AMZN blew out its earnings tonight and the stock surged almost $30 after hours. Call buyers who needed a 4% move higher just to break even tomorrow, will be sitting on some amazing gains when AMZN opens for trade. This is exactly why you trade earnings events. It also shows the potential gains stock options can provide.
If AMZN opens at $225 tomorrow those who bought the $220 calls will be able to sell them for over $5. Those calls closed at $.33 and were as low as $.12 earlier in the day. 10 contracts at $.33 would cost $330, if AMZN goes to $225 they could be sold for $5k. $330 into $5k.
The call buyers of the less riskier strikes will also see some rather lofty gains. The $215 calls closed at $.70 they should be at $8-$10 tomorrow.
The call and put volume was not skewed in either direction and volume was evenly distributed. A move like this is great for option traders.
One could have played both the puts and the calls and made out with a big profit. This is a strategy known as a strangle.
You could have bought the $215 calls 5 contracts at $.70 for $350.
And bought 5 of the $175 puts for $400 cost. Total cost $750. If AMZN opens at $225 you are looking at $5,000 - $750 for a $4,250 profit. This will be the norm tomorrow for AMZN call holders.... big profits. Congratulations.
AMZN option chain at today's close: