Shares of Edwards Lifesciences are outperforming, with its relative strength line near all-time highs.
As Edwards Lifesciences stock trades in a cup-with-handle pattern, investors who are bullish on the company but also believe shares may hit resistance near the 131.83 buy point can use a bull call spread to express this view.
In constructing a bull call spread, an investor buys a call option while also selling a higher-strike call option. In the case of Edwards Lifesciences, investors can consider a bull call spread by buying a 125 call while selling the 130 call on the May 20 expiration.
This trade can currently be placed for a debit of around $1.15 per share. This also coincides with the maximum loss of $115 an investor will experience if a block of 100 shares are under $125 on expiration.
The maximum profit is the width of the strikes minus the debit paid. In this case, the calculation is 5-1.15 x 100 = $385. Investors will realize this maximum profit if Edwards Lifesciences stock trades above $130 on expiration. Therefore, if shares are trading around the potential resistance of all-time highs by May 20, this trade will experience a full profit.
Edwards Lifesciences Earnings Next Week
Edwards Lifesciences is a medical technology company specializing in heart valve replacement. The company — today's IBD Stock of the Day — will report first-quarter earnings on April 26. Analysts expect EPS of 57 cents and revenue of $1.3 billion.
The options market is currently implying a 4.9% move on Edwards Lifesciences stock with the earnings event. The stock has previously moved on average 4.5% on past earnings events.
Making an investment before a company's earnings is an added risk. Nevertheless by using a bullish call spread, investors can only lose the maximum of the debit paid. This can make a bull call spread an attractive options trade as opposed to simply buying shares.
Edwards Lifesciences has been experiencing slow but steady growth. After reporting a full-year earnings per share of $2.22 last year, EPS is projected to increase to $2.55 and $2.88 in 2022 and 2023, respectively.
Edward Lifesciences currently has an IBD Composite Rating of 90 and ranks third in IBD's medical products industry group.
