Amazon.com (AMZN) is due to report earnings on Thursday after the close, and Amazon stock is currently above the 21-day, 50-day and 200-day moving averages.
X
With a best-possible EPS Rating of 99 investors might be hopeful of a positive earnings announcement. On the negative side, however, is a Composite Rating of 77 and a Relative Strength Rating of just 34.
Traders who expect a positive earnings result could look at a bull-put spread expiring at the end of this week.
A bull-put spread is a defined-risk option strategy that profits if the stock closes above the short strike at expiry.
To execute a bull-put spread, an investor would sell an out-of-the-money put and then buy a further out-of-the-money put.
Bullish Amazon Stock Option Trade
Traders who think Amazon stock will rally or at least not drop by too much could look to sell an April 30-expiring put spread with the short strike at 3,200 and the long strike at 3,195.
On Friday, this spread was trading for around $1.50, which means a trader selling this spread would receive $150 in option premium and would have a maximum risk of $350.
That represents a potential 42.86% return on risk in five days as long as AMZN stock remains above 3,200.
If AMZN stock closes below 3,195 on the expiration date, the trade loses the full $350.
With this being such a short-term trade, there is no chance to adjust the trade if it goes bad. Trading options over earnings can be risky. For that reason, keeping position size small is a good idea.
The consensus estimate for Amazon earnings is for a profit of $9.65 per share on revenue of $104.41 billion.
The options market is pricing in a 4.47% move in the stock in either direction.
These types of earnings trades are quite risky, so I usually keep position size small.
It’s important to remember that options in general are risky and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
YOU MIGHT ALSO LIKE:
Bullish Option Trade Idea For QQQ Exposure
Options Trading: Consider A Bull Put Spread For Tesla Stock Ahead Of Q1 Earnings Report
Looking For Market Insights? Check Out Our IBD Live Daily Segment
Uber Stock Consolidation Can Still Bring Option Profits
Nio Stock Sets Up For Bullish Risk Reversal Option Trade
[ad_2]
Source