Update – Amazon (AMZN) Collar

by CC July 3, 2017 11:18 am • Trade Updates

In late May we looked at Amazon (AMZN) as the stock neared the psychologically important (and media hyped) level of 1000. For those that were long AMZN into that milestone, it made sense to look for a way to protect gains, with an assumption that the stock may see some profit taking soon after a 1000 print.

In the past week we’re starting to see some profit taking in FAANG stocks. It’s way too early to tell if it turns into any sort of significant pullback. But even on a day like today, with the broader market higher, weakness has carried over from last week.

We recently updated a similar overlay in AAPL shares, and today is a good time to do the same in AMZN

To recap, here was the trade, from May 26th:

vs 100 shares of AMZN at $992, one could Buy the Aug 950 / 1045 Collar for Even Money

-Sell 1 Aug 1045 call at $26

-Buy 1 Aug 950 put for $26

With AMZN now more than $30 lower, this collar is worth $21 vs the even money entry. As far as management we want to keep the profile on to offer protection, but this selling towards our 950 strike allows an opportunity to lay off some risk, take in a small profit, while basically leaving the protection on.

UPDATE – Sell to open the AMZN (961) Aug 850 put at 6.00

New position – Long the AMZN Aug 950/850 put spread, 1045 call collar for a $6 credit

 

Rationale – This books $6 in “profits” and if the stock continues lower can protect up to $106 in AMZN between 950 and 850. The 1045 calls aren’t worth closing yet as they are still worth about $11. This trade now protects $100 below 950 (just below where the stock is currently) and even if the stock bounces and closes between 950 and 1045 it would have still added $6 in profits from the hedge.