When Fed Chairman Bernanke unveiled a new round of qualitative easing last week, it sure made the "Options Action" traders optimistic. At least, that’s the way it seemed on Friday’s show, when they presented two bullish trades — one on Apple, and another on Wells Fargo. (Read More: Fed Pulls Trigger, to Buy Mortgages in Effort to Lower Rates.)
Let’s start with the Apple trade.
The impending release of the iPhone 5 has the stock making fresh highs seemingly on a daily basis. And according to our crew, there’s much more room to run. (Read More: New Apple Record: 2 Million iPhones in 24 Hours.)
Oppenheimer’s Carter Worth looked at a few charts of the world’s most valuable company, and pointed out that Apple has traded in an upward trend channel, and is currently not anywhere near the top of that channel. Furthermore, since Apple has experienced sell-offs on its way higher, the chart remains “healthy.” All of this leads Carter to believe that Apple will hit $800 by the end of a year.
Piggybacking on Carter’s bullish thesis, Mike Khouw made the point that, as he put it, “you can’t argue with perpetual success.” So he suggested buying a call spread. Specifically, he liked the idea of buying the January 675/715 call spread for $20. His trade and payout:
MIKE’S APPLE TRADE:
• BUY THE JANUARY 675-STRIKE CALL FOR $53.00
• SELL THE JANUARY 715-STRIKE CALL FOR $33.00
HOW MIKE’S APPLE TRADE MAKES MONEY:
• PROFITS CAPPED AT $715
• PROFITS BETWEEN $695 - $715
• LOSSES BELOW $695
Click here to watch the video.
On to the call on Wells Fargo .
Riskreversal.com’s Dan Nathan made the case that while the financial markets have seen a great deal of turmoil in the past year and a half, Wells Fargo has stayed “amazing stable.” Add to this the fact that Wells Fargo is primed to benefit from a housing recovery, and we have quite a bullish case on our hands.
To express his bullish thesis, Dan suggested buying the 33/38 risk reversal for just ten cents. His trade and payout are below.
DAN’S WELLS FARGO TRADE:
• BUY JAN 38-STRIKE CALL FOR $0.90
• SELL JAN 33-STRIKE PUT FOR $0.80
HOW DAN’S WELLS FARGO TRADE MAKES MONEY:
• BUY JAN 38-STRIKE CALL FOR $0.90
• SELL JAN 33-STRIKE PUT FOR $0.80
As of 2 p.m. Monday, that trade has gone up over two-thousand times.
Click here to watch the video.
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