Amazon UOA Seen in 1DTE Calls — The Deep End of the Pool

Rebel Hub Education

by

Justin Nugent

September 7, 2023
at 3:15 PM

UPDATE: This was a trade idea in $138 strike Amazon 9/08 call options, bought on 9/07 for an average price of $0.24.

After bouncing off of its 50 day moving average, Amazon outperformed on Thursday despite a negative day for the broader market, with shares of Amazon closing +1.8% higher. Friday, that positive performance continued, with these former out-of-the-money calls moving into the money. At the time of writing, Amazon shares have traded as high as $138.85, and these options traded as high as $0.92 — just $0.4 cents shy of a 4X gain.

Congratulations to rebels who took on this trade. For those who missed it — don’t worry. For options traders, there will always be another opportunity.

Things are getting pretty bearish out here, but there’s one stock that’s breaking the trend today with some relatively strong action — Amazon. Amazon has respected its 50-day moving average a lot over its recent history, and it’s bouncing off of that 50-day today.

Also, it’s trading in a firm upward channel thus far during intraday trading.

Additionally, it’s showing relative strength against the indices that it’s a part of (the SPY is lower by -0.62% and the QQQ is lower by more than 1%).

So it’s no surprise we saw a huge purchase of Amazon calls today at 10:18AM EST — 34,000 of them. Here’s the thing: This is a very short term trade. These calls expire tomorrow. 1DTE is the definitive deep end of the pool, and these options are already up a decent amount — rising steadily as I write this.

TICKER: AMZN

STRIKE: $138

EXP: SEP. 08

QUANTITY: 34,000

AVG COST: $0.24 PER CONTRACT

AMZN TRADE PRICE: $136.07

When I saw these high-risk options, I hesitate to write a long-winded piece about this because this is a short-term trade and Amazon is already beginning to move higher. That said, this relative strength could be a canary in the coal mine for tomorrow’s trading. Today is the fourth down day in a row for the QQQ, and Friday’s throughout 2023 have carried roughly an 80% chance of the VIX falling — which often correlates to a positive trading environment for the SPY and the QQQ. If we get a bounce tomorrow, Amazon could be one particularly bright spot based on today’s trading.

Here’s what I would say if you’re willing to follow this UOA: Set a clear plan for yourself. You should be doing that with every trade, but with this one, it’s vital. By default, you can stick with Jon’s “risk management rule of thumb”: If the option loses 50% of it’s value, “I’m out” — and if the option gains 100% of it’s value, “I’m out” (or maybe you’ll roll to a cheaper position and keep the profit). Whatever you decide, these short-term options move quick, so be careful.

Additionally, as a final caveat, when I took this trade, I grabbed a very small position in the at-the-money $136’s rather than the OTM $138’s. Short-term OTM options like this can be great, and the risk is very low when you’re only paying $0.24 for an option, so the choice is entirely up to you — but grabbing at-the-money options usually carries a higher probability of success than OTM options in the 1DTE zone.

If you’re going to jump in, I wish you the best of luck, please be careful, and only risk what you are willing to lose.

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