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Amazon.com, Inc. (AMZN) Stock Can Make You Money, Even When It’s Overpriced

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Amazon.com, Inc. (NASDAQ: AMZN ) rewrote the book on how to grow a company's top line. Under Jeff Bezos, AMZN stock managed to enter and dominate dozens of high profile industries … one of which was what we've come to know as 'the cloud.'

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As accomplished as this company has been, I still see stubborn experts trying to short AMZN stock for fundamental reasons. Sure, I've occasionally had short AMZN positions, but they were always part of a range trade. I have shared trades that generated profits out of thin air by selling iron condors into AMZN. Here is a November trade that generated over $3 per contract of pure profit. This was 20% yield on money risked in just three months.

AMZN Stock Chart

I agree that on paper, AMZN stock looks extended. But for a company that has so far grown perpetually, the traditional valuation measuring sticks are not as useful.

Click to Enlarge Technically, one could have made an argument that $700 per share was in the cards since 2007.

Today I want to rinse and repeat. AMZN stock reported a decent quarter, yet markets sold it down $100 on general political fears. This is usually an opportunity to sell some bullish risk below market levels.

Meaning I sell bullish put spreads with a healthy buffer below.

Amazon Stock Trade Ideas

Trade No. 1 - The Bet: Sell AMZN Dec $710/$705 credit put spread. This is a bullish trade for which I collect 50 cents per contract to open. By selling it, I have an 85% theoretical chance of yielding 10% on money at risk.

When selling spreads, I like to leave room for error. In this case I only have a 6% buffer from current price. Usually I like a bigger buffer, but AMZN has recently fallen about $100 from its highs.

To mitigate risk I often like to balance my bet. To do that I can set a similar but opposing trade.

Trade No. 2 - The Hedge (Optional): Sell AMZN Dec $845/$850 credit call spread. This is a bearish trade for which I collect 41 cents per contract to open. This trade has a buffer of 10% from current price. This would theoretically translate into an 85% chance of success to yield an additional 8% on money risked.

Click to Enlarge Taking both trades, I would have sold an iron condor, which is a range-bound trade, meaning I need AMZN stock price to stay between both trades to earn maximum profits.

This setup is much tighter than my usual preference. But since I already have had several wins under my belt from Amazon, I am going a bit more aggressive with this thread-the-needle trade.

I do have to recognize that short term, AMZN stock needs a bounce or risks inviting more technical sellers. This would likely be decided by the outcome of the Elections.

The AMZN bounce would require a clear win for Clinton. If we get a contested outcome, then the uncertainty would linger thereby placing more downside pressure on equity markets in general.

I am not required to hold these AMZN trades through expiration. I can close either for partial gains or losses at any time.

Nicolas Chahine is the managing director of SellSpreads.com . As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic .

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The post Amazon.com, Inc. (AMZN) Stock Can Make You Money, Even When It's Overpriced appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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