,000 159,377,296
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
APPLE INC is currently 31.3% above its 200-period moving average and is in an upward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term.
Our volume indicators reflect volume flowing into and out of AAPL.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on AAPL.O and have had this outlook for the last 11 periods.