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…rise or fall, and you want to trade AMZN shares, first off you will need a lot of cash.  With AMZN trading at $1705 a share, buying 100 shares will require you to pony up $170,050.  Selling short 100 shares will also require a substantial margin deposit (not to mention the assumption of unlimited risk).  There are alternatives.

One trader might look at Figure 1 and see a security that is completing 5 waves down and is due for a rally.

Figure 1 – AMZN with Elliott Wave with potentially bullish Elliott Wave count (Courtesy ProfitSource by HUBB)

Another trader might look at Figure 2 and see a security that is breaking down below its 200-day moving average and is due for a decline

Figure 2 – AMZN with potentially bearish configuration vis a vis 200-day moving average (Courtesy ProfitSource by HUBB)

In any event, in Figure 3 we can see that implied volatility for AMZN options is not super low but it is also towards the lower end of the historical range.  This can afford the, ahem, less affluent trader some potential opportunities.

Figure 3 – AMZN with implied option volatility on the low end of historical range (Courtesy www.OptionsAnalysis.com)

OTM Calendar Spreads

For the bullish trader, Figures 4 and 5 highlight an out-of-the-money (heretofore, OTM) call calendar spread.

Figure 4 – AMZN OTM call calendar details (Courtesy www.OptionsAnalysis.com)

Figure 5 – AMZN OTM call calendar risk curves (Courtesy www.OptionsAnalysis.com)

This hypothetical trade (NOT a recommendation, only an example):

*Costs only $564 to enter (which represents the maximum risk)

*Has significant upside potential if AMZN moves back towards its previous high

*Max % profit to Max % risk = 1,032%

For the bearish trader, Figures 6 and 7 highlight an out-of-the-money (heretofore, OTM) call calendar spread.

Figure 6 – AMZN OTM put calendar details (Courtesy www.OptionsAnalysis.com)

Figure 7 – AMZN OTM put calendar risk curves (Courtesy www.OptionsAnalysis.com)

This hypothetical trade (NOT a recommendation, only an example):

*Costs only $700 to enter (which represents the maximum risk)

*Has significant profit potential if AMZN moves back towards its previous low

*Max % profit to Max % risk = 731%

Summary

The trades highlighted above are NOT “recommended” trades.  They are simply examples of one way to trade a high-priced stock that offer large profit potential and much less dollar risk than that associated with buying and holding shares of stock.

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.