GREAT LONG-TERM TECHNICAL PICTURE, SOME RECENT WEAKNESS
- Long term uptrend took us to historical high on October 6, 2016
- Gentle uptrend over the past 6 months with a breakout late Sept.
- Some short term weakness since the top, but still in breakout mode
SOLID, PRICEY FUNDAMENTALS
- Continues to impress the investment community
- 87.5% of consensus has a buy recommendation
- Consensus target price $913/Share (+11.6%)
- Justified by impressive long term EPS growth (+48.5%)
- Improving profitability (ROE 13.64%)
- Expensive stock (P/E 203.89x and P/BV 28.8x)
EXCITING EARNINGS PUBLICATION HISTORY: VOLATILE
- Over the past 13 quarters since mid-2013
- Measured the 5-day performance before and into earnings
- Average stock performance during earnings week = +2.60%
- Min -9.94% Max +20.00%
TRADING STRATEGY: USE OPTIONS FOR EXPOSURE
- Sell Nov 18'16 $750 put = +$9.33
- Buy Nov 18'16 $850 call = -$19.00
- Total cost = $9.67 (1.18%)
- Best case: Continuation of breakout ==> Make money on both legs
- Worst case: Stock falls post earnings and you become long a great story 8% below the current price.
- Long term uptrend took us to historical high on October 6, 2016
- Gentle uptrend over the past 6 months with a breakout late Sept.
- Some short term weakness since the top, but still in breakout mode
SOLID, PRICEY FUNDAMENTALS
- Continues to impress the investment community
- 87.5% of consensus has a buy recommendation
- Consensus target price $913/Share (+11.6%)
- Justified by impressive long term EPS growth (+48.5%)
- Improving profitability (ROE 13.64%)
- Expensive stock (P/E 203.89x and P/BV 28.8x)
EXCITING EARNINGS PUBLICATION HISTORY: VOLATILE
- Over the past 13 quarters since mid-2013
- Measured the 5-day performance before and into earnings
- Average stock performance during earnings week = +2.60%
- Min -9.94% Max +20.00%
TRADING STRATEGY: USE OPTIONS FOR EXPOSURE
- Sell Nov 18'16 $750 put = +$9.33
- Buy Nov 18'16 $850 call = -$19.00
- Total cost = $9.67 (1.18%)
- Best case: Continuation of breakout ==> Make money on both legs
- Worst case: Stock falls post earnings and you become long a great story 8% below the current price.
Comment:
The stock is now down more than 10% since the inception of this idea against a flat/up market. Sell one more put on the Dec 16 '16 maturity with a lower, $700 strike and cash in nearly $10/share in premium. This makes the strategy a 0-cost one. Worst-case scenario if exercised is to be long 200 shares of AMZN at $725 against a strong support at $700/share. Risk is also staggered over 2 monthly options maturities so minimal.
Comment:
$700/share corresponds to the support from the previous top reached on Dec 29 2015 ($696.44) and to the 38.2% Fibonacci retracement from the top of the move initiated in Feb 2016. To this extent, after the recent vertical downfall and underperformance, it makes sense to bet on a rebound on the 700 support, if we get there.