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Risk-On Relief Rally with Amazon Covered Call

After another large decline last Thursday, equities  along with other “risk-on” assets appear poised for a relief rally that could  come early in the week as the markets begin anticipating and debating what  Federal Reserve Chairman Ben Bernanke may deliver in his Friday speech. It was  in last year’s speech from Jackson Hole when the Chairman unveiled QE2 setting  the stage for an equity rally that helped to boost the S&P 500 Index by 32%  before reaching a top on May 2, 2011. Although the early comments do not  reflect high expectations, unless there is news of more negative developments  in Europe chances are we can expect some short covering before the speech,  after all nobody knows what he may pull out of his hat.

Here is a FREE Covered Call Trade:

Covered Call STRATEGY:

Look at the January 160 covered call. For each 100 shares of Amazon.com (AMZN) stock you buy, sell one January 160 covered call option for a 147.40 (180.55 – 33.15) debit or better. That’s potentially an 8.5% assigned return.   The technicals for AMZN are bearish with a possible trend reversal. The stock is under distribution with support at 175.37. S&P rates this stock 4 STARS (out of five) – buy.   The stock has to drop 18.4% to threaten the breakeven point.

S&P upgrades recommendation on shares of Amazon.com (AMZN) to buy from hold. Here are the notes: Following a recent 20% decline, we think AMZN is attractively priced trading well below our $250 DCF-based target price. While we expect continued near-term investments in fulfillment and technology to weigh on the bottom line over the next several quarters, we believe AMZN has a significant opportunity for long-term operating margin growth. We think industry drivers remain positive, with worldwide online penetration growth and with more people choosing to shop online. In addition, AMZN’s recent sales execution and market share gains have been peerless, in our opinion.
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