AMZN – 07/15/2016

AMZN was trading down and I really felt like it was going to make a move up. The chart looked promising but more importantly I knew earnings were coming out on 7/28. There was some risk that earnings could be bad but other companies had already reported good earnings so I felt like it was an acceptable risk. I did not want to just purchase a Call, I was not that sure. So, I did a Call Bull Spread by purchasing a slightly ‘out of the money’ Call and sell a further ‘out of the money’ Call to reduce my investment/risk.

With AMZN trading at $735.00 I purchased the August week 2 $735.50 Calls and sold the August week 2 $755.00 calls to reduce my total investment. I chose the August week 2 because they expired about two weeks after the expected earnings announcement. I could have gone out further to reduce my time decay more but I would have had to pay more; when playing earnings I do not want to risk more than I have to.

I was right. On 7/29 I closed the position with AMZN trading at $760.00. I made $860.00 on an investment of $1,640.00. That is a return of 52.44% in 14 days. Really, my risk was less than $1,640.00 because if AMZN had dropped by the same amount it went up my $737.50/$755.00 options would still have had value. Because of how volatile AMZN is I believe the position would have still be worth at least $600.00. Meaning I could realistically say I had a about an 83% return. I do not calculate me returns that way, but it is interesting to consider when placing trades.

Date	Sym	Action	Exp	Strike	Price	Cont	Type	Cost	Balance
07/15/16	AMZN	BTO	8WK2	737.5	-$30.81	2	Call	-$6,162.00	-$6,162.00
07/15/16	AMZN	STO	8WK2	755	$22.61	2	Call	$4,522.00	-$1,640.00
07/29/16	AMZN	BTC	8WK2	755	-$18.93	2	Call	-$3,786.00	-$5,426.00
07/29/16	AMZN	STC	8WK2	737.5	$31.43	2	Call	$6,286.00	$860.00