This is not about whether you love or hate Amazon. This is about making the most out of your money given Amazon earnings coming up on Thursday, Jan 28. The stock has certainly enjoyed its run in past 12 months.
Going forward, I think the stock is going to pause within the channel defined in the attached daily chart. The implied volatility in Feb is elevated at 55 while March is currently at 48. This is not a significant volatility skew, but it is enough to provide an opportunity to place a calendar spread trade. At-the-money straddle is selling for $13.50 which implies almost 12% move in the stock by Feb expiration. Given my expectation that the stock is likely to pause here, I think the straddle is overpriced. As such, I like the following calendar spread:
- Buy to open March $125 strike calls
- Sell to open Feb $125 strike calls
The spread can be done for $1.70 as of this writing. The break even points are $112 on the downside (about 7% cushion) and $139 on the upside (about 15% cushion).
Good luck!
