How to Trade Amazon (AMZN) Stock Before Earnings

July 24, 2017
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You may have heard that at least one member of Congress wants the House Judiciary Committee and the Subcommittee on Regulatory Reform and the Commerical and Antritrust Law to look into Amazon’s $13.7 billion buyout of Whole Foods, Inc.

Naturally, the financial news pundits are now floating the idea that the company could be in trouble – with one hedge fund manager even shorting the stock.

But here’s the thing…

This isn’t the first time Jeff Bezos has faced anti-trust issues.

In fact, back in 2015, the group Authors United asked the Department of Justice to investigate monopolistic practices. And you see what’s happened to the stock since then.

So forget about these “doomsday” predictions the media heads love talking about – it’s just for ratings.

This is the only thing you need to pay attention to right now…

It’s Not About Antitrust Laws – It’s About Amazon’s Upcoming Earnings

Although the Amazon – Whole Foods merger must still pass a federal antitrust review, there isn’t likely to be much of a challenge (if any) from the Trump administration. And honestly, I don’t know that it would do anything detrimental to the stock even if there was a one.

Amazon’s antitrust investigation is really just fodder for the mainstream media’s ratings. It benefits them to bring on a bunch of pundits with a contradicting views on the company’s and the stock’s future not you. That’s exactly why it’s a bad idea to base your investing and trading decisions on whatever their latest headlines are. In fact, it could be fatal to your portfolio.

And I can tell you right now that AMZN is still looking good and is still trading near its all-time highs. So any type of pullback that may happen because of Washington, whether a price support or Fibonacci retracement, could actually be the perfect setup for a bullish trade.

The real news is their next earnings announcement, due out after market close on Tuesday, July 27.

Now we’ve talked before about the importance of looking at how companies have performed over their prior earnings sessions…

So here’s the price chart for AMZN that shows the last couple earnings announcements (marked with a green triangle with the “E”).

I could show you the data where AMZN has reported higher-than-expected earnings per share (eps) in five of the last seven sessions – but it’s not about that. To me, it’s about what the stock did going into and coming out of the last four earnings reports eps reports.

And here’s how it did…

As you can see, AMZN has moved higher in two of the last four and moved lower two of the last four over the four days prior to the actual report (indicated by the pink box in the image above). If you take the average percentage move of those last four, you get a 3.5% move. Take that 3.5% percent move either way from the closing price of AMZN, which is $1,010 as of the time of writing, and that would make for an expected move, again either way, of 35 points.

If you look at the figure in the image pointed at by the green arrow, you can see that the average percentage move the day after earnings came out over the last four sessions is 3.83%. A 3.8% move on that $1,010 price would yield 38 points.

And when it comes to trading options – which would be the least expensive and most lucrative way to play the stock – these are are your choices:

  1. You can at least paper trade the stock prior to earnings, with the intent to close the position before the announcement is made – OR
  2. You can buy just before earnings come out and hold over the announcemen,t with the intent to close your position right after on the stock’s pop or drop, whether profitable or not.

An example to consider is a August 4, 2017 $1,010 straddle, which currently costs $53.70:

Is that pricey?

Well, with a conservative price move calculated at 38 points, it doesn’t look like a double is necessarily there – however, a 38-point move on a cost of $53.70 would give you around a 70% return. Keep in mind that the risk you face is the stock not moving enough to cover the price you paid for the trade or enough to give you the type of profits you’re looking for. So speak with your broker or financial advisor to determine what’s best for you and your financial goals.

To your continued success…

Tom Gentile

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Source: Power Profit Trades



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