Investing with options: Amazon earnings

Options 10 minutes to read

Koen Hoorelbeke

Options Strategist

Summary: As Amazon prepares to announce its latest quarterly earnings, we explore four different options strategies to suit varied market outlooks. Whether it's buying a call option for bullish leverage, selling a put to potentially acquire shares at a discount, or writing a covered call for added income, options present numerous strategic avenues.

Investing with options - Amazon earnings

Amazon, the Seattle-based technology giant, is set to release its quarterly earnings report on October 26, 2023. The company has been impressing with strong financial performance, particularly in its cloud computing division, Amazon Web Services (AWS), and its e-commerce sales. Investors are keen to dissect these sectors as we approach the earnings release. In this article, we'll explore various options strategies tailored for this earnings season and beyond.

Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

Strategies

1. Bullish outlook - buying call options:

Execution: BuyToOpen 1 20-Sep-2024 105 Call @ $33.65 (Delta: 0.80)
Premium and risk:
- Premium cost: $33.65 x 100 (per contract) = $3,365
- Max risk: $3,365 (if Amazon remains below 105 at expiry)
- Max reward: Significant (increases as Amazon's stock price rises)
Breakeven point: $105 (strike) + $33.65 (premium) = $138.65
Rationale: A longer expiration reduces the effects of time decay.

2. Bullish outlook - selling ITM put options:

Selling in-the-money (ITM) put options can be another method to acquire Amazon shares at a discount.

Execution: SellToOpen 1 27-Oct-2023 130 Put @ $6.10 (Delta: -0.5812)
Premium and risk:
- Premium earned: $6.10 x 100 (per contract) = $610
- Max risk: Significant (if Amazon stock falls significantly)
Breakeven point: $130 (strike) - $6.10 (premium) = $123.90
Rationale: A shorter expiration allows quicker premium capture but comes with the risk of acquiring the stock if it drops below the strike price.

3. Bearish outlook - buying put options:

If you believe Amazon's stock is set for a decline, a long put option can be suitable.

Execution: BuyToOpen 1 20-Sep-2024 145 Put @ $24.65 (Delta: -0.5830)
Premium and risk:
- Premium cost: $24.65 x 100 (per contract) = $2,465
- Max risk: $2,465 (if Amazon remains above 145 at expiry)
Breakeven point: $145 (strike) - $24.65 (premium) = $120.35
Rationale: A longer expiration again helps mitigate time decay effects.

4. Neutral/bullish outlook - writing covered calls:

If you already own Amazon shares, covered calls can generate additional income.

Execution: SellToOpen 1 03-Nov-2023 138 Call @ $1.13 (Delta: 0.2053)
Premium and risk:
- Premium earned: $1.13 x 100 (per contract) = $113
- Max risk: Limited to stock ownership
Yield for covered call:
- 11-day yield: 0.89% ($113 / ($126.56 * 100)
- Annualized yield: 29.42% (0.89% / 11 * 365)
Rationale: Writing covered calls can generate income but caps upside potential. This strategy is suitable if you expect the stock to move sideways or slightly up in the short term.

Conclusion

Options offer a variety of strategies to explore as we approach Amazon's upcoming earnings. Whether your outlook is bullish, bearish, or somewhere in between, options provide a flexible toolkit to navigate different market conditions.

Buying calls: Call options offer a leveraged way to gain exposure to potential upside with a set maximum loss.
Selling ITM puts: This strategy can effectively lower your acquisition cost if you’re bullish on the stock.
Buying puts: For those expecting downside movement, puts offer a way to benefit while limiting risk.
Writing covered calls: This provides an opportunity for additional income, although it caps your upside.

Options trading offers avenues for different investment goals, especially as we look toward Amazon's earnings.

Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Bank's Terms of Use you will find more information on this in the Important Information Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Bank's website.

Quarterly Outlook 2024 Q2

2024: The wasted year

Macro: It’s all about elections and keeping status quo

Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

FX: The rate cut race shifts into high gear

As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

Equities: The AI and obesity rally is defying gravity

Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

Fixed income: Keep calm, seize the moment

With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

Commodities: Is the correction over?

Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

Macro: It’s all about elections and keeping status quo
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
FX: The rate cut race shifts into high gear
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Equities: The AI and obesity rally is defying gravity
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
Fixed income: Keep calm, seize the moment
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities: Is the correction over?
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

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Investing with options: Amazon earnings

Koen Hoorelbeke

Investing with options - Amazon earnings

Strategies

1. Bullish outlook - buying call options:

2. Bullish outlook - selling ITM put options:

3. Bearish outlook - buying put options:

4. Neutral/bullish outlook - writing covered calls:

Conclusion

Related articles:

Latest Market Insights

Quarterly Outlook 2024 Q2

01 / 05

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

Equities: The AI and obesity rally is defying gravity

Fixed income: Keep calm, seize the moment

Commodities: Is the correction over?

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

Equities: The AI and obesity rally is defying gravity

Fixed income: Keep calm, seize the moment

Commodities: Is the correction over?

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Investing with options: Amazon earnings

Koen Hoorelbeke

Investing with options - Amazon earnings

Strategies

1. Bullish outlook - buying call options:

2. Bullish outlook - selling ITM put options:

3. Bearish outlook - buying put options:

4. Neutral/bullish outlook - writing covered calls:

Conclusion

Related articles:

Share

Latest Market Insights

Quarterly Outlook 2024 Q2

01 / 05

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

Equities: The AI and obesity rally is defying gravity

Fixed income: Keep calm, seize the moment

Commodities: Is the correction over?

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

Equities: The AI and obesity rally is defying gravity

Fixed income: Keep calm, seize the moment

Commodities: Is the correction over?

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