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Amazon (AMZN) - Earnings, and using the expected move in strike selection.
3 min read

Amazon (AMZN) - Earnings, and using the expected move in strike selection.

Amazon (AMZN) - Earnings, and using the expected move in strike selection.

  • Amazon reports earnings 2q earnings after the close on Thursday, April 30th. Consensus expectations of $6.35 on revenue of $73.42 billion
  • With the stock at all time highs, is the report itself the stock moving event it normally is?

Overview

Amazon is one of those companies that got swept up in the initial pandemic sell-off but then outperformed on the rally as their business is largely unaffected by the global shut down, and in some cases a beneficiary. But the overall economy will have an effect on guidance and the company had already ramped up spending on things like 1 day prime delivery even before the shut down.

The Set-Up

All time high in February of ~2200, YTD low in March ~1700, new highs now ~2400.

One month expected move from OptionsAi technology:

Ways to Play

Directional plays need to be careful to not only get the move right, but the magnitude of the move. The expected move above is the options market is saying, if you're bullish or bearish, here are your levels to compare your breakeven on an options trade. If one is picking a direction, you have more than one option.

Here is an example using a bearish price target of ~$2200 with options expiring on May 15th, from OptionsAi technology:

As you can see, the put is expensive, and results in a 33% probability based on its breakeven. The long put spread increases the probability, and also has better reward at the target. The trade off is gains are capped at the target. Finally, Selling a call spread increases the odds, risks a similar amount as the outright put, and has similar reward.

The reason for the higher probability is that its breakeven is above where the stock currently is and essentially bets on any move lower (or no move at all). Here's how the short call spread looks on the chart, from OptionsAI technology:

Now let's look at a bullish price target around $2550, with a May 15th expiration, similar risk reward relationships:

If one thinks both directions are overpriced, there's always the option of selling to both the bulls and the bears, either through an iron condor or butterfly. This is based on a neutral target on OptionsAI technology:

Either trade can be bumped up or down in strikes to express a neutral but slightly bullish or bearish view.

Using the expected move to determine where each strategy lines up versus expectations is important. In a time of higher than average volatility, it's difficult to determine what options are pricing... earnings events, or overall market moves? How much are those two things cancelling each other out, and how much are they exacerbating each other? The breakeven of any trade versus expected moves from the options market should be one of the main things you look at before placing any trade.

Give OptionsAI technology a try with your own price target in AAPL HERE

Actionable Insights from the Options Market

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