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Weekly Option Windfall: Trading AXP Options Following Q4 Earnings Beat
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It’s probably a good sign when one of the greatest investors of all time holds a big stake in a stock that we’re considering for a portfolio addition.
One of Warren Buffett’s long-held positions, American Express just delivered its fourth consecutive earnings beat. A Zacks Rank #2 (Buy) stock, American Express continues to defy its skeptics.
A global provider of credit card payment products and travel-related services, the company operates through four segments: US Consumer Services, Commercial Services, International Card Services, and Global Merchant and Network Services. Its product offering includes payment and financing products; network services; accounts payable expense management products; and travel and lifestyle services.
In addition, American Express operates lounges at airports under the Centurion Lounge brand name. The company sells its products and services to consumers, small businesses, medium-sized companies, and large corporations through mobile and online applications, customer referral programs, third-party service providers, and in-house sales teams.
The Zacks Rundown
American Express (AXP - Free Report) shares have outperformed the market by a wide margin over the past year, and the trend appears to be continuing in 2025.
The company is part of the Zacks Financial – Miscellaneous Services industry group, which ranks in the top 27% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.
This industry is a component of the Zacks Finance Sector, which is the top-ranked sector at the moment.
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its sector and industry group combination. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
American Express stock is hitting a series of 52-week highs on increasing volume. While there are many ways to take advantage of this bullish move, options provide us with flexibility, enabling us to tailor our strategy to the current market environment.
Option Essentials
Before we analyze today’s trade, let’s review some option fundamentals as a refresher. There is no need to worry about complex mathematical formulas or equations. Over the years I’ve found that the more complicated a strategy is, the less likely it is to work over the long run.
Options are standardized contracts that give the buyer the right – but not the obligation – to buy or sell the underlying stock at a fixed price, which is known as the strike price. A call option gives the buyer the right to buy a particular security, while a put option gives the buyer the right to sell the same. The investor who purchases an option, whether a put or call, is the option buyer, while the investor who sells a put or call is the seller or writer.
These contracts are valid for a specific period of time which ends on expiration day. There are weekly options, monthly options, and even LEAPS options which are longer-term options that have an expiration date of greater than one year.
Options consist of time value and intrinsic value. In-the-money options consist of both components; at-the-money and out-of-the-money options consist only of time value. At options expiration, options lose all time value.
Below we’re going to explore a call option purchase strategy.
Multiply Your American Express Returns
American Express stock is in a price uptrend and is a good candidate for a call option purchase:
Image Source: StockCharts
When done correctly, trading options provides huge profit opportunities with limited risk.
In today’s trade, we’re going to target the March 21st expiration date and the 280-strike price. Purchasing this option gives us the right, but not the obligation, to buy 100 shares of AXP stock at $280 on or before March 21st, which is a bit over 1 month from now.
The table below displays the risk/reward profile for this trade. American Express stock is currently trading at $319.64 (orange box). We are purchasing 1 March 21 280-strike call at 42.1 points, which is the option premium. Since options account for 100 shares of the underlying stock, the total cost for this call option trade is $4,210 as we can see in the yellow highlighted box.
Image Source: Zacks Investment Research
The top (blue) row shows the performance of American Express stock based on different percentage scenarios at expiration. The bottom (purple) row shows the corresponding percentage return for our call option trade. We can see that if AXP remains flat, this trade would encounter a minor loss of 5.8%. If AXP moves up 5%, this trade will realize a 32.1% profit. If AXP advances 15%, we would realize a 108% profit.
This illustration shows the inherent leverage that options provide. A stock investor who bought 100 shares of AXP would have to contribute $31,964, which is a much bigger investment. A 15% increase in the stock price would yield a $4,794 profit.
On the other hand, in this example the option trader only needs to contribute $4,210 to control the same amount of underlying AXP shares. A 15% move in AXP stock would net a $4,549 option profit – a nearly identical profit amount with less than one-seventh of the investment!
Also note that this option contains relatively little time value. The 2.46 points worth of time value (red box) equate to just 0.8% of the underlying stock price. A good way to manage risk when buying call options is to minimize time value and maximize intrinsic value, as time value decays rapidly in the days leading up to option expiration.
Bottom Line
With American Express displaying signs of outperformance, the stage is set for AXP stock to continue its bullish run. A durable backing from the financial sector should help push shares to new heights.
A great way to take advantage of this move is via low-risk call options. This allows us to leverage American Express stock returns with the power of options. Be sure to keep track of how AXP stock performs as we move further into the new year.
