Some ideas for trading Amazon (AMZN) tomorrow. (December 26, 2018)


Amazon ( NASDAQ: AMZN ) is up almost 10 percent so what’s the deal? Earlier today, I have got to respect the volatility in this environment. It’s really easy to say, “Well, we’re getting this. We’re getting this. So therefore, we’re going to get this.” It’s easy to say that and to be honest with you I think that is probably what’s going to happen. I think we are going to be at least hit 1500.00, maybe even up to 1600.00. The reason is just because this just seems to be the pattern with Amazon ( NASDAQ: AMZN ). But it is within a downtrend.

Look a the 50-day moving average; the 200-day moving average is finally trending lower so this is a stock that, frankly, should have been sold. It should have been sold quite a while ago but if it hasn’t been, it hasn’t been and there is nothing you can do about that if you still own it but you can trade it.

What I suggested today in the forum was, when the stock was moving up, that our traders at Option Market Mentor consider some, they were slightly in the money, December calls that were going to and will expire on Friday. That’s really kind of the way you have got to trade this stock, frankly. Those calls are doing great by the way. But if I had known that the stock was going to move up almost 10 percent in a day I would have quickly taken out a home equity loan and put everything in short-term call options and made a gang of money. As it was I am still doing well but I am not getting rich, not on this.

Here’s the thing: This stock continues to move higher and I do believe that the way to trade this stock is with call options but you have to be careful and you have to be prudent. And this is something that is really important; you have to not be trading just one option. If you trade one contract the problem is you have no risk management. You are either all in or you are all out. In other words, if the stock is moving well and things are good and you are saying, “Wow, I’m doing really well. Oh, maybe I better kind of take some profits.” You can’t. You either have to completely close the trade and get out of the business of making more money. Or you have to just stay in and risk having the stock pull back and shut you out.

The way you avoid that is to trade shorter, options of shorter duration, and trade the even prices. The reason I say the even prices is because they are to ones with the highest open interest in volume. You can see here, on the weekly options, these are going to expire on Friday, the 1400.00 calls, over 5,000 of them traded today. You can bet that those are all opening trades. So tomorrow you are going to see the open interest of 1650.00 probably be 6500 or so because some of these would be closing positions. But what I am saying is, plenty of liquidity at 1400.00; not so much at 1402.5.

But here’s the thing, what’s the difference? The Delta is virtually the same, 94 cents versus 93. So if you are trading options you have look at these. Look at the open interest, it totally makes sense. I don’t know who’s trading this but if I was them I would be embarrassed. Why are you in an option where there is no liquidity when you could be in an option here where there is plenty of liquidity? Or even an option that is a little bit higher, that at least has some liquidity?

The bottom line is, if you just look at these, 1400.00 has more liquidity on the puts and the calls, if you look at 1420.00. The same thing here. Anyway, I don’t want to turn this into a call buying exercise but I just want to mention that; this is a stock that I think that still has some more juice in it but it is really one that lends itself more to trading call options but on very few days. But on most days, and I have lived this, most days you will get killed by trading debits, long calls or puts because the spreads tend to be wide and the stock is just kind of unforgiving. But every once in a while you will get this kind of a move.

So I would look to be buying Amazon ( NASDAQ: AMZN ) tomorrow and look for 1500.00 as a minimum, that’s 30 points. Again, not much on the stock side, a couple percent, but it could actually go clear up to 1600.00 as well; not tomorrow but just in this move.

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