With a $30 leap in the last few days, AMZN is once again on the move. Because it is one of the few brick-and-mortar companies among the high-flier stocks, and because it has been building a dominant position in the retail world, it is one of our favorite long-term investments. From a technical standpoint, the stock routinely makes mincemeat out of even the most daunting Hidden Pivot targets (see inset). Having done so yet again recently, we might ask how high AMZN might go over the next few weeks. The answer is $379, a nearly 15% gain over the current price. We derived this target by simply sliding point ‘A’ down to the 2008 low, 34.68.
To play the move with as little risk as we can devise, I’ll suggest buying the December 370-380-390 call butterfly eight times for 0.40 or better. This price is do-able, albeit with a little work, based on yesterday’s closing prices. Although we usually try to leg into such spreads for no cost or perhaps even a small credit, this particular gambit looks like a solid bet even if we have to pay a little for it. Maximum profit would be $7680 with the stock trading $390 come December 21, but in practice we would be doing well to extract about $4000 at that time. That would still be getting 10-to-1 odds on our initial bet — pretty good, if you believe the target will be reached as expected. FYI, the 0.40 price would be the net debit after shorting two December 380 calls and buying one December 370 and a 390. The spread should become somewhat easier to buy for 0.40 if AMZN slips back as little as $3-$5. If you have any questions about this trade, please ask me when I’m in the chat room. _______ UPDATE (9:58 a.m. EDT): $379 in a few weeks? Yeah, sure. DaBoyz have goosed the stock an absurd $35 this morning, to a so-far high of $367, on, well, who gives a rat’s ass what the news was? Our intended butterfly — the one we were wanting to buy for 0.40 — is scarce at 1.20. Right idea, just a day late. There’ll always be another opportunity.