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Trade Idea – Amazon Earnings Trade (AMZN) Straddle

|Includes:Amazon.com, Inc. (AMZN)

This post was originally written on January 8, 2013 at http://www.optiontiger.com/trade-idea-amazon-earnings-trade-straddle/

Amazon ($AMZN) reports earnings on January 31, and this is an Amazon Earnings Trade. Although $AMZN just hit all-time highs yesterday, it's still a wild card - Earnings could be a hit or miss. Under these circumstances, it's best not to take a directional bet. The Feb series has seen Volatility expanding to 40 already, and I think its reasonable to assume it will increase further leading upto the earnings event, which is still over 3 weeks away.

Trade and Rationale -

AMZN Straddle at 265 Feb Series, opened yesterday at 27/share (total for Calls and Puts)

10 Contracts, 38 days to expiry, Debit- $27000

Its a Vega positive trade, so the trade will benefit from an increase in Volatility between now and Jan 31.

Non-directional so we don't care which way AMZN moves.

Given its recent activity, its possible (small chance) that AMZN may move $27 before the event

I want to watch for the Volatility because it may happen that a Weekly series may interfere with the Monthly series, in which case we could see a Volatility crush in the Monthly series.

AMZN-Straddle-Vol

EXIT CRITERIA (VERY IMPORTANT)

We have to exit this trade ON OR BEFORE Jan 31. This is so that we can avoid the Volatility Crush after the event.

AMZN-Straddle

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: AMZN