As traders sift through the rubble of Monday’s gap down, they’re likely to find most stocks battered and broken.  As long as the intermediate trend of the broader market remains down, rest assured that high-quality bullish setups will be few and far between.  

Given the heightened volatility and monster gaps accompanying a bearish market, the safest location for most conservative traders is the sidelines. 

Aggressive traders willing to weather the gyrations, however, will discover there are still a few stocks holding strong in the face of the recent market deterioration.  The likes of Hansen Natural (NASDAQ:HANS) and CF Industries (NYSE:CF), and Green Mountain Coffee Roasters (NASDAQ:GMCR) remain in an uptrend. 

Yet another stock exhibiting strength is Amazon (NASDAQ:AMZN).  The last three days of selling have set-up a potential buy-the-dip opportunity for the world’s largest online retailer. 

One of the more straightforward directional strategies within the options market is the vertical debit spread.  It offers a cheaper, limited-risk avenue for betting on a rise or fall in stock prices. Traders seeking bullish exposure in AMZN may consider the purchase of an October 210-220 bull call spread.  The trade can be entered by buying to open the Oct 210 call while selling the Oct 220 call for a net debit of around $440.  The maximum risk is limited to the original $440 paid and the maximum reward is capped at $560.

Rather than remaining in the position until October expiration in an attempt to capture the entire reward, I suggest exiting after achieving around half the potential gain.  On the other hand, if AMZN falls prey to the bears and reverses trend, traders may consider exiting if AMZN breaches support or the call spread loses half its value.

Source:  MachTrader

At the time of this writing Tyler Craig had no positions on AMZN.