The fun time of year is about to start -- it's earnings season! While we have seen the markets moving higher so far in 2012, the corporate reports could create some really good movement.
China is showing some strength, the U.S. economy is on good footing and job creation is improving. All signs point to some interesting opportunities. Two that have caught my eye are Amazon (AMZN) and Baidu (BIDU).
Amazon had a nice recent surge, which places its stock price around the $200 marker. No doubt the hype from Apple (AAPL), Google (GOOG) and others have helped lift the biggest online retailer. They told us in January about their desire to invest more in their business which is usually tough in the short term but pays off longer term. I like these momentum plays for some quick movement and will play options accordingly.
With Amazon there are some particular plays that look interesting, including a 210/220/225 May butterfly for $2.30 or so. I am in some of these at $2.11, while a 210/190 May risk reversal offers a lower cost to enter the trade at about $1.00 -- but with a heavier margin. I also hold some AMZN April 205 calls at 3.3 for some short-term risk plays. The company is scheduled to release earnings on April 24, so the May play is best in front of options. (I will likely roll the April 205s up before that).
As for Baidu, which is one of my favorite plays, you can see on the chart below the stock is in a strong upward channel that has not broken for months. The high from November is sticking nicely and the divergence of price vs. relative strength (RS) is quite notable.
I like a modified risk reversal on this one, going with the 145/155 may call spread and selling the 130 put for a grand total of $2.35 or so. As with the Amazon trade there is margin to post on this, but I will keep the risk in check here as long as the stock price stays above $130. Earnings are expected to hit on April 26 (not yet confirmed!), so the May options give me a chance to participate in the rising volatility and make adjustments if needed.