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Options: 3 Big Blue Chips to Trade Before Earnings

AMZN, BIDU and P enter the earnings confessional soon. Get out in front with these options ideas

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Amazon (AMZN)

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Internet bellwether Amazon (NASDAQ:AMZN) will step into the earnings confessional after the bell Thursday. Wall Street is looking for earnings of 24 cents per share on revenue of $19.4 billion. That said, current-quarter performance may take a backseat to any data on Fire TV sales, or the effects of the Prime membership price increase, as both of these factors could play a key role in guidance.

Expectations among analysts and investors are considerably bullish for AMZN stock. Currently, 35 of the 44 analysts following AMZN rate the shares a “buy” or better, compared to nine “holds” and no “sells.” Elsewhere, options traders are a bit call heavy, with Amazon’s weekly April 26 put/call open interest ratio arriving a 0.74 — calls (or bets that AMZN stock will rally) are easily outnumbering puts (or bets that Amazon stock will decline).

Overall, implieds for weekly April 26 options are pricing in a potential post-earnings move of about 7%, placing the upper bound near $353.75 and the lower bound near $306.25. With AMZN stock in rebound mode, and new product data in the mix with Fire TV, I’m inclined to bet on a post-report rally.

2 Options Trades for AMZN Stock

  • Bull Call Spread: Traders looking to capitalize on a potential earnings induced rally might want to consider a May $320/$350 bull call spread. At the close of trading on Tuesday, this spread was offered at $11.20, or $1,120 per pair of contracts. Breakeven lies at $331.20, while a maximum profit of $18.90 is possible if AMZN stock closes at or above $350 when May options expire.
  • Sell Puts: Alternately, if near-the-money AMZN options are just a bit too pricy for your portfolio, a May $250 put sell might be a way to capitalize on AMZN stock’s technical support. At last check, the May $250 put was bid at 62 cents, or $62 per contract. The upside to this put sell strategy is that you keep the premium as long as AMZN closes above $250 when May options expire. The downside is that should AMZN trade below $250 before May options expire, you could be assigned 100 shares for each put sold at a cost of $250 per share.

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