I'm long AMZN with 10 shares but have also begun day trading it as well. The genesis of the trade was from Options Action on CNBC last week where they made a compelling case that it is due to break out of the sideways movement it's been stuck in for a while now. They pegged $4300 as possible end-of-year level and they also suggested an exotic options trade to capitalize on what could be a decent upside move in the next few months. I've modified their trade to make it more day-trader friendly and, frankly, riskier.
My AMZN trade begins with the purchase of an out-of-the-money call which represents that I am bullish in the short term. I chose the strike price of $3650 for August 20 to tail the CNBC guys and also because I was comfortable with the cost. On 6/21, AMZN was trading around $3450 and that call cost me $82, which is the top-end of what I wanted to put at risk. The thing with AMZN calls is that they are super expensive because the stock price is so high, so this adds to the risk--it is impossible to scale down any lower than one contract. But the high cost of options contracts can be used to your advantage when you're the seller. That's phase two.
I bought the call with the intention of selling another call at a higher strike price against it. Usually, you do this at the same time as the first call and what you've bought is a "call spread". But I wanted to squeeze as much juice out of that sold call as I could, so I planned to wait for a nice up day. Sell the call when the share price hits $3500 and you get better premium out of it. Truth be told, I got lucky with a nice bounce on the very next day. It allowed me to sell the $4000 strike August call for $26. If the trade ended there, I would still be in a bullish stance, holding a 3650/4000 call spread with potential gross of $35000, all for an investment of $5600 (paid $82, recouped $26).
Ordinarily, one cannot sell an AMZN call unless it is covered but who owns 100 shares of AMZN to do that? The purchase of the lower strike call counts as a proxy for those 100 shares which enables the sale of the higher-strike call. But wait there is more, and this is where the added risk factor / day trading comes in. AMZN got hammered today on word of pressure from the Teamsters to unionize, so I bought back the $4000 call for $17. Now I'm back to a heartily bullish position (holding one $3650 August call with no upside impediment) but my cost basis bounced back up from $56 to $73. That's less than the original $82, though, since I "made" $900 on the sale and repurchase of the $4000 strike call.
You know where this is going. I am hoping for more seesaw action in AMZN, obviously with an upswing being desired. On another pop up to the $3500 range, I can resell (and maybe later rebuy) another August call. The way AMZN moves, one could make almost $1000 on daily swings, all the while being tethered to the bullish $3650 call that anchors these trades. Worst case scenario is that the price stagnates for two months and I eat the premium of the call (currently at $7300). Best case, I rinse/wash/repeat a few times, net a few thousand on trading "covered" calls, and ideally the share price is well north of $3650 come August, potentially hitting for $35000 if the share price is at or above $4000.
Again, a highly volatile day trade of AMZN and you must be willing to lose the entire premium to enter into this cycle, but weighing the probabilities and the potential payoffs make these trades that I am comfortable with. GLTA.