Log in Open account
United Kingdom
CFDs and forex (FX) are complex instruments and come with a high risk of losing money rapidly due to leverage. 64% of retail investor accounts lose money when trading CFDs with this provider.
Show more
CFDs and forex (FX) are complex instruments and come with a high risk of losing money rapidly due to leverage. 64% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX, or any of our other products work and whether you can afford to take the high risk of losing your money. Losses can exceed deposits on some products.
Show less
Investing with options: Amazon earnings

Investing with options: Amazon earnings

Options 10 minutes to read
Koen Hoorelbeke

Investment and Options Strategist

Summary:  As Amazon prepares to announce its latest quarterly earnings, we explore four different options strategies to suit varied market outlooks. Whether it's buying a call option for bullish leverage, selling a put to potentially acquire shares at a discount, or writing a covered call for added income, options present numerous strategic avenues.

Investing with options - Amazon earnings

Amazon, the Seattle-based technology giant, is set to release its quarterly earnings report on October 26, 2023. The company has been impressing with strong financial performance, particularly in its cloud computing division, Amazon Web Services (AWS), and its e-commerce sales. Investors are keen to dissect these sectors as we approach the earnings release. In this article, we'll explore various options strategies tailored for this earnings season and beyond.
Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.
 

Strategies

1. Bullish outlook - buying call options: 

  • Execution: BuyToOpen 1 20-Sep-2024 105 Call @ $33.65 (Delta: 0.80)
  • Premium and risk:
    • Premium cost: $33.65 x 100 (per contract) = $3,365
    • Max risk: $3,365 (if Amazon remains below 105 at expiry)
    • Max reward: Significant (increases as Amazon's stock price rises)
  • Breakeven point: $105 (strike) + $33.65 (premium) = $138.65
  • Rationale: A longer expiration reduces the effects of time decay.
   

2. Bullish outlook - selling ITM put options:

Selling in-the-money (ITM) put options can be another method to acquire Amazon shares at a discount.
  • Execution: SellToOpen 1 27-Oct-2023 130 Put @ $6.10 (Delta: -0.5812)
  • Premium and risk:
    • Premium earned: $6.10 x 100 (per contract) = $610
    • Max risk: Significant (if Amazon stock falls significantly)
  • Breakeven point: $130 (strike) - $6.10 (premium) = $123.90
  • Rationale: A shorter expiration allows quicker premium capture but comes with the risk of acquiring the stock if it drops below the strike price.
  

3. Bearish outlook - buying put options:

If you believe Amazon's stock is set for a decline, a long put option can be suitable.
  • Execution: BuyToOpen 1 20-Sep-2024 145 Put @ $24.65 (Delta: -0.5830)
  • Premium and risk:
    • Premium cost: $24.65 x 100 (per contract) = $2,465
    • Max risk: $2,465 (if Amazon remains above 145 at expiry)
  • Breakeven point: $145 (strike) - $24.65 (premium) = $120.35
  • Rationale: A longer expiration again helps mitigate time decay effects.
  

4. Neutral/bullish outlook - writing covered calls:

If you already own Amazon shares, covered calls can generate additional income.
  • Execution: SellToOpen 1 03-Nov-2023 138 Call @ $1.13 (Delta: 0.2053)
  • Premium and risk:
    • Premium earned: $1.13 x 100 (per contract) = $113
    • Max risk: Limited to stock ownership
  • Yield for covered call:
    • 11-day yield: 0.89% ($113 / ($126.56 * 100)
    • Annualized yield: 29.42% (0.89% / 11 * 365)
  • Rationale: Writing covered calls can generate income but caps upside potential. This strategy is suitable if you expect the stock to move sideways or slightly up in the short term.
 

Conclusion

Options offer a variety of strategies to explore as we approach Amazon's upcoming earnings. Whether your outlook is bullish, bearish, or somewhere in between, options provide a flexible toolkit to navigate different market conditions.
 
  • Buying calls: Call options offer a leveraged way to gain exposure to potential upside with a set maximum loss.
  • Selling ITM puts: This strategy can effectively lower your acquisition cost if you’re bullish on the stock.
  • Buying puts: For those expecting downside movement, puts offer a way to benefit while limiting risk.
  • Writing covered calls: This provides an opportunity for additional income, although it caps your upside.
Options trading offers avenues for different investment goals, especially as we look toward Amazon's earnings.
 

Related articles:

Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Bank's Terms of Use you will find more information on this in the Important Information Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Bank's website.

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
    Read full article
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

    Read full article
  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
    Read full article
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
    Read full article
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

    Read full article
  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
    Read full article
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
    Read full article
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
    Read full article
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
    Read full article
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
    Read full article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom
Products & pricing
Platforms
Accounts & service
General
Other
Legal

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992