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The stock is up over 200% this year and Zhang thinks there is further upside going into earnings, next week. He likes the stock because it bounced off its important support level and also because of its relative strength.
Zhang's trade set up is taking into account implied volatility. The stock averages about a 13.6% move on earnings, while the current market is implying only a 9.8% move in either direction. He wants to use a call debit spread to offset some of that high implied volatility and he is buying an in the money call to further reduce implied volatility.
Specifically, Zhang wants to buy the November $300/$340 call spread for a total cost of $12.90. The trade breaks even at $312.90 or around 2.2% above the current stock price. If the stock jumps to $340 or higher at the November expiration, the trade is going to reach its maximal profit of $27.10.
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