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Weekly Option Windfall: Trading AXP Options Following Q4 Earnings Beat
It’s probably a good sign when one of the greatest investors of all time holds a big stake in a stock that we’re considering for a portfolio addition.
One of Warren Buffett’s long-held positions, American Express just delivered its fourth consecutive earnings beat. A Zacks Rank #2 (Buy) stock, American Express continues to defy its skeptics.
A global provider of credit card payment products and travel-related services, the company operates through four segments: US Consumer Services, Commercial Services, International Card Services, and Global Merchant and Network Services. Its product offering includes payment and financing products; network services; accounts payable expense management products; and travel and lifestyle services.
In addition, American Express operates lounges at airports under the Centurion Lounge brand name. The company sells its products and services to consumers, small businesses, medium-sized companies, and large corporations through mobile and online applications, customer referral programs, third-party service providers, and in-house sales teams.
The Zacks Rundown
American Express (AXP - Free Report) shares have outperformed the market by a wide margin over the past year, and the trend appears to be continuing in 2025.
The company is part of the Zacks Financial – Miscellaneous Services industry group, which ranks in the top 27% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.
This industry is a component of the Zacks Finance Sector, which is the top-ranked sector at the moment.
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its sector and industry group combination. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
American Express stock is hitting a series of 52-week highs on increasing volume. While there are many ways to take advantage of this bullish move, options provide us with flexibility, enabling us to tailor our strategy to the current market environment.
Option Essentials
Before we analyze today’s trade, let’s review some option fundamentals as a refresher. There is no need to worry about complex mathematical formulas or equations. Over the years I’ve found that the more complicated a strategy is, the less likely it is to work over the long run.
Options are standardized contracts that give the buyer the right – but not the obligation – to buy or sell the underlying stock at a fixed price, which is known as the strike price. A call option gives the buyer the right to buy a particular security, while a put option gives the buyer the right to sell the same. The investor who purchases an option, whether a put or call, is the option buyer, while the investor who sells a put or call is the seller or writer.
These contracts are valid for a specific period of time which ends on expiration day. There are weekly options, monthly options, and even LEAPS options which are longer-term options that have an expiration date of greater than one year.
Options consist of time value and intrinsic value. In-the-money options consist of both components; at-the-money and out-of-the-money options consist only of time value. At options expiration, options lose all time value.
Below we’re going to explore a call option purchase strategy.
Multiply Your American Express Returns
American Express stock is in a price uptrend and is a good candidate for a call option purchase:
Image Source: StockCharts
When done correctly, trading options provides huge profit opportunities with limited risk.
In today’s trade, we’re going to target the March 21st expiration date and the 280-strike price. Purchasing this option gives us the right, but not the obligation, to buy 100 shares of AXP stock at $280 on or before March 21st, which is a bit over 1 month from now.
The table below displays the risk/reward profile for this trade. American Express stock is currently trading at $319.64 (orange box). We are purchasing 1 March 21 280-strike call at 42.1 points, which is the option premium. Since options account for 100 shares of the underlying stock, the total cost for this call option trade is $4,210 as we can see in the yellow highlighted box.
Image Source: Zacks Investment Research
The top (blue) row shows the performance of American Express stock based on different percentage scenarios at expiration. The bottom (purple) row shows the corresponding percentage return for our call option trade. We can see that if AXP remains flat, this trade would encounter a minor loss of 5.8%. If AXP moves up 5%, this trade will realize a 32.1% profit. If AXP advances 15%, we would realize a 108% profit.
This illustration shows the inherent leverage that options provide. A stock investor who bought 100 shares of AXP would have to contribute $31,964, which is a much bigger investment. A 15% increase in the stock price would yield a $4,794 profit.
On the other hand, in this example the option trader only needs to contribute $4,210 to control the same amount of underlying AXP shares. A 15% move in AXP stock would net a $4,549 option profit – a nearly identical profit amount with less than one-seventh of the investment!
Also note that this option contains relatively little time value. The 2.46 points worth of time value (red box) equate to just 0.8% of the underlying stock price. A good way to manage risk when buying call options is to minimize time value and maximize intrinsic value, as time value decays rapidly in the days leading up to option expiration.
Bottom Line
With American Express displaying signs of outperformance, the stage is set for AXP stock to continue its bullish run. A durable backing from the financial sector should help push shares to new heights.
A great way to take advantage of this move is via low-risk call options. This allows us to leverage American Express stock returns with the power of options. Be sure to keep track of how AXP stock performs as we move further into the new year.