Leading into earnings, AAPL ran up in a way very few stocks do into the report, from below $380 to over $420 a share, almost 15%. This set up a huge selloff and put option traders in a great position to buy puts or sell calls. Now that AMZN has already taken a dive I think the opposite could happen. AAPL earnings naturally sandbagged AMZN. Unlike AAPL, AMZN is in a great position of having low expectations, always a recipe for a break out to the upside.
Let's look at the T3/OP video with Jill and Scott as they walk you through the fundamental and technical case for AMZN and address the high beta tech space.
My main issue is that I think there may be some additional friction over the next couple of days in AMZN. I could see it selling off to $220-$225 by Friday. Upon earnings, I think it could get right back to $245. Let's set up a trade where the ceiling expires on Friday, leaving us long a call that can expand with earnings, or if we are lucky, can sell ahead of earnings.
To achieve this trade, we can sell the October 430 calls let those roll off (or buy them back when they are less than $0.25) and then hang on to the November 230 calls. The net trade costs about $10.00, which is less than the move Amazon made Wednesday. If one is bullish, I really like this set up.
Trades: With AMZN trading at $231.55, sell to open AMZN October 230 calls at $4.30 and buy to open AMZN November 230 calls for $14.30.
Net pay $10.00 for the October/November 230 Calendar.
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Scott and T3Live can be followed on Twitter at twitter.com/_T3Live_