Chart of the Day – Amazon (AMZN)

by riskreversal November 9, 2016 2:57 pm • Chart of the Day

It’s fairly fascinating to see which sectors in the market are participating in the post election bounce, and which are sitting out the nearly 1% gains (6% off of the overnight lows).  Banks, Pharma/Biotech, Materials and Industrials are four standouts as investors expect decreased regulation for the first two and fiscal stimulus to drive the latter two, while sectors that have served as bond proxies like consumer staples and utilities are getting murdered with the yield on the 10 year treasury bond trading above 2% for the first time since late January.

One group that is down today is kind of interesting. Technology stocks as a group have also under-performed, mostly because of a sudden sector rotation and profit taking but also party attributable to the nearly universal backing by industry leaders of Clinton and what appeared to be a unilateral rejection (save Peter Thiel) of Donald Trump:

We are inventors, entrepreneurs, engineers, investors, researchers, and business leaders working in the technology sector. We are proud that American innovation is the envy of the world, a source of widely-shared prosperity, and a hallmark of our global leadership.

We believe in an inclusive country that fosters opportunity, creativity and a level playing field. Donald Trump does not.

Some of the most vocal critics were Mark Cuban, Chris Sacca, Meg Whitman, CEO of Hewlett Packard, Salesforce CEO Marc Benioff, LinkedIn co-founder Reid Hoffman, Facebook’s COO Sheryl Sandberg, and Elon Musk to name just a few.’s founder and CEO Jeff Bezos was drawn into the fray by Trump himself, who has suggested Bezos ownership of the “money losing” Washington Post had some sort ulterior motive in their coverage of Trump to sink his chances because he may crackdown on Amazon for violating anti-trust laws and benefiting from low tax rates. AMZN’s weakness is notable, down nearly 3%, approaching a 2 month low, down nearly 10% from last month’s all time highs.  The technical set up is looking a bit obvious near term following last month’s breakdown below the uptrend that had been in place since its Feb lows, which at the highs yielded a gain of 80%! Now the stock is approaching last week’s low of $750, and there appears to be an air-pocket below to $700, which was the breakout level to new all time highs in May, and also happens to be the stock’s 200 day moving average:

AMZN 1yr chart from Bloomberg
AMZN 1yr chart from Bloomberg

So what’s the trade: 

It’s unlikely we hear Amazon’s name directly during the transition but there could be a sense of dread hanging over the stock that a new administration will not be that favorable to a company that has the occasional tax battles with state and federal governments.

For those looking for a defined risk way to target that 700 support level, the best way, despite low vol, is probably with a put fly as it reduces a lot of the premium risk for an out of the money trade:

AMZN ($768.40) Buy the December 750/700/650 Put Butterfly for $7.75
  • Buy 1 Dec 750 put for 15.10
  • Sell 2 Dec 700 puts at 4.30 each or 8.60 total
  • Buy 1 Dec 650 put for 1.25

Break-Even on Nov expiration:

Profits: up to 42.25 between 742.25 and 657.75 with max gain of 42.25 at 700 on Dec expiration.

Losses: up to 7.75 above 742.25 and below 657.75 with a max loss of 7.75 above 750 and below 650.

Rationale: this trade offers good risk reward to target a move to 700 and a wide range of potential profitability. It is out of the money though, so a bounce here means it is at risk and a 50% loss stop higher probably makes sense.