Yesterday,? Mark Sebastian (of Option Block, Volatility Views, and Option Pit fame) was on Bloomberg TV today talking about AMZN earnings. ?You can watch the Video here:
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Mark made several points. ?The first point was the direction of the paper, which, for the most part, has been bullish volatility all day. ?You can see a sample of trades over 151 contracts here:?
Livevol (R) www.livevol.com
The contracts in yellow are all almost certainly buys. ?There is also a calendar spread on the tape at the bottom. ?As I have stated in several posts, ?so far earnings season has pointed toward options being a buy for stocks. ? We can see how hot the Feb 1 contract is today if we look at vols on Option Vision?.
Look at how hot that front month is getting. ?You can also see why VXAZN maybe doesn’t tell us how hard options contracts are being bought today. ?Almost all the head is in the weekly. ?Where IV is seriously bid; thus, because of the general IV flow and earnings season so far, we liked buying a straddle in AMZN. ?You can see the AMZN Feb 1 270 straddle set up here:
Livevol (R) www.livevol.com
The risk graph looks as such:
Livevol (R) www.livevol.com
The trade’s goal is for Amazon to move more than 23.50 or so, something that is more than likely over the next day or two. ?The stock is right near its all time high. ?This sets up for a HUGE move if the stock blows earnings away. ?Also, with the number of non-believers out there and the high multiple, if the earnings fail, we can expect the stock to quickly drop toward the 235 level or so. ?In either case, the straddle will be a nice winner.
The straddle will lose if the stock does nothing. ?We often call this trade a 2 am at the bar trade. ?We are like bartenders: ?We do not care where AMZN goes, it just can’t stay here. ?In truth, the best trade is probably to wait and then play the stock in the morning. ?That said, with a gun to our head, we would rather buy the ATM straddle.
The Trade:
The Feb1 270 straddle for 23.50
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