Low-cost Bet That This Struggling 'Magnificent 7' Member Will Catch Up

As the Nasdaq approaches a potential record high, it's worth noting that not all of the so-called Magnificent 7 stocks are riding the same wave. Apple (AAPL), in particular, has experienced a decline since the end of January. This analysis explores a lower-cost options strategy that speculates on the possibility of Apple making a comeback.

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Looking at a 6-month daily chart of AAPL, the $180 level emerges as a significant area of support. Since January, AAPL has rebounded from this level on five occasions and is currently revisiting it.

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However, it's essential to assess whether this presents a bullish opportunity for AAPL. While relying on the fundamental concepts of support and resistance is a crucial aspect of trading decisions, it's wise to seek confirmation from additional indicators before initiating a directional trade on any stock or ETF.

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Incorporating the relative strength index (RSI) into the analysis, it becomes evident that interpreting the RSI is critical. An upward-trending RSI indicates an uptrend, while a change in direction suggests that the current trend may be nearing its end. Despite AAPL appearing to be at a support zone that could facilitate a bounce-back, the RSI is still pointing downward, signaling that the downtrend might not have reversed yet.

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Considering this, the trade strategy being explored is a bullish set-up on AAPL, banking on the idea of a rebound 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.

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The trade in question is a bullish call spread, also known as a "bull call spread." This strategy involves buying a $180 call and selling a $185 call as a single unit. The trade setup is as follows:

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• Buy $180 call, Mar. 22nd expiration
• Sell $185 call, Mar. 22nd expiration
• Cost: $250
• Potential Profit: $250

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Selecting March 22nd as the expiration date provides AAPL with ample time to potentially shift course favorably. Additionally, the options market indicates an 'expected move' of $8 by March 22nd, while the trade only requires AAPL to move $4 in the anticipated direction (based on the current price of $181) to yield a profit. Alternative expiration dates, such as March 28th or even April 5th, could also be considered.

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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.

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