Shares of Amazon (NASDAQ:AMZN) just made a new all time high, closing above $1800 for the first time ever. AMZN stock is now within shouting distance of the magical $1 trillion market cap.
Amazon is up an astounding 55% so far this year, dwarfing the very respectable 15% gains year-to-date in the major tech stocks (NASDAQ:QQQ). In the first half of the year, Amazon alone accounted for 36% of the total gain in the S&P 500. While there is no disputing the dominance of Amazon, the recent red-hot rally in Amazon’s stock is getting a little too hot to handle. Time for the amazing AMZN to take a breather.
The impetus behind the most recent rip higher is likely attributable to an upgrade in AMZN stock by analyst Michael Graham of Canaccord Genuity. In a note to clients last Thursday, he lifted his price target from $1800 to $2000, citing massive scale and strategic investments as key reasons to be bullish.
While hard to disagree with any of those assertions, it is important to remember that the $2000 price target represents just 10.3% upside from the $1813.03 closing price of AMZN stock. Factor in that Amazon is up over 7% since the Fourth of July and the $2000 price target seems almost like a reason to sell, not buy.
From a technical perspective, Amazon is getting decidedly overbought. Nine-day RSI just breached the 75 level, an area that has coincided with short-term tops in the past. AMZN stock has been up seven days in a row and has tacked on over 7% in that same time frame.
Shares are also trading at a huge premium to the 50-day moving average of $1665.52. Previously, when AMZN traded at such a massive premium usually led to a pullback in the stock.
Earnings are due July 26, so implied volatility (IV) is elevated in front of the release. This means option prices are comparatively expensive. So to position to be a seller of AMZN stock at much higher levels in the next month , an out of the money call credit spread makes probabilistic sense.
AMZN Stock Trade Idea
Buy AMZN Aug $1980 calls and sell AMZN Aug $1990 calls for a $1.50 net credit
Maximum gain on the trade is $150 per spread with a maximum risk of $850 per spread. Return on risk 17.65%. The short $1980 call is structured just below the $2000 price target and provides a 9.2% upside cushion to the $1813.03 closing price of AMZN stock.
Tim may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his option-based strategies can go to https://marketfy.com/item/options-and-volatility.
Legendary Investor Louis Navellier’s Trading Breakthrough
Discovered almost by accident, Louis Navellier’s incredible trading breakthrough has delivered 148 double- and triple-digit winners over the past 5 years – including a stunning 487% win in just 10 months.
Learn to use this formula and you can start turning every $10,000 invested into as much as $58,700.
Click here to review Louis’ urgent presentation.
