jay_beckner

I play poker and trade options, seeking edges from study, reflection and analytics.

#017 AMZN Calls Day Loss

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Opening Trade Details: Bought to open 2 Dec 2nd Amazon Com Inc (NASDAQ:AMZN) 740 calls for $5.20, $1,046.03 total cost (99.3% of account), 1 day to go. The trade executed at 10:38:00 when the stock was approximately $744.00.

Potential: Unlimited, but targeting resistance at $747 and watching MACD divergence on the 15-minute and 5 minute charts. Given the position delta ($1k option value moving with about $110k value of underlying stock), account risk and immediate contract expiration, any technical breakdown should prompt closing this trade.

Thesis: I've been tracking AMZN through the post-election volatility for clues on market direction, sector health/rotation, money flows and investor risk appetite. It seems to be forming a head and shoulders bottom (see chart below) and setting up for a long trade in the context of broad market strength, recent tech sector weakness and a strengthening consumer.

Hourly chart of AMZN showing potential head and shoulders bottom and $870 target.

Hourly chart of AMZN showing potential head and shoulders bottom and $870 target.

After Wednesday's OPEC deal, money quickly rotated out of tech and into oil. The short-term moves in stocks like RIG and SLB moderated into today signaling a minor rotation back into beaten-up tech was possible. With the long case above, AMZN's relative tendency to stay in diverging/converging states (more on this Excel-based analysis later) and high expiration-day deltas, I chose to trade AMZN calls today.

Adjusting my chart array to a 5/15/30-minute view, I watched the early trade and let volatility settle. The stock appeared to find direction around 10:30 a.m. The MACD indicators on all timeframes aligned in divergence as the stock moved higher.

5/15/30-minute AMZN charts aligned as the stock broke upside resistance.

5/15/30-minute AMZN charts aligned as the stock broke upside resistance.

Shortly thereafter, I bought the 740 calls as they offered a tighter bid/ask spread than the adjacent strikes. The out-of-the-money options traded wildly in the first hour, and both puts and calls saw lots of volume with the contracts set to expire.

AMZN tested $745 several times over the next hour, and threatened to break higher, but it ultimately broke the 5-minute chart's rising trendline (see left most chart below) - a hasty exit had to be made. The ask price of the option didn't get over $6.00 in the hour and ten minutes I held the contracts.

Chart array showing the trade exit as technicals turned bearish.

Chart array showing the trade exit as technicals turned bearish.

Closing Trade Details: Sold to close whole position for $3.80, $753.94 total proceeds. The trade executed at 11:47:12 when the stock was approximately $743.25.

Return: (27.9%) after commissions

Note: Despite the loss, I am encouraged by the development and execution of this trade. Yes, you should never have your whole account at risk in any trade, but risk management at $1k is somewhat different than at higher capital levels. I am getting better at recognizing weakness and managing out of positions that aren't working. The process of blogging trades is helping. I've also been allocating more time to trading books and podcasts to accelerate my improvement.

Status: Account $761.68 | Q2 Return (80.1%) | Q2 Goal 59%

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