Call Options Or Put Options On (AMZN)?

| June 5, 2013 | 0 Comments

Amazon OptionsAmazon (AMZN) operates the world’s largest online retailer.  Most, if not all of you, have ordered from at one point or another.  The company also offers video streaming, e-readers and tablets, cloud computing services, publishing services, and much more.

AMZN is currently trading for $265.70.  The shares are up 29% from the 52-week low of $206.37 and are just 7% below the 52-week high of $284.72.

Is this an opportunity to buy call options on AMZN due to the company’s planned expansion into the grocery business?  Or should you buy put options on AMZN because the company’s running out of ways to maintain its historically impressive revenue growth?

The bulls make a convincing argument…

Amazon, and CEO Jeff Bezos, is constantly looking for new and innovative ways to grow.  So far, most every business the company has developed has been a success.  Of course, you don’t become the largest online retailer in the world by being timid.

This planned foray into the groceries business is just another example of Amazon changing the game.  The grocery business in the US is $568 billion, so there’s a ridiculous amount of upside.

Moreover, AMZN already has the supply chain in place to help overcome the traditionally low margins of the industry.  If the company can successfully break into the grocery space, the sky’s the limit for what can be accomplished.

But the bears have a compelling case as well… 

It’s nice to see a company grow revenues, but profits are important too.  At some point, a business needs to show earnings growth or investors will lose faith.

Amazon is known for reinvesting its profits into the company’s future.  But when will the future arrive?  The stock has been trading at extremely lofty valuations for a remarkable amount of time.  How long will shareholders hang in there?

The grocery business is a tough nut to crack.  Many others have tried and failed.  If AMZN can’t make it work, the company will learn a very expensive lesson.

Is AMZN’s huge grocery market opportunity enough to keep shareholders happy?  Or are investors going to lose patience with this richly valued company?

If you think the bulls are right, take a look at buying the AMZN July $285.00 calls for around $2.90.

If you think the bears are right, take a look at buying the AMZN July $245.00 puts for around $3.15.

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.