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Feb 2020: AMZN $2000- $2030 Bull Call Spread

Stock

AMZN

Trade Structure

$2000 - $2030 Bull Call Spread

Trade Date

02/03/2020

Expiration Days

03/20/2020

Trade Rationale

After announcing blow out earnings and beating analyst estimates, AMZN gapped up to $2055 the next day. However, due to the ongoing coronavirus scare, DOW tanked 700 points the very next day, taking many stocks down with it including AMZN. I used this opportunity to buy a $2000 - $2030 Bull Call Spread. I am risking $1495 to make $1495 here. Also, note that I am giving the market 45 days to recover from the coronavirus scare.

Trade Selection Criteria

Overall market movement

DOW dropped a crazy 700 points due to the ongoing corona virus scare, taking down many stocks with it including AMZN. 

No Earnings or Significant News

Earnings are behind us and the next earnings will be after our expiration cycle. 

Bollinger Bands outside Keltner Channels

This is a post-earnings trade, so my usual indicators don’t apply here.

N/A

RSI Analysis

This is a post-earnings trade, so my usual indicators don’t apply here.

N/A

ADX Analysis

This is a post-earnings trade, so my usual indicators don’t apply here.

N/A

Trade Analysis

As noted earlier, I put on this trade after a pullback after the initial earnings euphoria. My bet on the stock continuing upward did play out in my favor. I made a handsome profit in just 19 days almost doubling my money in such a short period.

Trade Outcome

WINNER

Profit/Loss

$1,225

Beginning Account Balance

$16,200

Ending Account Balance

$$21,400

To follow along the strategies we use in the $25K challenge, we recommend that you get the strategy book which explains the whys and wherefores of our method. Get it here=> https://amzn.to/2MUOCE5

10 Comments

  1. Vamsidhar Ganji

    HI Nishant,

    Dont you know amazon would come back to SMA’s before breaking out ?

    Thanks,
    Vamsi

    Reply
    • Vamsidhar Ganji

      Sorry i meant

      Dont you think amazon would come back to SMA’s before breaking out ?

      Thanks,
      Vamsi

      Reply
      • Nishant

        This is a post earnings trade. When a stock shoots up like that due to positive earnings (or drops like crazy due to bad earnings), there is always a strong fundamental reason supporting that move. And you have to honor and respect those moves. In my experience, when stocks experience these kind of moves, more often than not they pullback just a little and continue on in the original direction of the explosive move.

        Reply
  2. Roveen Icasas

    Looks like this trade is a success – amazon closed at 2039 today – Nice work!!

    Reply
  3. Ryan Kaddah

    Hi Nishant, I have just finished reading your book today. I cannot believe that I finished it in one day. Awesome book. I am confused about how you choose your spread ? do you go by the probability or by going on two or three strikes above or below your target?
    Thank you,

    Reply
    • Nishant

      I always buy ATM (at-the-money debit spreads). The platform will tell you that the theoretical probability of success is 50%. However, I tilt the scales in my favor by using technical analysis and trading price extremes.

      Reply
      • steven schwartz

        It would mathematically seem that a probability of success of 50% should be when you buy the Call an equal distance below the current price as your Call sell is above the current price.

        In this example, with AMZN at 2004.20, I would expect the 1990 – 2020 Bull Call Spread to hover around a 50% success rate.

        Thoughts ?

        Reply
        • Nishant

          Since, I do ATM trades, all option calculators will show you 50% probability of success. However, I change the probabilities in my favor my trading market extremes and technical analysis giving me a success rate of 85% – 90%.

          Reply
  4. Stefano Cagliero

    Hallo, it is not clear how you go from a liquidity of 16,200 to 21,400 with a profit of 1,225.
    Can you explain please? Thank you

    Reply
    • Nishant

      I have multiple trades open at any given time and all of them affect my portfolio value. In addition, I could have more contracts for a trade. I don’t mention contract sizes here as these trades are meant as an additional educational resource for my book readers.

      Reply

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