Amazon (AMZN) stock is gapping higher today on news that Piper Jaffray raised its price target from $475 to $520.
The timing is quite fortunate, as AMZN was in need of some type of catalyst to bring an end to its low volatility stupor. The king of online retail has been mired in a tiny trading range since its stellar earnings-induced pole vault in April.
If today’s breakout attempt in Amazon stock succeeds, it should setup a renewed advance in the well-rested stock. The earnings gap high of $452 is a likely target.
As shown in the accompanying chart, the consolidation in Amazon stock price has taken on the form of an ascending triangle. A series of higher pivot lows reveals the increased aggression of dip buyers over the past month while the equal pivot highs near $435 mark the key resistance zone, which has thus far stymied AMZN’s rally attempts.
Click to Enlarge
Double Your Money With AMZN Call Spreads
As with most stocks these days, the implied volatility for Amazon stock options is near 52-week lows. As a result, options contracts have been relegated to the bargain bin. This favors long premium strategies over short ones.
If you think the breakout bid in AMZN stock is the real deal, consider buying the July $435/$445 call spread for around $4.55. Think of it as a bet that AMZN is able to rise above $445 during the next 44 days.
The risk is limited to the initial $4.55 debit and will be lost if AMZN sits below $435 at expiration. The reward is limited to the distance between strikes minus the net debit, or $5.45, and will be captured if AMZN can rise above $445.
Thus this trade will double your money should Amazon merely rally another 2% or so from current levels.
As of this writing, Tyler Craig owned bullish positions on AMZN.
