Abbott Laboratories is set to announce its second-quarter 2025 results on 17 July. The expected revenues are projected to reach $11.07 billion, reflecting a 6.7% increase compared to last year. The estimated earnings per share (EPS) is poised at $1.25, showing a 9.6% rise from the previous year.

The company’s performance in the medical devices sector is anticipated to have led this growth, driven by continuous glucose monitor systems and cardiac devices. The approval of the Tendyne transcatheter mitral valve replacement system also contributed to this momentum. Additionally, Abbott’s core lab business is likely to have sustained growth, though a drop in COVID-19 testing revenues may have impacted diagnostics.

Established Pharmaceuticals is expected to have performed well across different regions and therapeutic areas, partly due to biosimilars. The projected revenue for this segment represents a 6.1% year-over-year increase. Strong sales in adult nutrition brand Ensure are set to lead to a 4.3% improvement in nutrition segment revenues.

The company’s potential to exceed earnings estimates is underscored by its Zacks Rank #2 and an Earnings ESP of +0.96%. Other companies like CVS Health, Cencora, and Cardinal Health have similar favourable conditions suggesting potential earnings beats.

With the July 17th earnings date for Abbott Laboratories approaching, we see a clear setup for a volatility-based play. The underlying sentiment is undeniably positive, but a simple long stock position fails to capture the nuances derivative traders can exploit. The key will be structuring a trade that benefits from the expected upward momentum while insulating against the inevitable post-announcement volatility crush.

We are looking closely at the options chain, and implied volatility is beginning its typical pre-earnings climb. However, it hasn’t yet reached the fever pitch we saw in previous quarters, presenting a window of opportunity. For traders who believe the company will not only beat but significantly raise guidance, buying call options is the most direct route. We see the real engine here as the Medical Devices segment. In the first quarter of 2024, that division posted staggering organic sales growth of 14.2%, powered by a 22.4% jump in Freestyle Libre sales. If that momentum even holds steady, let alone accelerates, the projected $1.25 EPS could prove conservative, providing the fuel for a sharp move higher. History shows that after its Q1 2024 earnings beat, the stock saw an initial pop but struggled to hold those gains, suggesting a more tactical approach is warranted.

For this reason, we favor bull call spreads. By purchasing a slightly out-of-the-money call and simultaneously selling a further out-of-the-money call, we can significantly reduce our entry cost and define our risk. This strategy is ideal for a scenario where we expect a solid, but not astronomical, rally—a move toward the $115-$120 range post-announcement. It allows us to profit from the anticipated good news on devices and the impressive 6.1% projected growth in Established Pharmaceuticals, which is benefiting from a robust global biosimilars market expected to grow at a compound annual rate of over 20% through the end of the decade.

While the outlook is strong, we must account for the drag from diagnostics. The decline in COVID-19 testing revenue is a known headwind, but the market can be fickle if the drop is steeper than anticipated. For those of us with a more cautious stance or looking to hedge a bullish position, put spreads offer a cost-effective way to play a potential “sell the news” event or an unexpected miss. Given the stock’s tendency for a post-earnings fade, a bearish position could pay off even if the headline numbers are good. The broader market signal, with positive outlooks for companies like Cencora and Cardinal Health, suggests a healthy sector, but Abbott’s specific product mix makes it a unique case. The performance of the adult nutrition brands, while solid, isn’t likely to produce the kind of surprise that moves the needle dramatically. Therefore, our focus remains squarely on how much the growth in medical devices can overshadow any remaining weakness in diagnostics.