AMZN Time Decay Spread Look Back Trade

AMZN – 6/28/16

On 6/28 I decided to place a Put spread on AMZN. I really like these types of trades but they are very difficult to get into without taking too much risk. You need to be fairly certain that the stock is either in a stable range or moving down. An up move can cost you money in a hurry if it moves above your short position.

With AMZN trading at $706.14 I decided to buy 5 contracts of the July week 2 $725 Put for $21.90 and sell the July week 1 $720 Puts. Ideally on this trade I want it to finish right at $720. If it finishes below I can still make money if I enter this for a net debit of less than the difference between my long Put (725) and my short Put (720) which is $5. I was able to enter at $4.80 therefore I know I make money at less that $720 no matter what. I also believed going into this trade that since it was such a high priced stock and volatility was up I could make money even if it was close to my $725 position.

On 7/1/16 I closed the position with AMZN trading at $725.71 because I was afraid it would continue up and make the position unprofitable. This was not a typical trade for this strategy and it can be hard to get the premiums you need even to initiate this trading strategy. But, if you can find them and the stock cooperates this can be a very powerful strategy. I do not really teach this one because I have trouble finding the right opportunities. About the only time you will see this particular set up in my trading is if I am lucky enough to stumble across it while I am trading the strategies I prefer.

Date

Symb

Action

Exp

Strike

Price

Cont

Type

Cost

Balance

06/28/16

AMZN

BTO

7WK2

725

-$22.10

5

Put

-$11,057.52

-$11,057.52

06/28/16

AMZN

STO

7WK1

720

$17.30

5

Put

$8,642.48

-$2,415.04

07/01/16

AMZN

BTC

7WK1

720

-$0.06

5

Put

-$37.61

-$2,452.65

07/01/16

AMZN

STC

7WK2

725

$6.25

5

Put

$3,117.32

$664.67

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