Thursday, July 23, 2015

AMZN Analysis

Update 8/1/2015; The AMZN puts expired without value. 

AMZN declined by 0.47% over 9 days, or a -2-% annual rate. The position produced a 30.6% yield on debit, for a +1,702% annual rate.

Update July 31, 2015: AMZN moved in the month to the upside on the last day of trading before expiration, and I bought back the call options to avoid assignment, transforming the position into a bull put spread. I'll calculate profit and loss on AMZN after the puts expire out of the money on Saturday.

The online retailer (AMZN), headquartered in Seattle, Washington publishes earnings on Thursday after the closing bell.

[AMZN in Wikipedia]



Click on chart to enlarge.
AMZN at 10:43 a.m. New York time, 30 days hourly bars

Implied volatility stands at 46.3%, which is 3.9 times the VIX, a measure of volatility of the S&P 500 index. AMZN’s volatility stands in the 96th percentile of its most recent rise.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

I shall use the JUL5 weekly series of options, which trades for the last time eight days hence, on July 31.

AMZN has high implied volatility and so a very wide standard deviation range to cover. Earnings  have been prone to producing wide swings, as well.

The sock is radically uptrending. In order to get sufficient premium, I've used the maximum post-earnings move of the past year for the upper boundary of the profit zone, but the average move for the lower boundary. That structure places the entire one standard deviation range within the zone of maximum profit.

I've also expanded the lower wing, which increases risk to the premium, and also the risk.

Iron condor, short the $540 calls and long the $545 calls,
short the $445 puts and long the $435 puts,
sold for a credit and expiring Aug. 1.
Probability of expiring out-of-the-money


The premium is $3.10, which is 41% of the width of the position’s wings.The stock at the time of purchase was priced at $484.35.

The zone of profit in the proposed trade covers a $47.50 move either way. The biggest immediate move after each of the past four earnings announcements was $55.11, and the average was $39.65.

Decision for My Account

I've opened a position in AMZN as described sbove.

-- Tim Bovee, Portland, Oregon, July 23, 2015


My volatility trading rules can be read here.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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