Amazon Pre-Earnings Trade Strategy Offers A Quick Return Or Discounted Stock Ownership

Core Insights - Amazon (AMZN) stock is expected to report earnings on October 30, with the options market pricing in a 7% move in either direction, indicating heightened volatility around the earnings announcement [1][2] - The implied volatility for the Oct. 31 options chain is around 57%, significantly higher than Amazon's typical volatility of 34%, suggesting a potential trading opportunity through cash-secured puts [1][2] Options Strategy - Selling a cash-secured put involves selling an at-the-money or out-of-the-money put option while setting aside enough cash to buy the stock, aiming to either keep the premium if the option expires worthless or acquire the stock at a lower price [1][5] - A trader selling the Oct. 31 put with a strike price of 210 generated approximately $440 in premium per contract, with a delta of 30, indicating a 70% chance of the option expiring worthless [2][4] Financial Metrics - The break-even price for the trade is calculated at 205.60, which is 6% below the current price of around 218.50 [3] - If the stock remains above 210 at expiry, the put option will expire worthless, yielding a 2.1% return on capital at risk in just over a week, translating to an annualized return of 78% [4] Investment Outlook - Cash-secured puts are viewed as an effective strategy for generating returns on stocks that investors are willing to own, allowing for either a short-term return or the opportunity to purchase the stock at a discount [5] - If the stock trades below 210 and the put is assigned, investors can further enhance income by selling covered calls against the position [5] Company Ratings - Amazon stock holds a Composite Rating of 86 out of a possible 99, an Earnings Per Share Rating of 74, and a Relative Strength Rating of 58, ranking ninth in its industry group according to Investor's Business Daily [6]