A lower-cost bet on a year-end rally in Amazon using options

Black Friday is finally here and Amazon is owning it in many ways. I'm going to look at a low cost way to bet on a year-end continuation in the comeback in the shares. The leading online retailer bumped it up a notch this year paying nearly $100 million for the broadcast rights to a Black Friday NFL game. The NFL's first-ever game on the biggest shopping day of the year will be on Amazon's Prime Video rather than traditional TV. The Miami Dolphins and the New York Jets play at 3 p.m. ET. That $100 million expenditure is on top of the $1 billion per year Amazon (AMZN) is already paying to broadcast 15 or 16 Thursday Night Football games annually until 2033. Amazon is happy to pay a premium as they enter the live sports broadcasting “octagon”. Amazon has also secured rights deals with the New York Yankees and the Seattle Storm and it streams Champions League matches to viewers in Italy and Germany and English Premier League matches in India. After AMZN was cut nearly in half in 2022, investors that hung in there have fortunately experienced a significant rebound in this high-flying e-commerce and cloud juggernaut, with the shares up more than 75% year-to-date. This move into live broadcasting is another clever marketing strategy for the behemoth to further revenue expansion and a valiant attempt to collect more Amazon Prime membership monies. Amazon revenue for the 12 months ending September 30, 2023 was not too shabby at $554 billion, a 10 percent increase year-over-year. Amazon annual revenue for 2022 was $513 billion, a 9 percent increase from 2021. Amazon annual revenue for 2021 was $469.8 billion, a 22% increase from 2020. Call me crazy but, I see a pattern here… As I believe Amazon will continue on its path of world domination, I want to embrace the stock price at its 52-week high versus fear it. On the chart below, Amazon looks like it wants to revisit $170 where it put in a fair amount of volume in previous years. (Remember, in March of 2022 Amazon announced their 20-for-1 stock split). AMZN mountain 2020-12-31 Amazon since 2020 It is also imperative to remember that Amazon has a vast business with multiple categories from e-commerce to cloud computing. At the start of 2023, Amazon's AWS had a market share of around 33%, the largest of any cloud service globally, and more than Microsoft Azure and Google Cloud combined at roughly 31%. A front spread In order to express my bullish view, I want to use a 1×2 ratio vertical call spread, or commonly called a front spread. I am using this approach as I expect a continued rise in Amazon's price through year end, but I do believe the megacap juggernaut will hit resistance sits at $170. The stock was trading Friday at around $145. 1×2 Ratio Spread Buying one December regular expiration AMZN $150 call option for $2.07 Selling two December regular expiration AMZN $165 call option for 12 cents each Net debit of $1.83 costing an investor $183 per spread. One of the biggest reasons an investor might want to use a ratio spread is to lower the cost of entry by buying an expensive call option and selling two call options further out of the money. Take caution as when left unhedged, this type of strategy can be directionally biased to a point as the extra OTM call option sold eventually takes over the risk profile. DISCLOSURES: (Long the 1×2 vertical spread and AMZN stock) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.