Two Trade Strategies to Explore This Thursday
In the realm of investment, a new strategy is being considered for two notable companies: Amazon (AMZN) and Palantir (PLTR). This strategy, known as a bull put spread, has caught the attention of investors due to its potential returns and defined risk.
The bull put spread involves selling an out-of-the-money put and buying a further out-of-the-money put. For Amazon, the trade involves selling the October expiry $220 strike put and buying the $215 strike put, resulting in a credit of around $0.87 or $87 per contract. This trade offers a return potential of 22.40%.
On the other hand, for Palantir, the bull put spread trade involves selling the October expiry $155 strike put and buying the $145 strike put. This trade also results in a credit of around $0.87 or $87 per contract, offering a return potential of 21.07%. However, it's important to note that the maximum potential loss for Palantir's bull put spread can be calculated as 10 - 1.83 x 100 = $817 per contract, while for Amazon, it's 5 - 0.87 x 100 = $413 per contract.
Long term indicators fully support a continuation of the trend for Palantir, as evidenced by the Technical Opinion rating of 80% Buy with a Weakening short term outlook on maintaining the current direction. For Amazon, the Technical Opinion rating is a 100% Buy with a Strengthening short term outlook on maintaining the current direction.
It's crucial to mention that the author, Gavin McMaster, did not have positions in any of the securities mentioned in the article. This article is for education purposes only and not a trade recommendation. Investors should always do their own due diligence and consult their financial advisor before making any investment decisions.
The strategy being used is a stock screener to find stocks with a Buy rating. This strategy, if executed, could result in a maximum possible gain of $183 per contract for Palantir and $0.87 x 100 = $87 per contract for Amazon, which are the maximum possible gains for these trades.
However, it's important to remember that the loss probability for Palantir's bull put spread is 25.2%, although this is just an estimate. The loss probability for Amazon's bull put spread is not provided as it depends on various factors.
In conclusion, the bull put spread strategy presents an interesting opportunity for investors looking to capitalise on the potential growth of Amazon and Palantir, while also managing risk through a defined risk option strategy. As always, thorough research and consultation with a financial advisor is advised before making any investment decisions.
