Trading Amazon? Just Go With the Flow

With AMZN on the ups, this credit spread should pay off

   

Trading Amazon? Just Go With the Flow

Are you done trying to figure out this market, too?

Sometimes you just have to go with the flow until the flow heads elsewhere. Case in point: this trade idea on a stock that’s better played by just playing along.

Amazon.com (AMZN — $268.86): Put Credit Spread

The trade: Sell the June 250/255 Put Credit Spread (selling the June 255 put and buying the June 250 put) for 80 cents or better.

The strategy: The maximum potential profit for this trade is 80 cents if AMZN is trading above $255 at June expiration. The maximum loss is $4.20 (5 – 0.80) if AMZN is trading below $250 at June expiration. Breakeven is $254.20 at expiration based on a credit of 80 cents.

The rationale: Amazon is a site where many consumers — including me — go to buy just about everything. Searching for something out of the ordinary? Do a search on Amazon.com, and it’ll usually find it for you. The company has had its up and downs like most, but lately it appears to be surging again. The U.S. government just approved Amazon Web Services’ remote computing services for federal use. With a possibility of more than 300 government agencies using this service, it sounds like a good deal for Amazon.

AMZNchart1 300x134 Trading Amazon? Just Go With the Flow
Click to Enlarge
Taking a look at the chart, AMZN has moved up from around $250 at the beginning of May to where it is currently trading. Why this trade idea looks like a good idea on paper is because of Amazon’s multiple areas of support that should keep the stock from moving lower.

AMZN currently is trading above an upward-sloping trendline just above $265. A pivot level (prior highs and lows) in the $260 area and a 200-day simple moving average at just below $255 also can act as some serious support for AMZN.

Support never sounded so good!

As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/05/trading-amazon-just-go-with-the-flow/.

©2014 InvestorPlace Media, LLC

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