New Trade $AMZN – Stuck in the Mud

by Enis May 15, 2013 3:22 pm • Commentary

We like to call AMZN the best Not-For-Profit company in the world.  It has held that title for more than a decade, and has continued to be one of the best performing stocks nonetheless.

So it might be a fundamental enigma as a stock, but that does present opportunities on the technical side, since the fundamentals hardly seem to matter.  In that sense, I sort of like to trade the name, since price action trumps all the headlines.

AMZN had a weak reaction to its earnings report.  I’ve given up trying to figure out what’s good and what’s bad about an AMZN earnings report.  It usually seems like revenues and earnings might be bad, but margins are good, or earnings are bad, but revenues are good, or everything’s bad, but future margin guidance is good.  In short, earnings are usually bad, but the stock goes up.  

So it was surprising to see AMZN fall on earnings last month for the first time in 5 earnings reports.  In any case, the stock actually convincingly broke its 200 day ma for the first time in a year.  It has since rallied back up to near where it traded prior to earnings, but no further, a sign of more selling pressure given the broader market’s strength.

Here is the one year chart:

[caption id="attachment_25923" align="alignnone" width="629"]1 year daily chart of AMZN 1 year daily chart of AMZN[/caption]

I’ll get to the red and green lines in the Trade Rationale section.  The black line is the rising 200 day ma, and its recent rally offers a nice setup to play for a move back down to that level, around 255.  Here is the trade I’m doing:

TRADE: AMZN ($265.80) Bought the June22nd 270/255/240 Put Fly for $3.60

-Bought 1 June 270 Put for 10.57

-Sold 2 June 255 Puts at 4.31

-Bought 1 June 240 Put for 1.65

Break-Even on June Expiration: 

-Profits btwn 266.40 and 243.60, make up to 11.40, max gain of 11.40 at 255

-Losses of up to 3.60 btwn 266.40 and 270 & btwn 240 and 243.60, max loss of 3.60 above 270 and below 240

Risk Chart:

[caption id="attachment_25928" align="aligncenter" width="547"]Screen Shot 2013-05-15 at 1.24.36 PM from TradeMonster[/caption]


Trade Rationale:  AMZN has spent the bulk of the last 6 months trading between 240 and 270, as shown by the red and green lines in the chart above.  This trade targets that range, with a midpoint at the 200 day moving average, which I expect to act as a magnet in the near-term.