Earnings Friday: AMZN

After funny remarks by the POTUS, AMZN stock was pummeled the couple weeks approaching earnings.  Then on Tuesday even when GOOGL posted good earnings, a sell-off occurred, AMZN included.

But that hit provided the perfect opportunity to load up on some options.  Of course due to the size and nature of the stock, I only bought one call.

AMZN dropped back to 1450s on Tuesday.  It went even further but found support around 1420 on Wednesday.  (Rule #1 Find good setups, buy around support).   I went in with a call when it hit 1450s again.  I bought a 1440 call for around $57 (Rule #2 Buy ITM calls, around .7 delta).  Because it was over 5% of my portfolio, I snagged only one.  (Rule #3 Keep positions small relative to portfolio).

I ended up holding through Wednesday.  It hit my breakeven on Thursday around 1495s and then beyond touching around the 1520s.  By the end of the day, I had another scenario similar to GOOGL earlier this week.  I had a choice to make:

1) Do I sell for a profit?  This time the profit was $30 or about 70%.
2) Do I hold out for a larger profit, but risk losing $57 if it goes south after earnings release (like what happened to GOOGL)?
3) Or sell a call at a higher strike to reduce my risk and increase my gains?

This time I was a little bit more confident to AMZN earnings report.  I ended up selling the AMZN 1540 call for around $35.

So bottom line, with the spread I was about to decrease max loss, decrease my breakeven, and increase profit:

Max Loss = $57-$35 = $22
Breakeven = $1440+$22 = $1462
Max Gain = $1540-$1462 = $78










So with my AMZN call spread 1440/1540, I increased my profit from $30 to $78.  I decreased my breakeven from $1495 to $1462.  But I did risk losing my $30 profit I had chose option 1 instead.    I would also cap my profits to around $78, meaning I would miss out on any further gains if AMZN went past $1575.

In any case, given the market conditions and the jumps FB had the day before, I chose option 3.

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Well of course, to my surprise, the market opened up huge and AMZN leaped open around $1630.  I missed about $55 of extra profit, but in reducing my risk I was able to make a greater gain.  And at the end of the day AMZN "retreated" to around $1572, just as I had predicted.  Anyways, long story short, I made everything according to the plan.

Some lessons learned: 

1. Don't get greedy.

2. Stick to your plan and sometimes you get more than you ask.

3.  Create a call spread to increase earnings and decrease risk

4.  Don't sell the call spread too early, stay one sided as long as possible.