Trading Plan Update

Brit Ryle

Posted January 27, 2023

I love it when a plan comes together. And it’s even better when that plan involves making some loot. 

We had been looking for the right entry point for an Amazon (NASDAQ: AMZN) trade. On January 16, I wrote: 

[Amazon] stock is just over $98. I wouldn’t expect it to move over $100 on its first attempt, but when it does, another 10% run to fill the gap at $110 looks doable.

In trading, there’s a Rule of Round Numbers. And says that when stocks run up to a round number, like $100, they usually find resistance there. It is often the case that a stock will pull back from $98 or $99 before it makes a move to break over $100. 

And the Rule of Round Numbers was certainly in play for Amazon. All we needed was the pullback to complete the set up. It was very nice of Microsoft (NASDAQ: MSFT) to oblige us with its Tuesday evening earnings report that resulted in a sizable drop for both Microsoft and Amazon on Wednesday’s open. 

Here’s the updated chart from Wednesday’s article, Today’s Trading Plan:

Amazon

Source: Yahoo Finance

And my commentary: 

The highlighted circle shows the gap up to $110 that needs to get filled. Amazon has already broken over the 50-day moving average (purple line), which currently sits at $91.32. I added the green line to show where support is: $92.50.

Risk/reward looks very favorable. Amazon reports earnings next Thursday. If I can get the 100 strike Amazon calls that expire next week for around $1, I’m gonna do it. 

The purple arrow shows Wednesday’s action. The stock opened right on the green support line I pointed out to you. It then immediately found support at the 50-day moving average (purple line) and at that time, the 100 strike call options that expire next week (Feb 3), were trading at $145-$150. 

Today, Amazon is cruising above $100. In fact, as I write, the stock is above $102. And those calls are trading for $575. That’s a 283% gain from Wednesday morning. 

Now, $110 is still in the cards for Amazon. But lemme ask you: do you wanna hold these calls over the weekend and into next week when Amazon reports earnings on Tuesdayand there’s a rate hike coming Wednesday? 

Or would you rather take the 283% gain now, have a great weekend, and see what opportunities we get next week? 

Yeah, me too. So take that sweet gain, enjoy your weekend, and I’ll talk to you on Monday,

Briton Ryle