I’ve mentioned before that $275.80 was the crucial level for me in AMZN, and a move above there would cause me to get out of my put butterfly that targeted the 243 to 267 range. That break is happening today, so I’m going to take off my put fly for a loss. A frustrating position that bounced from win to loss on numerous occasions, but could never break the 263 level on the downside.
Action: Sold to Close the AMZN ($276) June22nd 270/255/240 Put Fly at $1.85 for a $1.75 loss
Original Trade May 15, 2013:
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:
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
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.