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February 5, 2013 / redman59

Amazon Trade Update

Back on January 31 I described here a trade in Amazon I took on.  I was looking at the weekly chart and saw 260 as a support area as it was a breakout point and I thought institutions would see this as a place to add shares as it wouldn’t be extended here and it aligned with the 10-week SMA.  Below is a chart of what I was looking at:

amzn_20130131

Below is the trade that I put on as I really liked the idea that we would stay between the 260-270 level on any selling with subsequent bounce.  It is the AMZN Feb2 255/265/270 Call Butterfly and I was filled at 4.88 ($488.oo being max loss).

amzn_20130205Below is the risk profile.  It takes full advantage of the 260-270 range and if we saw a run up, would result in a slight profit.  But the overall goal of the trade was to take advantage of that range.

amzn_20130131aSo where are we now?  The continued selling in AMZN was surprising and I did not expect there to be as much as selling in it as we have seen, especially with the market moving up the prior week.  With the overall market seeing selling yesterday AMZN followed suit but held at support at noon and based for the rest of the day.  With this action I am right at that 260 level sooner than I had hoped and have an adjustment plan in mind.  If we see further selling below the 260 mark I plan on closing the Bear Call Spread of the Butterfly (265/270 strikes) and will be left with a bull call spread.  With current prices, this will leave my my breakeven at 260.80 and increase my max loss to $579.00 with max gain of $421.00 if we close above 265.00.  The risk profile looks like this (based on 1-lot position):

amzn_20130205a

Below is a daily chart of AMZN with a dotted line at the 260 level and shown to be holding the gap and the 50-day SMA:

amzn_20130205

 

 

5 Comments

Leave a Comment
  1. abeaty / Feb 5 2013 9:21 am

    Why would you adjust to raise your break even and risk?

    • redman59 / Feb 5 2013 9:40 am

      Thanks for asking and yes you raise an excellent point. I tried to get this out before the market opened so apologies I forgot to mention. But I would make that adjustment because if we went below the 260 mark I would believe this to be a washout and then at that point I would want to get long as many deltas as possible with but still keeping that short 265 strike as that would allow me to achieve max gain and remains a good upside target. Also leaving one of the short 265 strikes on would also not have theta working against me as much if I closed both short 265 strikes. This trade would definitely become more of a directional trade here and strict stops would need to be enforced.

      Also those prices would adjust too on the spreads but I just wanted to paint a picture of what the risk profile would look like.

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