Did you catch this $65 point move in Amazon (AMZN) today? Here’s how I’m trading it. (August 29, 2018)
AMZN OKTA
Let’s look at Amazon ( NASDAQ: AMZN ) today because I think this is really important. First of all, you look at this, a 3.4 percent rally today, I have other stocks in my account that went more than more than 3.4 percent today but I made the most money on this. The reason is because of leverage, because of calls and bull put spreads. So I want to talk about this on a couple different fronts.
First of all, when you are trading options on a stock like this you can’t go overboard because, first of all, with the stock at $2000.00 the option prices are really pretty dang expensive; they are really expensive, because again, it’s a $2000.00 stock. You are going to pay more for 10 contracts of this than you are for a $20.00 stock, right? And then also the spreads are really, really wide between the bid and the ask.
So right away when you buy, say, a call option, right away you are down a bunch of money because the assumption is electronically that you are buying at the offer and then you are immediately selling at the bid. So you look at your P&L immediately after buying and you go, “Oops, what happened?” So because of THAT and the fact that this stock can move, hey, it moved 65 points today, I am going to make a heck of a lot more on 65 points than I am on 3.4 percent if I am trading options.
So you are looking at that type thing and it is important to trade small. In other words, don’t just pile in and say, “Oh my gosh! Amazon is going great guns. I am going to put my entire account in.” Hey, Jeff Bezos could have a heart attack during the day. They could make an announcement that they’re buying Tesla ( NASDAQ: TSLA ); any number of things could happen that would tank the stock, we just don’t know. So you need to trade with some kind of control.
But one of the more important things, like THE most important thing in trading, in my view, is entry. If you know why you are buying and you are waiting and you are buying at the right time, I am not going to go into more detail there because it is kind of like, how do I trade? What I am saying is, if you are buying a stock at the right time it sets you up from a position of strength because you are immediately profitable.
That’s, in my view, the best way, simply put, if you are buying at the right time you are immediately profitable. Or the stock has just done something that was unanticipated, that is why it is called trading as opposed to winning. If you are buying at the right time then your next important thing is, when do I sell? That is why I am showing you this here.
I have a couple of things going here. First of all, this trendline here that connects this high and this high and this high and this high. They are all pretty close together but you can see that the stock is up, at one point during the day, it was up right at the top of this range, now it is actually through that. Well, we see that a lot. I am not going to pick a top for Amazon ( NASDAQ: AMZN ); my price target is higher, that’s really it. I am not a raging bull on Amazon ( NASDAQ: AMZN ). I just get the business, I get the stock, it is not that hard to figure out.
So I am looking at this as the channel that it is in. And a lot of times what you will see is stocks will break out of an uptrending channel like this and then ultimately they get to a point where they peak and then they actually find support at the top of the prior channel. So literally resistance on the way up, after it has broken through, will become support any pullback. So this stock could just kind of start doing that.
Now, alternatively, it could do this: I don’t see it doing that. So I like the way Amazon ( NASDAQ: AMZN ) is trading. But with that said, the thing is, as we look at this here where I draw this line from the top here to the top here just like the next big high. And so this is a Fibonacci line sequence or time sequence. The idea is that this should match this and we see this as being a top on Friday, that’s the day after tomorrow, which kind of coincides with what I would think.
My suggestion is this: If you are long Amazon ( NASDAQ: AMZN ) then stay long. You don’t want to get too cute with it. But the most obvious resistance in the world was 2000.00; it is just an obvious resistance point. In fact now, as I type this, it is going above that, the volume is pretty light but somebody is cleaning up an order or whatever. So you look at the stock like this and it is certainly moving higher, 2000.00 is not the top. Anybody who thinks this is the top has been smoking crack; it is going to do what it is going to do.
I would look to be exiting any position other than just a core position that you are holding; I would look to be exiting that before the end of the day on Friday. Also, I haven’t looked at the different option strikes but I would imagine that this kind of move, a $50.00 move today, more than that, has got a few weekly option traders freaked out. They thought they were safe here with a $2000.00 call sale and it turns out they are really not. You are probably going to see some more wiggles and jiggles tomorrow and even into Friday. So I think you want to stay long on this. But definitely be reducing your position by the end of the day on Friday.
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