While the Nasdaq continues to near a record high, not all of the Magnificent 7 stocks have been riding the wave. Apple (AAPL) , in particular, has fallen out of favor and experienced a decline since the end of January. Here’s a lower-cost bet using options that Apple could catch up. On a 6-month daily chart of AAPL, I’ve identified $180 as a significant area of support. AAPL has rebounded from this level five times since January and is currently revisiting it. But does this signal a bullish opportunity for AAPL? While the age-old concepts of support and resistance are fundamental to trading decisions, relying solely on them might not suffice. It’s prudent to seek confirmation from other indicators before initiating a directional trade on any stock or ETF. In the chart below, I’ve incorporated the relative strength index (RSI). Interpreting RSI is straightforward: when it trends upwards, the stock is in an uptrend, and when it changes direction, the current trend is likely nearing its end. Despite AAPL appearing to be at a support zone conducive to a bounce-back, the RSI is still pointing downwards, suggesting that the downtrend hasn’t yet signaled a reversal. Keeping this in mind, the trade strategy I’m exploring is a bullish set-up on AAPL, banking on the idea of it rebounding from the support level around $180. However, there’s a caveat: if the RSI fails to turn upwards, this trade set-up would be invalidated. The trade To take a bullish trade on AAPL, the trade structure I have used here is called a “bull call spread”. To construct my bull call spread, I need to do buy a $180 call and sell a $185 call as a single unit. Here is my exact trade setup: Buy $180 call, Mar. 22nd expiration Sell $185 call, Mar. 22nd expiration Cost: $250 Potential Profit: $250 I’ve selected March 22nd as the expiration date for this trade, allowing AAPL sufficient time to potentially shift course in my favor. Additionally, the options market indicates an ‘expected move’ of $8 by March 22nd, while I only require AAPL to move $4 in my anticipated direction (based on the current price of $181) for this trade to yield profit. Alternative expiration dates such as March 28th or even April 5th could also be considered. AAPL 1Y mountain Apple, 1 year If AAPL trades at or above $185 by the expiration date, this trade could yield a return of 100% on the amount risked. With 10 contracts, this equates to risking $2,500 to potentially gain $2,500. -Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
