Amazon.com (AMZN) has just broken above the key $190 resistance level, signaling a resumption of its previous uptrend that paused in April. With the stock now trading at an all-time high, we utilized Trading Central's new Options Insight tool to identify bullish options strategies that align with the anticipated price movement leading up to the next monthly expiration date of August 16th (45 days).
Trading Central's analyst-driven Technical Views indicate a preference for long positions above $181, with targets at $205 and $215 in extension, which fall within the expected move for the August 16th expiration ($220). Having realistic target prices within the expected volatility provides a high-probability setup.
Answering 4 simple questions with a focus on "Limiting my risk" gives us 3 defined-risk options strategies, a Bull Call spread is preferred with a suggested long call and Bull Put credit spread for those looking for a higher probability of profit and income generation.
The chart highlights the risk-reward profile of the preferred strategy: a 200-215 Bull Call Spread which uses strike prices that are before the expected move of $220. This strategy entails a maximum downside risk of $555 per contract for a potential gain of $945 per contract. The spread aims to replicate the effect of holding 100 shares of AMZN with approximately a 50% probability, but with significantly less capital required compared to purchasing 100 shares of AMZN outright. This makes it an ideal spread trade for both beginners entering the options trading world and seasoned traders seeking long exposure to the stock with a lower capital outlay.
For those looking to create income with the same bullish bias, Options Insight provides one income generating spread for those focused on "Limiting My Risk" from question #4. An August 195-190 Bull Put spread is indicating a maximum risk of $305/contract in order to generate a credit of $195/contract with a 65% Probability of profit.
Options Insight was designed to demonstrate to retail stock traders, who have never considered trading options, the benefits of options strategies. These strategies replicate being long or short stock with less risk while teaching the importance of volatility and expected price movement in the strike price selection process.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.
