Amazon.com, Inc. (NASDAQ:AMZN) is a fierce competitor among not just tech giants, but the entire market. Its vast diversification has not yet been a distraction to its management, and it’s impressive how Amazon dominates in almost every arena it enters.
Amazon stock has its devout critics and they relentlessly preach how AMZN stock will one day crash. Few can argue, however, against the company’s accomplishments.
Amazon CEO Jeff Bezos took the company from selling books to crushing the retail industry. Now Amazon dominates the cloud that runs our digital lives and we’ve recently seen its foray into video content. Netflix, Inc. (NASDAQ:NFLX) will soon enough need to prepare its P&L for battle against the master of thin margins.
AMZN stock has left a long line of decimated short sellers. The downside of having a fast runner like that is not being able to find many obvious entry points. It is in a perpetual state of seeming over-extended, which is why I rarely chase AMZN stock. I find it easier to generate profits from selling risk against past levels that become support.
In January, I shared a trade that delivered $10 of free profits. Today, I want to share a similar setup for the opportunity to generate even more free profits into the summer.
The Bet: Sell the AMZN Oct $600 put for $5 per contract. I have a 90% theoretical chance of success to win by having price stay above my sold put. Else, I would be forced to buy AMZN stock at $600 per share, even if it goes lower. So if you’re not willing or able to own shares at the sold put, you can change this trade to be a credit put spread instead.
Usually, I like to sell opposing risk to balance the trade. In this case, and for reasons already noted here, I don’t dare short this ultimate momentum stock. Furthermore, since I’m selling risk using longer-dated options, I feel confident that I will be able to manage the shorter-term price gyrations.
Conversely, I could add to my bullishness by adding a debit call spread for even more potential profits. Considering the impending rate hike, however, I will delay entry here until closer to Wednesday.
The Juice (Optional): Buy the AMZN April $860/$865 debit call spread. I pay $2.30 per contract for a chance to double my money. As long as AMZN stock stays above my sold put, anything I capture from selling the call spread is pure profit.
I am not required to hold my trades open through expiration so I can close them at any point.
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.
