How to Safely Short Amazon.com, Inc. (AMZN) at $1,000 Before Earnings

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Shares of Amazon.com, Inc. (NASDAQ:AMZN) are starting to roll over after bouncing sharply off major support. Momentum plays like AMZN stock need to maintain their momentum to continue higher, especially given the rather frothy valuation. Now that the momo has been tempered, I look for the stock to remain range bound for the next weeks in front of earnings in late October.

How to Safely Short Amazon.com, Inc. (AMZN) at $1,000 Before Earnings

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News out this morning that Amazon faces a $294 million tax bill in Luxembourg should also give pause to any rally over the coming few weeks.

E.U. Commissioner Margrethe Vestager accuses AMZN of avoiding paying taxes on nearly 75% of the company’s profits. This is amid a growing crackdown on special treatment given by E.U. countries to large corporations. Certainly today’s action by the E.U. could bring up similar ongoing arguments regarding preferential sales tax treatment given to online retailers like Amazon in the U.S.

In a Bloomberg interview yesterday, Morgan Creek Capital Management founder Mark Yusko said he would short Amazon if it reached $1,000 per share. Mr. Yusko likes Amazon as a company, but simply doesn’t like the stock price at higher levels. I certainly echo those sentiments given the recent price action in AMZN stock.

In my previous article on Amazon stock, I expected the stock to hold and bounce off the major support level at $935. That proved to be the case, with the stock now trading higher. The recent rally has begun to wane, however, and Amazon is beginning to look a little tired technically.

After initially bouncing off $935 support in late August, Amazon stock rallied up to $1,000 before pulling back. The subsequent bounce off the same level saw shares only get to $965 before succumbing to selling pressure.

I expect AMZN stock to struggle to head higher over the next few weeks.


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Earnings are due Oct. 26 for the company and I would expect volatility to remain somewhat muted in front of that report. I also want to structure my trade to expire before the earnings release to lessen the risk.

So to position for a period of consolidation pre-earnings in Amazon, a bear call spread trade makes sense.

Trade Idea for AMZN Stock

Buy AMZN Oct $1002.50 Call and sell AMZN OCT $1000 Call for a 40 cents net credit.

Maximum gain is $40 per spread with maximum risk of $210 per spread. Return on risk is 19%. The short $1,000 strike price is positioned at critical resistance and it provides a 4.4% upside cushion to the $957.10 closing price of Amazon stock.

These are the traditional monthly options that expire 10/20/17 before the 10/26/17 earnings date.

As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at timbiggam@gmail.com. 

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


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