This week I decided to play AMZN – Amazon.com Inc. Here’s how it went:
On Monday April 23 I bought 100 shares for $1,529, then another 100 for $1,538.75, and then I averaged down and bought a final 100 shares for $1,511. Average cost $1,526.25.
By Tuesday it was down to $1,463.50, so I sold 100 shares to reduce my risk.
On Thursday Amazon was trending higher and was trading at around $1,500, so I did a covered write for 2 calls, strike price $1,570, expiring the next day. I got $14.80 for them, a huge premium for options $70 out of the money with one day to maturity.
Thursday night Amazon announced blow out good earnings, and it opened Friday at $1,638.
Oops. I guess I shouldn’t have sold a hundred shares on Tuesday, and I shouldn’t have covered on Thursday.
By the afternoon on Friday Amazon was down to around $1,570, so I bought the options back for $7, and I then sold my shares for $1,576. (It’s a volatile stock).
The scorecard:
Bought 300 shares for $1,526.50, sold 300 shares for an average price of $1,538.50, for a profit of $12 per share.
Did the covered write for $14.80, covered it for $7, for a profit of $7.80 on two contracts.
That’s a total profit of about $5,000.
Given the value of 300 shares of Amazon, that’s pitiful.
I was correct; Amazon was going up. I made two obvious mistakes: I sold 100 shares too early, and I didn’t cover immediately.
When I bought the shares on Monday, I could have immediately done the covered write and pocketed a huge premium, and then closed out the covered write after the collapse on Tuesday.
Oh well, live and learn, but I don’t think I’ll be playing Amazon again.
Or maybe I will.
Tune in next week to find out what crazy mistakes I make.
Thanks for reading. See you next week.