This is becoming quite the banner year for Amazon.com, Inc. (NASDAQ:AMZN) shareholders.
Amazon stock is already up 37% for the year thanks to back-to-back earnings gaps. With the stock now perched well north of $400, it’s officially reclaimed all of the ground lost in last year’s downturn.
Since rocketing higher following its first-quarter earnings release in April, AMZN has been consolidating in true bullish fashion. Would-be buyers who missed the 12% overnight jump should be eyeing the latest AMZN pullback with interest.
Let’s zero in on the charts for a closer inspection.
Amazon stock boasts a powerful looking uptrend complete with rising 20-, 50-, and 200-day moving averages. The post-earnings gap fill succeeded in retracing 61.8% of the gap before dip buyers finally showed up. This new support level near $415 should serve as a pivotal reference point moving forward.
Best case scenario for the bulls would be the same type of post-earnings drift experienced following January’s earnings gap. Continued consolidation by AMZN in the current price zone would allow the stock to work off the overbought conditions brought on by the recent up-gap.
Fortunately, the option market provides a number of ways to profit from additional digestion and eventual resolution to the upside in Amazon stock.
AMZN Put Spread
Traders willing to bet against AMZN filling its earnings gap by falling back down to $395 or so could sell a bull put spread in this area.
For example, you could sell the Jun $395/$390 put spread for 55 cents. The maximum reward is limited to the initial 55 cents and will be pocketed provided the Amazon stock price remains above $395.
The maximum risk is limited to the distance between strikes minus the net credit of $4.45 and will be lost if AMZN falls below $390 by expiration.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.