Tue. Apr 23rd, 2024

Tech earnings have been a mixed bag so far this earnings season. Amazon.com (AMZN) is due to report earnings on Thursday after the closing bell.


Amazon stock has stayed within the expected range following three of the last six earnings announcements. Amazon is now expected to stay in a 6.8% range, which would be between 120 and 137.

Traders who think AMZN will stay in that range following the earnings report could look at an iron condor trade.

Let’s look at an example of how we might set up an iron condor over earnings.

As a reminder, an iron condor is a combination of a bull put spread and a bear call spread.

The idea with the trade is to profit from time decay while expecting that the stock will not move too much in either direction.

Amazon Stock Trade Generates $160 Premium

First, we take the bull put spread. Using the Oct. 27 expiry, we could sell the 120 put and buy the 115 put. That spread could be sold for around $0.80.

Then the bear call spread could be placed by selling the 137 call and buying the 142 call. This spread could also be sold for around $0.80.

In total, the iron condor will generate around $1.60 per contract, or $160 of premium.

The profit zone ranges between 118.40 and 138.60. This can be calculated by taking the short strikes and adding or subtracting the premium received.

Because both spreads are $5 wide, the maximum risk in the trade is 5-1.60 x 100 = $340.

Potential Return Of 47%

Therefore, if we take the premium ($160) divided by the maximum risk ($340), this iron condor trade has the potential to return 47%.

If Amazon stock stays within the expected range, the iron condor trade will work well. However, if the stock makes a bigger-than-expected move, the trade will suffer losses.

According to the IBD Stock Checkup, Amazon is ranked No. 6 in its industry group. It has a Composite Rating of 85, an EPS Rating of 81 and a Relative Strength Rating of 91.

Please remember that options are risky, and investors can lose 100% of their investment.

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ


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