Medium term
Trade view / 18 May 2016 at 14:01 GMT

#SaxoStrats: Amazon primed for a downturn

Global Head of Listed & OTC Derivatives Sales / Saxo Bank
Denmark
Instrument: AMZN:xnas
Price target:
Market price:
SaxoStrats
 
Background

Stochastics and RSI are giving us a selling signal on Amazon, MACD is about to reverse.
Let's buy the Jun16 (expiry on June 17) 695/665 Put Spread to play a 23.60% retracement of the last bullish wave 474/772.45 at 663.82.

Amazon
Source: Saxo Bank

Management and risk description

Entry: Buy one Jun16 695/665 Put Spread at $9.80
=> Buy one Jun16 695 Put at $19.90
& Sell one Jun16 665 Put at $10.10

Maximum profit at expiry is limited

Maximum profit at expiry achieved when underlying price =< short strike price
At expiry maximum profit = Long Strike price minus short strike price minus premium paid
= $695 - $665 - $9.80
= $20.20 

For  one Put Spread you pay a premium of $980 ($9.80 x 100 shares) to receive a profit of $2020 ($20.20 X 100 shares) if the market closes at $665 or below at expiry.

Return on investment if the market closes at or below $665 at expiry

= Profit/premium X 100
= $20.20/$9.80 X 100
= 206.12%

Maximum loss

Maximum loss is limited to premium paid
Maximum loss is $9.80 or $980 for one Put Spread

Break even point at expiry

Long strike - premium paid
$695 - $9.80 = $685.20

Target: $665 or below

Time horizon: 30 days

Amazon
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Source: Saxo Bank 

— Edited by Michael McKenna

For more on contract options click here.

Non-independent investment research disclaimer applies. Read more

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