Tomorrow, “7/11,” is Prime Day, and that means Amazon.com, Inc. (NASDAQ:AMZN) will be pushing its own Black Friday-style deals out to all of its Amazon Prime subscribers as a way of thanking them for being members. But Prime Day is more than just Amazon’s celebration of its key consumer base, it’s also historically been the biggest sales day of the year for the company — and a major opportunity for AMZN stock bulls.
Looking back on last year’s Prime Day event, Amazon saw orders rise 60% year over year to mark its biggest single-day sales of the year — and that included 2015’s cyber-Monday sales. This year, Amazon has even more Prime subscribers than ever, with the tally estimated to have risen from 66 million at the end of 2016 to about 79 million currently.
Another blockbuster Prime Day is exactly what AMZN stock needs to shake off recent malaise infecting the “FAAMG” stocks. You may remember that Goldman Sachs research note calling for a correction for FAANG stocks, including Amazon Facebook Inc (NASDAQ:FB), Apple Inc (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Google parent Alphabet Inc (NASDAQ:GOOGL), noting that the recent rally was comparable to a tech bubble.
But the group has shown considerable resolve, due mainly to continued positive fundamentals in the technology sector and impressive growth among FAANG stocks, in general.
Click to Enlarge For Amazon stock, the overvaluation concerns meant that the shares gave up their much-vaunted perch above $1,000, plunging to test support near $950. This dip in AMZN, and other FAANG members, proved to be a buying opportunity.
Amazon in particular has come back quickly and is now within challenging distance of $1,000 once again. Solid Prime Day sales could be the catalyst that pushes AMZN shares back above that psychological hurdle.
Regular readers of my column are already poised to take advantage of just such a breakout. Back on July 13, I predicted that AMZN would return to $1,000 in short order, and recommended a Jul $980/$1,000 bull call spread for the more bullish Amazon traders out there. The primary recommendation was a Jul $900 put sell in response to some questionable market headwinds at the time.
The call spread could hit breakeven today, as AMZN joins the broad tech sector rebound, and Prime Day sales figures should put the trade over the top.
For those that didn’t get in on this trade, don’t worry — earnings are just around the corner, and should drive AMZN stock even higher.
Amazon Expectations and the Options Pit
Amazon has yet to officially set a date for its second-quarter earnings report, but the event should occur somewhere in the last week of July or the first week in August, giving you plenty of time for positioning.
For the record, Wall Street is expecting a profit of $1.42 per share on revenue of $37.16 billion — up 22.2% year over year.
Checking in with August’s options, we find an expected level of caution heading into earnings after the events of the past month. The August put/call open interest ratio rests at a nearly non-committal 0.87, with calls only just edging out puts among options set to expire next month. That said, this reading is down considerably from the July 13 put/call OI ratio of 1.13, indicating that calls are gaining favor among AMZN traders.
Overall, August implieds are pricing in a potential move of about 7% heading into expiration. This places the upper bound at $1,048 and the lower bound near $911. Once again, support should hold firm at $900 — though that target should be adjusted upward to about $950 if AMZN breaks through $1,000 ahead of earnings.
Likewise, $1,048 looks conservative in the wake of a Prime Day breakout above $1,000 as well.
2 Trades for AMZN Stock
Call Spread: Traders looking to bet on a bull run following Prime Day sales and a solid earnings report might want to consider an Aug $1,000/$1,050 bull call spread.
At last check, this spread was offered at $14.80, or $1,480 per pair of contracts. Breakeven lies at $1,014.80, while a maximum profit of $35.20, or $3,520 per pair of contracts, is possible if Amazon stock closes at or above $1,050 when August options expire.
Put Sell: For a more conservative play heading into this string of events, an Aug $950 put sell should close out of the money. At last check, the Aug $950 put was bid at $20.87, or $2,087 per contract.
As with all put sells, traders will keep the premium received for entering the trade as long as AMZN stock trades above $950 through August expiration. If Amazon were to trade below $950 prior to expiration, then you could be assigned 100 shares per contract sold at a cost of $950 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
