So you missed my last trade for free profits on Amazon.com, Inc. (NASDAQ:AMZN). Not to worry since this uber-bullish trading environment offers many entry points for long trades in Amazon stock.
Recently, I wrote about how to go long AMZN for free. The trade was an easy win. Today I want to share another bullish Amazon stock trade only with slower time frames.
This bests suits traders who don’t want to watch the market’s every tick. Although I don’t believe in “set-it-and-forget-it” trades, today’s trade comes close. It allows me to set a trade based on strong fundamentals and simply check in on my thesis periodically to see if it’s still viable.
For decades, AMZN shorts have been wrong. I don’t think 2017 will be the year they become right. Fundamentally, I’m optimistic for this ultimate startup company. It’s winning on hundreds of fronts under awesome leadership.
This week, Amazon management announced its intention to create 100,000 new jobs in the U.S. That is roughly half of the current count. This is behavior of a company that has strong belief in its execution on big things to come.
Technically, today won’t be an obvious point of entry in Amazon stock and that’s why I will build a healthy buffer from current levels.
Amazon Stock Options
The Trade: Sell AMZN Jan 2018 $550 put. This is a bullish trade for which I collect $15 per contract. Selling naked puts is dangerous and should only be done if I am willing and able to own the shares at the strike sold. If Amazon stock falls below my strike I will be put the stock. I wouldn’t accrue losses until Amazon stock falls below $535 per share. This trade has an 85% theoretical chance of success and a 30% buffer from current price.
It is important to note that these types of trades are not suitable for all stocks. I am comfortable doing them in quality names with current stories that are in full bloom. So other tickers I would trust this type of trade include Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB).
I do have to acknowledge that there are risks committing long for a whole year, especially when the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) is at all-time highs. So choosing risk levels becomes important. When I sell a naked put, I commit to owning the stock at that price.
I can mitigate that open-ended risk by modifying this trade to being a sold credit put spread instead. The Jan 2018 $560/$550 AMZN credit put spread would yield over 15% on money risked. The advantage here would be that my max risk would then be limited to the width of the spread less the premiums I collect. I can also use some of the proceeds to add to my calls for even more potential profits.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.
