2 Amazon Stock Trades to Make Before Earnings

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Online retailing giant Amazon.com (AMZN) will step into the earnings confessional after the close of trading tomorrow night. Amazon stock is in the process of bouncing back from broad market selling pressure, but shares remain near oversold levels. As a result, AMZN could be a bargain heading into tomorrow’s report, presenting a potential trading opportunity.

amazon stock amzn stockCurrently, Wall Street is looking for Amazon to post a loss of 74 cents per share on revenue of $20.84 billion. AMZN has a history of initial negative reactions to baseline numbers, only to rebound in after-hours trading once the Street digests the company’s operational data.

Additionally, investors will be keeping a close eye on guidance for the coming holiday sales season, with the consensus expecting fourth-quarter revenue of $30.91 billion.

Long-term expectations remain considerably bullish for Amazon stock. According to data from Thomson/First Call, 29 of the 44 analysts following AMZN rate the shares a “buy” or better, compared to 15 “holds” and no “sells.”

The sentiment outlook from the options pits, however, is quite bearish. Specifically, the weekly Oct. 25 put/call open interest ratio arrives at 1 on the dot, with puts and calls in relative parity heading into tomorrow’s quarterly report. This negativity deepens when we turn to the November series, where the put/call open interest ratio rises sharply to 1.41. Since options traders typically favor calls over puts heading into events like earnings reports, this skew toward puts could be seen as heavily bearish.

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Overall, implieds for weekly Oct. 25 options are pricing in a potential post earnings move of about 7.8% for Amazon stock. This places the upper bound near $339.70 and the lower bound near $290.30. An upside move leaves AMZN well short of potential technical resistance in the $350 region, which is home to the stock’s 50-week moving average. A downside move, meanwhile, would breach support at $300.

2 Options Trades on Amazon Stock

AMZN Bull Call Spreads: With low expectations and oversold conditions for Amazon stock, traders willing to take a risk might want to consider a Nov $315/$340 bull call spread. At last check, this spread was offered at $9.41, or $941 per pair of contracts. Breakeven lies at $324.41, while a maximum profit of $15.59 is possible if AMZN closes at or above $340 when November options expire.

Selling AMZN Puts: Alternately, if an outright bullish stance on Amazon stock isn’t your cup of tea, but you also don’t believe that AMZN is due for a sharp selloff, you might consider selling a weekly Oct $260 put. This option expires at the end of the week, and is positioned to take advantage of support in the $260 region (home to AMZN’s 200-week moving average) should the stock get hammered (an unlikely occurrence) following earnings. At last check, the weekly Oct $260 put was bid at 72 cents, or $72 per contract. The upside to this put sell strategy is that you keep the premium as long as Amazon stock closes above $260 when November options expire. The downside is that should AMZN trade below $260 before expiration, you could be assigned 100 shares for each put sold at a cost of $260 per share.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2014/10/amazon-stock-amzn-options-earnings/.

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