This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies. We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.
Amazon (AMZN) Is Testing a Major Technical Support Area, Is It Time to Buy?
Some analysts did a double take this past week when a Piper Jaffray analyst said AMZN could reach $3000. Granted, his views are over a few years, but the article stands to spark some buying interest. Take a look at the following article for full details – Can Amazon Really Reach $3000? You Bet. Also take a look at this article which discusses an upside target from another analyst, and contains a video of Yahoo staff discussing the Piper Jaffray call – Amazon Stock Poised for Continued Growth; Here’s Why.
As indicated by the headline, Amazon is seen testing a significant support area. Specifically, there are three items that are lined up to create a confluence – The 100-day moving average, 200-day moving average, and a horizontal level. It’s quite rare to have all three lined up pretty much perfectly at the same price point and probabilities favor that buyers will be there to defend it.
If you agree there’s further upside ahead for AMZN, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least not decline very much.
Buy To Open AMZN 5JUL19 1770 Puts (AMZN190705P1770)
Sell To Open AMZN 5JUL19 1775 Puts (AMZN190705P1775) for a credit of $2.25 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when AMZN was trading near $1775. Unless the stock rallies quickly from here, you should be able to get close to this amount.
Your commission on this trade will only be $2.50 per spread (the rate charged by thinkorswim for Terry’s Tips’ subscribers). Each contract would then yield $222.50 and your broker would charge a $500 maintenance fee, making your investment $277.50 ($500 – $222.50). If AMZN closes at any price above $1775 on July 5, both options would expire worthless, and your return on the spread would be 80% (913% annualized).
Changes to Investor’s Business Daily (IBD) Top 50 This Week:
We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run. Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.
As with all investments, you should only make option trades with money that you can truly afford to lose.