Ever since its blowout earnings release, Amazon.com, Inc. (NASDAQ:AMZN) has been on an uninterrupted mission to the moon. We’ve seen nary a whiff of selling along the way as continuous buying has pushed it up to a new record of $1,149. AMZN stock has now climbed 18% over the past month. All told, the retail king is up 53% year-to-date.
On the technical front, there’s nothing not to like. The price trend is gravitating higher above a rising 20-day, 50-day, and 200-day moving average. The one or two dips (if we can even call them that) striking since earnings were extremely shallow and bought up in rapid-fire fashion.
Over the past two weeks, AMZN’s rally did enjoy a brief respite arriving in the form of consolidation. The sideways slither allowed the 20-day moving average to catch-up as overbought pressures began to finally ebb.
But with today’s jump, the rallying is beginning anew. The resistance breach qualifies as a breakout and provides a green light for new bullish trades. If the now lofty price tag of Amazon shares is causing you to shrink, worry not. We can use options contracts to build a position for less than the cost of buying one share.
How to Buy AMZN on the Cheap
The first line of cost reduction is to buy a call option instead of buying stock. But with an $1,149 share price, even call options can run quite rich. So, to further mitigate the cost we’re going to structure a spread trade. We will sell an option against the one we buy. The premium received from the short call will reduce the price paid for the long call.
If you’re willing to bet with Amazon.com bulls into year-end, then buy the Jan $1150/$1170 bull call spread for $9. The initial cost of $900 ($9 x 100 shares) represents the max loss and will be forfeited if AMZN sits below $1150 at expiration. The max gain is the spread width minus the initial cost, or $1100 ($11 x 100). To capture the reward, AMZN only needs to rise past $1,170 by expiration. If the uptrend persists, sailing past $1,170 should be a breeze.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
