Is AMZN A Worthy Earnings Trade?


In the October 1st issue of MarketTamer's Seasonal Forecaster, I
focused on how to trade earnings announcements. A typically higher-risk,
lower-probability trade, it can work well if you really know your stock(s) and
trade only the ones that work well with straddles. Option straddle strategies
are bi-directional trades – the trade will end up profitable if the stock moves
a certain minimum amount within the lifespan of the options. You don't have to
be right on the direction. The key phrase here is “if the stock
Dropping in on various blogs, discussion groups, and webinars throughout the years, I've heard many stocks discussed as possible earnings release trades, and they were usually the most popular stocks.

While my interest has focused on higher probability trades, I do occasionally
consider straddle trades on earnings announcements if volatilities are down,
meaning the time values of the options comprising the straddles are lower and
therefore offering greater chances of success in the trades. Right now, the VIX
is at 14.33, pretty much the lowest level set in the past five years. There
shouldn't be high premiums in call and put prices, so this may be a good time
to do this strategy.

However, not all popular stocks make good earnings plays, even when
volatilities are down. Let's look at, symbol AMZN. On this chart
I've circled the last five earnings announcements. We see significant moves
after every one:


As I explained in the 10/1 newsletter, my research has shown that entering an
earnings release trade is optimum around 10 trading days before the
announcement. Often, there is a good pre-announcement move as many other
traders and institutions may be taking similar bets. From my research, I found
that most initial responses to the announcements are over within two trading
days, so that is the time period I use for backtesting. However, many trading
an earnings release for real would likely want to hang on to the trade,
especially if there was time left in the straddle options, to capture an
extended post-release move.

Focusing on Amazon's most recent 29 announcements, and the reaction of the
stock during those periods, the results look like:


Of the 29 periods, 23 of them produced moves greater than 5%. So AMZN must be
good for straddle trades on earnings, right?

What isn't apparent in the above table is if there were large swings in the
value of the straddles through those time periods. To increase your odds of
success with straddles you do not want wide swings during the holding period.
Wide swings eliminates any chance of rational trade management, such as
implementing stop-losses to minimize losses or trade adjustments to increase
the success rate of the trades.

Let's see how the five most recent AMZN trades would have worked. I simulated
likely results using actual end-of-day option prices (on typically the
expiration month options following the release date). The results were:

July 26, 2012 release (After the Market Close) – entering ten trading days
before, the straddle was down 8.4% and as high as 17.4% prior to the
announcement. Afterwards, the straddle was down as much as 18.6% before ending
with a gain of 23.4% at August expiration.

April 26, 2012 release (AMC) – The May ATM straddle was down 12.6% prior to the
announcement. Within two days afterwards the straddle was up 117.8%!

January 31, 2012 release (AMC) – The February straddle was up as much as 25.2%
and down as much as 11.8% prior to the announcement. Right after the
announcement the straddle fell to -49.2% and continued from there to end down
87% at expiration.

October 25, 2011 release (AMC) – The November straddle was down as much as
19.2% before the announcement. The first day after, the straddle was up 24.1%,
but fell right after that. Ten days later the straddle was down 40.4%.

July 26, 2011 release (AMC) – The August straddle stayed within a tight range
prior to the announcement (down 4%, up 1%). Right after the announcement it
fell 19.7%, and within 5 days was down 31.83%. However, if you had a strong
stomach and held on for the ride, the straddle did close up 81% at expiration.

I'm not even sure how to grade these results – they would vary widely depending
on whether you use stop-losses, ‘time stops' (exiting after a certain number of
days if your profit target wasn't hit), and more. If you had looked at just the
price chart, whether daily or weekly, you likely would have a good impression
of AMZN. It is a good company and a good stock to trade. However, earnings
announcements trades on this stock may not be the best way to put your trading
balance to work

Of course, there's much more you need to know and many more stocks you can
capitalize upon each and every day.  To find out more click here:

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2013 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

Be Sociable, Share!

Related Posts


MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.

This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.

The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The educational training program and software services are provided to improve financial understanding.

The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.