Following last month's post-earnings beatdown, Amazon (NASDAQ: AMZN ) has
powered its way higher as buyers have stepped in to scoop up what is looking
like a bargain. In the short term, AMZN has been basing sideways at the key
resistance level of $219. Once AMZN musters the strength to break above this
level, it should continue its run higher to fill its earnings gap. The higher
price tag on AMZN shares spills over into the options arena. The expensive price
of most option contracts available could serve as a deterrent to many would-be
option buyers. However, don't let the price stop you from investing in what
could be a potentially profitable trade. Fortunately, option spreads offer you a
much-cheaper way to place a bet while still being exposed to an expected move in
the underlying stock. While there are numerous spreads to choose from, the
simple bull-call spread may be appropriate in this situation. Looking for
bullish exposure in this online retailer? Consider the purchase of an AMZN
December 220-230 call spread that you can currently enter for $4. Buying this
spread consists of "buying to open" the Dec 220 Call (which would cost
approximately $9.50, at current prices). At the same time, you'd also be
"selling to open" the Dec 230 Call (which would give you a credit of about
$5.50 at current levels). The max risk is limited to the initial debit paid
($950 $550 = $400), and the max reward is limited to the distance between the
strikes ($230 $220 = $10) minus the debit, or $600. Source : MachTrader At the
time of this writing Tyler Craig had no positions on AMZN.
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