AMZN: The Black Friday Weekly Call Spread

by Dan November 17, 2011 3:33 pm • Commentary

MY general take on AMZN is that it is such a great company too its customers, that it couldn’t possibly be a great long term investment.  I love the company, and love to hate the stock, largely because of their generosity to me as a very happy customer (Prime and generally really cheap prices) and hate the valuation and the cult following.

AMZN is down about 17.5% from its all time highs made last month and sitting right above its 200 day moving average and a massive support level that it held last month after disappointing on their Q3 report.

I want to buy a weekly call spread to take advantage to what I think could be a little enthusiasm in the stock as we head into next week’s Holiday shortened week and what could be some giddy enthusiasm around the potential for AMZN to blow the doors off it’s bricks and mortar competition. Here’s the trade:

TRADE: AMZN ($203) Bought NOV25th weekly (nxt Friday) 210/220 Call Spread for 2.00

-Bought 1 Nov25th wkly 210 Call for 2.70

-Sold 1 Nov25th 220 Call at .70

Break-even on Nov25th weekly expiration (NEXT FRIDAY):

Profits btwn 212 and 220 make up to 8.00, with max gain at 220 or above make full 8.00

Losses btwn 210 and 212 lose up to 2.00 and max loss is 2.00

*I had to be careful not to buy this week and careful to buy the next weeks.

This is a weekly spread during a holiday shortened week. Markets could be dicey with low volume so this is a good way to define your risk. If the markets got ugly and AMZN slipped below 200, there’s no reason the stock couldn’t go to 180. So options are the way to play here.