AMZN Tonight

• Posted by Adam Warner
• on January 27th, 2011

For those seeking options trading information, here’s a doozey.

An idea from Goldman ahead of the release of Amazon (NASDAQ: AMZN) earnings tonight.

“Buy Mar $180 calls for $8.50 (5% of spot, $176.70) to trade a bullish view on earnings. Given that AMZN implied volatility has typically fallen 22% on earnings for 1-mth vol over the past eight quarters, we see better breakevens with March options given much more limited downside to implied vol post the event, in our view. We estimate that investors who buy March $180 calls would need less than a 2% move to break even on the day after AMZN’s earnings, assuming implied vol for March options fell to 34%, or down 22% from the Feb vol levels of 45%. If shares are flat post earnings, we estimate only an 8% decline in March $180 calls vs. a 20% decline in Feb $180 calls if volatility falls to 35% for both, making the risk/reward of March options more attractive to us. Call buyers risk losing premium paid if shares close below $188.50 (+7%) on Feb expiration.”

… adding, if the calls stay elevated for four hours, consult your physician.

Please click thru to InvestorPlace for the balance of the post.

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