ANET Bullish Call Spread is Undervalued at $2.90

10 May 2024, 11:26 AM

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By Dmitry Pargamanik

How this ANET Bull Call Spread Works

The bottom of the ANET trade card shows us that we would buy one call and sell another with the same 24-May-24 expiration (this is a bull call spread as indicated on the top of the card).

Buy: 24-May-24 305 CALL

Sell: 24-May-24 310 CALL

Reasons to Like This Trade

  • You can buy this spread for $2.90 when theoretically it’s worth $3.56. Simply put, the market is implying a theoretical edge of 22.9%.
  • Your maximum gain is $2.10, which means you can make an astounding 72.4% return on your investment in 11 trading days! (That's if the stock closes at 310 or above. $2.10 / $2.90 = 72.4%) At the time of this alert, the stock was trading at 309.07.
  • The stock only needs to close at, or above, 310.00 after 11 trading days for you to realize this maximum return. That’s only a 0.3% gain! If you look at ANET historically drift, you will find that 70% of the time the stock drifted higher than 0.3% in 11 trading days. Based on historical stock behavior (historical stock drift) the spread has a 70% chance of success.
  • 5 out of 7 indicators are pointing to a bullish sentiment in the stock, which is enough to believe there is a decent chance the stock price could hit its mark of 310.00. Look, nobody knows for sure if the stock is going to go up or down, but, if you had to handicap the stock price, these metrics are indicating that ANET is really riding the momentum of bullish signals.
    Metric Signal Bull or Bear
    Relative Performance 1-yr Outperform Bullish ANET Bullish Relative Performance 1 year
    Relative Performance 3-Mon Outperform Bullish ANET Bullish Relative Performance 3 Month
    Relative Performance 2-Wk Outperform Bullish ANET Bullish Relative Performance 2 Week
    Seasonality Neutral Neutral
    Technical Bearish
    Historical Price Action 70% Uptrend Bullish ANET Bullish Historical Price Action
    Option Order Flow Sentiment Positive Net Option Delta Bullish ANET Bullish Option Order Flow Sentiment

Conclusion

This trade in ANET looks like a good opportunity because:

  1. 5 out of 7 bullish indicators support positive momentum
  2. 72.4% potential return on your investment
  3. Theoretical edge of 22.9%
  4. The stock price is only 0.3% away from the price for you to make the maximum gain!

Don't Let an Opportunity Pass You By!


How to Find More ANET Bull Call Spread Strategies

How you can find bull call spread trade ideas for other stocks


And if you want to find more bull call spreads for other stocks, go to the bull call spread screener


Relative Performance

ANET has outperformed the market in the last year with a price return of +124.0% while the SPY ETF gained +28.2%. ANET has also outperformed the stock market ETF in the last 3 month and 2 week periods returning +9.8% and +17.2%, respectively, while the SPY returned +4.1% and +3.3%, respectively.

Learn about a stocks relative strength


Seasonality: Neutral

The strategy involves holding the position from May 10 to May 24 expiration. Historically, this has been a neutral seasonal period. In the past 12 years, ANET shares have decreased 45% of the time between May 10 to May 24, while averaging a return of +0.3%. Learn how to look up stock seasonality.

Technical:

None

Historical Price Action: 70% Uptrend

In the last 4 years, there were 40 historical samples of ANET stock price movements over the same time period as this option spread. The stock moved up 70% of the time for an average return of +4.7%.

How to generate statistics on a stocks historical price return distribution

Option Order Flow Sentiment: Positive Net Option Delta

At the time of this ANET trade idea, bullish option order flow exceeded bearish option order flow. The net option delta volume was 51 K.

Learn more about option delta volume.

Find out the latest sentiment from the options market for ANET

Videos you might like

How to Screen for the Best Bull Call Spread


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About the Publisher - Marketchameleon.com:


Marketchameleon is a comprehensive financial research and analysis website specializing in stock and options markets. We leverage extensive data, models, and analytics to provide valuable insights into these markets. Our primary goal is to assist traders in identifying potential market developments and assessing potential risks and rewards.



NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated and may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices and were not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.


The information is provided for informational purposes only and should not be construed as investment advice. All stock price information is provided and transmitted as received from independent third-party data sources. The Information should only be used as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments and trading strategies. The Company does not guarantee the accuracy, completeness or timeliness of the Information.