$AMZN $1,300+ or better premium for a Short Strangle 80/140 Put/Call

For those of you asking how can we take advantage of the bleed we’ve seen in Amazon for 2022, and prep our portfolios for a potential comeback coming 2023 here is our next idea, assuming we already own 100 shares of the stock at a cost of $95.00 purchased Dec 2 2022.

Sell a Short Strangle Expiring Jan 19 2024 for a $13.00 CREDIT or even better  (depends on time of execution)

Let’s examine our entry of cash flow

Cash received selling the $80 Jan 19 2024   Put:  8.00 x 100 = $800
Cash received selling the $140 Jan 19 2024 Call:  5.00 x 100 = $500
Total Cash received at trade initiation                                 $1,300

Now, let’s assume $AMZN closes at $142.50 Jan 19 2024 – What would be our profit

– $140 Call is exercised at its strike price of $140.
– $80 Put expires worthless

PROFIT CALCULATION
Exit Cash Flow:   $140.00 x 100 shares =     +$14,000
Cash flow from Short Strangle:                  +$  1,300
Initial Cost of Shares: $95.00 x 100 shares  -$  9,500  * NO SHARES REMAINING, since they will be called away/exercised.
Profit                                                          $5,800

Now, assuming $AMZN closes at $122.50 Jan 19 2024, then our profit will be the premium collected $1,300 since the $80 Put and the $140 Call both expire worthless. And our Portfolio will still have 100 shares of $AMZN remaining with an adjusted cost of $82.00 and we can continue this strategy over and over. 

The takeaway of this strategy is to understand that due to current 2022 market conditions many retail traders are sitting with unrealized losses on equities that they bought perhaps after the “assumed” bottom of September and those traders can employ the Short Strangle Strategy on such a way that if the market makes a comeback they will be able to get out of those shares at a profit and can substantially increase that profit through the premium they received for selling the Short Strangle.

Now, on the other hand if the Market sells off during 2023 and $AMZN drops below $80.00 where the short Put is, then you will be required to purchase those shares at $80.00.

Note that those new shares being assigned to you will have an adjusted cost of $67.00  ($80-$13 premium received = $67)
In this scenario, your portfolio will look like this:

100 @$95.00 Purchase date 12/2/2022
100 @$67.00* (cost adjusted) assigned date: unknown, since we don’t know if or when $AMZN will drop below $80.00

See Daily Chart below with annotations