Recent Acquisitions Make for Bullish Trade in Amazon

By Andrew Keene  JAN 29, 2013 3:37 PM

AMZN has gone up in price five out of the last eight times and the average historical move on earnings is 8.7%. Where will the stock go after today's earnings report?

 


As this week of earnings chugs along, I turn my attention toward Amazon (NASDAQ:AMZN), which reports after the bell today. AMZN opened at $275.35 today, a little down from the 52-week high of $284.00 (which was made this past Friday), but still above all the moving averages, ranging from the 50-day to the 200-day.

Taking a look back at previous earnings, I see that AMZN has gone up in price five out of the last eight times and the average historical move on earnings is 8.7%. I think the stock will move at least 8.7%. I want to take a bullish position because, as I always say, AMZN is one of the hardest stocks to be short. Wall Street seems to be taking to the bullish side as well, implying that it will forgive AMZN if the company fails to meet earnings expectations, due to the fact that AMZN is planning for long-term growth.

In-line with this notion is the recent acquisition of Ivona, a European-based text-to-speech technology company. This acquisition implies that AMZN may have its sights set on the wireless phone world, or on upgrading its Kindle product line to compete with the likes of Apple’s (NASDAQ:AAPL) Siri. This kind of acquisition could not come at a better time, as Apple shares continue to ride a rollercoaster of price action and the release of the BlackBerry 10 (NASDAQ:RIMM) has not yet occurred, so we cannot get an accurate gauge on the public's reaction to the phone.

With all of that taken into consideration, my trade in AMZN is as follows:

My Trade: Buying the 280-290-300 Call butterfly for $1.15

Risk: $115/ 1 lot

Reward: $885/ 1 lot

Breakeven: $281.15 and $298.85

No positions in stocks mentioned.