This Amazon Options Trade Targets a 30% Annualized Return

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Carlisle discussed This Amazon Options Trade Targets a 30% Annualized Return. Here’s an excerpt from the episode:

[Tobias] So let’s talk a little bit about the option trade that we’ve got on for Amazon.

[Tim] Yeah. So today we sold it. We sold the put.

So we sold a trade today that expires on August 5th. So this is like 14 days out. And we sold a $225 put for $2.60 of premium. And so I think the stock’s trading at around $245, something like that. Last I looked, maybe right around there. And so we’ve manufactured a nice little bit of a margin of safety.

So mid $240s, all the way down to $225. We’ve collected $2.60, which doesn’t seem like a huge amount. It’s 1.17% on the capital required, but this is 14 days. So the annualised returns 30.5%. And we are more than happy to own the stock at that level. If we do get exercise, Toby, we’ll have a plethora of options, whether that’s just holding the stock or inciting the wheel and doing a covered call. And at that price, we could sell calls at relatively low levels and get really good premiums.

So either way, we’re comfortable with it.

[Tobias] Yeah. So the stock is pretty good value here. If the stock drops further to the strike, we’ve still got a little bit of premium built in, a little bit of margin of safety, but combined together with the strike and the premium, it’s a pretty significant margin of safety relative to where the stock is trading now, which is still a pretty good price.

And on the other side, small absolute return, but in an internal rate of return calculation, because it’s such a small amount of time to expiry, 14 days, a little bit more than two weeks in trading terms, pretty good return, 30% ish. So that’s a pretty typical trade that gets put on through the website.

[Tim] Yeah. The value options letter, that’s one of the things that we do put a focus on is having a variety of different expirations, some short term, some longer term, also a variety of different industries. We don’t expect subscribers to pick every trade.

I mean, it’s up to them. It’s smart to keep a reasonable level of diversification. And if you like the idea, feel free to act on it.

But I like this type of investment because you might be thinking, there’s a lot of people out there like, well, Amazon’s had a decent run. I would like to buy in the mid 220s. If it gets there, I want to keep a little cash in reserve.