Premium Earnings 10-27-16: Amazon and Alphabet
- Posted by Greg Harmon
- on October 27th, 2016
Amazon, $AMZN, has been moving higher since making a low with the market in February. It is currently just below a Measured Move target to 860 with an AB=CD target to 885 above that. Into earnings it is consolidating and has a RSI that has been trending lower in the bullish zone, while the MACD is flat, but positive, after a pullback. There is support lower at 807 and 790 followed by 755 and 730. There is resistance at 845 and then free air above. The reaction to the last 6 earnings reports has been a move of about 3.42% on average or $28.00 making for an expected range of 790 to 850. The at-the money October 28 Expiry Straddles suggest a larger 50 move by Expiry with Implied Volatility at 132% above the November at 38%. Short interest is low at 1.1%. Open interest is spread like crunchy peanut butter with a couple of lumps at the 800 Puts and 820 and 850 calls.
Trade Idea 1: Buy the October 28 Expiry 825/850 Call Spread and sell the October 28 Expiry 790 Put for free.
Trade Idea 2: Buy the October 28 Expiry 825/850/875 Call Butterfly ($6.50) and sell the October 28 Expiry 780 Put for 10 cents.
Trade Idea 3: Buy the October 28 Expiry/December 900 Call Calendar ($8.50) and sell the October 28 Expiry 780 Put for $1.
Trade Idea 4: Buy the October 28 Expiry 820/795 1×2 Put Spread for free.
Trade Idea 5: Buy the October 28 Expiry 820/795/770 Put Butterfly for $5.
Trade Idea 6: Sell the October 28 Expiry 750/900 Strangle for a $4.00 credit.
#1, #2 and #3 give the upside using leverage and may put you in the stock below 790 or 780. #4 gives the downside and may put you in the stock at 770, while #5 gives the downside looking got 795 as a support zone this week. #6 is profitable on a close from 746 to 904 at Expiry. I prefer #2, #3 or #5.
Alphabet, $GOOGL, broke a broad $100 consolidation to start August and has been mired in a tight range above it since. That was until last week when it rose above the range and pushed higher. Into earnings it is pulling back to that range and the 20 day SMA and has a RSI falling in the bullish zone to the mid line with a MACD turning back lower. There is support lower at 810 and 800 followed by 785 and 770 before 750. There is resistance above at 840 and then free air. The reaction to the last 6 earnings reports has been a move of about 5.57% on average or $46.00 making for an expected range of 770 to 862. The at-the money October 28 Expiry Straddles suggest a smaller $40 move by Expiry with Implied Volatility at 107% above the November at 30%. Short interest is low under 1%. Open interest on the Put side is biggest way down at 750. On the Call side it is large at 830 and 840 as well as 850 and biggest at 860.
Trade Idea 1: Buy the October 28 Expiry 815/795-792.5 1×2 Put Spread for free.
Trade Idea 2: Buy the October 28 Expiry 820/840 Call Spread ($9.20) and sell the October 28 Expiry 792.5 Put for free.
Trade Idea 3: Buy the October 28 Expiry 820/830 Call Spread ($5.30) and sell the October 28 Expiry 777.5 Put for free.
Trade Idea 4: Sell the October 28 Expiry 750/900 Strangle for a $2.75 credit.
#1 gives the downside with a possible entry at 772.5. #2 and #3 give the upside using leverage. #2 is a wider spread so bigger potential gain, but higher strike on the risk side. #3 is a smaller spread but risk is lower by $15 on the puts. #4 is profitable on a close from 747.25 to 902.75 at Expiry. I prefer #1 or #3.
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Gregory W. Harmon CMT, CFA, has traded since 1986 and held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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