Premium Earnings 7-28-16: Amazon and Alphabet
- Posted by Greg Harmon
- on July 28th, 2016
Amazon, $AMZN, has been moving higher off of a bottom in February. The chart shows a push recently over the consolidation channel with a top at 730 and it is now holding as support. There are two longer patterns in play now. An ABCD that targets a move over 880 and a Measured Move as part of a 3 Drives pattern, that targets 860. Into earnings it has a RSI that is in the bullish zone, while the MACD is turning down. The Bollinger Bands® are squeezing. There is support lower at 730 and 710 followed by 690 and 655. There is resistance at 750 and 757 and then free air above. The reaction to the last 6 earnings reports has been a move of about 10.25% on average or $76 making for an expected range of 665 to 820. The at-the money July 29 Expiry Straddles suggest a smaller $50 move by Expiry with Implied Volatility at 145% above the August at 39%. Short interest is low at 1.3%. Open interest is spread from 650 to 745 on the Put side. On the Call side it is focused from 740 to 750 and then 770 and 800.
Trade Idea 1: Buy the July 29 Expiry 760/770 Call Spread and sell the July 29 Expiry 695 Put for free.
Trade Idea 2: Buy the July 29 Expiry 750/775 Call Spread and sell the July 29 Expiry 700/680 Put Spread for $6.50.
Trade Idea 3: Buy the July 29 Expiry 750/775/800 Call Butterfly ($4.40) and sell the July 29 Expiry 695 Put for $1 credit.
Trade Idea 4: Buy the July 29 Expiry/August 800 Call Calendar ($3.75) and sell the July 29 Expiry 685 Put for free.
Trade Idea 5: Sell the July 29 Expiry/August 700 Put Calendar for a $5 credit.
Trade Idea 6: Sell the July 29 Expiry 680/800 Strangle for a $7 credit.
#1, #2, #3 and #4 give the upside. #1, #2 and #3 use leverage and may put you in the stock below 700. #4 looks for upside to stall at 800 and may put you in the stock at 685. #5 gives the downside short term and looks for a rebound to at least 700 be August Expiry. #6 is profitable on a close from 673 to 807 at Expiry. I prefer #1, or #3.
Alphabet, $GOOGL, ran higher out of a symmetrical triangle in October and has done nothing since, moving sideways in a channel between 680 and 790. Into earnings it is running to the top of the channel. The price action since April is tracing out a harmonic Shark with a Potential Reversal Zone I (PRZ) at 780 and PRZ II over 800. It has a RSI in the bullish zone, and a MACD rising. There is support lower at 750 and 740 followed by 715 and 700 then 680. There is resistance above at 775 and 780 then 790 and 800 before free air. The reaction to the last 6 earnings reports has been a move of about 5.95% on average or $45.50 making for an expected range of 715 to 810. The at-the money July 29 Expiry Straddles suggest a smaller $37.75 move by Expiry with Implied Volatility at 106% above the August at 28%. Short interest is low under 1%. Open interest on the Put side is spread between 680 and 760 with small peaks at 700 and 740. On the Call side it is spread from 740 to 800, with a mountaintop at 760 and 770 but then much larger at 800 and 810.
Trade Idea 1: Buy the July 29 Expiry 765/775-800 1×2 Call Spread for free.
Trade Idea 2: Buy the July 29 Expiry 775/800/825 Call Butterfly for $6.00.
Trade Idea 3: Buy the July 29 Expiry/August 800 Call Calendar ($2.90) and sell the July 29 Expiry 715 Put for free.
Trade Idea 4: Buy the July 29 Expiry 757.5/740-735 1×2 Put Spread for free.
Trade Idea 5: Sell the July 29 Expiry 700/810 Strangle for a $4.75 credit.
#1, #2 and #3 give the upside with all 3 looking for 800 to stall it this week. #3 uses leverage and gives a possible entry at 715. #4 gives the downside with a possible entry at 717.50. #5 is profitable on a close from 696.25 to 814.75 at Expiry. I prefer #1, #3 or #5.
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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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