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If you think it will rise or fall and you want to trade Amazon.com (NASDAQ: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.
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.
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.
Courtesy OptionsAnalysis.com
OTM Calendar Spreads
For the bullish trader, Figures 4 and 5 highlight an out-of-the-money (heretofore, OTM) call calendar spread.Courtesy OptionsAnalysis.comCourtesy OptionsAnalysis.comThis 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.Courtesy OptionsAnalysis.com Courtesy OptionsAnalysis.comThis 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.