To The Moon

The reason why I have choose $Amazon.com(AMZN)$ again for option play is because the fundamentals of the company are looking good in terms of expansion of all lines of business, they are growing on full cylinders.

In this article, I will be sharing on how Amazon technicals which is also looking good as we can see that the bulls are starting to gain little bit more momentum.

Amazon (AMZN) Weekly Uptrends

We have MACD that is showing the bulls are beginning to gain some momentum, and we are seeing weekly uptrends right now. We are into a phase of weekly consolidation which is looking to fill the last remaining gap around the 26-EMA (orange line) - 192, and we can see that it is also coming into the next support levels which is roughly around 181 to 192.

Like I have mentioned in my previous article on Amazon selling puts, I likes the mid 190s range, so that is why I will be looking for this level again. As mentioned before I will be writing the option below the expected move.

Though the indexes futures are showing positive which probably would move higher when market opens later at 9.30am ET, this could mean Amazon might open up a lot higher as well, but always remember this rule that we do not chase the highs.

Looking For Level Below 195 (Assigned)

As of 23 May 2025, AMZN's closing price was $200.99. This means a $195 strike price and below is out-of-the-money (OTM).

We are looking for strike price below 195, and in terms of options chain, short puts for 195 still offering a decent premium, but we need to understand that this will fluctuate once the option trading start live at 9.30am.

Here is an analysis of how I might play AMZN using a sell put strategy with a $195 strike, keeping in mind the current market conditions and assuming I am looking to generate premium income or acquire AMZN at a lower price.

Understanding the "Sell Put" Strategy

When we sell a put option, we are:

Receiving a premium upfront from the buyer of the put option.

Obligated to buy 100 shares of AMZN per contract at the strike price ($195) if the stock price falls below the strike price by the expiration date and the option is assigned to you.

Scenarios and Outcomes

Based on what I have shared above, I planned to sell for example, one AMZN put option contract with a strike price of $195 and an expiration date in the near future (30 May 2025).

We will use $2.50 as the premium received for illustration purposes as the bid and ask price would fluctuate when market open.

1. Ideal Scenario: AMZN Stays Above $195 (or Rises)

Outcome: If AMZN's stock price remains above $195 at expiration, the put option expires worthless.

My Profit: I keep the entire premium collected.

Why it works: The buyer of the put option would not exercise their right to sell me shares at $195 if they can sell them for a higher price in the open market.

2. Break-Even Scenario: AMZN Falls to $192.50 (Strike Price - Premium)

Outcome: If AMZN's stock price is exactly $192.50 at expiration, and I am assigned the shares, my effective cost basis (strike price - premium) is $195 - $2.50 = $192.50.

My Profit/Loss: I neither profit nor loses (ignoring commissions).

3. Assignment Scenario: AMZN Falls Below $195

Outcome: If AMZN's stock price falls below $195 at expiration (e.g., to $190), the put option will likely be exercised by the buyer. I will be obligated to buy 100 shares of AMZN at $195 per share.

My Cost Basis: My effective cost basis for these shares would be $195 (strike price) - $2.50 (premium received) = $192.50 per share.

Why it works: Since I am bullish on AMZN long-term and believe $192.50 is a good entry point, this is a way to acquire shares at a discount while also getting paid to wait.

My Profit/Loss: I will have an unrealized loss on the shares you now own if the market price is below my effective cost basis ($192.50). For example, if AMZN drops to $190, I will have an unrealized loss of $2.50 per share ($192.50 - $190). My goal at this point would be for AMZN to recover above $192.50.

4. Worst-Case Scenario: AMZN Plummets

Outcome: If AMZN's stock price drops significantly (e.g., to $150), I am still obligated to buy the shares at $195.

My Loss: My loss is theoretically unlimited down to zero. If AMZN drops to $150, I would buy shares at $195, with an effective cost of $192.50, meaning a loss of $42.50 per share ($192.50 - $150), or $4,250 per contract.

Considerations and Risks

There are some important considerations and risks that as investors we need to take note when selling put options.

Capital Requirement: Selling put options requires collateral in your brokerage account. This is typically the full strike price multiplied by 100 shares per contract, or a portion of it as determined by your broker's margin requirements. For a $195 strike, this would be $19,500 per contract in buying power potentially.

Time Decay (Theta): As the option approaches expiration, its time value erodes, which benefits the seller of the option. This is a key advantage of this strategy.

Implied Volatility (Vega): High implied volatility (IV) leads to higher premiums. If IV drops after you sell the put, the premium will decrease, benefiting the position. Conversely, if IV increases, the premium will rise, potentially hurting the ability to buy back the option for a profit or increasing the risk if assigned.

Expiration Date: Choosing an appropriate expiration date is crucial. Shorter-term options (e.g., 30-45 days out) tend to have faster time decay. Longer-term options (LEAPS) offer more premium but also more time for the stock to move against you.

Underlying Stock Outlook: This strategy is best suited for stocks you are moderately bullish to neutral on. I want the stock to either stay above the strike or for me to be comfortable owning it at the effective cost basis if assigned.

Given AMZN's current price around $200.99, selling a $195 put suggests I am comfortable owning AMZN around that $192.50 price range (assuming a $2.50 premium).

Assignment Risk: Be prepared to take ownership of the shares if the stock falls below the strike price. Ensure we have the capital or margin available to do so.

Commissions/Fees: Remember to factor in brokerage commissions and fees, which will slightly reduce your net profit.

Summary

I already own some Amazon stocks at cost price around $173 but I do not think it will go down to the level that I planned to acquire again, so I think why not, collect premium while I remain bullish on Amazon, and if it really dropped, then the 190 ish price level would be another entry I am looking at as well.

Appreciate if you could share your thoughts in the comment section whether you think Amazon could continue to move higher this week (27 to 30 May).

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.