Wednesday, August 12, 2009

AMZN Bull Collar

Amazon (AMZN) is setting up nicely for a pop and continued rally. It sold off after earnings last month and has slowly consolidated lower back to 85ish while indicators are now oversold. I am bullish on AMZN into year end and think the long term weekly chart is one of few great ones out there. There is great supprot in the low 80s for AMZN. In this case I want to buy a bullish collar.

Buy the Oct 100 call and sell the Oct 75 put.

This can be done for a net credit of .72 cents and that's the amount you pocket as long as AMZN is above 75 at Oct expy. However, this is not a trade I would hold that long. Even though the options are Octs we can see quite a nice profit if AMZN rallies into the 90s into Sept. The risk graph above shows the white line being your PnL at end of August. So the dynamic is similar to just owning stock. Which is why this "collar" is referred to as a synthetic long position.

Anyway, the cost is greatly reduced if this strategy is employed instead of buying common stock. And plus you can even make money if the stock doesn't move or even goes down a bit into Oct.

I like this option play for a rally into the 90s on AMZN.


GS751 said...

Is it just me or did Amazon never really trade like a retailer Even though you would classify it as Retail.

Jason said...

The power of the Kindle!!!

But yeah I'm not sure it should be lumped into retail but i guess it does.