The market is in a vibrant uptrend and Zscaler stock in particular is looking very strong.
The stock is showing signs of accumulation and is above its 21-day and 50-day moving averages. Implied volatility is very low, which means favoring debit over credit spreads is a good idea.
Investors interested in taking some bullish exposure can do so with much lower risk via a bull call spread. They create this through buying a call and then selling a further out-of-the-money call. Selling the further out-of-the-money call reduces the cost of the trade but also limits the upside.
A September strike call option at 340 is trading around 13.75, and the September 350 call is around 11.15.
Maximum Potential Profit Is $740
Buying the 340 call and selling the 350 call would create a bull call spread. The trade cost would be $260, or the difference in the option prices multiplied by 100. The maximum potential profit stands as $740. That's the difference in strike prices, multiplied by 100 less the premium paid.
A bull call spread is a risk defined strategy, so if Zscaler stock closes below 340 on Sept. 19, the most the trade could lose is the roughly $260 premium paid. Potential gains are also capped above 350, so no matter how high Zscaler stock might go, the most the trade could profit is $740.
The break-even price for the trade is equal to the long call strike plus the premium, which in this case would equal 342.60.
In terms of trade management, if the stock dropped below 290, or if the spread value dropped from $260 to $130, investors should consider closing early for a loss.
Zscaler Stock Is Tops In Its Group
According to Investor's Business Daily's IBD Stock Checkup, Zscaler stock ranks first in its group. It has a Composite Rating of 98 out of a best-possible 99, an Earnings Per Share Rating of 98 and a Relative Strength Rating of 96.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a masters in applied finance and investment. He specializes in income trading using options, and is conservative in his style. He also believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ.
