Why Amazon Remains A Good Candidate for Selling a Cash-Secured Put

$Amazon.com(AMZN)$ remains a good stock for options trading due to its strong underlying business fundamentals, analyst optimism and growth potential in high-margin sectors, and stock volatility that provides trading opportunities.

In this article, I would like to share my options-trading–oriented analysis of why Amazon (AMZN) remains a compelling stock for options traders based on strong fundamentals, volatility dynamics, and market sentiment:

Robust Underlying Business Fundamentals

A solid fundamental backdrop tends to support informed options trading because it reduces the likelihood of unpredictable, catastrophic moves while still providing directional catalysts.

Key long-term drivers:

a. AWS leadership and profitability

• Amazon Web Services (AWS) continues to be the primary profit engine with strong margins (~38–39.5%) and sustained demand for cloud and AI services. AWS revenue growth remains a core expectation underpinning analysts’ bullish outlooks.

b. Advertising and other high-margin businesses

• The advertising segment is growing rapidly (double-digit YOY increases) and contributes disproportionate profitability, strengthening overall earnings quality.

c. Diversification and growth optionality

• Amazon is investing in areas such as AI, robotics, logistics, healthcare, and international expansion, creating optionality that can be priced into volatility.

d. Strong analyst support

• Multiple sell-side analysts maintain Buy/Overweight ratings with elevated price targets, reflecting expectations of further stock appreciation over the next 12–18 months.

Why this matters for options: A fundamentally strong company reduces the risk of volatility due solely to downside fundamentals, helping traders focus on strategic plays around events (earnings, AI developments, product launches, macro shifts).

Volatility Characteristics that Support Diverse Options Strategies

Unlike stocks with extreme chaos, Amazon’s volatility profile offers structured opportunities for different styles of options trading.

a. Implied volatility levels

• Amazon’s 30-day implied volatility fluctuates but has periodically been below historical averages (creating cheap premium environments) and can rise ahead of catalysts (earnings, AWS announcements).

b. Range of viable strategies

• Low/steady volatility environments: Techniques like calendar spreads and iron condors can capitalize on premium decay and range-bound trading.

• Ahead of catalysts: Long straddles/strangles benefit from potential volatility expansion when macro events or earnings are near.

• Directional bets: Bullish or bearish vertical spreads allow leveraged directional exposure with defined risk based on analysts’ price expectations.

c. High options volume and liquidity

• Amazon sees significant options trading activity—both calls and puts—indicating deep liquidity and tight spreads, which is critical for efficient trade execution and risk management.

Market Sentiment and Price Action Dynamics

a. Put/Call interest and implied skew

• A generally stronger interest in calls relative to puts (lower put/call ratio) suggests persistent bullish sentiment that traders can leverage with upward-biased strategies.

b. Volatility expectations around events

• Implied volatility tends to rise before earnings or major reports, creating opportunities for strategic positioning (long volatility trades if expecting a breakout, short premium trades if settling into a range).

c. Technical context

• While technical sentiment can vary, the combination of volatility swings and trending periods is what allows options traders to deploy multiple strategy archetypes (directional, neutral, hedging).

Strategic Implications for Options Traders

a. Earnings-centric trades

• Earnings often cause sharp IV expansion and price moves; straddles or strangles can capture this if traders anticipate greater moves than priced in.

b. Time decay exploitation

• In calmer periods with subdued implied volatility, selling premium via iron condors or credit spreads can capitalize on accelerated time decay.

c. Directional spread plays

• Bull call spreads or long calls around strong fundamental catalysts can offer leveraged upside with defined risk, aligning with analysts’ bullish projections.

d. Hedged positions

• Protective puts on large stock positions can serve as insurance during earnings or macro announcements.

Risks and Considerations

It is important to balance the bullish case with risk controls:

• Volatility can compress unexpectedly—leading to losses on long premium positions.

• Earnings surprises or macro shocks can create outsized moves both up and down.

