AMZN Option Trade Idea: How To Profit As Amazon Stock Breaks Below Key Support | IBD

TL;DR

This video discusses a bearish trade idea for e-commerce giant Amazon, highlighting technical and fundamental weaknesses and proposing a bear call spread strategy.

Transcript

foreign it's Allie Corbin Harold Morris here with your option of the day and we're going to be talking about a bearish trade idea in e-commerce giant Amazon as a lot of the mega cap tech stocks are coming under pressure but especially Amazon Harold yes yes so Amazon as you can see on the chart uh it did it did it got up to the 200 day but then it s... Read More

Key Insights

• 🥳 Amazon's stock is facing technical pressure, failing to break above the 50-day moving average.
• 🌓 From a fundamental perspective, Amazon's earnings and revenue growth have been declining in recent quarters.
• 🧔 The bear call spread options strategy is being used to take advantage of Amazon's weakness and potential downside move.
• ✳️ Risk management is crucial in trading, and options strategies like the bear call spread provide a way to manage risk.
• ™️ Probability of success calculations can help determine the potential effectiveness of an options trade.
• 😥 The math and planning involved in options trading require careful consideration of factors like break-even points and maximum profit/loss.
• 👏 The video promotes the use of IBD's new Options Trader app for more trade ideas and education.

Questions & Answers

Q: Why is Amazon's stock coming under pressure?

Amazon's stock is facing technical pressure as it failed to break above the 50-day moving average and experienced a sell-off. Additionally, the company's fundamental performance, such as declining earnings and single-digit revenue growth, has also contributed to the stock's pressure.

Q: What is a bear call spread?

A bear call spread is an options strategy where an investor sells call options at a certain strike price and buys call options at a higher strike price for protection. This strategy profits from a decline in the underlying asset's price.

Q: What is the probability of success for this bear call spread?

The probability of success is calculated by dividing the risk of the trade by the width of the spread and multiplying it by 100. In this case, the probability of success is approximately 69.6%.

Q: How many contracts should be bought for this trade?

The number of contracts to purchase is determined by dividing the available capital by the actual risk of the trade. In this case, seven contracts can be bought with $2500 of capital.

Summary & Key Takeaways

• Amazon's stock has recently shown signs of weakness, failing to break above the 50-day moving average and experiencing technical damage.

• From a fundamental perspective, Amazon has struggled with declining earnings and revenue growth, indicating a lack of growth compared to the past.

• The video demonstrates a bear call spread strategy, using options to profit from a potential downside move in Amazon's stock.