AMZN Debit Spread Look Back Trade

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

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