Options Trading Strategy

AppLovin (NASDAQ: APP)

This project explores a real-world application of multi-leg options trading, built around AppLovin Corporation’s earnings release. The goal was to design a bullish strategy with built-in downside protection using a Bull Call Spread with a Protective Put.

Objective

Design and evaluate an options trading strategy around AppLovin Corporation’s earnings announcement. The goal: capture potential upside while limiting downside risk in a volatile market environment.

The Setup

  • Company: AppLovin Corp (APP)

  • Sector: Mobile Ad-Tech & Gaming

  • Price at Entry: ~$346

  • Earnings Date: May 14, 2025

  • Option Expiry: May 16, 2025

I structured a three-leg trade:

  • Buy 1 Call @ $350 — Cost: $7.50

  • Sell 1 Call @ $390 — Credit: $2.90

  • Buy 1 Put @ $330 — Cost: $3.20

  • Total Net Cost: $7.80 per share

  • Breakeven Price: $357.80

  • Max Profit: $32.20 per share

  • Max Loss: $7.80 (fully capped)

  • Protection kicks in: Below $330

This setup is a Bull Call Spread with a Protective Put—a defined-risk bullish trade with built-in insurance if the thesis fails.

Why AppLovin?

AppLovin had rallied over 10% in the weeks before earnings, breaking resistance. Its ad-tech platform was gaining traction, and investor sentiment was high. But class-action lawsuits and market volatility posed downside risks. The protective put gave me a way to stay long with a hedge in place.

The Outcome

AppLovin missed earnings expectations, and the stock dropped sharply to $255.50. Here's how the trade performed:

  • Both calls expired worthless

  • The $330 put moved deep in-the-money, worth ~$74.50

  • Net profit: $66.70 per share

Despite the stock moving opposite to my directional view, the strategy was still highly profitable thanks to the hedge.

This chart illustrates the potential profit or loss of the options strategy at different stock prices upon expiration. The trade combines a bull call spread (long $350 / short $390) with a protective $330 put.

  • Upside capped: Max gain of ~$32.20 occurs if APP closes at or above $390.

  • Downside protected: Loss is limited to ~$7.80, even if the stock drops significantly.

  • Put protection activates below $330, fully hedging the downside.

This visual demonstrates how the strategy is designed to profit from a moderate upside move while keeping losses tightly controlled—ideal for uncertain earnings events.