Unlocking the Potential of Amazon's Resilient Stock: A Longer-Term Options Play

Amazon (AMZN) stock has recently shown signs of strength, breaking back above the 50-day moving average and demonstrating improved relative strength. This resilience has sparked interest in exploring a longer-term options play on the e-commerce giant's stock, as it appears poised to remain strong through the early part of next year.

Capitalizing on Amazon's Consistent Performance

Robust Earnings and Technical Indicators

Amazon's financial performance has been consistently impressive, with the company reporting rising earnings per share in the last four quarters, each time exceeding analysts' expectations. From a technical standpoint, the stock is trading above its 21-day exponential moving average, as well as the 50- and 200-day moving averages, further reinforcing its positive momentum.

Exploring Longer-Term Options Strategies

While short-term options trades are often the focus, the article suggests considering a longer-term bull put spread on Amazon stock. Longer-term option trades tend to move at a slower pace, allowing more time for adjustments or closures, though they may also yield lower annualized returns compared to shorter-term trades.

The Bull Put Spread Strategy

The proposed bull put spread involves selling a put option with a 165 strike price and buying another put at a 160 strike price, using the March 21 expiration. This strategy aims to profit if Amazon stock trades sideways or higher, and even in some cases if it trades slightly lower.

Potential Rewards and Risks

Selling this spread could generate approximately $125 in premium per set of contracts, with a maximum risk of $375. If the spread expires worthless, this would represent a 33.3% return in six months, provided Amazon stock remains above the 165 strike price at expiration. However, the maximum loss would occur if Amazon stock closes below 160 on March 21, resulting in a $375 loss for the premium seller.

Mitigating Risks and Setting Adjustments

To manage the risks associated with this trade, the article suggests setting an adjustment point or a stop-loss if Amazon stock drops below 170. Additionally, limiting the loss to the amount of premium received, in this case $125, can help avoid large losses if the trade goes unfavorably.

Evaluating Amazon's Fundamentals

According to IBD Stock Checkup, Amazon stock ranks 4th in its group and has a Composite Rating of 93, an EPS Rating of 81, and a Relative Strength Rating of 77, further supporting the potential for the longer-term options play.

Cautionary Note on Options Trading

The article emphasizes that options trading carries inherent risks, and investors can potentially lose 100% of their investment. It is crucial to conduct thorough due diligence and consult a financial advisor before making any investment decisions.By exploring this longer-term options strategy on Amazon's resilient stock, investors may have the opportunity to capitalize on the company's consistent performance and technical strength, while carefully managing the associated risks.