Friday, February 2, 2007

AMZN Credit Spread Play

Thanks to Adam at Daily Option Report for the idea. AMZN just came out with earnings and the stock has dropped on the news as has IV.

I'm looking at selling the FEB 30/27.50 call spread for a net credit of $1.80 giving a risk reward of 2.5. If we get some continued weakness in the underlying and the IV which are currently at 30/27% respectively we should see premium degradation.

Anyone else game for this credit spread play?

8 comments:

OptionPundit said...

Hi Terence,

Yes I played it but not via credit spreads, I played it via Backspread instead...link here...
http://www.optionpundit.net/earnings/amazon-earning-jan

and google where I wrote about backspreads... is here..
http://www.optionpundit.net/earnings/how-to-play-google-earning

Cheers Terence,
OptionPundit
www.OptionPundit.net

Anonymous said...

I'm not clear how the risk reward of 3.5 comes about. Mind explaining? Thank you

Pat

Terence said...

Very nice OP. Thanks for the linkage on those plays. I'll be looking for your ideas as well.
Terence

Terence said...

Thanks for the question, Pat. It must have been a typo. The reward to risk should have been 2.5 not 3.5. I arrived at that by taking the 1.80 max credit on the spread and divide by the difference between the strikes which is 2.50 less the net credit which is .70 (1.80/.70=2.5). Sorry for the confusion. Glad someone is keeping a eye. Regards, Terence.

OptionPundit said...

Thanks OJ
All the best and wish you a profitable week ahead. There are tons of opportunities to make money this week. Keep a closer eye.

Cheers,
OptionPundit
www.optionPundit.net

Terence said...

Always keeping an eye...Thanks OP.

Anonymous said...

thanks Terence. And I think you were referring to 30/27.5 spread instead of 35/27.5

Pat

Terence said...

That's right. Thanks Pat.