A strategy idea for options trading investors.

Yesterday’s successful test of the pivotal 1300 level on the S&P 500 Index may signal a multi-day bounce is finally in the cards. Despite a weak opening drive lower, the bulls came out en masse to push the market higher into the close. Now we’ll see if they can muster up the strength to deliver some follow through. The recent seven day correction has allowed many strong trending stocks to form potential “buy the dip” opportunities.

Amazon (NASDAQ: AMZN) is one such stock providing an alluring setup. If the online retailer is able to breach Monday’s high, traders may considering entering an AMZN Aug 220-230 Bull Call Spread to exploit a continuation in the uptrend. To enter the positions traders would buy to open the Aug 220 call option and sell to open the Aug 230 call option. If purchased around the current price of $3.00, the maximum risk in the trade is limited to $300 while the maximum reward is $700.

AMZN is set to report earnings next Tuesday July 26 so conservative traders should close the position before then. If AMZN can stage a pre-earnings rally similar to what Apple (NASDAQ: AAPL) has done over the past week, this call spread could produce notable profits.

Source:  MachTrader

At the time of this writing Tyler Craig had no positions on AMZN.

Follow Tyler Craig on Twitter@TylersTrading.