Tapestry Stock: How To Benefit From Using A Long Call Option On This Retailer

Tapestry (TPR), a highly-rated stock in the luxury goods sector, is highlighted as a potential opportunity for investors seeking leveraged exposure through call options. The article notes Tapestry's recent earnings beat, strong stock performance (up 19% in three months), and proximity to all-time highs, suggesting further upside. It explains how investors can use call options, such as the Aug. 15 85-strike, to gain exposure to 100 shares with significantly less capital, while also discussing strategies like bull call spreads to further reduce risk, though cautioning about the inherent risks of options trading.

Analysis

Tapestry (TPR) is presented as a strong performing stock, having appreciated over 19% in the last three months and trading near its all-time high of 90.85. This positive momentum is supported by fundamental strength, evidenced by the company's early May earnings report where earnings per share of $1.03 significantly surpassed analyst estimates of $0.88, marking its fourth consecutive quarterly beat. Furthermore, Tapestry holds high IBD Stock Checkup ratings, including a Composite Rating of 96, an Earnings Per Share Rating of 96, and a Relative Strength Rating of 95, positioning it as a leader in its group. The article suggests that these factors make TPR a candidate for bullish investment strategies, particularly through the use of call options for capital-efficient leveraged exposure to potential further upside, while also noting the inherent risks associated with options.

Key Decisions for Investors

• Investors with a bullish outlook on Tapestry, given its strong earnings performance and stock momentum, might consider long call options, such as the illustrative August 15 85-strike call, to gain exposure with a defined risk limited to the premium paid, which was cited as approximately $500 for exposure to 100 shares.
• To further manage risk and reduce capital outlay, investors could evaluate a bull call spread strategy, like buying the August 15 85-strike call and simultaneously selling the August 15 95-strike call, which would lower the net premium to around $340 but also cap profit potential above the 95 strike.
• It is crucial to acknowledge the high-risk nature of options; investors could lose their entire investment and should consider implementing risk controls, such as a stop-loss if Tapestry stock declines by a predetermined percentage (e.g., 8% from entry), and conduct thorough due diligence before trading.