Double Your Money on Amazon.com, Inc. (AMZN) Stock

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Eyes up, traders. Amazon.com, Inc. (NASDAQ:AMZN) — the king of the retailing jungle — is about to break out. AMZN stock is riding on a wave of tech optimism carrying Facebook Inc (NASDAQ:FB) and Apple Inc. (NASDAQ:AAPL) higher, and it’s poised to pop over a critical resistance level.

Double Your Money on Amazon.com, Inc. (AMZN) Stock
Source: Shutterstock

If the technicals are any indication, profits and glory await to tactical traders willing to step up and take some risk in Amazon here.

The Amazon Setup

On the price action front, there’s nothing not to like.

AMZN shares are perched a pebble toss from all-time highs, with year-to-date gains approaching 15%. Amazon’s ascent has been sufficient in turning all major moving averages higher. The 20-day moving average sits atop the 50-day, and the 50-day sits atop the 200-day.

The recent consolidation in AMZN stock has taken on the form of an ascending triangle complete with higher pivot lows and equal pivot highs. The pausing pattern has allowed the stock to digest its recent gains while building a base to launch from. The series of higher pivot lows reveals buyers’ appetite is still on the rise.

While Amazon stock has been mired in meander mode, volume has dried up showing a lack of aggression by bulls and bears alike. This volume pattern is typical during consolidation zones and makes it easier for the stock to pop given the slightest uptick in buying.

Amazon (AMZN) stock chart view 1
Click to Enlarge
Source: OptionsAnalytix

With the retailing juggernaut jumping out of the gate in Tuesday’s early morning trading, the time for trading is now.

How to Trade an AMZN Stock Breakout

Spectators deterred by Amazon’s lofty price tag don’t need to hesitate. The options market provides numerous strategies to play this week’s breakout on the cheap. A call spread should do the trick.

Buy the AMZN May $860/$870 bull call spread for $5. The vertical spread consists of buying to open the $860 call while selling to open the $870 call. The max loss is limited to the initial $5 cost and will be forfeited if the stock sits below $860 at expiration.

The max gain is limited to the spread width minus the net debit, or $5. You will capture the profit is AMZN stock sits above $870 at expiration. By risking $5 to obtain $5, the spread offers a potential 100% return on investment if the stock merely rises 1% over the next two months.

Now that is some sweet leverage!

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

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Article printed from InvestorPlace Media, https://investorplace.com/2017/03/amazon-com-inc-amzn-stock-double-your-money/.

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