Amazon.com, Inc. (NASDAQ:AMZN) continues to slaughter its perma-bears. It’s almost always tempting to short the beast, but that concept is lost on me. I fail to see why I need to short the strongest, longest-running growth mega-cap that has ever existed.
Fundamentally I give kudos to AMZN for its slim margins as long as it maintains its rate of growth and its domination through Amazon Web Services. AWS, as it’s known, is the leader of what we know as “the cloud.”
Well, you got me. Yes, I recently shared a trade to short AMZN which paid quickly even if someone didn’t book the debit puts perfectly. The difference is that I wasn’t betting against the company’s prospects nor was I shorting it because of its valuation. I was merely trying to profit from the short-term price action.
When Amazon stock fell on its last earnings report, I went on record saying that it would hit $900 per share in weeks.
Today I want to write about going long AMZN into the earnings event knowing that there could be a hitch in the giddy up. Competition is gaining on AWS from the likes of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT) to name a couple. Furthermore, during its last earnings report, I saw reasons for concern on growth and AWS.
So far Wall Street has ignored them, but I need AMZN stock to not repeat so that those mini flubs don’t gain steam and cause a sell-off.
AMZN Stock Trade Idea
The Bet: Buy AMZN June $915/$920 debit call spread for $2.40 per contract. This is a bullish trade that has a chance to double if Amazon stock rallies past it by mid-June. I chose June to give myself a little time in case they have a temporary dip on earnings.
To lower my out-of-pocket expense and mitigate my immediate risk, I will leverage proven support levels to generate income.
The Bank: Sell AMZN July $750 put and collect $3 to open. This bullish trade has a 90% theoretical chance of success. If AMZN stock falls below my strike, I own it and accrue losses below $747 per share. I could make this a credit put spread to appeal to a wider range of risk tastes.
Taking both trades means that I could be long AMZN through earnings for a net credit so as long as AMZN stays above $750, and any premium I recover from selling the debit call spread is pure profit.
Learn options as easy as 1-2-3 in a personal 1on1 webinar here. 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.
