Amazon.com, Inc. (NASDAQ:AMZN) stock is still near all-time highs, but if you ask the average investor, I bet the predominant perception is that AMZN has been hammered of late.
It is true that the reaction to earnings was not favorable. The stock fell almost $40, but it has since recovered more than half that amount.
Technically, the October 2016 dip gave me a level against which I can shoot — a level where I could expect buyers to step in to defend the stock.
Click to Enlarge Fundamentally, one bad report is not good enough for me to change my long-term bullish perspective on AMZN stock. So today, I will reset another bullish trade similar to the many free-money-from-Amazon-options trades that I’ve done before. In one, I created $6 per contract on income out of thin air in under a month. In another December trade I created more profits with no out-of-pocket expense.
Under the assumption that markets in general will not suffer a sustained crash this year, I can commit to going long AMZN once again.
AMZN Stock Trade Idea
The Trade: Sell the Amazon Dec $715/$710 credit put spread. This is a bullish trade for which I collect $1.60 per contract. The 12% buffer from the current price gives me an 85% theoretical chance of success. I purposely took this trade at a much more aggressive level than my usual set ups because I come into it with profits in hand already.
If AMZN stock stays above $715 per share this year, my reward here would be over 40% yield on money risked.
Usually I like to hedge my trades by selling bearish risks, but in this momentum runner, I fear I could be starting a potential problem. So for now, I will hold the trade as-is knowing I will manage the risk appropriately should prices come under fire.
I consider it a blessing that AMZN options offer me a cheap way to go long this high-priced ticker. I am not required to hold any option trades through expiration. I can close them at any time for partial gains or losses.
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.
