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Play This Trillion Dollar Company for Pennies On The Dollar TODAY

By Costas Bocelli July 28, 2022 Facebook Logo Twitter Logo Email Logo LinkedIn Logo

 

In last week's article, I covered an options strategy called a straddle. You don’t need to trade it, but just knowing where it’s trading is useful information to gauge the potential magnitude of a stock’s post-earnings move. That strategy is so easy, a first grader could do it.

This week, I have another easy, and affordable Profit Skimmer trade for you.

Actually, I’ve got a couple ideas…

We’re in the midst of Q2 earnings season and it’s quite different from last year, it’s even different from the Q1 season. 

The Fed continues to hike interest rates (they just hiked short-term interest rates 75 basis points) and the US Dollar is at or near a 20-year high. 

Of the US companies that have reported so far, 60% have beaten sales estimates and 75% have topped profit expectations. 

Overall, earnings growth is slowing compared to last year when 88% of companies beat profit estimates, and 86% reported positive revenue surprises. 

This is the biggest week for earnings season with some of the largest companies in the stock market reporting.

And although earnings growth is slowing, there are still plenty of profit opportunities.

In fact, this week, I’ll show you an options technique that I first learned about in the 1990’s when I was a floor trader on the Philly Exchange.  It’s called a “vertical spread.” 

It’s perfect for (among other things) taking positions in the biggest companies out there. 

The Vertical Spread Strategy

This particular strategy is the secret sauce that makes my options trading service, Profit Skimmer, so successful and widely popular with so many individual investors. It’s especially helpful if you’re new to options and have limited capital to invest. 

It’s truly an all-inclusive service that anyone can learn and benefit and learn from. In fact, I use spreads almost exclusively for trade recommendations in Profit Skimmer. (One vertical spread trade I recommended in Johnson & Johnson (JNJ) recently generated a +90% profit return.)

If you’re intimidated by options, that’s understandable. But these techniques are way easier than you might think. Spreads are versatile and provide you many advantages over trading directly in an underlying stock or ETF.

Some of the benefits of trading the vertical spread include:

      • Cost efficiency and high returns on capital…
      • Limited risk and fully hedged positions…
      • The ability to easily take bullish and bearish positions, even in an IRA.

The bottom line is, if options aren’t a part of your investing toolbox, you’re simply making a terrible mistake. 

Similar to pricing a straddle, a vertical spread is the perfect vehicle if you’re looking to trade directionally, even around an earnings event. 

(Click image to enlarge)

To illustrate this versatile strategy, let’s look at a couple of timely examples. 

Here Comes A Trillion-Dollar Earnings Report

Apple (APPL) is set to report earnings today (July 28) after the 4:00 PM EST market close. 

For the first time in a while, Apple is showing signs of vulnerability. 

Analysts and investors are closely watching Apple’s earnings in the wake of new macroeconomic trends. Declining customer confidence, rising interest rates, and decades-high inflation all play a role in this vulnerability. 

Also, the company’s exposure to China can’t be overlooked. It’s a huge market for the company’s sales, but also a critical part of Apple’s production. 

As China continues dealing with Covid-19 lockdowns, factories have several times over the last year shifted or suspended production.  

In April, Apple CEO Tim Cook told analysts, “Right now, our main focus, frankly speaking, is on the supply side.”

This past week, the company announced plans to slow spending and hiring in anticipation of an economic slump. 

Analysts polled by FactSet expect Apple to report $82.8 billion in sales, which is less than 2% growth from Q2 2021. This represents the slowest quarterly increase since the pandemic.

In the face of all this…

Here’s Two Ways to Play Apple (APPL) TODAY

The following short-term nimble option trades will help you take advantage of the market action on APPL ahead of today’s earnings.

If you want to play APPL ahead of earnings, whether you’re bullish OR bearish, you can do it for pennies on the dollar.  I’ll do the hard work for you, and I’ll show you your “options” (pun intended).  But I’ll let you decide how you want to use what you’ve learned.

 Apple recently traded $156.39 per share.

The July 29th 157.50 weekly straddle went out at $6.00 so the market is looking for a move of about $6.00 in either direction.

 

Say you’re bullish on APPL heading into earnings. You could buy the August 157.50/162.50 Call Spread for $2.40. If the stock trades at or above $162.50 by August expiration (22 days), it could return you a profit of up to 108%.

However if you’re reading what the analysts are saying, and you’re not so sure about APPL’s prospects, we can create a bearish trade as well, still risking just pennies on the dollar. 

To do that, you could buy the August 155/150 Put Spread for $1.70. If the stock trades at or below $150 by August expiration (again, about 3 weeks from now), it could generate a profit of up to +194%. 

You see, traders can make a play in either direction with a defined risk and great reward potential. This is the beauty of my vertical spread strategy. 

Just by taking a little time to understand options and how they work, you’re adding a high-caliber weapon to your trading arsenal. 

It doesn’t matter if you’re a seasoned veteran, like myself. Or you’re just getting your feet wet with your own personal investments. Options are a great tool for any investor- big or small - to take advantage of bullish, bearish, and even sideways markets. 

So bring on earnings, baby! And I hope they bring earnings to your portfolio. 

Got Options? Got Profit Skimmer? 

You should!

Costas

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