The markets are looking poised for another big run to go higher, after having taken a breather and modestly pulling back to the 8 Exponential Moving Average (EMA). This significant push could start sooner than expected, as evidenced by the squeezes on the weekly charts and the lower time frame squeezes forming at the 8 EMA or as we call it “the buy zone.”
As mentioned in last Sunday’s newsletter, our main focus has been on AMZN due to its beautiful weekly squeeze, which has a higher probability of firing long, because of the accompanying squeeze in QQQ.
This week, we opened the 5/21 3500/3490 put credit spread on AMZN that we discussed in that newsletter. I sold 38 contracts of this spread a $6.75, resulting in a max potential loss of $12,000 for a max potential gain of $25,000. In order for this trade to work, AMZN will have to be trading above $3,500 come expiration time, which is entirely possible if the weekly squeezes begin to fire long.
Please note that unlike our typical put credit spreads, we have shifted the risk-reward in our favor on this trade by selling In The Money (ITM) strikes as opposed to Out of The Money (OTM) strikes.
One thing to keep in mind is that AMZN is set to announce earnings this coming Wednesday, so open application through earnings is of course a potential risk. With that being said, as much as we love the setup, we are approaching this trade with a “set it and forget it” mentality, fully accepting 100% of the risk on the table.