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Setup: Vol Buy
Price: IV 20%
Description
So this is the first time AMZN hasn’t moved big on earnings in a while.
The chart above is the VIX for AMZN. It has crashed. This is the cheapest vol we’ll see in AMZN in a long time.
This trade looks complicated, but it’s basically a call buy with a put spread buy.
You could also consider it a strangle buy with a put sale to finance some of the cost.
IWO Premium Order Ticket Type Asset Duration Strike C/P BTO AMZN 16 Sep 16 780 Call BTO AMZN 16 Sep 16 720 Put STO AMZN 16 Sep 16 690 Put Total Debit: 18.6 Ok putting this trade on with half size:
IWO Premium Order Ticket Type Asset Duration Strike C/P BTO AMZN 16 Sep 16 780 Call BTO AMZN 16 Sep 16 720 Put STO AMZN 16 Sep 16 690 Put Total Debit: 19.00 If the value gets down to 17.00, I will add to the trade.
And if the value gets down under 7.00 I will stop out for a loss.
Ok I’m going to adjust this trade…
Instead of just straight up adding to the trade– which is a fine idea on its own and will still work out– I am going to move the long put to a higher strike.
There’s a couple things this will do to the trade. I’ll first show it to you on a risk graph, then give you the changes in the greeks.
So before:
And after:
So on a single spread, it cuts delta from 36 to 2.5, and it increases vega from 122 to 161.
Basically, this is getting the delta flat, increasing capital risk, significantly cutting downside risk.
I’m very comfortable adding risk here. AMZN 20 day historical vol is the lowest it’s been IN THE HISTORY OF THE STOCK.
It’s the same thing with the implied volatility as well. It’s stupid cheap and worth a buy.
So here’s the roll.. pretty simple, just move the 720 put up to the 770 put:
IWO Premium Order Ticket Type Asset Duration Strike C/P STC AMZN 16 Sep 16 720 Put BTO AMZN 16 Sep 16 770 Put Total Debit: 12.55
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