Amazon Earnings Idea

• Posted by Greg Harmon
• on October 25th, 2011

Amazon reports earnings Tuesday after the bell. Leading into earnings the stock is looking a little tired. It has support at 230 followed by 225, then 220 and 207-210 and finally a gap near support at 200-202. There is also a Fibonacci retracement at 213.46 and the Simple Moving Averages (SMA) are sitting at 219.28 (50SMA), 211.54 (100SMA) and 197.2 (200 SMA). The Relative Strength Index (RSI) is falling at the mid line and the MACD has crossed negative.

The weekly chart shows the same tiring signs after reaching the Measured Move target at 230. The RSI is turning lower and the MACD is fading. All of the SMA on both timeframes are sloping higher suggesting that the uptrend of the last 3 years will continue, but short term it looks to head lower.

The Options board shows the Implied Volatility (IV) of the October Options elevated at 111% versus the November Options at 60% and the Historical at 45%. The October Straddle suggest a $17.50 move by Friday or 7.6%, or a range of 213-248. I want to play this for a short term move lower, but use the longer term strength to fund the trade.

Trade Idea: Buy the October 220/210 Put Spread selling the November 195 Put to Fund it

Buy the October 220 Put and sell the October 210 Put for a $10 put spread. This is offered at $2.50 as I write. By selling the November 195 Put for $2.50 you can be in the trade for free and it gives protection down to 185. The reason for going with the November 195 Put to fund is that it gives more downside protection for a greater premium, despite the longer time frame. If you want to or need to limit your downside consider buying the November 175 Put for 80 cents to limit a loss to $10. This would take a Netflix like move through all the SMA and a 50% retracement of the move from the 2008 low to the high.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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