Here’s how I’m trading Amazon ($AMZN) on Monday. (January 31, 2020)
AMZN
I want to look at Amazon ( NASDAQ: AMZN ). I don’t generally open a trade right around earnings, I just don’t but I made an exception with Amazon ( NASDAQ: AMZN ). I put on a very conservative bull call spread buying the 1870.00 calls and selling the 1900.00 calls. So, of course, about 3-minutes after Amazon ( NASDAQ: AMZN ) reported their earnings I realized that that was going to be a pretty big winning trade. It could have been a lot bigger if I had taken more risk but that’s not what I do; so good for me that was then, this is now. Now what are we going to do?
The stock opens up at 2050.00; a lot of analysts raised their price targets; they did report a monster quarter. I will tell you one thing (this is just how my weird mind thinks), with the whole Coronavirus thing I have got to think that, of course, the airline stocks are down, the resort stocks are down, a lot of the retail names are down, certainly the cruise ships are down. Think about that for a minute, if I am on a cruise ship, you know what? I’m jumping over and I am going to take chances with the sharks because I know they are not sneezing or coughing, or runny noses or whatever, so that’s good with me. The bottom line is, there are certain sectors that you should stay away from until they get all of this stuff handled and so that leads me to Amazon ( NASDAQ: AMZN ).
I don’t really hear too many people talking about this. Amazon ( NASDAQ: AMZN ) has a lot more than, do you want to buy an excise bike on Amazon ( NASDAQ: AMZN )? It seems to me like more people are going to tend to want to shop more on Amazon ( NASDAQ: AMZN ) because they don’t have to go out to grocery stores, retail, stuff like that. And so with that, among with other things, I don’t think there is a lot of reason for Amazon ( NASDAQ: AMZN ) to come back a lot. In other words, I don’t really think this was a wrong move. I don’t think it was a bad move, I think it was just pretty extreme.
If we go look at this with 3 standard deviations on these Bollinger Bands this stock is way outside the 3rd standard deviation. Therefore, I am looking at this as giving us more downside. I don’t know how much because the one thing about the price is, when the stock is this far up above the Bollinger Band, the Bollinger Band keeps going. And so it really doesn’t take much for the stock to get back down inside this Bollinger Band like it needs to be; it needs to get that. The stock may come down but on the other hand, the Bollinger Band may come up. But either way, sooner or later, this is going to be inside the Bollinger Band, somewhere.
So how do we make a trade on this? Come Monday what I would suggest doing, if you are an option trader, I would suggest selling the 2050.00 calls, maybe March, there is not enough time left on the February contract, there will be less then 20-days. And on the March contract, they are getting close to 45-days until expiration, which is really where you want to be selling options. I wouldn’t buy puts, you can short the stock if you want but my call it this, I don’t know how much lower Amazon ( NASDAQ: AMZN ) is going to go. I do believe it’s going to go lower, the whole market looks like it’s going to go lower.
I don’t know how low Amazon ( NASDAQ: AMZN ) is going to go. I just have a pretty strong feeling that it is not going to go back here. What would be the possible catalyst after they reported monster earnings and the stock is up so much? At one time wasn’t it up 12 percent or something? After the company reports monster earnings, the stock has this kind of jump and then it sells off, not a lot but a little, doesn’t it seem to you like this area here would be where the bears live? This is the area where if the stock gets back up there, there is going to be a lot of selling going on.
So I think you have got a good trade if you are selling these 2050.00 calls, buy the 2150.00 calls from March; right now you get about $18.00 for that. And then what you do is, as soon as you sell that then place a “good ‘til canceled” order to buy it back for a 50 percent profit. And my bet is, you probably have that trade under your belt within, probably, 2 weeks. That’s how I am trading Amazon ( NASDAQ: AMZN ). I don’t have a position open; I closed the one that I had for a nice profit. I booked some nice solid gains for the month of January. But come Monday I am going to be back in on this stock looking to play the downside.
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