Amazon.com (AMZN) Q3 earnings preview, plus a trade idea

Amazon.com (NASDAQ: AMZN) shares are surging today ahead of this evening's Q3 earnings report. We have recently seen some positive earnings reports from Apple (NASDAQ: AAPL) and AT&T (NYSE: T) that are getting investors excited for Amazon's numbers. Wall Street analysts expect earnings of 18 cents per share tonight from AMZN. The company earned 19 cents per share in the previous quarter, and five cents per share in the year-ago quarter. AMZN has beaten EPS estimates each of the last four quarters. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AMZN.

Shares have been rising steadily over the past six months, hitting a 52-week high of $96.73 earlier this month. AMZN opened this morning at $95.28. So far today, the stock has hit a low of $94.21 and a high of $95.44. As of 11:45, AMZN is trading at $94.83, up $3.54 (3.88%). The chart for AMZN looks bullish but deteriorating slightly, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.

For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $60 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just 3 months as long as AMZN is above $60 at January expiration. Amazon would have to fall by more than 36% before we would start to lose money.

AMZN hasn't been below $60 since April, and has shown support around $90 recently. This trade could be risky if this evening's earnings disappoint, but even if that happens, this position could be protected by recent support between $65 and $75, plus the stock's 200-day moving average, which is currently at $62 and rising.

Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: At publication time, Brent neither owns nor controls positions in AMZN.

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