Amazon Stock Is a Buy at $100

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  • Amazon (AMZN) stock is finding support at $100 for the third time in a row.
  • Buyers’ defense of the century mark suggests a tradable bounce is coming.
  • Consider grabbing some shares or using options to enhance your odds of success with AMZN stock.
AMZN stock - Amazon Stock Is a Buy at $100

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After its 20-for-1 stock split, Amazon (NASDAQ:AMZN) got punched in the face. AMZN stock crashed 21% over a mere six trading sessions. But as bearish as the descent seemed, prices are finding support for the third time at the psychologically significant $100 level. And if Wednesday’s 5% jump is any indication, a tradable bounce is upon us.

If you were waiting for a technical catalyst to buy shares of the newly cheapened stock, then this is arguably it. If nothing else, it provides a clear stop loss level to bail if you want to keep a tight leash. Let’s take a closer look and map out two ways to play Amazon using stock options.

Ticker Company Current Price
AMZN Amazon $107.67

AMZN Stock Is a Buy

The beautiful thing about price charts is that they reveal what price levels matter to investors. In turn, you can build trades around those levels to shift the odds or at least the reward-to-risk ratio in your favor. Consider the weekly chart of AMZN stock below.

Amazon (AMZN) weekly stock chart with major support test.

Source: The thinkorswim® platform from TD Ameritrade

The $100 zone was resistance in 2018, 2019 and in the early part of 2020. Once we finally plowed through it after the pandemic, Amazon shares took off like a rocket ship. Fast forward two years, and we find ourselves revisiting the breakout area. The principle of polarity states that old resistance often becomes new support. And, sure enough, bulls have swarmed to purchase shares at $100. What was once a ceiling is now a floor.

While it doesn’t guarantee a speedy recovery, it does give us a reason to initiate exposure with a close exit point if the rebound fails. A zoomed-in view of the daily chart shows the three successful tests of $100 over the past six weeks. The fact that AMZN stock was oversold coming into the most recent test added further reason for a snapback.

Amazon (AMZN) daily stock chart with $100 support zone.

Source: The thinkorswim® platform from TD Ameritrade

Two Ways to Trade Amazon Today

The options market offers many compelling ways to capitalize on Amazon’s short-term low. If we’re lucky and this builds into a long-term bottom, then all the better, but there isn’t enough evidence yet. You ultimately have two choices in creating a position here. First, you could go for a higher probability but a smaller profit. Second, you could shoot for a bigger profit but a lower probability. Here’s an example of each.

High Odds Trade: Sell the Jul $100 naked put for around $2.75.

You’ll pocket the $2.75 max profit if AMZN stock sits above $100 at expiration. The initial margin required should be around $1,400, giving you the potential for a 20% return. Your odds of success are priced near 75% as of Wednesday’s close.

Try this if the 20% return doesn’t scratch your speculative itch.

High Payout Trade: Buy the Jul $110/$120 bull call spread for around $3.20.

You’re risking $3.20 to make $6.80 if Amazon rises past $120 by July expiration. The probability of capturing the max profit is only 22%, but the return on investment is a whopping 213%.

On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/2022/06/amzn-stock-amazon-is-a-buy-at-100/.

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