Our Members received my AMZN earnings trade around 2:30pm EST today. In the spirit of education, I wanted to share the email with our tumblr readers. The Iron Condor is the trade we made, the others were simply me thinking out loud and sharing more trade ideas.
We’re still in earnings season, so I’m still trading earnings when a good opportunity presents itself. You know my style by now, I like to find promising opportunities give me a theoretical advantage or make sense to me if I have a directional bias. Today’s earnings candidate is AMZN, and I am sharing my trade with Premier Members as an added bonus to your membership.
AMZN expected earnings move is 17.10 at the moment, making for an expected move range between 174.80 & 209.00.
Feb1 weekly imlied volatility (IV) is 115%, Feb IV 63%, Mar IV 48%. Historical IV levels in AMZN are approximately 35%, so the Feb weeklies are a little over 3x historical levels making for a good opportunity to sell some premium into the earnings event.
The spread I just filled is the AMZN Feb1 12 170/175/210/215 Iron Condor @ 1.90 credit. Lower break even is 173.10 and upper break even is 211.90, which keeps the break evens outside of the expected move range. There’s a 92.95% probability that AMZN will expire within these break even’s by Friday’s expiration on these weekly options, and the 1.90 credit is 38% of the five point width of the spread (170/175 put spread or 210/215 call spread) which meets my 33% width of the spread criteria.
I also like the 170/220 Short Strangle @ 3.00 credit. Unlike the defined risk Iron Condor, this has undefined risk. That said, it widens the break evens to 167 & 223, giving you a 98.91% probability of expiring in the range while also giving you a larger potential credit if the trade works. Also, I personally wouldn’t mind being long AMZN from 167 cost basis or short from a 223 cost basis in the event either leg results in exercise.
Lastly, I’m moderately bullish going into this report. AMZN is a beast, and should have killed it during the holiday season. The negative margin on Kindle sales may hurt the bottom line a bit, but high volume on decent margins elsewhere should still allow for a solid report. Feb1 170 Naked Puts @ 1.75 credit are a decent play given that thesis if you’re comfortable with this undefined risk strategy into earnings.
Here’s to hoping AMZN stays in the Iron Condor range! Good luck to anyone that plays AMZN today.