Thoughts on an Earnings Trade for Amazon

• Posted by Greg Harmon
• on October 23rd, 2014

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Amazon, $AMZN, reports earnings Thursday after the close. Heading into the report the stock has completed a bullish Bat harmonic and is reversing higher. It has stalled at the first target, the 38.2% retracement of the pattern, and the 20 day SMA, in what could be a bull flag. The second target is 334.73. Above at about 335 stands the top of a falling trend resistance, and below at 290 rising support. There is resistance at 335 and 346 above that. Support may come at 303 and 298 before 285 and 280. The RSI has come up off of the bottom and made a higher high but has since stalled. The MACD is crossed up, so on balance the chart reads better to the upside.

The stock has historically moved about 4.50% following earnings reports, which would be about a $14 move at today’s price level. The weekly options suggest a larger $23.50 move by tomorrow with the implied volatility high at 155% compared to the November chain with Implied Volatility at 40%. Short interest is low under 2%.

Trade Idea 1: Buy the October 24 Expiry 315/327.5/340 Call Butterfly for $3.
This looks for a move higher to stall at that falling trend line.

Trade Idea 2: Buy the October 24 Expiry 310/297.5/285 Put Calendar for $2.
his looks for downside to stall by the rising trend line.

Trade Idea 3: Sell the October 24 Expiry 285/340 Strangle for a $5.50 credit.
This looks for the options implied range and trend lines to hold through tomorrow. This trade uses margin.

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