How to handle AMZN

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How to view the entire chart:


1. Try clicking on the name of the most recent article in the column on the right. This will remove the "Archives" list.
2. Try right click on the chart itself and open it on a separate window.


I am sorry that I cannot always make the chart small enough to fit neatly on the left column. I want you to be able to see the details I want to point out.


I Hope this helps,


Juan

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First, what went wrong and why: We have a small loss on AMZN after earnings, when we should have had big Delta gains. What happened? Note that my longs are Jan expire. That was just too far out. Doing this increased my cost so the big gains in the PUT side was insufficient to overcome the loss on the CALL side. When I entered the position, the Jan options had a lower volatility than the Oct. options and I saw that as an opportunity. My choice should have been the Oct. options or stay out of the position.

When you buy options so far into the future, it presents a different set of opportunities, and we should see it as such. AMZN has more time to go down still, making my potential gains bigger still. However, if AMZN hits a bottom, the long calls, that are now lottery tickets may increase in value. Our job is to call the bottom. As an example, take a look at the AAPL trade: I rolled the long puts into a lower strike price, which set me up for gains on the short puts. Analyse that trade and prepare for calling the bottom on AMZN, which should happen between here and the Jan expiration, once wave II is completed:


As you can see below, wave II is a double zigzag, and it may be close to conclusion. Before that, AMZN may still go down some more. So we should stay in the trade as is today because the gains with the long puts may be sufficient for sizable profits. Remember that the PCCRC is about recognizing when it is time to make changes at the extremes. This extremes may be in the form of spikes in volatility or at significant tops or bottoms. I want to keep this trade because my losses are not that significant, and because I want you to see how to handle this kind of trade. However, I could have also elected to exit the trade with this relatively small loss.

Note that the Y wave has the potential to go as low as $9/share. But it may also be completed already. My sense is that there is still some more downside to this stock.



Staying in this trade so far OTM may create additional problems, the assigment of shorts. It really shouldn't matter much. This is how I handle it: sell the stock you are assigned and replace the short puts. This game may get tiresome and it is an additional insentive to close the position at a loss. I will keep on this for demonstration purposes.