Call Options Or Put Options On Amazon (AMZN)?

| October 25, 2013 | 0 Comments

Amazon OptionsAmazon (AMZN) is in the spotlight today after releasing third quarter results Thursday after close.  The world’s largest online retailer tends to be a lightning rod for investors’ opinions.

AMZN shares are trading at $361.15, up 9% so far today.  The stock’s up 66% from the 52-week low of $218.18 and is trading well above the previous 52-week high of $337.11

Is this an opportunity to buy call options on AMZN due to the company’s higher than projected third quarter revenues?  Or should you buy put options on AMZN because the company is still losing money?

The bulls make a convincing argument…

AMZN impressed investors again with double-digit sales growth in the third quarter.  Sales grew by 24% from last year’s third quarter to $17.1 billion.  Analysts had estimated $16.8 million.

The company’s growth was driven by aggressive expansion in the domestic market as well as penetration into overseas markets.  Domestically, it looks like the money AMZN is spending on building fulfillment centers is paying off.

Because the company isn’t concerned about operating at a profit right now, the key number to look at for AMZN is revenue growth.  And by that measure, this past quarter was a huge success.

But the bears have a compelling case as well… 

Despite higher revenues, AMZN remains unprofitable.  Not to mention, operating expenses grew in line with revenues, suggesting economies of scale are not being achieved.

While the company may not be focused on profits at this moment, it can’t operate at a loss indefinitely.  If sales growth stalls at all, investors may decide to jump ship in droves.

Investing for the future is generally a good idea, but at some point, AMZN must do something to justify its lofty valuation.  Investors are okay with revenue growth for now, but how long will that last?

So is AMZN’s strong revenue growth a reason to be bullish on the stock, or are investors going to lose faith in the company because of lack of profits?

If you think the bulls are right, take a look at buying the AMZN November $380 calls for around $3.00.

If you think the bears are right, take a look at buying the AMZN November $330 puts for around $2.25.

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.

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