• Competition in cloud and AI markets may affect future growth projections.

Proper position sizing, risk limits, and choice of expirations/strikes are essential for capital preservation.

In the next section, I would be sharing the analysis of an Amazon (AMZN) option trade using the Selling a Cash-Secured Put.

Trade Setup & Market Data

• Underlying Stock: Amazon.com Inc. (AMZN)

• Current Price: ~$228.58 (as of Dec 23, 2025)

• Strategy: Short Put (Cash-Secured)

• Strike Price: $220.00

• Expiration Date: January 30, 2026

• Time to Expiration: 38 Days

Premium & Profit Potential

Note: Option prices fluctuate constantly. The premium below is an estimate based on current Implied Volatility (~26%).

• Estimated Premium: $4.80 – $5.50 per share

• Total Credit Received: ~$515 (using midpoint $5.15)

• Cash Collateral Required: $22,000 (Strike Price x100 shares)

Return Calculations:

• Max Profit: $515 (Keep the full premium if AMZN stays above $220)

• Return on Capital (38 Days): ~2.3% ($\frac{515}{22,000}$)

• Annualized Return: ~22% (if this performance were repeated every 38 days)

• Break-Even Price: $214.85 ($220.00 Strike - $5.15 Premium)

Scenario Analysis at Expiration (Jan 30, 2026)

Scenario A: AMZN stays above $220 (The "Win" Scenario)

• Outcome: The option expires worthless.

• Action: You keep the $515 premium as pure profit. Your cash collateral of $22,000 is released.

• Next Step: You can restart the wheel by selling another put for Feb or March.

Scenario B: AMZN drops below $220 (The "Assignment" Scenario)

• Outcome: You are obligated to buy 100 shares of AMZN at $220.

• Net Cost Basis: Your effective purchase price is $214.85 per share (Strike $220 - $5.15 premium collected).

• Action: You now own 100 shares of AMZN.

• Next Step (The Wheel Step 2): You begin selling Covered Calls against your shares to lower your cost basis further.

Example: Sell a Feb 2026 Call with a $225 strike to collect more premium while waiting for the stock to recover.

Critical Risk Factors

The Earnings "Binary Event"

This is the most significant risk for this specific trade. Amazon is projected to report Q4 earnings on January 28 or February 5, 2026.

• If Earnings are Jan 28: This expiration (Jan 30) captures the earnings move. If Amazon misses expectations or provides weak guidance, the stock could gap down significantly (e.g., dropping to $200), putting you well below your $214.85 break-even immediately.

• IV Crush: If earnings pass without a drop, the Implied Volatility will collapse ("crush"), allowing you to potentially buy the put back for a profit much earlier than the expiration date.

Opportunity Cost

If Amazon announces a massive beat and the stock rallies to $250+, you still only make your $515 max profit. You miss out on the $20+ per share gain you would have had if you simply bought the stock today.

But if you are an investors who hold the Amazon stock, then you would have also gained when the underlying stock rise.

Recommendation

This trade is moderately aggressive due to the earnings timing.

• Bullish/Neutral View: If you believe Amazon will remain stable or grow into 2026, this is a solid income generator.

• Acquisition View: Only take this trade if you are genuinely happy owning Amazon at $215/share for the long term. If the stock drops to $200 on earnings, you must be comfortable holding the shares and selling calls rather than panic-selling for a loss.

Summary

Amazon remains suitable for options trading because:

1. Strong fundamentals (AWS, advertising, diversification) support sustained interest and directional bias.

2. Implied volatility dynamics create exploitable environments for spreads, straddles/strangles, and directional plays.

3. Deep liquidity and high options volume make entry/exit efficient.

4. Analyst optimism and price target dispersion fuel a range of potential scenarios that options traders can model.

Together, these factors create an ecosystem where sophisticated options strategies can be employed with reasoned expectations about risk and reward.

Appreciate if you could share your thoughts in the comment section whether you think Amazon is a good candidate for selling a cash-secured put.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.