Jerome Powell played Santa today for all the good little boys and girls on Wall Street. Gifts were had all around as the Fed Chair declared the current level of interest rates is near neutral. One of the contributors to recent market jitters were fears that JP and crew would ram rates higher than necessary next year and thus damage our aging economic expansion.

With everyone jumping back into the pool the Nasdaq-100 soared 3.2% amid heavy buying. While the technicals for most Indexes remain a mess, the accumulation day does strike a more bullish tone. In scanning Wednesday’s winners, I stumbled across none other than American Express (AXP) which is making a new record high as I type.

Think about the implications for a moment.

Stocks at record highs in this environment are rarer than a one-eyed unicorn. Sure, many have clawed their way partially out of the holes so deeply dug last month. But not many have been able to rocket to new heights.

AXP – you are a rockstar.

It’s not just exhibiting relative strength versus the broader market; it’s beating fellow credit card companies like Visa (V) and Mastercard (MA) too. I count that as doubly bullish.

Now, for all I know AXP is one banana peel from death so let’s treat today’s case study as just that – a CASE STUDY. I want to illustrate the powerful bull call spread strategy. I’ve reviewed this vertical spread strategy previously (see here) so read it if you need a primer.

I’m going to build a cheaper, more aggressive bull call that has the potential to double our dough if AXP can continue lifting to $120 by January expiration.

Let’s buy the Jan $115 call while selling the Jan $120 call. The position can be purchased for a net debit of $1.67. The price tag is cheap for two reasons. First, we are using OTM options. And, second, we structured a $5-wide spread instead of a $10-wide spread. The beauty of the low price tag is that we won’t need to use a stop loss and can thus avoid getting whipped out.

The maximum reward is limited to $3.33 and represents a potential 199% return. Of course, that’s if you ride it to the bitter end and AXP ends up above $120 at expiration. I suggest exiting early if the stock touches $120 at any point throughout the trade. This technique will increase your probability of profit.

Using a risk graph we can model the potential gain if we bail at $120. If we tag that higher strike, then the reward should be $153 which is still a mouthwatering return nearing 100%. Admittedly, a move to $120 would be substantial so it will take time. But we do have a good seven weeks, and the real Santa is still coming to town, so maybe, just maybe, AXP can go the distance.

---

Financial freedom is a journey

The Options Theory series is brought to you by Tackle Trading.

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.

# Sign up now for a 15-DAY FREE TRIAL #

---

Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involve a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax, and accounting advisers, to determine whether such trading or investment is appropriate for that user.