Amazon (AMZN) reported disappointing quarterly results after the close Thursday, and its shares are trading more than $30 lower early in Friday's session. The stock is likely to bounce back following the double-digit price decline, however, and traders can profit using stock options.

As you can see in the chart below, the decline took the stock's price below the t-line and below the middle Bollinger Band.

Even with the weaker-than-expected earnings, Friday's exaggerated move lower should be followed by a bounce higher, and the stock should fill at least part of the gap quickly.

Given Amazon's tendency of double-digit reaction to earnings surprises, traders should not have opened positions in options the day before the quarterly report. The risk of a big move was just too great.

Immediately after earnings, the picture is quite different. This is especially true on a Friday. The Friday one week before expiration is perhaps the best day to time a short sale of a put option. On average, options expiring in one week lose 34% of their remaining time value between Friday and Monday. With the drastic move in Amazon's share price and the expected rebound, an options trade can exploit this volatility.

The 800 put option is selected because it is one standard deviation below the current price of about $815. (This is based on the Bollinger bandwidth of two standard deviations, currently at about 60 points.)

The one-week 800 put had a bid price of 5.35 as this article was written. Subtracting trading fees, the credit on this would be $526. 

This is an attractive trade, assuming you are willing to live with the risk of change over the weekend and can post collateral of about $16,000.

This position can be monitored throughout the week. One suggestion would be to close the position once you see a nice decline in the premium level. There is no point in holding the option all the way to Friday's expiration, given the risk of a last-minute decline. The idea here is to take profits as soon as possible.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

Besides blogging at TheStreet.com, Michael Thomsett also blogs at Options Money Maker, the Top Advisor's Corner at Stockcharts.com, and Seeking Alpha. He has been trading options for 35 years and has published books with Palgrave Macmillan, Wiley, FT Press and Amacom, among other publishers. Thomsett's latest book is A Technical Approach to Trend Analysis. He has recently completed a new book on options math, to be published by Palgrave Macmillan in 2017.

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